Postponement of Trustee Sale Arizona
The bankruptcy court in In re Acosta, 181 B.R. 477 (Bankr. D. Ariz. 1995), held that notice of a trustee's sale was required when the sale had been postponed because of the bankruptcy automatic stay.
The Acosta court recognized that A.R.S. section 33-810(B) "provides that once an initial sale has been set, a postponed sale need not be directly noticed to interested parties." 181 B.R. at 478.
The court noted, however, that the statute does not take into consideration the effect of a bankruptcy filing and a continued sale date that occurs after a bankruptcy. Id.
Citing the possibility that a debtor would not realize that a foreclosure will occur until it is too late to respond, the court found that prior oral notice alone is insufficient to allow the loss of the debtor's rights in property. Id.
The Acosta court thus concluded that because of the intervening bankruptcy, the mortgage company had a duty to provide the debtors with actual notice of the rescheduled trustee's sale date after dismissal of the debtors' bankruptcy petition. 181 B.R. at 479.
The rationale behind the ruling was that "it is an essential right under the United States Constitution that before property can be taken and sold by a creditor, due process requirements must be met" and that the notice requirements under A.R.S. section 33-810(B) "are not reasonably calculated . . . to apprise interested parties of the pendency of a Trustee's Sale within the context of a bankruptcy case." Id.
Although the same bankruptcy judge followed the Acosta ruling in In re Duncan, 211 B.R. 42 (Bankr. D. Ariz. 1997), when the issue was presented to another judge of the bankruptcy court in In re Stober, 193 B.R. 5 (Bankr. D. Ariz. 1996), the opposite result was reached. In disagreeing with Acosta, the Stober court stated:
In essence, Acosta judicially amends the Arizona statute to provide additional noticing requirements applicable only to debtors who had previously filed a federal bankruptcy case.
The Acosta opinion thus extends additional post-dismissal bankruptcy protections to former debtors, although the intent of 11 U.S.C. 349 provides that the effect of a dismissal requires only a return to the status quo. Id. at 10.
Accordingly, the Stober court elected not to follow Acosta. It declined to impose noticing requirements on a creditor in addition to those required by Arizona law, pointing out that the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure contain no additional notice requirements. Id.
The court noted that if the debtors could prove that the creditor failed to follow the noticing, publishing, posting, and sale requirements of A.R.S. sections 33-801 through -821, the debtors' remedy was to pursue an action for damages or injunction in the state courts. Id.
More recently, the United States District Court for the District of Arizona considered this issue in In re Nagel, 245 B.R. 657 (D. Ariz. 1999), an appeal from an order entered by the bankruptcy court. the Nagel court was persuaded by the reasoning in Stober, stating:
The legal intent and effect of a dismissal of a bankruptcy case is to return the parties to the status quo ante. Once so returned, the parties are rightly subject to Arizona deed of trust law which was suspended only when a valid stay was in place.
Acosta not only "judicially amends the Arizona statute to provide additional noticing requirements applicable only to debtors who had previously filed a federal bankruptcy case," but it also judicially amends the Bankruptcy Code. That is to say, Acosta disregards the fundamental principle that dismissal returns the parties to the status quo ante and declares an exception to the code itself.
The promulgation of federal bankruptcy law is properly within Congress' ken, not the court's. 245 B.R. at 664 (citing Stober, 193 B.R. 5 at 10).
The Nagel court believed that the due process concerns of Acosta were unwarranted. Id. It noted that once the initial notice of the trustee's sale is given in compliance with due process, the debtor is in a position to keep himself informed of the status of the matter. Id.
The court rejected the idea that due process requires a "sort of judicial shepherding of the litigants" to ensure that they keep informed about postponements of trustees' sales of their own properties. Id.
the Nagel court was also convinced that the Acosta court's reliance on Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 94 L. Ed. 865, 70 S. Ct. 652 (1950), for its due process clause analysis was misplaced. 245 B.R. at 664. It explained that Mullane concerned a trust that was a creature of a state regulatory scheme and therefore was an entity that was essentially an extension of the "state's power." 245 B.R. at 664-65.
On the other hand, said the Nagel court, the Arizona statute that authorizes trustees' sales does not "involve the requisite nexus between the state and the trustee so as to constitute state action. Rather, deeds of trust are essentially private contractual relationships which tie a given debt to a given parcel of property, and the remedy under them is private in nature." Id. (citing Kenly v. Miracle Properties, 412 F. Supp. 1072, 1075-76 (D. Ariz. 1976));
see also Charmicor v. Deaner, 572 F.2d 694, 696 (9th Cir. 1978) (Nevada nonjudicial foreclosure statute did not involve significant state action because it did not require that action be taken but merely permitted, restricted, and limited certain acts). Thus, the Nagel court believed that the due process requirements do not apply to a private deed of trust sale because such a sale does not constitute state action. 245 B.R. at 664.