Bankruptcy Stays and California Trustee's Sales

Bankruptcy Rule 4001 provides that an order granting a motion for relief from an automatic stay is stayed until the expiration of 14 days after the entry of the order, unless the court orders otherwise.

California Civil Code Section 2924g(d) provides for a 7-day stay after termination of a court injunction or stay. The section used to apply to Bankruptcy stays. HOWEVER, Civil Code Section 2924g(e) now provides:

(e) Notwithstanding the time periods established under subdivision (d), if postponement of a sale is based on a stay imposed by Title 11 of the United States Code (Bankruptcy), the sale shall be conducted no sooner than the expiration of the stay imposed by that title and the seven-day provision of subdivision (d) shall not apply.

It is common for bankruptcy court orders to include a waiver of the 14-day stay under Rule 4001. (Note, however, that when these orders are vague as to whether Rule 4001 is being waived, which they often are, we still require compliance with the 14-day stay.) This means that we may be confronted with situations where the beneficiary wants to foreclose, or already has foreclosed, shortly after the bankruptcy stay is lifted. These situations require extreme caution.

When we are conducting a trustee's sale, we should resist conducting a sale immediately upon a stay being lifted since it leaves no margin for error. However, in those numerous situations where this is not practical, we need to be extremely careful that all the court documentation is in order.

The end result of this is that the legislature has managed to put us right back where we were before it originally imposed California’s 7-day stay!