|Fremont Inv. & Loan v Hernandez|
|2008 NY Slip Op 50727(U) [19 Misc 3d 1115(A)]|
|Decided on April 7, 2008|
|Supreme Court, Orange County|
|Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.|
|This opinion is uncorrected and will not be published in the printed Official Reports.|
Fremont Investment and Loan, Plaintiff,
William Hernandez, "JOHN DOE No.1-5 and JANE DOE # 1-5 SAID NAMES BEING FICTITIOUS, IT BEING THE INTENTION OF PLAINTIFF TO DESIGNATE ANY AND ALL OCCUPANTS, TENANTS, PERSONS OR CORPORATIONS, IF ANY, HAVING OR CLAIMING AN INTEREST IN OR LIEN UPON THE PREMISES BEING FORECLOSED HEREIN, Defendants.
Factual and Procedural Background
Defendant, William Hernandez (hereinafter "Hernandez"), was the owner of the premises known as 250 Grand Street, in the City of Newburgh, Orange County, State of New York (the [*2]"Premises")[FN1]. Hernandez executed a mortgage to Mortgage Electronic Registration Services, Inc. as nominee for Fremont Investment and Loan (hereinafter the "plaintiff"). Hernandez defaulted in his mortgage payments to the plaintiff. As a result plaintiff, as holder of the mortgage, commenced this foreclosure proceeding [FN2].
Although Hernandez was properly served with the summons and complaint in this action [FN3] pursuant to CPLR 308, he defaulted in appearing or answering.
On March 2, 2007, an Order of Reference was granted and a referee was appointed to ascertain and compute the amount due to plaintiff. The referee filed a report dated April 3, 2007.
On April 18, 2007, the Court granted a judgment of foreclosure and sale in favor of plaintiff (hereinafter the "Judgment of Foreclosure").
On June 20, 2007, Hernandez filed a Chapter 13 petition for bankruptcy relief under the
United States Bankruptcy Code bearing S.D.NY Bankruptcy Court Case #
07-35911 CGM. The sale of the Premises was postponed. Thereafter, on August 16, 2007, an order dismissing the first Chapter 13 case was issued by the Bankruptcy Court.
On October 10, 2007, Hernandez filed a second Chapter 13 petition (S.D.NY Bankruptcy
Court Case #
07-36579 CGM). The automatic stay in the second case terminated on November 9, 2007 and the Bankruptcy Court dismissed the second case by Order dated December 13, 2007. On November 9, 2007, Mr. Hernandez filed a third bankruptcy petition [FN4], without the protection of the automatic stay.
During this same period of time, the foreclosure sale was rescheduled by plaintiff for November 13, 2007 and Hernandez, along with others, was served with notice of the postponed sale by first class mail on November 1, 2007 (the "Notice"). The foreclosure sale was conducted pursuant to the Judgment of Foreclosure (the "Sale") as scheduled on November 13, 2007. Plaintiff's counsel states that the "property was sold to the plaintiff" on November 13, 2007. Plaintiff now seeks to pursue eviction of all residents of the Premises.
Defendant Hernandez now seeks to vacate the Sale, and stop evictions, based on the
contention that at the time of the Sale he enjoyed the protection of the federal automatic
bankruptcy stay. In the alternative, Mr. Hernandez claims that he had no notice of the Sale. [*3]Plaintiff opposes the motion.
Pursuant to RPAPL §231, at any time within one year of the Sale, this Court may vacate
the Sale " ... for failure to comply with the provision of this section as to the notice, time or
manner of such sale if a substantial right of a party was prejudiced by the defect." RPAPL §
A. Vacating the Foreclosure Sale for Failure to Serve the Notice of Postponed Sale
Hernandez asserts that the Sale should be vacated because he was not served or properly served with the Notice relating to the postponed Sale conducted on November 13, 2007 sale.
In opposition to the claim of lack of service, plaintiff produces an affidavit of service, with regard to the Notice, indicating that the "Notice of Legal Postponement of Sale", delineating the November 13, 2007 sale date, was mailed to Mr. Hernandez on November 1, 2007.
Mr. Hernandez, appearing pro se on the instant application, nonetheless claims that he was not adequately notified of the Sale [FN5]. Mr. Hernandez's affidavit states a belief that the Notice had to be personally served in order to be valid.
A party who appears in an action and who does not waive service of the notice of sale is entitled to notice of sale in addition to notice from publication as provided for by RPAPL § 231. But, a party who does not appear is not entitled to such notice. Olympia Mortgage Corp. v. Ramirez, 9 AD3d 401, 780 NYS2d 611 (2nd Dept., 2004); Bank of New York v. Agenor, 305 AD2d 438, 758 NYS2d 817 (2nd Dept., 2003)
Because he never appeared in this action, plaintiff was not required to serve the Notice on Hernandez. Alaska Seaboard Partners Ltd. Partnership v. Grant, 20 AD3d 436, 799 NYS2d 117(2nd Dept., 2005); Olympia Mortgage Corp. v. Ramirez, supra . Furthermore, Hernandez was clearly not entitled to personal service of the Notice. See, RPAPL 231; Bank of New York v. Agenor, supra .
Moreover, despite the fact that plaintiff was not required to serve the Notice upon Hernandez, it did serve him with the Notice of the November 13, 2007 Sale.
The affidavit of service for the Notice relating to the November 13, 2007 sale indicates that it was served by first class mail on November 1, 2007. Pursuant to RPAPL §231, a notice of sale for an adjourned or postponed sale must be made at least three days prior to the sale date. RPAPL § 231(3). Thus, even when adding five days to the notice period pursuant to CPLR 2103(b)[FN6], the Notice provided to Hernandez, even though gratuitous and not mandated here, was [*4]in excess of that required by RPAPL §231.
In conclusion, because notice was not required, and because even though not required the
Notice was served and served in a timely manner, there is no basis to vacate the Sale on these
B. Vacating the Foreclosure Sale for Violation of the Bankruptcy Stay
Mr. Hernandez also seeks to vacate the Sale on the ground that the Sale was in violation of the automatic stay provided by the United States Bankruptcy Code (11 U.S.C. §§ 101- 1330)(hereinafter the "Bankruptcy Code") .
On June 20, 2007, Hernandez filed a Chapter 13 petition for bankruptcy (S.D.NY
Bankruptcy Court Case #
07-35911 CGM)(the "first bankruptcy case"). As a result of the filing and the mandates of the bankruptcy automatic stay (11 U.S.C. §362), the sale of the Premises was postponed. An order dismissing the Chapter 13 case was entered on June 20, 2007, and the automatic stay was vacated (the "First Dismissal Order"). See, 11 U.S.C. §362(c)(2)(B).
On October 10, 2007, Hernandez filed his second Chapter 13 petition bearing S.D.NY
Bankruptcy Court Case #
07-36579 CGM (the "second bankruptcy case"). Upon filing a petition, Mr. Hernandez would have normally been entitled to the protection of the bankruptcy automatic stay. But, as plaintiff argues, because this was Mr. Hernandez second filing of a case under Chapter 13 within one (1) year, the automatic stay applicable to this filing terminated with respect to Mr. Hernandez, as the debtor, "on the 30th day after the filing of the later case". 11 U.S.C. §362(c)(3)(A). By this Court's calculations, the automatic stay with respect to the second filing terminated on November 9, 2007 [FN7].
As set forth above, the Sale was rescheduled by plaintiff for November 13, 2007. Notice of the postponed sale was served by first class mail on November 1, 2007. Clearly the automatic stay was still applicable on November 1, 2007, but had expired at the time of the Sale on November 13, 2007 [FN8]. [*5]
Therefore, the question before the Court is whether the plaintiff, in serving the Notice of postponed sale prior to November 9, 2007, and to the extent it published the Notice of postponed sale prior to November 9, 2007 [FN9], violated the automatic stay.
Pursuant to the provisions of the Bankruptcy Code (11 U.S.C. §362), the automatic stay
is applicable to all entities and operates to stay:
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate;
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
(7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and
(8) the commencement or continuation of a proceeding before the United States Tax Court concerning a corporate debtor's tax liability for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title. 11 U.S.C.A. § 362(a).
Clearly an act to foreclose a lien pursuant to a judgment of foreclosure is stayed pursuant to 11 U.S.C. §362(a). Accordingly, this Court must determine whether or not the bankruptcy stay was applicable in this case, and such analysis must include whether or not the most recent changes to [*6]the Bankruptcy Code affect the automatic stay's applicability to these parties [FN10].
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") provided for significant changes in the bankruptcy laws of the United States. Among BAPCPA's sweeping changes was the elimination of some of the protections bankruptcy filers previously enjoyed.
Among the BAPCPA amendments was the addition of 11 U.S.C. §362(b)(21) which modified or limited the application of the automatic stay in certain cases. 11 U.S.C. §362(b)(21), is a statutory carve out that allows secured creditors to proceed against real property under certain circumstances. More particularly, the statute provides that the filing of a voluntary petition for bankruptcy "does not operate as a stay...of any act to enforce any lien against or security interest in real property ...if the debtor is ineligible under section 109(g) to be a debtor in a case under this title...". 11 U.S.C. §362(b)(21).
Section 109 of the Bankruptcy Code provides that an individual is ineligible to file a petition and be a debtor in a case under the Bankruptcy Code, if such individual has been a "debtor in a case pending under this title at any time in the preceding 180 days if ...(1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case". 11 U.S.C.A. § 109(g)(1)(emphasis supplied).
Bankruptcy Code §109(g) was added with the 1984 Bankruptcy Amendments. Its purpose was to curb abuse of bankruptcy by debtors who file successive petitions simply to thwart enforcement of a mortgage [FN11] or other security interest. This Court must determine whether or not Bankruptcy Code § 109(g)(1) and its 180-day temporal limit applied to these parties [FN12].
As affecting the instant matter, the First Dismissal Order of the Hon. Cecelia G. Morris,
USBJ, specifically states that Mr. Hernandez's first bankruptcy case, bearing S.D.NY Bankruptcy
Court Case #
07-35911 CGM, was being dismissed on the grounds of "unreasonable delay that is prejudicial to creditors" [11 U.S.C. §1307(c)(1)], "for failure to remit timely plan payments" [11 U.S.C. §1326], and "for failure to submit the required documentation" [11 U.S.C. §§521(I) and 521(e)(2)(A)(I) and (2)(B)]. (See, Order Dismissing Case dated August 16, 2007, annexed to [*7]plaintiff's opposition papers as Exhibit A.)
Notably, Judge Morris did not specifically dismiss the first case pursuant to 11 U.S.C. § 109(g)(1) nor express a specific finding that Mr. Hernandez acted "willfully". Certainly, if Judge Morris worded the First Dismissal Order to include the word "willful", such order would have been conclusive of the issue of "willfulness" and would have barred Mr. Hernandez's subsequent filing for 180 days. See generally, In re Bono, 70 B.R. 339 (Bkrtcy. E.D.NY, 1987).
It cannot be questioned that Judge Morris dismissed Mr. Hernandez's first bankruptcy case for failure to appear in "proper prosecution of the case" and for failure to abide by Court orders. 11 U.S.C. § 109(g)(1). See also, In re Prud'Homme, 161 B.R. 747 (Bkrtcy. E.D.NY, 1993) [Dismissal of prior Chapter 13 case, based on debtor's failure to make pre-confirmation payments to trustee was dismissal for failure to appear "in proper prosecution of case,"]; In re Watkins, 2008 WL 708413 (Bkrtcy E.D.NY, 2008)[Debtor's failure to make Chapter 13 plan payments constituted a failure to abide by court orders.] But, nothing in the record before this Court indicates that Judge Morris ever made a finding, upon which this Court can rely on as having a collateral estoppel effect (see, In re Bono, supra , 70 B.R. at 342) that Mr. Hernandez's actions, or inactions, before the Bankruptcy Court were willful. Without proof that there was a finding of willfulness by Judge Morris when dismissing the first bankruptcy case [FN13] or without actual language to that effect in the First Dismissal Order, or proof of a finding by Judge Morris at some point in the second bankruptcy case [FN14] filed by Mr. Hernandez that the first bankruptcy case had been dismissed for willfulness [FN15], this Court cannot hold that the statutory bankruptcy stay carve out contained in 11 U.S.C. §362(b)(21) was applicable to these parties [FN16]. [*8]
The 180-day temporal limit provided by Bankruptcy Code §109(g) is a sanction and therefore this Court is without the authority to determine willfulness conduct before the Federal Bankruptcy Court.
Further, this Court must conclude that the statutory carve out implicated by 11 U.S.C. §362(b)(21) can only benefit holders of liens or a security interest in real property seeking to continue to pursue foreclosure proceedings in State Court when, in dismissing a prior filing, the Federal Bankruptcy Court makes a finding of willfulness on the part of the debtor. Without a prior finding of willfulness it is difficult to imagine how 11 U.S.C. §362(b)(21) could be controlling [FN17].
On account of the foregoing, this Court finds that when plaintiff served and published its Notice of postponed sale on November 1, 2007, the automatic bankruptcy stay was in effect. Absent relief from the automatic stay, all non-ministerial and judicial actions taken against a debtor are void ab initio if they occur after the automatic stay takes effect. See, Rexnord Holdings v. Bidermann, 21 F.3d 522 (2d Cir., 1994); Carr v. McGriff, 8 AD3d 420, 781 NYS2d 34 (2d Dept., 2004). Therefore, the Notice in this case is void ab initio.
As set forth above, RPAPL §231, provides this Court with the discretion to vacate the Sale " ... for failure to comply with the provision of this section as to the notice, time or manner of such sale if a substantial right of a party was prejudiced by the defect." RPAPL § 231(6).
While perhaps a legal fiction, the Notice served and published by plaintiff never existed. Because the Notice was void ab initio, it is a fundamental jurisdictional defect [FN18] and not a minor irregularity (see, Amresco New England II v. Denino, 283 AD2d 599, 599, 725 NYS2d 78, 79 [2nd Dept., 2001]["the failure to give proper notice of a sale, as required by RPAPL §231, is a mere irregularity and is not a jurisdictional defect" (emphasis added)]) which requires that this Court must vacate the Sale.
Certainly a violation of the automatic stay of the United States Bankruptcy Code is the type of mistake or misconduct that casts suspicion on the fairness of a sale. See generally, Federal Nat. Mortg. Ass'n v. New York Financial & Mortg. Co., Inc., 222 AD2d 647, 647, 636 NYS2d 105, 106 (2nd Dept., 1995) [*9]
While this Court is cognizant that Mr. Hernandez has used every means possible to thwart plaintiff's lawful right to foreclosure, he is still entitled to the protections of the United States Bankruptcy Code. See, Meade v. JD Venture Capital, LLC, 38 AD3d 858, 859, 832 NYS2d 665, 666 (2nd Dept., 2007). In Meade v. JD Venture Capital, LLC, the Second Department affirmed a trial court's vacating of a foreclosure sale of real property and declaring invalid the referee's deed to the real property. There, like here, the notices of sale served by the plaintiff were void because of a bankruptcy automatic stay and a substantial right of the property owner was prejudiced thereby. It is important to note that in Meade v. JD Venture Capital, LLC, as in this case, there was no demonstration by the property owner that she had the funds available to exercise her right of redemption on the date of the foreclosure sale.
In the instant matter, the result should be no different.
This Court holds that notices of sale ostensibly served in compliance with RPAPL §231, but which are void ab initio because they were served while the automatic stay provided for by the United States Bankruptcy Code (11 U.S.C. §362) is in effect, is not a mere irregularity, but a jurisdictional defect.
Based on the foregoing, this Court vacates the foreclosure sale that was conducted on November 13, 2007, without prejudice. Any deed transferring the Premises is therefore invalid.
The foregoing shall constitute the decision and order of the Court.
Dated: Goshen, New York
April 7, 2008
HON. WILLIAM J. GIACOMO, J.S.C.
cc:Fein, Such & Crane, LLP
Attorneys for the Plaintiff
747 Chestnut Ridge Road, Suite 200
Chestnut Ridge, New York 10977
Defendant, Pro se
2 Glenwood Avenue
Demarest, New Jersey 07627