lengthy litigation would frustrate the immediate objective of preventing irreparable harm by operation of the stay.
Although dispositive litigation is not contemplated by Rule 12-43, nevertheless, claimed invalidity of the creditor's lien would be a pertinent factor in the court's equitable determination of whether to continue or to annul the stay. The factors most commonly identified as considerations influencing the court's decision are: 1) whether the secured creditor will suffer irreparable injury by the stay, 2) whether the property subject to foreclosure is essential to an acceptable plan of arrangement, and 3) the likelihood of rehabilitation of the debtor within a reasonable time. In re Marietta Cobb Apartments Co., supra, 3 Bankr.Ct.Dec. at 725; In re Consolidated Motor Inns, supra, 1 Bankr.Ct.Dec. at 1531; W. Norton, Real Property Arrangements, §§ 14-2 through 14-5 (1977). The balance of harm and rehabilitative objectives of the Chapter are also pertinent. See In re Groundhog Mountain Corp., supra, 1 Bankr.Ct.Dec. at 925. The factors to be considered, however, are not rigidly delineated and should vary with the circumstances of each case, See In re Triangle Inn, 2 Bankr.Ct.Dec. 1670 (E.D.Va.1976), and any matter relevant to the equities of continuing or lifting the stay would be a proper consideration for the court. The fact that the lien is subject to a genuine dispute, the nature of the dispute, and the likelihood that the debtor will prevail in challenging the lien, would be relevant factors in the balance of the equities. Cedar Bayou should therefore be permitted to offer evidence that the lien was obtained through a course of fraud in its effort to demonstrate to the Court that the equities favor continuing the stay, although as in a request for preliminary injunction, the Court will not make final findings thereon, as the evidence may be limited by the expedited nature of the proceedings.
In many cases, however, it may be judicially expeditious and consistent with the purpose of Rule 12-43 to advance the final determination of the validity of a lien to the hearing on annulment of the stay. When a debtor disputes the validity of a claim, the court is placed in the position of deciding the validity sooner or later, either on the creditor's proof of claim or the debtor's complaint to determine validity. When final adjudication would not require discovery or other pre-hearing delay nor lengthy litigation which would preclude speedy relief, then judicial economy would be best served by advancing that determination to the Rule 12-43 hearing, without disservice to the objectives of Rule 12-43. This procedure, in essence, was employed by the court in Marietta Cobb Apartments and would be compatible with the results in Consolidated Motor Inns and Sixth Avenue Investment and Development.
In some cases, expediency may be best served by the bankruptcy court's deferral to a state or federal court for litigation of lien validity. In those extraordinary situations in which the question of validity would require or is dependent on complex and lengthy litigation pending in state or federal court, the issue could not be adequately addressed in bankruptcy court given its facilities and schedule, and trial would be sooner reached in the other forum, the bankruptcy court could modify the automatic stay to permit proceedings on the lien but continue to stay the foreclosure sale. It could then make a determination of validity based on the record created in the state or federal court, and proceed with arrangement proceedings accordingly. See In re White Birch Park, Inc., supra.
The creditors here object to any determination of validity of the lien without their submission to the jurisdiction of the bankruptcy court by proof of claim. Under our analysis, however, any impropriety in determination of lien validity in a Rule 12-43 hearing is a procedural limitation inherent in the Rule, rather than an inherent limitation on the summary jurisdiction of a bankruptcy court under Chapter XII. The substantive scheme created by Congress in Chapter XII necessarily confers somewhat greater jurisdiction than in traditional bankruptcy procedures because the Chapter is designed to reach creditors not ordinarily affected in traditional bankruptcy, and the object is to restore, not dismantle, the debtor.
In In re Decker, 465 F.2d 294 (1972), however, a Chapter XII appeal, the Third Circuit applied the straight bankruptcy rule that once foreclosure proceedings are commenced against a bankrupt's property, the bankrupt is no longer in possession and the bankruptcy court is deprived of jurisdiction over it. Contra, In re Colonial Realty Investment Co., 516 F.2d 154 (1st Cir. 1975). See W. Norton, Real Property Arrangements, Part 13. The court in Decker did not discuss the language of 907. The instant case is distinguishable in that non-judicial foreclosure under deed of trust was apparently utilized and the property was in the possession of a trustee, rather than in the constructive possession of the court in a judicial foreclosure. Given the language of Section 907 vesting the debtor with the rights of the trustee in possession and to immediate possession of the property, we believe Decker would not be extended to this case.
Cedar Bayou's second and third defenses in its answer to the creditors' complaint to annul the automatic stay were therefore properly raised under Federal Rule of Civil Procedure 12(b) as defenses to the claimed relief, and the bankruptcy court should have afforded the opportunity for hearing on the defenses. On remand for hearing, the bankruptcy court will have broad discretion in lifting, modifying or continuing the stay as the equities determine under its findings. Whether to advance the merits of debtor's complaint to determine the validity of the lien is also a matter within the discretion of the court, depending on whether such adjudication could be accomplished consistently with the objective of Rule 12-43 of affording expedited relief. Proper considerations for the Court in fashioning appropriate relief would include the irreparability of harm suffered by the creditors as a result of the stay, the balance of harm, the rehabilitative objectives of Chapter XII and whether debtor has a reasonable likelihood of rehabilitation within a reasonable time, the essentiality of the property to a successful plan of arrangement, whether the lien is genuinely disputed by the debtor, the likelihood of debtor's success on the merits of such dispute, and any other matter pertinent to the equities of any relief sought.
An appropriate Order will be entered.