Jennifer L. Joubert, Esq.
Demerle &Associates, RC.
Boston
"The Debtor's equity of redemption extinguishes upon the execution of a memorandum of sale."
It is not so often that a Debtor files for bankruptcy after a non-judicial sale in Rhode Island, Massachusetts, or New Hampshire, nor is it ever fruitful in getting their home back. Why? Because the caselaw in the First Circuit has held that a Debtor cannot propose a bankruptcy plan to reinstate their mortgage.[1] The bankruptcy courts in Massachusetts and Rhode Island have also held this opinion.[2] Therefore, to protect their homes from foreclosure, Debtors file bankruptcy prior to the foreclosure sale, which is known as the "gavel rule." The gavel rule establishes that upon the conclusion of the foreclosure sale, marked by the fall of the gavel, the Debtors equity of redemption is extinguished.
It is also common practice in at least the Commonwealth of Massachusetts and likely in the neighboring states of Rhode Island and New Hampshire, which also perform non-judicial foreclosure sales, that documents evidencing a foreclosure sale are not quickly recorded, nor must they be. The states each have similar recording statutes ranging from 30 to 60 days, but recording even after these deadlines does not invalidate the sales. They are especially not recorded quickly when a third-party purchaser is the highest bidder at the foreclosure sale, as there is usually a closing set at least 30 days out.
Recently, in two separate Chapter 13 cases in the Commonwealth of Massachusetts, Debtors have attempted to use the trustee's inherent powers to avoid a foreclosure sale post-foreclosure. Pursuant to bankruptcy caselaw, the Trustee has inherent avoiding powers in a Chapter 13 case. The Debtor, however, has limited powers. While there was a case in Massachusetts years ago wherein a Chapter 7 Trustee was successful in invalidating a foreclosure sale[3] because documents were not recorded timely, there is not much caselaw wherein Debtors have attempted to use these same Trustee powers.[4] In the case where the Debtor appeared successful in avoiding the foreclosure sale, the Debtor specifically had a count in their Adversary Proceeding preserving any monies recovered for the benefit of the Bankruptcy Estate. Debtors do not have the same avoidance powers as Trustees.[5] Moreover, there is case...
