Chapter 18-4 Violations of Automatic Stay

18-4 Violations of Automatic Stay

Foreclosure practitioners must be aware of the consequences of proceeding with foreclosure while an automatic bankruptcy stay is in effect. As previously indicated, orders entered by the trial court in the foreclosure proceeding are void if they are entered while the automatic stay is in effect, unless the mortgagee receives retroactive stay relief.³² Furthermore, a bankruptcy court may initiate contempt proceedings and issue sanctions upon finding a violation of the automatic stay.³³ Even an inadvertent violation of the automatic stay may form the basis of a stay violation action against the mortgagee.³⁴ Once the automatic stay has terminated, a mortgagee can proceed with its in rem foreclosure action, except to the extent that it may not seek a personal judgment against the mortgagor, unless the mortgagor's case has been dismissed without a discharge, the debtor has reaffirmed the debt in a Chapter 7 scenario or the mortgagee's debt has been excepted from discharge under Section 523 of the Bankruptcy Code.³⁵

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Notes:

^[32] In re Clarke, 373 B.R. 769 (Bankr. S.D. Fla. 2006); In re Barr, 318 B.R. 592, 598 (Bankr. M.D. Fla. 2004).

^[33] Matter of Crum, 55 B.R. 455 (Bankr. M.D. Fla. 1985) ("It is quite evident and obvious that the only way the bankruptcy court can put teeth into its power to enforce the automatic stay is through the threat of contempt proceeding."); U.S.C. 362(h) (providing that an individual who is injured as a result of violations of an automatic stay may recover actual and punitive damages).

^[34] In re Price, 42 F.3d 1068 (7th Cir. 1994) (errors, even if computer-generated, are willful violations of the stay when a creditor had actual notice of the bankruptcy); but see In re Hamrick, 175 B.R. 890, 893-94 (W.D.N.C. 1994) (a letter to debtor demanding payment was not a "willful" violation of the automatic stay where it resulted from an innocent clerical error); In re Atkins,...