Francis M. Welcom

OCR transcription for search; preserved printed pages are authoritative

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UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS

FRANCIS M. WELCOM, III
Debtor

Chapter 13
#07-42284-JBR

)
In re: )
)
NANCY SODERMAN, ) Chapter 13
Debtor ) #07-41651-JBR
)
In re: )
)
)
)
)

Denial of Motion to Stay Enforcement of the Amended Order to Show Cause

Pending Appeal (Docket # 96 in Case No. 07-41651 and Docket # 80 in Case No. 07-

42284) and Memorandum of Reasons for Amended Order to Show Cause

This Court issued the Amended Orders to Show Cause pursuant to its power
under 11 U.S.C. § 105(a) to “issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title” and to “tak[e] any action or mak[e]
any determination necessary or appropriate to enforce or implement court orders or rules,
or to prevent an abuse of process.” 11 U.S.C. § 105(a). The automatic stay imposed by
11 U.S.C. § 362(a) is an important provision of the U.S. Bankruptcy Code and actions
that violate the stay are punishable under Sections 362(k)(1) and 105(a) of the Code. The
current economic climate has brought with it a rush of foreclosures as well as an increase

in the number of lenders who, either because of shoddy practices or intentional

misconduct, fail to comply with the law. It is incumbent upon the Court to ensure strict

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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compliance with all provisions of the Code, but especially those that pertain to the
fundamental protections provided to debtors by the automatic stay. !'

The impetus for the Orders to Show Cause in the instant cases was allegations by
the respective debtors in each case that Freedom Mortgage Corp. and Option One
Mortgage Corp., in conjunction with Harmon Law Offices, P.C. (collectively, the
“Movants”), were violating the automatic stay by continuing foreclosure sales scheduled
prior to the petition date numerous times during the pendency of the bankruptcy cases.
Although it is a generally accepted practice in this district to postpone a foreclosure sale
once in order to seek relief from stay, the Movants’ actions in the instant cases deviate
from that standard. The bankruptcy courts of this district have repeatedly observed that
in certain circumstances, continuances of a foreclosure sale may constitute a stay
violation.” The test for a stay violation in this context is whether the sale was postponed
in order to harass the debtor, gain an advantage for the creditor, or revive the financial
pressures that drove the debtor into bankruptcy. See In re De Jesus Saez, 721 F.2d 848,
853 (1st Cir. 1983); In re Hart, 246 B.R. 709, 740 (Bankr. D. Mass. 2000); Jn re Herron

Pond, 258 B.R. 529, 530 (Bankr. D. Mass. 2001). The Movants’ actions in the instant

' “The automatic stay is one of the fundamental debtor protections provided by the
Bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all
collection efforts, all harassment, and all foreclosure actions. It permits the debtor to
attempt a repayment or reorganization plan, or simply to be relieved of the financial
pressures that drove him into bankruptcy.” S. Rep. No. 989, 95" Cong., 2d Sess. 54,
reprinted in 1978 U.S. Code Cong. & Ad. News 5787, 5840-41.

>The Court can conceive of circumstances in which the postponement of a foreclosure
sale might violate the automatic stay. For example, if a secured party repeatedly
continued the foreclosure sale for brief periods, it is conceivable that harassment rather
than the preservation of the status quo would be motivating the creditor and warrant

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judicial intervention.” /n re Hart, 246 B.R. 709, 740 n.29 (Bankr. D. Mass. 2000). See
Inre Herron Pond, 258 B.R. 529, 530 (Bankr. D. Mass. 2001) (echoing the concern

about repeated continuations for brief periods).

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cases raise serious questions as to their intent in postponing the sales, particularly where
the Movants never informed the Court that they were engaging in this practice. The
information sought by the Amended Orders to Show Cause is relevant to the
determination of whether a violation of the automatic stay occurred because the Movants’
actions in other cases within the district may provide evidence of their intent in the
instant cases and whether or not the continuances were an attempt to maintain the status
quo or a tactic employed to harass and or pressure the debtors. The Court also has the
power to examine the information provided to see if the Movants have violated the stay
in other instances and take appropriate action in the event violations have occurred.

The First Circuit Court of Appeals has observed that bankruptcy courts must have
the ability to enter such orders as are necessary to assure that they can carry out
“efficiently and effectively the duties assigned to them by Congress.” United States v.
Mourad, 289 F.3d 174, 179 (1st Cir. 2002) (quoting Jn re Volpert, 110 F.3d 494, 500 (7th
Cir. 1997). The bankruptcy court has the power to regulate the bar as appropriate and
necessary. In re Sheridan, 362 F.3d 96, 110 (1st Cir. 2004). Moreover, the subject of the
Amended Orders to Show Cause is a core proceeding. The conduct occurred in open
cases and has an effect on the legal relationships among the parties. Sheridan, 362 F.3d
at 107. The effect could take the form of sanctions or voided actions based of violations
of the automatic stay. Additionally, the conduct sought to be regulated derives from the
Bankruptcy Code. Sheridan, 362 F.3d at 108. The enforcement of the Amended Orders
to Show Cause is important from a public policy standpoint. Bankruptcy courts

throughout the country have become more vigilant in the wake of Code violations by

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lenders.’ Courts have also seen an increase in debtors whose rights are being affected
because they lack the knowledge, resources, or energy to bring potential Code violations
to the Court’s attention.

Prior to the enactment of Section 362(k)(1), which provides a mechanism for
debtors to seek sanctions for a violation of the automatic stay, bankruptcy courts
routinely punished such violations under Section 105(a). Therefore, there is an
established practice of and standard for assessing whether violations occurred.

For the foregoing reasons, the Court issued the Amended Orders to Show Cause

and Court DENIES the Motions to Stay Enforcement of the Amended Orders to Show

Cause.
Dated: February 11, 2008 By the Court,

hot Rheum’

Jgel B. Rosenthal
nited States Bankruptcy Judge

4

3 See In re Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio 2007); Jn re Maisel, 378
B.R. 19 (Bankr. D. Mass. 2007); Porter, Katherine M., “Misbehavior and Mistake in

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Bankruptcy Mortgage Claims” (November 6, 2007). University of lowa Legal Studies
Research Paper No. 07-29. Available at SSRN: http://ssrn.com/abstract=1027961

(detailing behavior of and abuses by mortgage companies in consumer bankruptcy cases)