Of Auction Sales And Fees: Going, Going, Going Not Gone

Garden v. Central Nebraska Housing Corp., 719 F.3d 899 (8th Cir. 2013) -

A secured party obtained relief from the automatic stay to allow the trustee under a deed of trust to sell a farm. The secured party contended that (i) it had a contract to purchase the farm as the result of the trustee's auction, and (ii) its secured claim included certain attorney and inspection fees.

The 8th Circuit upheld a district court decision that (a) the secured creditor did not have a binding sale contract, (c) rejected its claim for attorney fees, and (c) not only disallowed the claim for inspection fees but also found that the inspections violated the automatic stay, justifying an award of sanctions. A dissenting opinion argued that the request for inspection fees was not properly evaluated by the district court: there was no violation of the automatic stay, and thus no basis for sanctions.

A secured party (CNH) acquired a first deed of trust in a farm based on a post-petition assignment of the note and trustee. After the debtors defaulted during their bankruptcy, CNH obtained relief from the automatic stay to permit an auction to sell the farm under the deed of trust.

Before the auction it was announced: "The Trustee's Sale will remain open for ten (10) minutes and I will accept any bids offered during that time." There was no announcement that the sale would close at the end of the 10 minutes or that further bids would be refused after that time.

Shortly before the 10 minutes expired, CNH made a bid of $113,000. Although the trustee's representative announced the expiration of the 10-minute period, he did not warn prior to expiration and did not solicit any final bids before closing the auction. He also did not announce that the property was sold to CNH. After a competing bidder protested, he decided to accept additional bids, with the result that a third party was the highest bidder at $166,500. (The successful bidder assigned its bid to a company owned by the owner of CNH.)

CNH argued that it had purchased the property for $113,000, so that the excess $53,500 should be returned to it. With respect to disposition of the proceeds, the debtors objected to CNH's claims for ~$17,500 for monthly inspections and ~$7,500 in attorney fees. The district court agreed with the debtors, and found that the inspections before relief from the stay was granted were attempts to encumber the farm and were void as a violation of the automatic stay, and inspections after...