Prepared by Kristine Brown, Managing Attorney
The United States Bankruptcy Court for the Northern District of Mississippi found that for purposes of interpreting 11 USC 1322(c)(1), the debtor’s right to cure a default terminates at the conclusion of the foreclosure auction and not delivery or recordation of a trustee’s deed. The Court found that this is because the mortgagor is divested of legal title upon default and the equity of redemption upon the conclusion of the public auction. In the absence of a legal or equitable interest at the commencement of a bankruptcy case filed subsequent to the completion of the auction, the property is not property of the estate.
The firm received this positive ruling in a matter of first impression with respect to the finality of the foreclosure sale under Mississippi law. The Court found that a valid foreclosure auction constitutes a foreclosure sale and divests a debtor of both legal and equitable title to real property so that the automatic stay of 11 USC 362(a) will not come into effect to invalidate a foreclosure sale even though a deed has not been delivered or recorded. In a well reasoned memorandum, Judge Woodard affirmed the arguments put forth by Shapiro & Brown, LLC to find that the debtor’s interest terminates when the auction concludes and does not require a trustee’s deed to be delivered or recorded. In this case, the auction began at 11:05 A.M. concluded at 11:28 A.M. and the bankruptcy case was filed at 11:28 A.M. The trustee’s deed was signed and delivered on February 5th 2020 and subsequently recorded on February 12th 2020.