Lordship Development, LLC

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILSON DIVISION
IN RE:
LORDSHIP DEVELOPMENT, LLC,
Debtor. 	CASE N0. 08-04965-8-JRL
CHAPTER 11
____________________________________________________________________________
ORDER
This case is before the court on a motion for relief from the automatic stay filed by
Wachovia Bank, National Association (“Wachovia”). On September 15, 2008, the court
conducted a hearing on this matter in Raleigh, North Carolina.
BACKGROUND
On July 24, 2008, Lordship Development, LLC (“Lordship Development”) filed for relief
under chapter 11 of the Bankruptcy Code. The debtor is engaged in the business of real estate
development and owns real property comprised of approximately 101 acres of land in Brunswick
County, North Carolina. On October 31, 2006, the debtor executed a promissory note and deed
of trust in favor of Wachovia in exchange for a loan in the principal amount of $5,215,744.00.
On June 11, 2008, the Clerk of Court of Brunswick County, North Carolina entered an order
SO ORDERED.
SIGNED this 30 day of September, 2008.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
Case 08-04965-8-JRL Doc 52 Filed 09/30/08 Entered 09/30/08 12:44:12 Page 1 of 5

2
allowing a foreclosure sale on the debtor’s property. The trustee gave notice of the sale and
subsequently conducted the foreclosure sale on July 18, 2008. Wachovia was the high bidder at
the sale. The trustee filed a report of foreclosure sale on July 18, 2008, which triggered the 10-
day period for upset bids or redemption. The debtor filed for chapter 11 relief four days before
the expiration of this deadline.
DISCUSSION
Under North Carolina law, once a mortgagor has executed a deed of trust on real estate,
legal title to the land vests in the mortgagee, but only as security for payment of the debt. Gregg
v. Williamson, 98 S.E.2d 481 (N.C. 1957). If the debtor defaults, the trustee may initiate a
foreclosure sale of the real property pursuant to a power of sale provision within the deed of
trust. N.C. GEN . STAT . § 45-21.1 to .34 (2007). Once the foreclosure sale is conducted, a 10-
day upset bid period commences during which any person may bid on the real property. Id. §
45-21.27. In addition, the debtor has an equitable right of redemption which it may exercise
from the time of default until the expiration of the 10-day upset bid period. Tech Land Dev., Inc.
v. S.C. Ins. Co., 291 S.E.2d 821 (N.C. App. 1982). Thus, this court has recognized that the high
bidder at a foreclosure sale is merely a “proposed purchaser” who has no rights, or entirely
voidable rights, to the property until the period for upset bids has ended. In re Barham, 193 B.R.
229 (Bankr. E.D.N.C. 1996) (citing Cherry v. Gilliam, 141 S.E. 594 (N.C. 1928)).
The Bankruptcy Code suspends this upset bid period when the debtor files for bankruptcy
within that period. 	Beneficial Mortgage Co. of N.C. v. Barrington and Jones Law Firm, 595
S.E.2d 705, 709 (N.C. App. 2004) (citing In re Di Cello, 80 B.R. 769, 773 (Bankr. E.D.N.C.
1987), questioned on other grounds, In re Barham, 193 B.R. 229 (Bankr. E.D.N.C. 1996)).
Case 08-04965-8-JRL Doc 52 Filed 09/30/08 Entered 09/30/08 12:44:12 Page 2 of 5

3
Section 362 of the Code provides that a debtor’s bankruptcy petition automatically stays “any act
to obtain possession of . . . or to exercise control over property of the estate,” as well as “any act
to collect . . . or recover a claim against the debtor that arose before the commencement of the
case . . ..” 11 U.S.C.A. § 362(a). This automatic stay prevents the fixing of any rights as to real
property protected by a stay where the upset bid period has not run. Beneficial Mortgage Co.,
595 S.E.2d at 709. In the case at bar, Lordship Development triggered the automatic stay when
it filed its bankruptcy petition during the upset bid period. As a result, the debtor’s right to
redeem the property is extended.
The issue before the court is the effect of a petition for chapter 11 bankruptcy filed during
the upset bid period on the debtor’s rights in real property purchased at a foreclosure sale.
Wachovia alleges that § 108(b) is the operative provision for determining how long the debtor
has to redeem its property following the debtor’s petition for relief. Section 108(b) provides:
[I]f applicable non-bankruptcy law . . . fixes a period within which the debtor or an
individual protected under section 1201 or 1301 of this title may file any pleading,
demand, notice, or proof of claim or loss, cure a default, or perform any other similar act,
and such period has not expired before the date of the filing of the petition, the trustee
may only file, cure, or perform, as the case may be, before the later of – (1) the end of
such period, including any suspension of such period occurring on or after the
commencement of the case; or (2) 60 days after the order for relief.
11 U.S.C. § 108(b). According to Wachovia, § 108(b) is applicable because the debtor has a
fixed 10-day period during which it can redeem its property or an upset bid can be filed.
Furthermore, Wachovia points out that this court has previously applied § 108(b) to determine
Case 08-04965-8-JRL Doc 52 Filed 09/30/08 Entered 09/30/08 12:44:12 Page 3 of 5

4
when the upset bid period expires. See In re DiCello, 80 B.R. 769 (Bankr. E.D.N.C. 1987)
(applying § 108(b) as the governing provision for a chapter 13 debtor to exercise its equity of
redemption). As a result, Wachovia maintains that § 108(b) operates to extend the debtor’s
redemption period for sixty days from the petition date, after which time the remainder of the
upset bid period will run.
The court disagrees with Wachovia’s application of § 108(b). In 1993, North Carolina
amended the law governing the sale of real property held under a power of sale to provide:
When, after the entry of any authorization or order by the clerk of superior court pursuant
to G.S. 45-21.16 and before the expiration of the 10-day upset bid period, the foreclosure
is stayed by the debtor filing a bankruptcy petition and thereafter the stay is lifted, the
trustee or mortgagee shall not be required to comply with the provisions of G.S. 45-
21.16, but shall advertise and hold the sale in accordance with the provisions of G.S. 45-
21.16A, 45-21.17, and 45-21.17A.
N.C. Gen. Stat. § 45-21.22(c). This provision “provides extra protection to a mortgagor against
a power of sale foreclosure.” Beneficial Mortgage Co., 595 S.E.2d at 710. Pursuant to this
amendment, once the automatic stay is lifted the foreclosing trustee must re-advertise and resell
the property before title can be transferred to a purchaser. Id. at 711. Here, although the
foreclosure sale triggered a fixed upset bid period, the deadline to redeem disappeared as soon as
the debtor filed its bankruptcy petition. The upset bid period remains suspended for the life of
the bankruptcy or until the court lifts the automatic stay. Under the 1993 amendment, a lift of
stay will effectively nullify the original foreclosure sale and the trustee must resell the property.
N.C. Gen. Stat. § 45-21.22(c). Accordingly, North Carolina law does not currently fix a period
Case 08-04965-8-JRL Doc 52 Filed 09/30/08 Entered 09/30/08 12:44:12 Page 4 of 5

5
within which the debtor must cure its default, so § 108(b) is simply inapplicable. As a result, the
debtor retains its rights in the real property, subject to lifting of the stay on the grounds provided
by § 362(d).
Based on the foregoing, the court DENIES Wachovia’s motion for relief from the
automatic stay based solely on its reliance on § 108(b).
“END OF DOCUMENT”
Case 08-04965-8-JRL Doc 52 Filed 09/30/08 Entered 09/30/08 12:44:12 Page 5 of 5