BAP Affirms Bankruptcy Court’s Entrance of Sale Order and Denial of Loan Servicer’s Motion for Reconsideration; Failure to Object to Sale Order is Implied Consent Under Section 363(f)(2)

Tuesday, December 20, 2011

By Dan Lake

BAC Home Loans Servicing LP v. Grassi (In re Grassi), 2011 Bankr. LEXIS 4362, BAP No. EP 11-010 (1st Cir. B.A.P. Nov. 21, 2011)

The BAP for the First Circuit affirmed a bankruptcy court decision granting a debtor’s motion to sell his condominium free and clear of liens, while denying a loan servicer’s motion for reconsideration of the sale order. After the bankruptcy court had confirmed the debtor’s Chapter 13 plan, the debtor filed a motion to sell his condominium free and clear pursuant to Section 363(f). The debtor served the motion, a proposed order to sell, and a notice of motion and hearing on all lien holders, as well as on the first mortgage holder’s loan servicer. No party in interest objected by the deadline, and the bankruptcy court entered the sale order without a hearing. The following day, the loan servicer filed a motion to reconsider the sale order and filed an objection to the debtor’s motion to sell. The loan servicer acknowledged receiving notice of the debtor’s motion, but cited administrative error as justification for its untimely objection, and also argued that the condominium’s sale price was inadequate. The bankruptcy court denied the motion to reconsider, stating that the lien holders received adequate notice and that there was no evidence of bad faith. The loan servicer appealed, claiming again that the sale price of the condominium was inadequate and that the bankruptcy court abused its discretion by failing to follow proper procedures when granting the motion to sell.  The BAP affirmed the bankruptcy court’s decision, finding that the court did not abuse its discretion in granting the motion to sell and that the loan servicer failed to sustain its burden for a motion for reconsideration under Fed. R. Civ. P. Rule 59(e).

The BAP first reviewed the bankruptcy court’s grant of the debtor’s motion to sell for an abuse of discretion. Section 363(b)(1) provides that a trustee may sell property of the bankruptcy estate after notice and a hearing, while Section 363(f)(2) enables a debtor or trustee to sell property free and clear of any interests if the lien holding entities consent. The loan servicer argued that it had improperly routed the notice and was therefore unable to file a timely objection. A majority of courts, including the BAP, view silence in response to a notice of sale as implied consent under Section 362(f)(2), while some courts view a creditor’s silence as a waiver of its objection to the sale. The BAP noted that under either rationale, a court would uphold the sale. Furthermore, a court should only set aside an approved sale under limited circumstances, such as fraud or mistake. With no evidence of fraud, mistake, or similar circumstances, the BAP held that despite the loan servicer’s administrative error, it received proper notice of the sale and the sale order was therefore valid under either an implied consent or waiver theory. Accordingly, the bankruptcy court did not abuse its discretion in entering the sale order.

The BAP then reviewed the bankruptcy court’s denial of the loan servicer’s motion for reconsideration of the sale order under an abuse of discretion standard. Although the loan servicer did not specify the rule under which it filed its motion, a motion made within fourteen days after the entry of judgment that questions the correctness of the judgment is construed under Fed. R. Civ. P. 59(e). To succeed on its motion for reconsideration, a moving party must show a manifest error of law or fact or present newly discovered evidence. A moving party cannot use a Rule 59(e) motion to cure its own procedural defects or to raise new arguments. Although the loan servicer attempted to prove a manifest error of law, the bankruptcy court properly approved the sale order under Section 363(f)(2). The loan servicer failed to show newly discovered evidence or otherwise sustain its burden under Rule 59(e). Therefore, the bankruptcy court did not abuse its discretion in denying the motion for reconsideration.