In Financial Pacific Insurance Co. v. Tinsley, BAP No. 25-20564 (9th Cir. BAP June 15, 2026), the Ninth Circuit’s Bankruptcy Appellate Panel (“BAP”) affirmed that a nonjudicial foreclosure sale that has not been completed in accordance with California law prior to the filing of a bankruptcy petition does not divest a debtor of title to the subject property or the right to assert applicable exemptions.
California’s nonjudicial foreclosure statutes draw a distinction between the occurrence of a foreclosure auction and the finality of the resulting sale. Under California Civil Code § 2924m, where the highest bidder at a foreclosure auction of a one-to-four unit residential property is not a prospective owner-occupant, the sale does not become final upon the close of bidding. Instead, because the winning bidder was not a prospective owner-occupant, a mandatory 15-day window opens during which an eligible tenant buyer or other eligible bidder may submit a competing bid or a written notice of intent to bid. If no such bid or notice is received within that period, the sale becomes final at the expiration of the 15 days. If a qualifying bid or notice is timely submitted, however, the statute’s subsequent bidding procedures govern when and how the sale is ultimately finalized.
On February 6, 2025, a nonjudicial foreclosure auction was conducted with respect to the debtors’ single-family residence in Woodland, California. The high bid of $820,000 was placed by a non-owner-occupant, thereby triggering the 15-day bidding period under California Civil Code § 2924m(c)(2) and rendering the sale non-final. On February 10, 2025 (“Petition Date”), four days after the auction and while the statutory period remained open, the debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code. Because title had not transferred as of the Petition Date, the property remained an asset of the debtors under California Civil Code § 2924m(f) and accordingly became property of the bankruptcy estate pursuant to 11 U.S.C. § 541(a) upon the filing of the bankruptcy case.
Following the Petition Date, the foreclosure trustee received two notices of intent to bid during the initial bidding period, which operated to extend the period to March 23, 2025, pursuant to California Civil Code § 2924m(c)(4)(A). The trustee’s deed upon sale was recorded on April 1, 2025, fifty-four days after the auction date.
Financial Pacific Insurance Company (“Financial Pacific”), holder of a $76,862 judicial lien against the property, contended that California Civil Code § 2924h(c) preserved its position notwithstanding the non-final status of the sale at the time of filing. That provision permits a trustee’s deed recorded within 60 days of a foreclosure sale to relate back and be deemed perfected as of 8:00 a.m. on the date of the sale. The BAP rejected this contention, holding that the relation-back provision operates solely with respect to perfection, the legal recognition of a sale already completed and final, and does not supply the element of finality where it was absent at the time of the bankruptcy filing. Because the foreclosure sale was not final as of the Petition Date, the automatic stay imposed by 11 U.S.C. § 362(a) prevented any postpetition completion of the sale, and the subsequent recordation of the trustee’s deed did not cure that deficiency.
With the property properly included in the bankruptcy estate, the debtors were entitled to assert a homestead exemption, which they claimed in the amount of $617,000 on their Amended Schedule C. The debtors thereafter moved to avoid Financial Pacific’s judicial lien pursuant to 11 U.S.C. § 522(f)(1), which authorizes avoidance of a judicial lien to the extent it impairs an exemption to which the debtor would otherwise be entitled. Applying the statutory formula set forth in 11 U.S.C. § 522(f)(2), the bankruptcy court determined that the sum of the judicial lien ($76,862), the aggregate senior liens ($582,467), and the claimed homestead exemption ($617,000) exceeded the property’s value of $1,025,000 by an amount greater than the lien itself. Because the judicial lien fully impaired the homestead exemption, it was avoided in its entirety.
The debtors separately moved to dismiss the appeal as moot under 11 U.S.C. § 363(m), on the ground that the bankruptcy trustee had completed a postpetition sale of the residence to a good-faith purchaser. The BAP denied the motion, finding that the matter was neither constitutionally nor equitably moot. The court’s sale order had expressly provided that all disputed interests, including Financial Pacific’s judicial lien, would attach to the sale proceeds with the same validity and priority as they held prior to the sale. Because the proceeds remained in the trustee’s possession pending final resolution of the lien dispute, the court retained the ability to fashion effective relief through the direction of those proceeds, and a live controversy persisted.
The Tinsley decision establishes that the timing of a bankruptcy petition relative to the finality of a nonjudicial foreclosure sale has significant legal consequences for all parties. Where a debtor files for bankruptcy before the statutory bidding period under California Civil Code § 2924m has expired, title to the property remains with the debtor, the property becomes property of the bankruptcy estate, and the debtor retains the right to assert applicable exemptions. Creditors holding judicial (or other non-consensual) liens against the property remain subject to avoidance under 11 U.S.C. § 522(f) to the extent those liens impair an allowable exemption. For foreclosing trustees and creditors, Tinsley underscores that a sale must be final under state law prior to the petition date to fall outside the reach of the bankruptcy estate and the automatic stay. Further, the statutory relation-back provision of California Civil Code § 2924h(c), which operates to perfect a completed sale, does not cure the absence of finality and cannot be invoked to validate a sale that was incomplete at the time of filing.