[00:00:00] Speaker 00:
No need then, Mr. McGowan, for you to reserve time.

[00:00:04] Speaker 00:
So please proceed.

[00:00:05] Speaker 03:
Thank you, Your Honors.

[00:00:06] Speaker 03:
Good morning.

[00:00:07] Speaker 03:
As you know, I represent Appellant Financial Pacific, which was a lien holder against the real property of the Tinsley's.

[00:00:17] Speaker 03:
And that lien was avoided pursuant to Bankruptcy Code Section 522F,

[00:00:25] Speaker 03:
I'm here, needless to say, because I want to correct a decision of the lower court that was incorrect.

[00:00:34] Speaker 03:
It's about an important decision related to the interplay between foreclosure proceedings and bankruptcy.

[00:00:43] Speaker 03:
It's not a surprising, it was a reasonable decision by Judge Clement given how confusing these statutes can be.

[00:00:51] Speaker 03:
And he also did not have the benefit of

[00:00:54] Speaker 03:
a recent case which explained that the law changed between the time that the Hager case, which he relied upon in his decision, was passed and his decision last year.

[00:01:10] Speaker 03:
The NRA Garcia clarified in footnote 20 that there was a change in the law.

[00:01:17] Speaker 03:
And specifically the change was that a party that

[00:01:22] Speaker 03:
issued a notice of intent to bid could not only be a current tenant, but could also be a prospective resident.

[00:01:34] Speaker 03:
There was a one-digit change in the law that made all the difference because the statute

[00:01:43] Speaker 03:
Civil Code Section 2924HC referred to a different statute, 2924M, that applied only to tenants at the time, current tenants at the time of the Hager decision.

[00:02:04] Speaker 03:
decision upon which Judge Clement relied.

[00:02:07] Speaker 03:
And after that, as noted in Garcia, in Ray Garcia, footnote 20, they corrected it.

[00:02:16] Speaker 03:
I think it was a typo in the original.

[00:02:18] Speaker 03:
But in any case, the Hager decision upon which Judge Clement relied came to the conclusion that this special overbidding process could only be applied

[00:02:33] Speaker 03:
where there is either a bid or a notice of intent to bid by a current tenant as opposed to a prospective resident.

[00:02:46] Speaker 03:
That's kind of the core of the argument.

[00:02:50] Speaker 03:
But just to go back a step, as you probably are well aware, California had a well-established process for the interplay between foreclosure and bankruptcy.

[00:03:02] Speaker 03:
where there was a relation back provision in 2429 HC, where if you filed for, if there was a foreclosure hearing, and then subsequently a bankruptcy, and then a trustee recorded a deed based on the foreclosure within, it was originally 15, then it went to 21 days,

[00:03:32] Speaker 03:
that the sale to the purchaser in the foreclosure proceeding became final, related back to the date of the foreclosure proceeding.

[00:03:45] Speaker 03:
And there's a case, Ben Ben Se Wong.

[00:03:49] Speaker 00:
That's a really old 20-year-old case that we all relied on until the slot changed.

[00:03:58] Speaker 00:
Right.

[00:04:00] Speaker 00:
You know, the issue here is not really perfection, which is what the Bevin C. Wong case goes to.

[00:04:08] Speaker 00:
It's finality.

[00:04:09] Speaker 00:
When is the sale final?

[00:04:11] Speaker 00:
And I think your argument is that the sale is final.

[00:04:15] Speaker 00:
when the gavel drops, which was the argument before this whole 2924M scheme came into effect in response to COVID.

[00:04:28] Speaker 00:
But after it came into effect, that's not necessarily the case.

[00:04:32] Speaker 00:
And it's only the case in particular circumstances.

[00:04:34] Speaker 03:
You're right.

[00:04:36] Speaker 03:
In particular circumstances.

[00:04:38] Speaker 03:
And that gets to the heart of it.

[00:04:40] Speaker 03:
My personal opinion is that all the cases, including Hagar, that have reviewed this came to the logical decision.

[00:04:48] Speaker 03:
And the best case is Inray Stevens, which is the only case that really opined about the current statute with the current facts.

[00:04:55] Speaker 03:
But if you go back to Inray Hagar, this whole question about perfection versus finality and which statute prevails and the arguments made and the hundreds of pages of briefings by the debtors in this matter,

[00:05:10] Speaker 03:
that the 249M statute prevails over the 249H statute.

[00:05:19] Speaker 03:
But the Hager case really addresses the interplay between those two statutes.

[00:05:24] Speaker 03:
Let me read what the Hager case says about that.

[00:05:27] Speaker 03:
It says, CC section 2924 MC, that's the new promote the resident statute, controls finality except in certain circumstances where CC 2924 HC is applicable.

[00:05:47] Speaker 03:
That's the nut of this issue is that where there's this relation back and 2429 HC where that.

[00:05:56] Speaker 03:
Where those facts are met, that establishes finality, perfection, whatever you want to call it.

[00:06:02] Speaker 00:
Those are two different things.

[00:06:03] Speaker 00:
Finality is the status between the foreclosing party and the party purchasing at the foreclosure sale and the prior owner.

[00:06:13] Speaker 00:
Perfection is with respect to third parties, right?

[00:06:17] Speaker 00:
And so for bankruptcy purposes, it seems to me that what we really worry about is finality, because if the sale is not final,

[00:06:24] Speaker 00:
When the gavel drops and a bankruptcy is filed during this time period then it's not final as Judge Clement found and then and so the automatic state comes into into play right and it's not correct your honor I Don't like there's a lot of clarity between

[00:06:46] Speaker 03:
The use of the word finality and perfection in these statutes and that's what led to some of the confusion, but the cases that have addressed it have understood it.

[00:06:55] Speaker 03:
If you look at the Stevens case they find that the finality perfection, whatever you want to call it the conveyance occurred.

[00:07:06] Speaker 03:
is backdated to the date of the foreclosure hearing.

[00:07:12] Speaker 02:
But isn't that contingent upon a owner-occupant being the successful bidder?

[00:07:18] Speaker 02:
Then it relates back.

[00:07:20] Speaker 02:
If it's any other eligible bidder, then it doesn't.

[00:07:25] Speaker 02:
924 c it says for the purposes of this subdivision the trustee's sale shall be deemed final upon the acceptance of the last and highest bid and shall be deemed perfected as of 8 a.m.

[00:07:38] Speaker 02:
on the actual date of the sale if the deed is recorded within 21 days after the sale and which did not occur in this case

[00:07:46] Speaker 02:
because the bankruptcy was filed and because the trustee's deed wasn't issued until day 54.

[00:07:52] Speaker 02:
So it didn't comply with the requirements of the state code.

[00:07:57] Speaker 03:
I think you're applying the wrong term.

[00:08:01] Speaker 03:
There is a provision that if it is an owner-occupant and they do submit an offer within 21 days, they are immediately the prevailing bidder.

[00:08:16] Speaker 02:
What I'm addressing is... You want the gavel to be the defining moment, but the code changed, the legislature changed the code so that it wouldn't become final upon the gavel falling.

[00:08:29] Speaker 02:
It would be delayed until such later date.

[00:08:32] Speaker 02:
And in the interim, a bankruptcy case was filed.

[00:08:34] Speaker 02:
What's the effect of that?

[00:08:36] Speaker 02:
You're telling us to ignore the bankruptcy, that the gavel falling is all that's critical, but that's not what the code says, the state code.

[00:08:44] Speaker 02:
Not debate.

[00:08:44] Speaker 03:
Two codes changed.

[00:08:45] Speaker 03:
Not only 2429M, which is the new provisions, so they also changed 2429HC.

[00:08:56] Speaker 03:
And that has the relation back provision.

[00:08:59] Speaker 03:
And in the original iteration of that statute, there was, I think, a typo.

[00:09:04] Speaker 03:
And that's what the Hager case was based on, because it says that the relation back only applies for tenant, current owners.

[00:09:13] Speaker 03:
But after Hager was established, upon which the Stevens case is based, they corrected that typo.

[00:09:23] Speaker 03:
And they said the relation back principle, that you could, as long as it's recorded within 60 days, then it relates back to the date of the foreclosure.

[00:09:32] Speaker 03:
That applies not just to current tenants, but also to prospective purchasers, such as the one at issue in this case.

[00:09:40] Speaker 03:
So the relation back provision was not wiped out entirely.

[00:09:45] Speaker 03:
It was continued in 2429HC.

[00:09:54] Speaker 03:
And there had been a typo which the Hager case was based on.

[00:09:59] Speaker 00:
The Hager said it was only the tenant-buyer thing instead of just all eligible bidders, right?

[00:10:06] Speaker 00:
Exactly.

[00:10:06] Speaker 00:
Okay, but let me kind of flip this around.

[00:10:12] Speaker 00:
on the fact that the sale was final before the bankruptcy case was filed.

[00:10:17] Speaker 00:
And so, recording the deed to recognize the finality of this, the equitable title passed at the time of the bankruptcy, I mean, excuse me, at the time the gavel fell under Bevin C. Wong, gavel fell, right?

[00:10:33] Speaker 00:
Equitable title pass all that was left for the debtor was bear legal title which passed when the deed was recorded and you could record it 15 and then 21 days later and have it relate back and so you joined at legal and equitable title.

[00:10:46] Speaker 00:
That's not the situation we have under 2924 M because the sale is not final when the gavel drops when you have these other intervening circumstances of which your client.

[00:10:57] Speaker 00:
you know, fell into one of those intervening circumstances, right, or not your client, but the purchaser, your client as the judicial lien holder, right?

[00:11:06] Speaker 03:
Let me address, let me read from the Stevens case, which addresses this whole issue about perfection versus finality, and what kind of title remained to allow this overbidding process.

[00:11:18] Speaker 03:
And Stevens' court writes that,

[00:11:22] Speaker 03:
that, upon foreclosure, the debtor still maintains temporary title.

[00:11:30] Speaker 03:
It says, at the conclusion of the live auction on April 4, 2024, debtor's loss of title to the property was already locked in place, leaving him with merely temporary title.

[00:11:42] Speaker 03:
The only uncertainty was whose name would appear on the trustee's deed, the highest bidder at the live auction or a subsequent winning bidder, such as purchaser.

[00:11:53] Speaker 03:
The key to that statement is the debtor had lost the property.

[00:11:57] Speaker 03:
And that's my point here.

[00:11:59] Speaker 03:
He can't avoid a lien on a property that he no longer had.

[00:12:05] Speaker 03:
And what Stephen's case says, and that's the only appellate case that has considered this, and they got it absolutely right,

[00:12:12] Speaker 03:
I suggest you reread Stevens if you get a chance.

[00:12:16] Speaker 03:
But that, you know, there's a kind of temporary title that's similar to the title that someone still has titled to their car, and then a repo company can take it post-bankruptcy.

[00:12:28] Speaker 03:
That's been used.

[00:12:29] Speaker 03:
And this whole idea of perfection post-bankruptcy doesn't change the title.

[00:12:37] Speaker 02:
But finality does.

[00:12:38] Speaker 02:
Well, only... No, because the section 2924F says, title shall remain with the mortgageor or trustor or successor in interest until the property sale is deemed final as provided in this section.

[00:12:55] Speaker 02:
So they don't lose title to the property even though the gavel falls until the sale is final and an intervening bankruptcy occurs.

[00:13:04] Speaker 02:
What's the effect on the finality?

[00:13:07] Speaker 03:
Well, the title that they had, as reflected in the passage I just read from Stevens, was temporary title.

[00:13:14] Speaker 03:
It's not the type of title that means that the prior foreclosure doesn't have effect.

[00:13:26] Speaker 03:
And again, I'll reread again what the Hager Court says.

[00:13:30] Speaker 00:
Actually, I don't want to have you... So it seems like what you're saying is,

[00:13:36] Speaker 00:
that at the time the gavel fell, there was a sale, right?

[00:13:41] Speaker 00:
We don't know yet who is going to own the property because we have to go through this process.

[00:13:47] Speaker 00:
But the one thing that we do know is it's not the borrower.

[00:13:51] Speaker 03:
Exactly.

[00:13:52] Speaker 00:
So your point, I think, Ben, is because of that, the effect of the bankruptcy, there's no effect of the bankruptcy.

[00:14:02] Speaker 00:
Is that what your point is?

[00:14:03] Speaker 00:
Because we know that it's going to be somebody

[00:14:06] Speaker 00:
but not them.

[00:14:08] Speaker 03:
The equitable title, whatever you want to call it, never enters the bankruptcy estate and therefore... Because of that.

[00:14:15] Speaker 03:
And again, although there is provisions that M prevails, the Hager Court itself says that Section 2420 controls finality except in instances where 2924HC is applicable.

[00:14:31] Speaker 03:
So there's kind of a carve out.

[00:14:32] Speaker 03:
You can say that there's all these finality provisions in 2924M, but the Hager case is very clear that where 2924HC applies,

[00:14:45] Speaker 03:
In that relation back provision in 2924HC determines finality, perfection, whatever you want to call it.

[00:14:55] Speaker 01:
So how do you distinguish Applegate, where the California Appellate Court said that under 2924M, for real property containing one to four residential units, which this is, a foreclosure sale will be deemed final at the conclusion of the public auction only if

[00:15:12] Speaker 01:
A prospective owner-occupant is the last and highest bidder, which is not what we had here.

[00:15:18] Speaker 01:
I mean, the state appellate court has told us it has interpreted California law to say the only circumstance it's not final is when the owner-occupant is the last bidder.

[00:15:28] Speaker 01:
We know that wasn't the situation here, so how can you say this is going to be final?

[00:15:34] Speaker 01:
How do you distinguish Applegate?

[00:15:36] Speaker 03:
Well, Applegate is a situation where a house in Mill Valley

[00:15:42] Speaker 03:
There was a sale for $100 for a multi-million dollar house.

[00:15:46] Speaker 03:
And what happened in Appleby is that the trustee canceled the foreclosure sale because it was ridiculous.

[00:15:57] Speaker 03:
$100 for a million, $1.5 million house.

[00:16:01] Speaker 03:
And it's a non-bankruptcy case.

[00:16:06] Speaker 01:
Well, it's a question of state law.

[00:16:08] Speaker 01:
Shouldn't we defer to state courts on what they think state law means?

[00:16:12] Speaker 03:
Well, my reading of Applegate is that they cited it for the proposition that

[00:16:20] Speaker 03:
there's still some rights that the debtor and the trustee of the foreclosure proceedings has.

[00:16:30] Speaker 01:
Well, I'm not concerned about who cited it for what reason.

[00:16:33] Speaker 01:
I'm concerned about the fact that the state appellate court has told us that the only situation in which this is final is if you have a prospective owner-occupant as the last and highest bidder.

[00:16:44] Speaker 01:
So if we decided anything else, how would I distinguish that?

[00:16:48] Speaker 03:
Well, I think you have to look at the particular facts of what was happening.

[00:16:52] Speaker 03:
And there are, even under the 2429.

[00:16:55] Speaker 01:
So you're saying that's dicta, it wasn't a pronouncement of law in that case?

[00:16:59] Speaker 03:
I think you have to look at the facts.

[00:17:00] Speaker 03:
And there are several, under 2924M, there are several

[00:17:06] Speaker 03:
scenarios where the finality occurs.

[00:17:10] Speaker 03:
If the original bidder was an owner-occupant, that's per se, bang, it's theirs.

[00:17:19] Speaker 03:
But the other provisions of 2924M deal with different situations and where there is this overbidding process.

[00:17:29] Speaker 01:
Right, and the state court has told us in Applegate, if any of those other situations happen, it's not final.

[00:17:36] Speaker 03:
So what basis would we have to say they were wrong when they said that?

[00:17:54] Speaker 03:
There never was a trustee deed filed.

[00:17:59] Speaker 03:
So 2429HC certainly doesn't come into play.

[00:18:05] Speaker 03:
The foreclosure trustee in Applegate

[00:18:09] Speaker 03:
said, this is ridiculous, $100 for a million dollar plus house.

[00:18:12] Speaker 03:
And he just said, we're not going to go forward with this sale.

[00:18:16] Speaker 03:
And so therefore, he never recorded the deed.

[00:18:19] Speaker 03:
Under 2429 HC, there has to be a trustee's deed recorded.

[00:18:25] Speaker 03:
And because there never was anything recorded in Applegate, this possibility of this relation back doesn't come into play.

[00:18:36] Speaker 03:
And that's the distinction.

[00:18:38] Speaker 00:
All right.

[00:18:39] Speaker 00:
Well, we've gone way over your time.

[00:18:41] Speaker 00:
Well, thank you very much for the argument This matter will be submitted And so that concludes our hearing and so we're adjourned Thank you.

[00:18:58] Speaker 01:
All rise court is adjourned