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Rocco v. J.P. Morgan Chase Bank

March 24, 2006

JOSEPH F. ROCCO AND CHRISTINA L. ROCCO, APPELLANTS,
v.
J.P. MORGAN CHASE BANK AS TRUSTEE FOR THE TRUMAN CAPITAL MORTGAGE LOAN TRUST, APPELLEE.



The opinion of the court was delivered by: Cercone, D.J.

(Bkcy. No. 04-24895)

OPINION

Appellants seek review of an order issued by the bankruptcy court on January 6, 2005 granting a Motion for Relief from the Automatic Stay filed by JP Morgan Chase Bank, as Trustee for the Truman Capital Mortgage Loan Trust ("JP Morgan"), contending the court abused its discretion in granting the motion and erred in ruling that a sherif sale did not contravene the Bankruptcy Code. After careful consideration of the arguments presented and the authority bearing on the matters raised, the Court concludes that bankruptcy court did not abuse its discretion in granting relief from the stay nor did it err in concluding that section 547 of the Bankruptcy Code was inapplicable to the sheriff sale that occurred prior to the bankruptcy case. Accordingly, the bankruptcy court's order of January 6, 2005 will be affirmed.

FACTUAL HISTORY

The following facts are not in dispute. On April 13, 2004, Joseph F. Rocco and Christina L. Rocco ("debtors") filed for bankruptcy protection under Chapter 13 of the United States Bankruptcy Code (the "Bankruptcy Code"). Debtors had previously filed for bankruptcy but that case was dismissed on February 3, 2004.

JP Morgan held a mortgage on the debtors' residence at 189 Butz Road, Latrobe, Pennsylvania (the "residence").*fn1 After debtors defaulted on their mortgage, JP Morgan instituted foreclosure proceedings in the Court of Common Pleas of Westmoreland County, Pennsylvania. Following the entry of a foreclosure judgment in JP Morgan's favor, a sheriff sale was scheduled for January 5, 2004. Debtors' first bankruptcy case stayed that sale.

In March 2004, after the first bankruptcy case was dismissed, the residence was sold at a sheriff sale. JP Morgan purchased the residence for one dollar and recorded the deed shortly thereafter. After JP Morgan purchased the residence and recorded the deed, debtors filed the current bankruptcy case. JP Morgan instituted an ejectment action against debtors in Westmoreland County on March 9, 2004; this bankruptcy case stayed the state court ejectment action. JP Morgan moved for relief from the stay to proceed with the ejectment action.

On May 13, 2004, Debtors filed an adversary action against various parties involved in the refinancing of their mortgage, including JP Morgan. In their adversary complaint, debtors allege violations of section 547 and 548 of the Bankruptcy Code, the Truth in Lending Act, Pennsylvania's Unfair Trade Practices Act as well as counts for fraud and civil conspiracy.

The bankruptcy court granted JP Morgan's Motion for Relief from the Automatic Stay on January 6, 2005. The bankruptcy court concluded that debtors did not possess a protected property interest in the residence when they filed the bankruptcy case and, as a result, had no standing to object to relief from the stay. The bankruptcy court also concluded that cause existed for lifting the automatic stay and that JP Morgan lacked adequate protection. Finally, the bankruptcy court found that JP Morgan obtained title to the residence at a regularly-conducted, non-collusive sheriff sale such that the sale was not a preferential transfer under Section 547 of the Bankruptcy Code.

DISCUSSION

Debtors raise two arguments on appeal. First, they argue that the bankruptcy court erred when it concluded that the sheriff sale that occurred prior to the bankruptcy filing was not a preferential transfer under section 547 of the Bankruptcy Code;*fn2 second, debtors argue that the bankruptcy court abused its discretion by granting relief from the automatic stay.

This court has appellate jurisdiction over final orders of the bankruptcy court pursuant to 28 U.S.C. § 158(a)(1) and reviews de novo the bankruptcy court's conclusions of law. In re Ben Franklin Hotel Assocs., 186 F.3d 301, 304 (3d Cir.1999); In re Equipment Leassors of Pennsylvania, 235 B.R. 361, 363 (E.D. Pa. 1999). A bankruptcy court's decision to lift the automatic stay is a discretionary decision and will be overturned on appeal only upon a showing that the court abused its discretion. See In re Wilson, 116 F.3d 87, 89 (3d Cir.1997); Matter of Vitreous Steel Products Co., 911 F.2d 1223, 1231 (7th Cir.1990); see also Matter of Lippolis, 228 B.R. 106, 112 (E.D. Pa.1998).

A. Relief from the Automatic Stay

First, the Court will consider the bankruptcy court's decision to lift the automatic stay so that JP Morgan could pursue its state court ejectment action. Debtors contend that the bankruptcy court should have considered JP Morgan's "underlying fraud" and its recoupment rights when it considered JP Morgan's motion. This argument lacks merit.

The automatic stay provision, 11 U.S.C. § 362(a), sweeps broadly and automatically stays all judicial actions against a debtor. See Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194 (3d Cir. 1991). As the Third Circuit Court of Appeals has explained, "the purpose of the automatic stay provision is to afford the debtor a 'breathing spell' by halting the collection process. It enables the debtor to attempt a repayment or reorganization plan with an aim toward satisfying existing debt." In re Siciliano, 13 F.3d 748, 750 (3d Cir.1994). There are, however, grounds under which a bankruptcy court can grant relief from the automatic stay including: (1) "for cause, including the lack of adequate protection of an interest in property of such party in ...


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