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New York Court of Appeals Considering Two Key Statute of Limitations Cases

Posted By USFN, Wednesday, December 18, 2019


by Richard P. Haber, Esq.
McCalla Raymer Leibert Pierce, LLC
USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY)

New York’s Court of Appeals (highest court) is currently considering two statute of limitations (“SOL”) cases relating to mortgage foreclosures, providing hope that 2020 will be the year that servicers and their counsel finally get some relief, or at least clarity and predictability. 


In Freedom Mtge. Corp. v. Engel, 163 A.D.3d 631 (2d Dep’t 2018), lv. app. granted 103 N.Y.S.3d 12 (APL-2019-00114), which the Court has already agreed to consider on the merits, the issue is whether a lender who exercises the right to accelerate by initiating foreclosure may revoke that election by voluntarily discontinuing the foreclosure action at a later date. The Appellate Division, Second Department found that a lender cannot, by discontinuance alone, revoke the election to accelerate a mortgage debt. However, this is inconsistent with prior New York decisions holding that the discontinuance of a case renders all allegations null and void, as if never made. There is no logical reason why the election to accelerate made in a complaint should not be deemed revoked when all other allegations are voided by the discontinuance.

In Bank of New York Mellon v. Dieudonne, 171 A.D.3d 34 (NY App. Div. Second Dept., March 13, 2019), the servicer has asked the Court of Appeals for permission to appeal from a ruling that rejected a line of cases standing for the proposition that a mortgage drawn on the Fannie Mae/Freddie Mac Uniform Instrument could not be deemed accelerated until the entry of final judgment (i.e., when the borrower loses the contractual right to cure arrears and reinstate the installment contract). In Dieudonne, the Appellate Division, Second Department, held that the lender’s right to accelerate is independent of the borrower’s right to reinstate. The Court held that “[c]ontrary to the plaintiff’s contention, the reinstatement provision in paragraph 19 of the mortgage did not prevent it from validly accelerating the mortgage debt.” Even though “[t]hat provision effectively gives the borrower the contractual option to de-accelerate the mortgage when certain conditions are met”, the lapsing of that right is not a condition precedent to acceleration.

USFN will be moving for permission to file an amicus brief in support of Freedom Mortgage in the Engel case, and has already filed a motion for permission to file an amicus brief in support of the servicer’s motion in Dieudonne. In the brief filed with its motion, USFN argued several policy reasons why SOL reform is needed as it pertains to mortgage foreclosures in New York. Among the reform suggestions offered to the Court by USFN are that Engel and Dieudonne should both be reversed. While these reversals would not necessarily be a cure-all for SOL challenges in New York, they would certainly go a long way to removing the time bar that prevents the foreclosure of many loans today. Stay tuned for updates in the coming months!

Copyright © 2019 USFN. All rights reserved.

December e-Update

 

Tags:  amicus brief  Bank of New York Mellon v. Dieudonne  foreclosure  Freedom Mtge. Corp. v. Engel  New York Court of Appeals 

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Awarding Committee for Sale’s Fees and Costs Does Not Violate Automatic Stay

Posted By USFN, Wednesday, December 18, 2019


by Kevin Galin, Esq.
Bendett & McHugh, P.C.
USFN Member (CT, MA, ME, NH, RI, VT)

 

The Connecticut Supreme Court recently visited the question of whether state courts have jurisdiction to extend the automatic stay provisions of 11 U.S.C. § 362 (a) (1) to motions by those court appointed attorneys that administer foreclosure sales (called “committees for sale” or “committees” in Connecticut foreclosure practice. The committees perform duties similar to auctioneers) to recover fees and expenses from non-debtor foreclosure plaintiffs.  In a decision stemming from a writ of error filed by the committee for sale, the Court held that an award of a committee’s fees and costs during a bankruptcy stay does not violate the applicable provisions of the Bankruptcy Code.

In U.S. Bank, N.A. as Trustee v. Jacquelyn N. Crawford et.al, 333 Conn. 183 (2019), the trial court entered a judgment of foreclosure by sale, and pursuant to Connecticut practice, appointed a committee to conduct the sale. After the sale had been conducted but prior to the sale approval, the defendant-mortgagor filed for Chapter 13 bankruptcy protection, automatically staying the proceedings. The committee nonetheless filed a motion pursuant to Connecticut General Statute § 49-25,[1] which sought to recover fees and expenses incurred prior to the filing of the bankruptcy petition in preparing and conducting the sale.

The trial court considered itself bound by Equity One, Inc. v. Shivers, 150 Conn. App. 745 (2014), a prior Connecticut Appellate Court decision which held that such motions for award of committee’s fees were prohibited from being awarded as violative of the automatic bankruptcy stay provisions of 11 U.S.C. § 362 .  In doing so, the Appellate Court in Shivers held that even though the committee’s motion did not directly affect the defendant, since these fees and costs would be able to be sought by plaintiff at the conclusion of the case, such a motion was subject to the stay.  Relying upon Shivers, the trial court here denied the committee’s motion. The committee’s writ of error followed.

In Crawford, the Connecticut Supreme Court overrules Shivers to the extent that Shivers held that state courts have jurisdiction to extend the automatic stay provisions to proceedings against non-debtors, in particular, the committee for sale appointed in a foreclosure action. The Court first visits the issue of whether or not the denial of the committee’s motion for an award of attorney’s fees is a reviewable issue, which the Court finds that it is.[2] The Court then acknowledges that while the writ of error was rendered moot during the pendency of the writ of error, in that the automatic stay was terminated by virtue of the defendant-mortgagor’s bankruptcy case being dismissed, the claim is reviewable under the capable of repetition, yet evading review exception to the mootness doctrine. 

In doing so, the Court describes this issue to be one that is “of some public importance” as a committee for sale functions as an arm of the court in a judicial sale and that under the Shivers holding, attorneys may be more reluctant to serve as sale committees if they run the risk of being rendered unable to recover their fees and expenses promptly, and without having to seek a judgment from the bankruptcy court, if the debtor declares bankruptcy.

Crawford reinforces the significance of the public policy served by resolving foreclosures expeditiously and further emphasizes the importance of the sale committee’s role in doing so.   It also highlights the relationship between federal bankruptcy proceedings and state court foreclosure actions, clarifies the responsibility of a mortgage servicer to pay committee of sale fees and expenses, notwithstanding a pending bankruptcy of a defendant, and now puts Connecticut state law with respect to this issue in line with most of the holdings of the Bankruptcy Courts for the District of Connecticut. Although there is a split of authority amongst Connecticut’s Bankruptcy courts on the payment of fees and costs during a bankruptcy, further challenges on this issue in Bankruptcy Courts are expected.



[1] General Statutes § 49-25 provides in relevant part: ‘‘[I]f for any reason the sale does not take place, the expense of the sale and appraisal or appraisals shall be paid by the plaintiff and be taxed with the costs of the case. . . .’’

[2] Justice McDonald’s dissenting opinion, with whom Justices Mullins and Kahn join, while conceding that the Shivers decision is inconsistent with the conclusions reached by several federal bankruptcy courts, disagrees with the majority result insofar as the majority finds that the denial of a motion for an award of committee’s fees is an immediately appealable order and therefore the substantive issue should not be reached.

Copyright © 2019 USFN. All rights reserved.

December e-Update


Tags:  Connecticut Supreme Court  Foreclosure  U.S. Bank N.A. as Trustee v. Jacquelyn N. Crawford 

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Connecticut Case Addresses Bankruptcy Stay’s Impact on Judgments of Strict Foreclosure

Posted By USFN, Wednesday, December 18, 2019



by Joseph Dunaj, Esq
McCalla Raymer Leibert Pierce, LLC
USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY)


In the case of Seminole Realty, LLC v. Sekretaev, 192 Conn. App. 405 (2019), the Connecticut Appellate Court has released an important opinion concerning the intersection of federal bankruptcy law and judgments of strict foreclosure; specifically, the effect of a bankruptcy court order imposing a stay on a pending law day.  In Seminole Realty, a judgment of strict foreclosure had initially entered in 2014, with a law day being set.  The defendant, however, engaged in a scheme to delay the foreclosure by filing multiple bankruptcy petitions to gain the benefit of the automatic bankruptcy stay under 11 U.S.C. § 362(a).  In 2018, the foreclosing plaintiff obtained an order of in rem relief under 11 U.S.C. § 362(d)(4), so that any further petition filed within two years would not impose a stay on the foreclosure.  The plaintiff then filed a Motion to Reset the law days. 

Prior to the scheduled hearing, the defendant filed another Chapter 13 Bankruptcy Petition, which did not impose a stay because of the in rem relief order.  At the hearing on the Motion to Reset, the court scheduled a law day of August 15, 2018.  On July 10, 2018, the bankruptcy court entered an order suspending the prior in rem relief order.  On September 18, 2018, the bankruptcy court then vacated its July order.  The foreclosing plaintiff then applied for an execution for ejectment, to gain possession of the premises, which was issued on November 29, 2018, from which the defendant appealed, claiming that the law days became ineffective upon the bankruptcy court’s July 10th order imposing a stay, and thus title never vested in the plaintiff.

Prior to 2002, the general presumption in Connecticut was that a law day in a judgment of strict foreclosure was indefinitely stayed by a bankruptcy petition 11 U.S.C. § 362(a).  Citicorp Mortgage v. Mehta, 39 Conn. App. 822, 824 (1995).  That changed with the Second Circuit decision of Canney v. Merchs. Bank (In re Canney), 284 F.3d 362 (2nd Cir. 2002).  In In re Canney, the Second Circuit held that because a strict foreclosure was merely a time limitation on a particular action (the time to redeem), and not a positive act to enforce a judgment, the limited stay of 11 U.S.C. § 108(b) applied instead.  In Provident Bank v. Lewitt, 84 Conn. App. 204 (2004), the Connecticut Appellate Court adopted the holding of In re Canney, and held that a judgment of strict foreclosure is subject to 11 U.S.C. § 108(b), and the filing of a bankruptcy petition serves to only extend a law day 60 days, rather than stay the law days indefinitely. 

The state legislature adopted Conn. Gen. Stat. § 49-15(b) in response to In re Canney and Lewitt.  Under that statute, when a mortgagor files a bankruptcy petition under any title of the Bankruptcy Code, the judgment of strict foreclosure is automatically opened by operation of law, but only as to the law days, with the other terms of the judgment remaining in place.  The effect of the statute is to prevent the passage of the law days upon the filing of a bankruptcy petition and avoid the result of In re Canney & Lewitt.  At that time (pre-BAPCPA), all bankruptcy petitions imposed a stay, and while efforts have been made to correct the now-outdated statute, the state legislature has been slow to act.

In Seminole Realty, the issue before the Appellate Court was the impact of the bankruptcy court’s July 10th order on the pending law day.  The Appellate Court held that Conn. Gen. Stat. § 49-15(b) only applies upon the filing of a bankruptcy petition, and only applies when a petition is filed after a court sets a law day pursuant to a judgment of strict foreclosure.  Further, the Appellate Court held that when the statute does not apply, the prior case law of In re Canney and Lewitt applies.  The Appellate Court found that when the bankruptcy court imposed a stay on July 10th, the law day was automatically extended 60 days under 11 U.S.C. § 108(b), and when the defendant failed to redeem by the expiration of his law day, title vested absolutely to the Plaintiff.

The Appellate Court’s holding in Seminole Realty has potentially broad implications.  As stated above, the court has re-affirmed the validity of the prior case law, when the strictures of Conn. Gen. Stat. § 49-15(b) do not expressly apply.  A foreclosing plaintiff would be mindful to review Seminole Realty and whether or not its holding would be beneficial to argue, especially in an aged foreclosure case with multiple bankruptcy filings.  Further, the Appellate Court in Seminole Realty, by highlighting some of the shortcomings of Conn. Gen. Stat. § 49-15(b), appears to either show its willingness to address the statute in future cases or seeks to invite the legislature to further amend the statute.  Surely, time will show how the statute will further evolve.

 

Copyright © 2019 USFN. All rights reserved.

December e-Update

 

Tags:  Bankruptcy  Connecticut  Connecticut Appellate Court  Foreclosure  Seminole Realty LLC v. Sekretaev 

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