In a case of first impression, the Bankruptcy Court for the Central District of California, Los Angeles Division, issued a recent opinion in In re Nikolay Machevsky, No. 14-29611 (Bankr. C.D. Cal. Jan 8, 2021), ordering a debtor to be evicted from his residence because he did not qualify for the COVID moratorium under the current CDC guidelines.

 

 

A Lesson for the COVID Era

This case is unique, but the decision is impactful.  First the bankruptcy court noted that the debtor had failed to disclose his two-unit condominium.  Thus, presumably, the court was not particularly sympathetic to this Debtor.  The Trustee discovered this omission and moved to reopen the case to administer the sale of the property.  The Trustee was given authority to transfer the property free and clear of liens and the Debtor was ordered to vacate and turn over the property.  If the Debtor failed to do so, the Trustee was given authority to seek a writ of possession from the bankruptcy court.  As expected, the Debtor refused to vacate the property and as a result, the trustee sought a writ of possession, which, of course, the debtor opposed.

Of equal importance, the debtor had failed to submit a declaration stating his annual income was less than $99,000 and/or his failure to make his payments was due to a substantial loss of income.  This was particularly important as the Court noted the CDC Order permitted eviction “… for reasons other than not paying rent or making a housing payment.”  (CDC Order, Federal Register, Vol. 85, No. 731, September 4, 2020, Notices, pages 55292–55293.)  Thus, the court interpreted the CDC Order as providing aid to those who lost the ability to pay housing costs through no fault of their own. Since the Debtor had failed to provide sufficient evidence that his income was less than $99,000 or he had suffered a substantial loss of income, the Debtor did not qualify under the CDC guidelines.

Though it is unknown whether courts in other jurisdictions will follow this decision, there is no reason to believe it will be ignored as it appears well-reasoned.  Most importantly, from a lender/landlord perspective, the homeowners or the tenants – and not the lenders or landlords – will bear the burden of proving that they meet the CDC guidelines in order to avail themselves of present eviction or foreclosure moratoriums.

 

By Published On: February 28, 2021Categories: BankruptcyTags: ,

About the Author: Bill Siegel

William L. (Bill) Siegel is a Shareholder and Section Head of the Cowles and Thompson Bankruptcy and Creditors’ Rights Practice Group as well as a member of the Corporate and Business Practice Group.