Wells Fargo Bank, N.A. et al v. 804 Congress, LLC
MEMORANDUM OPINION AND ORDER sustaining Appellants Greta Goldsby and Wells Fargo's appeals. The bankruptcy court's Final Order on Motion To Authorize Distribution of Proceeds signed March 9, 2011 (Bankr. Clerk's Document No. 116); Orde r on Objection to Claim of Greta Goldsby, Trustee signed March 14, 2011 (Bankr. Clerk's Document No. 122); and Order on Objection To Claim of Wells Fargo signed March 28, 2011 (Bankr. Clerk's Document No. 139) are REVERSED. These actions are remanded to the bankruptcy court for further proceedings consistent with this opinion. Signed by Judge Lee Yeakel. (kkc, )
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXA2
IN RE: 804 CONGRESS, L.L.C.,
WELLS FARGO BANK, N.A. AND
804 CONGRESS, L.L.C.,
IN RE: 804 CONGRESS, L.L.C.,
BANKRUPTCY NO. 10-12184-CAG
804 CONGRESS, L.L.C.,
CAUSE NO. A-11-CA-391 LY
BANKRUPTCY NO. 10-12184-CAG
IN RE: 804 CONGRESS, L.L.C.,
WELLS FARGO BANK, N.A.,
804 CONGRESS, L.L.C.,
CAUSE NO. A-i i-CA-392 LY
BANKRUPTCY NO. 10-12184-CAG
MEMORANDUM OPINION AND ORDER
Before the court are the above styled and numbered related bankruptcy appeals. Appellants
Wells Fargo Bank, N.A., a secured creditor, and Greta Goldsby, a substitute trustee pursuant to a
deed of trust central to these appeals, contend that the bankruptcy court erred in rendering three
orders in Appellee 804 Congress, L.L.C.'s Chapter
ii bankruptcy proceeding:
(1) Final Order on
Motion To Authorize Distribution of Proceeds signed March 9, 2011 (Bankr. Clerk's Document No.
116); (2) Order on Objection to Claim of Greta Goldsby, Trustee signed March 14, 2011 (Bankr.
Clerk's Document No. 122); and (3) Order on Objection To Claim of Wells Fargo signed March 28,
2011 (Bankr. Clerk's Document No. 139). This court ordered the parties to file combined briefing
and set one oral argument for the three separately docketed appeals (Clerk's Document No. 6). The
parties submitted briefing, and on August 12, 2011, the court held oral argument on the appeals. At
issue is whether the bankruptcy court hasjurisdiction over the proceeds generated from a foreclosure
sale that occurred after the bankruptcy court granted Wells Fargo relief from the automatic stay in
order to proceed with the foreclosure under Texas law. Having considered the parties' briefing and
arguments, the bankruptcy court's orders, the record before the bankruptcy court, and the applicable
law, the court is of the opinion that the bankruptcy court lacked jurisdiction over the proceeds and
erred in rendering each of the orders. The court will sustain Wells Fargo and Golsby' s appeals,
reverse the bankruptcy court's orders, and remand the action to the bankruptcy court for further
On May 31, 2006, 804 Congress purchased real property and improvements consisting of an
office building in Austin, Travis County, Texas (the "Property"). In connection with the acquisition,
804 Congress obtained a purchase-money loan from Wells Fargo in the amount of $3,062,500, which
was evidenced by a Real Estate Lien Note ("Note") dated May 31, 2006, payable to Wells Fargo.
To secure repayment of the loan, 804 Congress executed and delivered a Deed of Trust Security
Agreement/Financing Statement dated May 31, 2006 ("Deed of Trust"), granting Wells Fargo a
purchase-money first-priority lien against the Property.
The Deed of Trust provides that, in the event of a default, Wells Fargo, as beneficiary under
the Deed of Trust, may direct the trustee to foreclose the lien granted by the Deed of Trust and
disburse the proceeds consistent with the Deed of Trust.
804 Congress is a limited liability company whose sole asset was the Property. In August
2009, 804 Congress defaulted under the terms ofthe Note as well as a separate promissory note with
VIA Lending, a secured creditor with a subordinate second lien against the Property. VIA Lending
posted the Property for foreclosure. Soon after, 804 Congress filed its first bankruptcy petition under
of the Bankruptcy Code, which stayed VIA Lending's scheduled foreclosure sale of the
See In re 804 Congress LLC, No.
09-12482 (W.D. Tex. Bankr. Sept. 1, 2009).
804 Congress sought leave of the bankruptcy court to sell the Property free and clear of liens.
U.S.C. § 363(1).' After reviewing several contracts signed by representatives ofaprospective
third-party buyer, the bankruptcy court approved a Section 363(f) sale of the Property.
Shortly before the sale was to close, Wells Fargo learned that the prospective buyer had
defaulted on the sales contract. Additionally, 804 Congress stated that it would continue to operate
the Property only until January 31, 2010. Upon learning of 804 Congress's intent to abandon the
Property, the United States Trustee moved the bankruptcy court to convert the Chapter 11 proceeding
to a Chapter 7 proceeding or dismiss the case. The bankruptcy court dismissed the bankruptcy.
Wells Fargo became a mortgagee-in-possession, installed a management company to operate
the Property, and funded the operational cash shortfalls to preserve the value of the Property in
Section 3 63(1) provides that a bankruptcy trustee may sell property free and clear of any
interest of an entity other than the bankruptcy estate only if certain conditions apply. 11 U.S.C.
preparation for a foreclosure sale. On June 14, 2010, Wells Fargo appointed Goldsby substitute
trustee under the Deed of Trust.2
Wells Fargo posted the Property for foreclosure and scheduled a July 6, 2010 foreclosure
sale. Prior to the July 6 sale, 804 Congress notified Wells Fargo that it had received a purchase
agreement from a prospective third-party purchaser. On July 2,2010, Wells Fargo and 804 Congress
executed a Forbearance Agreement ("Agreement") whereby Wells Fargo agreed to pass the
scheduled July 6 foreclosure sale, subject to certain terms and conditions that allowed Wells Fargo
to take all necessary and reasonable steps to prepare for a nonjudicial foreclosure sale of the Property
on August 3, 2010. Wells Fargo and 804 Congress agreed that if 804 Congress filed a new
bankruptcy petition, Wells Fargo would be entitled "to the lifting of the automatic stay without the
necessity of an evidentiary hearing, without the necessity or requirement  to establish or prove up
the value of the Property covered by the Deed of Trust, or the necessity of proving lack of adequate
protection of [Wells Fargo's] interest in the Property covered by the Deed of Trust." Further, they
agreed that the lifting of the automatic stay "by an appropriate bankruptcy court shall be deemed for
See 11 U.S.C. §
804 Congress filed a second Chapter
bankruptcy petition on August 3,2010, hours ahead
of the scheduled foreclosure sale of the Property the same day. Soon after, Wells Fargo requested
relief from the bankruptcy court from the automatic
or in the alternative, that the bankruptcy
court dismiss 804 Congress's bankruptcy. Wells Fargo argued that it had shown cause for the
bankruptcy court "to allow [Wells Fargo] to take any and all steps necessary under applicable non-
For simplicity, the court refers to Goldsby as the "trustee."
See 11 U.S.C. §
bankruptcy law and the applicable loan documents to foreclose, liquidate, or otherwise take
possession, custody or control of the Property." See
362(d)(1); Little Creek Dev. Co.
Commonwealth Mortgage Corp. (In re Little Creek Dev. Co.), 779 F.2d 1068, 1072-73 (5th cir.
After hearing argument on Wells Fargo's motion, the bankruptcy court ordered that
Wells Fargo is entitled to conditional relief from the automatic
bankruptcy stay to permit it to post the [Property] for a foreclosure
sale subject to certain contingencies which can further postpone any
such foreclosure sale to afford [804 Congress] an opportunity to
complete a possible sale of the [P]roperty to [a third party].
The bankruptcy court further permitted Wells Fargo to post the Property for a foreclosure sale to
occur on September 7, 2010, in accordance with applicable Texas law, if any of three conditions
were not met by 804 Congress. 804 Congress failed to meet the conditions, and Wells Fargo
proceeded with the scheduled September 7 foreclosure sale under Texas
On September 7, Goldsby conducted the foreclosure sale and sold the Property to a third
party who was the highest bidder, for $4,355,000. Goldsby turned to the Deed of Trust for her duties
following foreclosure. The Deed of Trust provides that the trustee shall
from the proceeds of the sale, pay, in this order:
expenses of foreclosure, including a commission to Trustee of
5% of the bid;
to [Wells Fargo], the full amount of principal, interest,
attorney's fees, and other charges due and unpaid;
any amounts required by law to be paid before payment to
[804 Congress]; and
to [804 Congress], any balance.
In a final attempt to stop Wells Fargo's foreclosure, 804 Congress filed a motion for sale
not in the ordinary course of business, which requested that the bankruptcy court allow 804 Congress
to sell the Property to a third party by September 3, 2012. See 11 U.S.C. § 363(b). That sale did not
occur and the motion was withdrawn; the bankruptcy court did not rule on the motion.
In calculating the amounts of the various payments and the order of payment, Goldsby determined
that after paying first the expenses of foreclosure, including her 5% trustee's commission, the full
amount of the principal, interest, attorney's fees, and other charges to Wells Fargo, and the entire
debt owed to VIA Lending, there would be $221,695.72 in excess proceeds remaining, which
Goldsby intended to pay 804
What was Goldsby to do with the proceeds she determined were payable to 804 Congress?
Her problem was that 804 Congress lacked a debtor-in-possession account into which Goldsby could
deposit the excess proceeds. Given this fact, Goldsby filed a "Motion To Approve Distribution of
Suplus Proceeds From Foreclosure Sale to Debtor's Counsel," requesting that the bankruptcy court
allow her to deposit the excess proceeds from the foreclosure sale into the trust account of 804
The United States Trustee objected to Goldsby' s request, contending that
the proceeds must be deposited in a debtor in possession bank
account. Because [804 Congress] has not opened such an account
and for other cause, the [United States Trustee] asserts that this case
should be converted to a case under Chapter 7. The [United States
Trustee] has filed a motion to convert this case to a case under
Chapter 7. The [United States Trustee] does not object to the
distribution of surplus proceeds to the Chapter 7 Trustee after he is
Goldsby calculated the payments to be made from the foreclosure proceeds as follows
based on the priority set forth in the Deed of Trust: (1) expenses of foreclosure, including Goldsby's
5% commission, in the sum of $217,750; (2) to Wells Fargo $3,278,146.35; (3) to VIA Lending,
$618,639.28; and (4) to 804 Congress the remaining surplus proceeds, $240,464.37. Later, Wells
Fargo reported additional management fees and expenses of$ 18,768.65, which ultimately increased
Wells Fargo's indebtedness to the sum $3,296,915, and decreased 804 Congress's portion a like
amount to $221,695.72.
In light of the objection, Goldsby withdrew her request. 804 Congress's bankruptcy continued under
On November 23, 2010, 804 Congress filed a Plan of Reorganization and Disclosure
Statement, which provided "the only personal property which the Debtor owns is a claim to the
excess proceeds from foreclosure." 804 Congress's operating reports filed November 30 reflected
that the bankruptcy estate was claiming surplus foreclosure proceeds as "Funds held in
Trust/Foreclosure disbursement," in the amount of $240,464.37, more of the foreclosure-sale
proceeds than Goldsby had calculated for 804 Congress.
At a December 6, 2010 hearing, after recognizing that Goldsby was not seeking the
bankruptcy court's approval of the manner in which the sales proceeds would be distributed, but only
where Goldsby should deposit 804 Congress's portion of the sale proceeds, 804 Congress objected
to the payment of Goldsby's commission and some of Wells Fargo's fees and expenses out of the
foreclosure proceeds. The bankruptcy court indicated that the court would review to whom and in
what amounts payments would be made from the foreclosure-sale proceeds.
Wells Fargo and Goldsby then filed proofs of claim for the amounts that they believed they
were entitled from the sale proceeds.
804 Congress's objections and motion
804 Congress filed objections to each proof of claim. Additionally, 804 Congress filed a
Motion to Authorize Distribution of Proceeds, which acknowledged that "[ulnder Texas law,
[Goldsby] is required to pay the proceeds in the manner dictated by the Texas Property Code.
However, the Bankruptcy Court retains jurisdiction to approve reasonable costs and fees pursuant
to [Bankruptcy Rule of Procedure] 2016 and [Bankruptcy Code] Section
argued that the bankruptcy court should pay the undisputed principal and interest to Wells Fargo and
to VIA Lending and then order Goldsby to pay the remaining foreclosure proceeds to a debtor-in-
possession account pending further court order.
With regard to Goldsby' s 5% commission claim, 804 Congress argued that the charge should
be denied because it was not incurred by the actual creditor, Wells Fargo, and is unreasonable.
Further, 804 Congress argued that a portion of Wells Fargo's prepetition and all of its post-petition
Bankruptcy Rule 20 16(a), which addresses compensation for services rendered and
reimbursement of expenses, provides:
An entity seeking interim or final compensation for services, or
reimbursement of necessary expenses, from the estate shall file an
application setting forth a detailed statement of (1) the services
rendered, time expended and expenses incurred, and (2) the amounts
Rule 2016 continues with information that is required to be included in an application for
compensation. Also, Rule 2016 states:
The requirements of this subdivision shall apply to an application for
compensation for services rendered by an attorney or accountant even
though the application is filed by a creditor or other entity.
Title 11 Section 506(b) of the Bankruptcy Code, which addresses determination of secured
To the extent that an allowed secured claim is secured by property the
value of which, afer any recovery under subsection (c) ofthis section,
is greater than the amount of such claim, there shall be allowed to the
holder of such claim, interest in such claim, and any reasonable fees,
costs, or charges provided for under the agreement or State statute
under which such claim arose.
Because this court holds that the bankruptcy court lacks jurisdiction over the proceeds of the sale of
the Property, these provisions are inapplicable.
attorney's fees should be denied, because Wells Fargo failed to substantiate these claims with
detailed billing records.
Goldsby disputed 804 Congress's argument, contending that she was "opposed to the
distribution of her commission payable under the Deed of Trust or any amounts that do not constitute
property of the bankruptcy estate under Butner v. United States, 440 U.s. 59, 99(1979) to the debtorin-possession account." Goldsby argued that 804 Congress is only entitled to receive proceeds from
the foreclosure sale, if any, that would be considered property of the bankruptcy estate, and that 804
Congress miscalculated its portion of the proceeds.
The bankruptcy court held a hearing on 804 Congress's objections to Goldsby and Wells
Fargo's proofs of claim and 804 Congress's motion to authorize distribution of funds. Wells Fargo
and Goldsby's position was, inter alia, that the bankruptcy court lacked jurisdiction over the
foreclosure proceeds and, rather than the bankruptcy court reviewing the proofs of claim, Goldsby's
commission and Wells Fargo's attorney's fees should be allowed and paid to them from the
foreclosure proceeds, as the issue is a matter of construction of the Deed of Trust and Texas law.
804 Congress posited that the bankruptcy court had jurisdiction to consider and approve reasonable
costs and fees, which 804 Congress contends includes Goldsby's commission and Wells Fargo's
attorney's fees. See
506(b); Fed. R. Bankr. P.2016.
Bankruptcy court's findings and orders
On February 28, 2011, the bankruptcy court rendered findings from the bench. The
bankruptcy court noted that Wells Fargo correctly cited the court to Texas case law for the
proposition that a trustee is entitled to a 5% commission when it conducts a foreclosure sale and that
it was proper to deduct from the proceeds any attorney's fees. Further, the bankruptcy court found
that it had jurisdiction.
57(b)(2)(A) (Administration of the Estate and Payment of
claims). The bankruptcy court also found that it's determination of "the excess proceeds is a
function above, Section 502 and 506(b) of the Bankruptcy Code."
The bankruptcy court then found that "Wells Fargo was entitled to payment at the non-default
rate through foreclosure." Additionally, the bankruptcy court found that "Wells Fargo is entitled to
the entire cost of operating expenses" upon taking over management of the Property, its appraisal
fee, and the environmental assessment.
As to Goldsby's claim, the bankruptcy court "pointed out and what is undisputed" is that
Goldsby is an attorney for a law firm, and that Wells Fargo is not responsible for paying her fees,
that rather the property surplus would be the basis for paying the fee. The bankruptcy court then
based on the evidence provided to the court, her fee is subject to the
same scrutiny as the [attorney's] fee under Bankruptcy Code Section
506 and also Federal Rule of Bankruptcy Procedure 2016. .
[Goldsby] did provide enough testimony to demonstrate that the
Court will find that she did employ 20 hours of work at her billing
rate of $375 such that she is allowed a fee of [$7,500].
With regard to Wells Fargo's post-petition attorney's fees, the bankruptcy court noted that
"it's uncontroverted that [the law firm] did not file a proof of claim in this case or an application
under Rule 506(b) of the Bankruptcy Code or 2016(a)." The court denied the attorney's fees.
On March 8, 2011, the bankruptcy court rendered the Final Order On Motion to Authorize
Distribution of Proceeds, which ordered and directed Goldsby to pay from the foreclosure proceeds:
(1) the undisputed principal, interest, and expense amounts owing to Wells Fargo under Texas law;
(2) ratified Goldsby's payment ofprincipal and interest to VIA Lending; (3) a commission of $7,500
to herself; (4) the sum of $10,400 to the bankruptcy trustee; and (5) the remaining proceeds from the
foreclosure sale to 804 Congress to be held in a debtor-in-possession account pending further order
of the court. On March 14, 2011, the bankruptcy court rendered an order on 804 Congress's
objection to Goldsby's proof of claim, awarding Goldsby $7,500 of her claimed $217,750. On
March 28, 2011, the bankruptcy court rendered an order that allowed a portion of Wells Fargo's
claim but disallowed Wells Fargo's claim of $83,326.80 as attorney's fees related to the Property.
Wells Fargo and Goldsby timely appealed these three bankruptcy-court orders.
Standard of review
On appeal this court may affirm, modify, or reverse the bankruptcy court's judgment, order,
or decree, or remand the matter at issue with instructions to the bankruptcy court to conduct further
proceedings. See Fed. R. Bankr. 8013. In reviewing a bankruptcy court's decision, this court
functions as an appellate court applying the standards of review generally applied in federal appeals.
In re Webb, 954 F.2d 1102, 1103-04 (5th Cir. 1992). Subject-matter jurisdiction is reviewed de
novo. See Lone Star Fund V, L.P. Barclays BankPLC, 594 F.3d 286 (5th Cir. 2010). District courts
review bankruptcy-court findings of fact for clear error and review legal conclusions and any mixed
questions of law and fact de novo. Highland Capital Mgmt. LP v. Chesapeake Energy Corp., 522
F.3d 575, 583 (5th Cir. 2008).
Issue is joined regarding rights to the proceeds of the foreclosure sale. Before the court is
the issue of whether Goldsby's 5% trustee commission and portions of Wells Fargo's attorney's fees
incurred in foreclosing Wells Fargo's lien on the Property are recoverable under Texas law
independently of 804 Congress's bankruptcy proceedings or are these fees and charges incurred with
regard to the sale of property of the bankruptcy estate, which the bankruptcy court maintains
jurisdiction to address.
To summarize the parties' positions, Goldsby and Wells Fargo argue that because the
foreclosure sale was conducted outside the bankruptcy proceedingthe bankruptcy court lifted the
automatic stay to allow the sale to occur under Texas
lawthe foreclosure-sale proceeds are not
property of the bankruptcy estate, and the requested portions of the foreclosure proceeds never were
property of the bankruptcy estate. They assert that, under governing Texas law, the only property
of 804 Congress's bankruptcy estate was the remainder of the proceeds, if any, after all other charges
against the proceeds were paid. Goldsby and Wells Fargo conclude that the bankruptcy court's
orders should be reversed, because the bankruptcy court lacked subject-matter jurisdiction over the
804 Congress argues that the bankruptcy court's lifting of the automatic stay to allow the
nonjudicial foreclosure sale of the Property did not remove the Property from the bankruptcy estate.
Rather, the lifting of the stay only allowed for the Property to be sold at foreclosure under Texas law
and for the secured creditors to realize their security interests in the property. Any proceeds in
excess of the creditors' secured interests were to be paid to 804 Congress as debtor-in-possession.
Under bankruptcy law, property of the bankruptcy estate includes all property, wherever
located and by whomever it is held at the commencement of the bankruptcy proceeding, including
"proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are
earnings from services performed by an individual debtor after the commencement of the case."
"Property interests are created and defined by state law." Butner, 440 U.S. at 54-55 (courts
look to state law to characterize "property rights in the assets of a bankrupt's estate"); see also In re
Laughlin, 602 F.3d 417,426(5th Cir. 2010). Property of the debtor's bankruptcy estate includes "all
legal and equitable interests of the debtor in property as of the commencement of the case."
54 1(a); In re Boyd, 11 F.3d 59, 60 (5th Cir. 1994).
Under Texas law, the power of the trustee to sell property for parties at a foreclosure sale is
derived solely from the deed of trust. See Conversion Props.
Kessler, 994 S.W.2d 810, 813 (Tex.
App.Dallas 1999, pet. denied); see also In re Home & Hearth Plano Pkwy., 320 B.R. 596, 603 n.
6 (Bankr. N.D. Tex. 2004). A deed of trust is governed by the same rules of interpretation that apply
to contracts. See Sonny Arnold, Inc.
Sentry Savings Ass 'n, 633 S.W.2d 811, 815 (Tex. 1982).
A trustee under a deed of trust is required to disburse the proceeds of a foreclosure sale as provided
by Texas law. See Tex. Prop. Code Ann. § 51.0075(f) (West Supp. 2011). The trustee must "strictly
pursue the terms of the instrument, the provisions of law relative to such sale, and the details
prescribed as to the manner of the sale." Kessler, 994 S.W.2d at 813 (quoting Bonilla v. Roberson,
918 S.W.2d 17, 21 (Tex. App.Corpus Christi 1996, no writ)). If there are excess proceeds
generated by the foreclosure sale after paying the trustee's fees and expenses and the existing
indebtedness secured by the foreclosed lien, the proceeds are distributed to inferior lienholders or
finally to the holder of the equity of redemption. See Kessler, 994 S .W.2d at 813; see also In re
Home & Hearth Plano Pkwy., 320 B.R. at 603 n. 6; In re Keener, 268 B.R. 912, 922 (Bankr. N.D.
Tex. 2001) (quoting Bonilla, 918 S.W.2d at 23).
It is undisputed that the Property was an asset ofthe bankruptcy estate. The bankruptcy court
granted Wells Fargo's request and lifted the automatic stay, which authorized Wells Fargo to post
the Property for foreclosure and to conduct a foreclosure sale in accordance with Texas law. See
362(d). By lifting the stay, the bankruptcy court allowed Wells Fargo to conduct a
foreclosure sale outside of the bankruptcy proceeding and authorized the Property to be removed
from the bankruptcy estate. See e.g., In re Matheson, 84 B.R. 435, 436-37 (Bankr. N.D. Tex. 1987).
Once the stay was lifted, Wells Fargo exercised its state-law rights by selling the Property by
nonjudicial foreclosure in accordance with Texas law.
Some courts have held that once the
automatic stay is lifted, the property that was subject to the stay ceases to be an asset of the
bankruptcy estate. Others have held that property remains an asset of the bankruptcy estate, even
after the stay is lifted, up to the moment of the foreclosure sale. See In re Griggs, 82 B.R. 532, 533
(Bankr. W.D. Mo. 1988) (once automatic stay lifted, property ceases to be property ofestate); Wilson
Bill Barry Enters., 822 F.2d 859, 861(9th Cir. 1987) (bankruptcy court relinquishes jurisdiction
over estate property when it grants relief from automatic stay); First Nat '1 Bank of Md.
States Wall Corp., (In re Incor, Inc.), 113 B.R. 212, 215 (D. Md. 1990) (lifting automatic stay
destroyed debtor's property interest); Home & Hearth Plano, 320 B.R. at 603 n.6 (property remained
property of the estate even after stay lifted until estate's rights cut off by foreclosure). But once a
foreclosure sale is completed, the bankruptcy estate's rights to the property are extinguished under
either theory. See Home & Hearth Plano, 320 B.R. at 603 n.6. The bankruptcy court's jurisdiction
lapses with its control of the property. See In re Chicago, Rock Island & PacUlc R. R. Co., 794 F.2d
1182, 1186(7th Cir. 1986). Thus, upon the foreclosure sale, 804 Congress no longer had an interest
in the Property and any interest 804 Congress would have in the Property's sale proceeds would be
determined by reference to state law and the Deed of Trust. Home & Hearth Plano, 320 B.R. at 608;
See In re Cornerstone, 416 B.R. 591, 605 (Bankr. E.D. Tex. 2008).
In reviewing de novo the bankruptcy-court record, at the time of its orders, the bankruptcy
court lacked subject-matter jurisdiction over the Property. Due to the lifting of the stay for the
express, sole purpose of proceeding with a nonjudicial foreclosure sale, at the moment the sale of
the Property occurred, all manner of interest in the Property and its proceeds were governed by Texas
law rather than bankruptcy law.
The court holds that the bankruptcy court erred in exercising jurisdiction over the
foreclosure-sale proceeds, as the proceeds were governed by Texas law. The court will reverse the
orders and remand this action for further proceedings with instructions that Goldsby disburse the
foreclosure-sale proceeds in accordance with Texas law and the Deed of Trust.
IT IS ORDERED that Appellants Greta Goldsby and Wells Fargo's appeals are
IT IS FURTHER ORDERED that the bankruptcy court's Final Order on Motion To
Authorize Distribution ofProceeds signed March 9, 2011 (Bankr. Clerk's Document No. 116); Order
on Objection to Claim of Greta Goldsby, Trustee signed March 14, 2011 (Bankr. Clerk's Document
No. 122); and Order on Objection To Claim of Wells Fargo signed March 28, 2011 (Bankr. Clerk's
Document No. 139) are REVERSED.
IT IS FURTHER ORDERED that these actions are remanded to the bankruptcy court for
further proceedings consistent with this opinion.
day of March, 2012.
UNItED STATES DISTRICT JUDGE
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