By Alan Steven Wolf of The Wolf Firm (USFN Network News Spring 1993)
What's really involved in a
Motion For Relief From Stay.
By Alan Steven Wolf of The Wolf Firm The Bankruptcy Code provides a set method for obtaining relief from stay (11 U.S.C. 362(d)). Unfortunately, this application of the section varies widely among the bankruptcy courts. This article explores the common steps in a Motion for Relief From Stay and the differing procedures used by the courts.
1. Gather Evidence in Support of the Motion
In order to file a property Motion for Relief From Stay, evidence must be gathered. There are some basic types of evidence that are required for virtually all motions. For example, copies of the note, deed of trust (or mortgage), assignments, and information regarding the payment history and foreclosure proceedings are generally required.
In addition to the basic information, the chapter, type of motion, local court practice and the whim of the bankruptcy judge provide additional demands for evidence. For example, in a Chapter 13 case the focus is generally on whether or not all of the post petition payments have been made. Thus, the servicer's affidavit that the Debtor has failed to make post petition payments is required. In a Chapter 7 case, the court's focus is generally on whether or not there is any equity in the property for the benefit of the debtor. This entails evidence of both the value of the property and the liens against the property. Value is best determined by a qualified appraisal with an interior inspection. However, most judges will accept drive-by appraisals and some judges will even accept a Broker's Price Opinion (BPO) as sufficient evidence of value. Similarly, judges tend to be practical in the evidence necessary to prove the liens accepting copies of the title policies, admissions contained in the Debtor's schedules and even bold statements by the servicer of the liens against the property. Finally, in Chapter 11 cases, the court's focus is on proof that there is both no equity in the property and that the property is not necessary for an effective reorganization. Here, a fully developed appraisal and specific proof of other liens is generally required. Moreover, to prove that there is no prospect for reorganization i.e., that the debtor could not possibly reorganize, necessarily entails an analysis of all of the debtor's assets and liabilities and a strong showing that under any analysis the debtor could not successfully restructure.
In addition to the particular chapter, the type of relief sought also plays a great role in the type of evidence necessary to support the motion. For example, a motion annulling the stay, considered a special request by most courts, requires a specific factual showing of cause to annul the stay. That cause is generally the bad faith actions of the debtor. Proving bad faith requires evidence of the bad faith whether it be multiple fillings, multiple transfers or other acts.
Although virtually all courts require some form of evidence, it is interesting to note that some courts completely ignore the rules of evidence. In these courts, counsel may merely make bold allegations as to the facts in the case instead of relying upon evidence supported by Federal Rules of Evidence. These motions tend to be very inexpensive to file. They're also effective and speedy in result. Nonetheless, the trend across the country, especially in California, is to insist on adequate evidence in support of the motion for relief from stay.
2. Preparation of the Motion
Once the appropriate evidence is gathered, a motion is prepared by counsel for the servicer. A motion is a document which is generally divided into two parts; A) the motion itself (simply a statement of the general facts and a request for some relief) and B) the affidavits and other evidence that support the motion. The exact form of these documents is controlled by local court rule. The Bankruptcy Code requires that the motion be brought by a "party in interest" (11 USC 362 (d)). The "party in interest" is generally construed as the beneficiary/mortgagee of record title. Therefore, in most courts the motion is not brought in the name of the servicer. Moreover, since Ginnie Mae does not take record title, Ginnie Mae loans are not brought in the name of Ginnie Mae. Finally, motions based on conduit loans should be brought under the name of the trustee of the pool.
3. Obtaining a Hearing Date From the Court
Once prepared, counsel must obtain a hearing date from the court. The hearing date is obtained in a variety of ways. In some courts, there is a list of hearing dates and counsel for the creditor merely picks a date and serves and files the papers reflecting that chosen date. In other courts, the motion is first filed with the court and the court sends back notice of the hearing date. In still other courts, the motion is filed and the debtor picks a hearing date.
In each instance, the hearing date must be held within thirty (30) days of the date the motion is filed (11 USC 362 (e)). Some courts ignore this requirement (e.g., Arizona); however, servicers should be aware that the failure of the court to continue the stay in effect within thirty (30) days of the filing of the Motion for Relief from Stay grants automatic relief from stay (1 1 USC 362 (e)) without the need for an order. Servicers and their counsel should be careful not to waive this requirement.
4. Service of the Motion
The Bankruptcy Code allows for service by first class mail. This method of service is strikingly different than personal service which is required by most state courts. In personal service, the documents being served must be handed to the opposing party. This often results in "cat and mouse" type avoidance procedures. Service effectuated by mail avoids these silly games and speeds the process.
5. The Hearing on the Motion
In Chapter 13 and Chapter 7 proceedings, the hearing on a motion for relief from stay, if there is a hearing under local court procedure, is generally a very simple matter. The court generally has a long list of matters to be heard and each case is reviewed and argued within minutes. Since over 90% of all litigation in the bankruptcy court pertains to relief from stay motions,and because the courts have seen virtually all of the fact patterns that could arise, courts generally have established policies and procedures which govern the particular factual situation. Thus, the game is to know the judge and to know what the judge will do in a particular situation and obtain a better result through stipulation.
The simplicity of the Chapter 13 and Chapter 7 hearings is in sharp contrast to the complexity of Chapter 11 hearings on motions for relief from stay. In Chapter 11, the hearings take on the elements of full trials with exhibits for evidence and live testimony. The general sophistication of opposing counsel, the court's greater interest in the more significant sums involved and the additional issues in a Chapter 11 Motion for Relief from Stay add up to a much more complex hearing.
6. Preparation of the Order
The order resulting from the motion for relief from stay is generally prepared by the creditor is generally the successful party. However, some judges prepare their own orders and some districts have their own uniform orders which must be used.
Where counsel prepares the order, there are three general methods for submission to the court:
1) the order may be lodged with the court (generally giving the responding party 10
days to object to the order);
2) the order may be sent to opposing counsel for approval as to form and content; or
3) the order can be sent to the responding party as a stipulation to be signed, returned
and then submitted to court.
7. Entry of the Order
All of these methods result in an order signed by the judge. However, an order in this federal court is not effective until it has been "entered " Thus, it is the date of entry of the order, not the date the judge signed the order which is the operative date. The date of entry is usually reflected by a stamped date of entry on the order.
Conclusion
The motion for relief from stay results from gathering information necessary for the particular motion.The information is determined by the court, the type of motion and the chapter involved. Once that information is gathered it is submitted to the court in the form of a motion. This document asks for a certain type of relief and is supported by affidavits or declarations of various parties. A hearing on the motion is filed. The motion is served by mail. The hearing is a fairly simple proceeding, the judge having pretty much decided what will occur prior to the submission of the papers. The basic approach in these matters is to know and to obtain a result better than what the judge would have otherwise ordered. The order is submitted to the judge for execution and is then entered by the court.
For further information please contact:
The Wolf Firm, A Law Corporation, is an "AV" rated law firm which concentrates on providing superior legal services to the mortgage banking industry. The firm's national clientele includes many of the largest mortgage bankers in the country, as well as a variety of savings banks, commercial banks, commercial finance companies, credit unions, and the Resolution Trust Corporation. With a staff of approximately forty individuals, including attorneys, certified paralegals, legal secretaries, administrators, clerical personnel, and a full time computer systems analyst, the firm represents its clients on a wide range of matters including all aspects of both residential and commercial/multifamily mortgage loan origination and servicing, securitization, regulatory compliance, bankruptcy, and litigation related to the foregoing in both federal and state courts throughout California. For more routine matters, such as residential bankruptcies, evictions and receiverships, The Wolf Firm has developed extremely cost-effective and efficient programs using specially trained paralegals and computer technology to assist its attorneys in handling these matters at rates that are the most competitive in the State of California and, through its membership in the USFN, the Firm is able to arrange similar services in virtually every state in the nation.
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