The following true story highlights how tenants can take advantage of a generous landlord and the procedural nightmares that can come into play when attempting to regain possession of rental property. A discussion the procedural history follows. (Keep in mind that the article was written with Texas law in mind. The time periods referenced for issuance and service of writs of possession are governed by the Texas Rules of Civil Procedure.)
In July of 2014, a landlord rented a house to a husband and wife for a three-year term. A written lease agreement was in effect. The very next month (August 2014), the tenants defaulted by failing to pay rent as agreed. The landlord then began working with the tenants by allowing them time to catch up on their rental payments. After repeated broken promises from the tenants, the landlord threatened to evict them. However, before any formal eviction proceeding was initiated, the wife (only) filed for bankruptcy protection in October 2014.
As I am sure many of you are aware, any person who files for bankruptcy protection (i.e. the debtor), is entitled to the protections of the “automatic stay”. The automatic stay is a creature of federal law made a part of the Bankruptcy Code that prohibits any creditor from taking any action against the debtor or his property outside the bankruptcy court. This means that in order for a landlord to evict a tenant in bankruptcy, he must first get permission from the bankruptcy court before being allowed to proceed. A landlord obtains such permission by filing a stay relief motion with the bankruptcy court.
At the time of the wife’s bankruptcy filing, the tenants were three months behind in rent. The tenants also did not pay the November rent post bankruptcy (which they are required to do if they want to continue living in the rental property). As a result, the landlord finally hired legal counsel who promptly prepared and filed a stay relief motion with the bankruptcy court.
In the wife’s bankruptcy proceeding, the landlord’s attorney and the tenant’s bankruptcy attorney negotiated an agreement (reduced to writing in the form of an agreed order to be signed by the bankruptcy judge) that required the tenants to resume making their regular monthly lease payment and to make a series of catch up payments. The lease term was also reduced from three year to one year. Any defaults from failing to pay the regular rental payment or the catch up payments resulted in the automatic stay being terminated without further need for a bankruptcy hearing or further order of the bankruptcy court.
The purpose of the agreed order was to allow the tenants and their minor children to remain in possession of the property and enable the landlord to recover his lost rents. The bankruptcy court approved the agreed order in early January of 2015.
The very next month, the tenants defaulted under the terms of the agreed order by failing to pay the February 2015 rental payment and the catch up payment even after being given a 7-day notice to cure the defaults. As a result, the automatic stay occasioned by the wife’s bankruptcy filing terminated permitting the landlord to file a state court eviction proceeding.
In March of 2015, a state court eviction proceeding was filed against the tenants. In early April, the landlord obtained a judgment for possession of the house from the Justice Court. However, against the advice of counsel, the landlord wanted to give the tenants yet another opportunity to perform under the lease hoping to collect the rental income from the property. Accordingly, landlord’s counsel prepared a written eviction hold off agreement that once again required the tenants to resume making their regular lease payments and make addition “cure” payments as well. The parties signed the eviction hold off agreement in mid-April of 2015.
It should be noted that under the recently revised Rules of Civil Procedure applicable to Justice Courts, that a writ of possession must be requested within 60 days of the rendition of the eviction judgment and be served within 90 days of such judgment. If not done timely, the landlord will have to start the eviction process all over.
In May of 2015, the tenants defaulted under the eviction hold off agreement by failing to pay rent as agreed. In early June of 2015, landlord’s counsel (before expiration of the 60-day deadline) filed an application for a writ of possession with the Justice Court. Here is where the story starts to get interesting (if not already). In response, the tenants hired another lawyer (not their bankruptcy counsel) who filed a motion with the Justice Court requesting that the issuance of the write of possession be stayed by arguing that the eviction hold off agreement constituted an entirely new lease agreement and therefore, any breach thereof should require the filing of another eviction proceeding. Fortunately, for the landlord, the Justice of Peace saw through this ruse and denied the specious motion the same day it was filed without holding a hearing.
Well, certainly that should be the end of the story, right? Not hardly. The landlord’s counsel then began communicating with the deputy constable in order to arrange the date that the writ of possession would be served. In casual conversation, the deputy constable informed landlord’s counsel that this was not the tenants’ first rodeo as they had been the subject of prior eviction proceedings (shocker). And wouldn’t you know it, the day before the scheduled date the writ was to be served, the husband filed his own bankruptcy case pro se (without a lawyer).
No problem because the Bankruptcy Code addresses this exact situation. The Bankruptcy Code very clearly states that the automatic stay is not imposed on a landlord who obtains a judgment for possession prior to the date a debtor files for bankruptcy.
However, despite the clear and unambiguous language of the statute, the deputy constable refused to serve the writ of possession without a bankruptcy court allowing him to do so. Thus, the landlord was required to file a motion in the husband’s bankruptcy proceeding asking the bankruptcy court to confirm the absence of the automatic stay. Moreover, because the 90-day service deadline was approaching for the writ of possession, the landlord had to request the bankruptcy court to consider the motion to confirm the absence of the automatic stay on an expedited basis. The bankruptcy court agreed to do so and following a hearing (in which the tenants did not appear), issued an order that confirmed the absence of the automatic stay. Thereafter, the writ was served and the landlord recovered possession of his property. Interestingly, the husband’s bankruptcy case was later dismissed with prejudice for 90 days, because he failed to file any of the required paperwork (including a list of creditors) other than his original petition, this, clearly establishing that the only basis for filing his bankruptcy case was to delay and harm the landlord.
This real life incident illustrates the problems that landlords can run into when attempting to work with recalcitrant tenants. Here, the tenants amply demonstrated a complete lack of trustworthiness, yet the landlord continued to hold onto an unrealistic sense of optimism believing that the tenants would somehow pay him the monies owed. The tenants were obviously familiar with the eviction process and took full advantage of the landlord’s willingness to try and work with them. As a result, instead of recovering the sought for rent monies, the landlord was forced to spend much more in the way of legal fees than he would have had he just prosecuted an eviction case as expeditiously as possible. The old adage, “Fool me once your fault; fool me twice (or in this case, thrice), my fault” continues to ring true.
The purpose of this article is to provide information with respect to current legal developments and topics of general interest. No attempt is made to offer solutions to specific problems. An attorney of your choice should be consulted for advice on particular questions relating to your situation.
Attorney Gregory T. Meyer is with Meyer & Colegrove, PLLC and practices law in the state of Texas. Reprinted with permission of Rooflines.