A completed foreclosure sale doesn’t always mean the matter is closed. In a notable opinion from the District of Massachusetts, In re Neiva (2024 WL 544049) demonstrated that a Chapter 13 debtor can unwind a valid pre-petition foreclosure sale using the strong-arm avoidance powers of §544(a)(3) of the Bankruptcy Code — even after the mortgagor’s equity of redemption has been extinguished.
ALAW Bankruptcy Partner Jeffrey S. Fraser analyzes the Neiva ruling and its practical implications for mortgage creditors and servicers. The decision turned on a single, critical factor: the creditor’s failure to record the foreclosure documents after the auction sale. Under Massachusetts law, that gap in the public record left the sale vulnerable to avoidance in a subsequent bankruptcy proceeding.
Fraser contrasts Neiva with Tran v. Citizens Bank N.A., decided just two weeks earlier, where a recorded Affidavit of Sale made all the difference — and with divergent outcomes in the Second and Fifth Circuits, where “inquiry notice” standards have led courts to different conclusions.
The takeaway for creditors: when a foreclosure sale is complete, recording cannot be an afterthought.
Read the full article in Legal League Quarterly (Q2 2024) →