The Tennessean wrote about Nashville Bankruptcy Judge Paine’s recent opinion that subordinated a senior lien-holder’s Deed of Trust where the bank delayed foreclosure on the property. The debtor sued the bank for resolution, because homeowners’ association dues were continuing to accrue in her name and, under the Bankruptcy Code, a debtor can remain liable for post-petition HOA dues on property.
In the case, In re Sheryl Lynn Pigg, U.S. Bankr. Adv. Case No. 10-00642A, BAC Home Loans took possession of and secured a flood damaged vacant home by changing the locks and posting notice of the possession. In her Chapter 7 Bankruptcy, the Debtor surrendered all interest in the property to the Bank. But, despite all that, the Bank never actually foreclosed–the property just sat vacant.
During that time, however, the HOA continued to accrue post-petition unpaid dues, which the Debtor continues to be liable for under 11 U.S.C. § 523(a)(16).
The Debtor filed the Bankruptcy lawsuit in order to cut off her liability for the dues, either by having the Judge rule that BOA is liable by virtue of its possession or by forcing BOA to foreclose.
The Bankruptcy Court ruled that the Bank had taken possession of the property and, as a result, was liable for the accruing HOA dues. But, rather than just using the text of the HOA obligations under the Master Deed (which supported the same result), the Court used its equitable powers under the Bankruptcy Code to order a sale, under Section 363, of the property, with the Bank’s lien claim subordinated to the costs of the Trustee’s sale and to the HOA debts owed (and HOA attorney fees). The Court expressly found that “the Bank and the HOA have consented to the sale by their inaction.”
This is an interesting ruling, because nothing in the Bankruptcy Code allows a Court to subvert the priority of a valid and properly perfected property lien. Here, using only its equitable powers, the Court fashioned a fair outcome, but a clear departure from state law lien priority statutes.
In light of this opinion, lenders may need to be aware of any delays in initiating the foreclosure process. Nothing in state law expressly requires that banks foreclose under any time deadline, but this opinion suggests that lenders open themselves up to attack where they wait. This is dangerous new precedent.
A copy of the full opinion is here: Pigg Opinion Bankruptcy Court
Creditors Rights 101 
The bank cannot foreclose because they lack the authority to do so. The Court should have explained to the plaintiff/debtor that the property at issue is theirs and let the HOA foreclose sell the property themselves and take what HOA dues is owed and the rest give to the plaintiff/debtor.
The Court should initiate sua sponte a criminal action against the county recorder’s office in the applicable county that permitted the forgery using the plaintiff/debtor’s deed of trust or mortgage to create an invalid Assignment of Deed of Trust or Mortgage and invalid Substitution of Trustee and an invalid Notice of Default.
County Recorder’s Office clerks should be held accountable for destroying land records.
The bank should be held accountable for manipulating the County Recorder’s Office for destroying land records thereby causing 90% of Recorder’s Offices across this country to be graveyards of stolen property.
Shame on the Court for further destroying the integrrity of our judicial system and not prosecuting those respsonsible for this mess.