Sarah Keith-bolden, Down and Out and Now Kicked Out: Residential Lease Evictions and the Automatic Stay

• Publication year: 2011

COMMENTS

DOWN AND OUT AND NOW KICKED OUT: RESIDENTIAL LEASE EVICTIONS AND THE AUTOMATIC STAY†

INTRODUCTION

Included in the many changes that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") made to the Bankruptcy Code is a provision that affects the ability of a tenant to use a federal bankruptcy filing to delay or prevent a state law eviction action.¹This reform touches upon the difficult and often acrimonious relationship between landlords and tenants, a relationship in which each side is wont to characterize itself as "the eternal victim."²Landlords describe tenants "from hell"-"raucous partyers and wife-beaters to drug dealers and scam artists trying to live rent-free."³

Horror stories abound, from the tenant who tried to run over his landlord with his car to the tenant who sacrificed neighborhood cats for satanic rituals.⁴Less dramatic, but more common, is the "deadbeat tenant," who fails to pay rent, forces the landlord to spend thousands of dollars on an eviction, causes serious damages to the leased premises in the meantime, and never pays a cent of the judgment the landlord eventually obtains.⁵Tenants have their own horror stories, like that of a New York landlord who admitted to hiring a hit man to get rid of rent-controlled tenants.⁶Countless tenants complain of landlords who fail to maintain the leased premises, forcing tenants to live in residences with substandard conditions, such as "leaking ceilings, moldy walls, gaping holes packed with reeking raw sewage, and no [heat]."⁷

At no time is the acrimony between landlords and tenants more bitter than during the eviction process, in which both sides face potentially devastating losses.⁸Tenants face the loss of their current home and possibly the frightening prospect of homelessness.⁹Landlords, who rarely receive any rental payments during an eviction action, face financial losses that could result in the foreclosure of one or more rental units.¹⁰Bankruptcy intersects with this highly emotional area of law when a tenant who is in the process of being evicted files for bankruptcy, thus invoking the protection of the automatic stay.¹¹The landlord now must contend not only with the state law eviction process but also with federal bankruptcy law before the eviction can be completed.¹²

This Comment first provides background information on residential evictions, the automatic stay, and bankruptcies that are filed solely for the purpose of delaying eviction ("unlawful detainer bankruptcies"). Part I provides an introduction to state law eviction procedures. Part II discusses the automatic stay and how it applied to eviction actions before BAPCPA.

The next three Parts of this Comment turn to the emergence of concern over unlawful detainer bankruptcies and previous legislative and judicial attempts to resolve the issues that they raise. Part III tells the story of Southern California in the 1990s, when the affect of bankruptcy on eviction actions was front page news, while Part IV addresses the question of whether the problem was limited to that time period and locale. Part V then addresses various legislative reforms that have been considered in the U.S. Congress.

The last three Parts of this Comment address the recent changes to the automatic stay. Part VI describes BAPCPA provisions regarding the application of the automatic stay to residential lease evictions, and Part VII examines how these new provisions will affect landlords and tenants. In Part VIII, the Comment concludes by suggesting an alternative approach to unlawful detainer bankruptcies, based not on how far the eviction process had progressed before the tenant filed for bankruptcy but rather on whether the tenant makes postpetition rental payments.

I. INTRODUCTION TO RESIDENTIAL LEASE EVICTIONS

Although there are many reasons why a landlord might want to evict a tenant, the majority of eviction actions are based on the tenant's alleged failure to pay rent.¹³Most states forbid landlords from engaging in "self-help" measures, such as changing the locks, and instead require landlords to resort to the courts to remove a "deadbeat" tenant.¹⁴However, all fifty states have enacted summary eviction proceedings designed to make judicial evictions less onerous for landlords.¹⁵The summary eviction process is relatively uniform in every state.¹⁶In California, which follows the same general procedure as other jurisdictions,¹⁷the process begins when a landlord who has not received a timely rental payment provides a tenant with a three-day notice to quit or pay rent.¹⁸If the tenant fails to vacate the premises or pay the rent within the three- day period, the landlord may commence an unlawful detainer action by filling out and filing a form complaint provided by the court.¹⁹After being served with this complaint, the tenant has five days to answer.²⁰

If the tenant does not respond, which has been estimated to occur about half the time,²¹a default judgment is entered for the landlord.²²If the tenant does respond, the matter goes to trial.²³If the landlord is victorious, either by default judgment or by prevailing at trial, the clerk issues a writ of possession.²⁴The writ is delivered to the sheriff, who goes to the premises and posts a five-day notice to vacate.²⁵After the five-day period has expired, the sheriff returns to the property to lock the tenant out, and the eviction is complete.²⁶

While the basic summary eviction process in other jurisdictions is very similar to the process outlined above, states vary in the amount of protection offered to tenants who are being evicted for failure to pay rent.²⁷One variation is that the timeline for each step of the procedure may be extended or contracted according to state law.²⁸For example, state law may give the tenant only two days to reply to the landlord's complaint²⁹or allow the sheriff, after receiving a judgment for possession, to proceed with eviction without giving the tenant additional notice to quit.³⁰Other statutes, however, provide tenants with more time than in California. Connecticut, for example, gives tenants a grace period at the beginning of the eviction process by requiring that the landlord wait nine days after the rent becomes due before serving the tenant with a notice to quit.³¹Michigan, on the other hand, gives tenants a grace period at the end of the eviction process by providing a statutory right of redemption, which begins to run after a judgment for possession is ordered.³²

If the tenant pays the amount of the judgment within the redemption period, the eviction is halted.³³Varying rules on when a tenant may have a default judgment set aside or file an appeal or posttrial motion also affect tenant's rights in various states.³⁴

States also differ in whether and to what extent landlords have a duty to maintain the rented premises.³⁵Almost every state has adopted a statutory or implied warranty of habitability that requires landlords to maintain rental units in a condition that, at a minimum, does not endanger tenants' lives, health, or safety.³⁶However, the extent of the warranty "varies widely among the states,"³⁷and a handful of states do not require the landlord to make any repairs whatsoever, unless contractually obligated to do so by the lease.³⁸

When states impose a duty on landlords to maintain the premises, that duty is often coupled with a tenant's right to withhold rent to make necessary repairs that the landlord fails to make after reasonable notice.³⁹In such states, the tenant may be able to defend a summary eviction action by claiming that the tenant used all or a portion of the rent money to make repairs⁴⁰or that no rent was due because the premises were not maintained in a habitable condition.⁴¹Even if the tenant does not ultimately prevail, the use of such a defense may make it possible to significantly increase the amount of time the tenant can remain on the premises before the eviction is complete.⁴²

The amount of time it takes to evict a tenant varies widely, depending not only on the timeline set up under state law and the number of eviction defenses available to tenants but also on delays stemming from a backlog in the courts or at the sheriff's office.⁴³In California, the summary eviction statute creates a system in which a tenant can be evicted in seventeen days.⁴⁴However, according to one source, "the process often takes at least twice as long."⁴⁵

Studies of Los Angeles suggest that the summary eviction process took an average of between 51 and 108 days in the early 1990s.⁴⁶Around the same time, a study in New Haven, Connecticut, found that evictions took an average of between 94 to 118 days to complete.⁴⁷Sources from other states suggest an eviction process lasting at least a month and possibly extending for several months.⁴⁸

The summary eviction process is criticized both for being too pro-tenant and for being too pro-landlord. Landlords criticize the process for being excessively slow and allowing deadbeat tenants to live rent-free for months while raising only spurious defenses.⁴⁹Tenants and tenants' rights activists criticize the process for progressing extremely quickly and for creating an environment in which it is difficult for tenants to raise valid defenses.⁵⁰

II. THE AUTOMATIC STAY AND RESIDENTIAL LEASE EVICTIONS BEFORE

BAPCPA

When a debtor files a bankruptcy petition, the debtor's assets become property of a newly created bankruptcy estate.⁵¹The estate is protected by the automatic stay, which prevents, among other things, any action by creditors to "obtain possession of" or "exercise control over" property belonging to the estate.⁵²Before the 2005 modifications to the Bankruptcy Code, courts generally held that attempts to evict a bankrupt tenant were among those actions that were forestalled, at least initially, by the automatic stay.⁵³

A landlord, like any other creditor, may move for relief from the stay in the bankruptcy court.⁵⁴In the context of residential lease...