Facts: A married couple purchased a home. The wife recorded a grant deed conveying her interest in the property to her husband, to be held as his sole and separate property. The husband defaulted on the loan and foreclosure proceedings began. The wife filed for bankruptcy in an attempt to prevent the loss of the home to foreclosure, and was granted an automatic stay preventing creditor collection efforts. The property was foreclosed and an investor took title to the property and filed an unlawful detainer to evict the couple.
Claim: The wife sought to retain possession of the property, claiming the investor could not file a UD action since the foreclosure sale was void because the property, due to the presumption that property acquired during marriage is community property, was part of the wife’s bankruptcy estate protected by the automatic stay.
Counterclaim: The investor sought to evict the wife under a UD action, claiming that since the wife relinquished her interested by the property by conveying it to her husband, it was no longer community property and thus not subject to an automatic stay since the property was not part of the wife’s bankruptcy estate.
Holding: A bankruptcy appellate court ruled the foreclosure was valid and the investor may file a UD action to evict the wife, since the property was not protected by the automatic stay since the wife expressly conveyed her title to the property to her husband, thus trumping the community property presumption. [Fadel v. DCB United LLC (9th Cir. 2013) __ BAP __]
Editor’s Note – The wife made several additional claims in her attempt to establish her interest in the foreclosed property. She argued that, since she and her husband had used community assets to reduce the debt secured by his sole and separate property, she also had an interest in the property. The court found, however, that the use of community assets to reduce the debt potentially entitled the wife to reimbursement, but did not constitute an interest in the property that would have protection under the automatic stay triggered on the filing of bankruptcy.
The key point of law in this case is whether California’s community property presumption for married couples was still applicable even after the wife intentionally conveyed her interest to her husband. The court, citing judicial precedent, ruled the community property rule does not supersede the written characteristics of title recorded in a grant deed.
