Lubonty v. Barnard et al

Filing 7

MEMORANDUM OF DECISION & ORDER - For the foregoing reasons, it is hereby ordered that the March 3, 2014 Order is affirmed. The Clerk of the Court is directed to close this case. So Ordered by Judge Arthur D. Spatt on 3/21/2015. c/ecf Judgment Clerk. (Coleman, Laurie)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------------------------X
GREG LUBONTY
Appellant,
MEMORANDUM OF
DECISION & ORDER
14-cv-3945 (ADS)

-againstR. KENNETH BARNARD, Chapter 7 Trustee,
ALS HIBISCUS, LLC, and the UNITED
STATES TRUSTEE
Appellees.
---------------------------------------------------------X
APPEARANCES:
Lester & Associated, P.C.
Attorneys for the Appellant
600 Old Country Road, Suite 229
Garden City, NY 11530
By: Peter Kuldip Kamran, Esq., Of Counsel
Lamonica Herbst & Maniscalco, LLP
Attorneys for the Appellee R. Kenneth Barnard
3305 Jerusalem Avenue
Wantagh, NY 11793
By: Gary F. Herbst, Esq.
Melanie A Fitzgerald, Esq., Of Counsel
Otterbourg P.C.
Attorneys for the Appellee ALS Hibiscus, LLC
230 Park Avenue
New York, NY 10169
By: Jennifer S. Feeney, Esq., Of Counsel

Office of US Trustee
560 Federal Plaza
Central Islip, NY 11722
By: Stan Yuon Yang, Counsel to the United States Trustee

1

SPATT, District Judge.
On June 23, 2014, the Appellant Greg Lubonty (“Appellant”) filed an appeal from a
March 3, 2014 order (the “March 3, 2014 Order”) by the United States Bankruptcy Court,
Eastern District of New York (Trust, J). The March 3, 2014 Order approved the terms of an
amended stipulation (the “Amended Stipulation”) entered into on February 26, 2014 between
ALS Hibiscus, LLC (“ALS”) and R. Kenneth Barnard, as Chapter 7 Trustee of the Bankruptcy
Estate (the “Trustee”). The Amended Stipulation, among other things, (i) granted ALS a secured
claim against the Bankruptcy Estate in the amount of $4,655,412.45; (ii) granted the Trustee
permission to sell the Appellant’s residential property located in Miami Florida (the “Miami
Property”) under certain terms and conditions; (iii) permitted ALS to commence a foreclosure
proceeding on the Miami Property; and (iv) adjourned a hearing on the Appellant’s objection to
ALS’s secured claim against the Appellant’s Bankruptcy Estate.
The Order was entered over the Appellant’s objection, and this appeal followed. For the
reasons set forth below, the Bankruptcy Court’s Order is affirmed.
I. BACKGROUND
A. The Underlying Facts
1. The Mortgages on the Miami Property
On April 11, 2005, the Appellant executed a note and mortgage (collectively, the
“Mortgage”) in favor of the Wachovia Mortgage Corporation (“Wachovia”) in the principal
amount of $3,000,000 on the Appellant’s Miami Property. (App. Rec. 10, Ex. C.) The mortgage
has a maturity date of May 1, 2035. The original principal amount due under the Mortgage was
$3 million and interest accrued at a rate of 5.875% per year. (Id.)

2

Wells Fargo held a second mortgage on the Miami Property in the amount of $550,000.
(App. Rec. 17 at 75:11–17.) The record does not specify the terms of the second mortgage, nor
when the Appellant obtained the second mortgage.
From January 2007, the debtor has failed to make any payments on the Mortgage, nor has
he paid any fees, taxes, insurance, or other expenses associated with the Miami Property. (See
App. Rec. 8, Ex. 1.) On May 11, 2007, Wachovia commenced a mortgage foreclosure
proceeding on the Miami Property in the Circuit Court of 11th Judicial District in Miami-Dade
County, Florida. (See id.)
At an unspecified time Wachovia assigned its interest in the Note to Wells Fargo Home
Mortgage (“Wells Fargo”). (See App. Rec. 10, Ex. B.) In a September 18, 2011 letter to the
Appellant, Wells Fargo wrote that its records indicated that the Appellant was delinquent under
the terms of the Mortgage in a total amount of $1,474,040.46 and that to “avoid the possibility of
acceleration, you must pay this amount on or before October 18, 2011.” (Id.)
On January 8, 2011, the Eleventh Judicial Circuit dismissed the mortgage foreclosure
proceeding without prejudice because Wachovia failed to appear at several case management
conferences. (See App. Rec. 8, Ex. 2.)
2. The Bankruptcy Action
On October 19, 2011, the Appellant filed a voluntary petition with the Bankruptcy Court
for relief under Chapter 11 of the Bankruptcy Code (the “Bankruptcy Action”). (App. Rec. 17 at
Tr. 71:22–24–72:1.) The case was assigned to United States Bankruptcy Judge Alan S. Trust.
Pursuant to 11 U.S.C. § 362(a), any other actions to foreclose on the Miami property were stayed
during the pendency of the Bankruptcy Action.

3

On April 2, 2012, Wells Fargo filed a secured proof of claim in the amount of
$4,655,412.47. (App. Rec. 1.) Wells Fargo’s claim became Claim No. 13 in the Bankruptcy
Action. (Id.)
In their memoranda, both the Appellant and ALS state that Wells Fargo assigned the
Mortgage and its claim in the Bankruptcy Action to BSI Financial Services, Inc. (“BSI”). (See
The Appellant’s Mem. of Law at 3–4; The Appellee’s Mem. of Law at 5.) Both parties also
claim that on December 14, 2012, BSI filed a motion seeking relief from the automatic stay
pursuant to 18 U.S.C. § 362(d) to foreclose on the Miami Property in a separate state court
proceeding. (See App. Rec. at Tr. 75:17–23.) 18 U.S.C. § 362(d) provides that a “party in
interest” can make motion for relief from an automatic stay “for cause, including the lack of
adequate protection of an interest in property of such party in interest.”
However, the Court has not found any support in the appellate record for the parties’
contention that Wells Fargo transferred its interest in the Mortgage to BSI. To the contrary, a
document entitled, “Corporate Assignment of Mortgage,” dated August 28, 2012, indicates that
Wells Fargo assigned the Mortgage to MCM Capital Partners LLC (“MCM”). (App. Rec. 1, at
p. 32.) Another document entitled, “Assignment of Mortgage/Security Deed/Deed of Trust”,
states that on October 28, 2012, the Mortgage was assigned by MCM to Newbury Place REO IV,
LLC (“Newbury”). (Id. at p. 40.) BSI is not indicated anywhere in these documents, nor do the
parties clarify what, if any, relationship MCM or Newbury had to BSI.
Despite these inconsistencies, it is clear from the record, and the parties appear to agree,
that on June 10, 2013, Newbury assigned the Mortgage to the Appellee ALS. (App. Rec. 2.)
On June 20, 2013, ALS filed a motion seeking entry of an order converting the case from
a Chapter 11 action to a Chapter 7 action. (App. Rec. 4, at p. 3.)
4

On the same day, Judge Trust “so ordered” a stipulation pursuant to which ALS and the
Appellant agreed that ALS’s claim would be fixed in the amount of $4,378,209.67 subject to the
Bankruptcy Court’s determination of the value of the Miami Property. (App. Rec. 3, at ¶ 3.)
On July 2, 2013, Judge Trust granted the motion by ALS and converted the case to a
Chapter 7 action because the court found that a conversion was in the “best interests of creditor
and the estate under 11 U.S.C. § 1112(b)(1).” (Id.) On the same day, Judge Trust appointed
Appellee Barnard as the interim Trustee of the Appellant’s Estate. (App. Rec. 5.) Barnard later
became the permanent trustee of the Appellant’s Estate; however, the record does not specify
when he was so appointed.
On July 3, 2013, Judge Trust granted permission to ALS to commence a foreclosure
proceeding on the Miami Property. (See Feb. 3, 2014 Hearing Tr. 75:17–23.) Rule 4001 of the
Federal Rules of Bankruptcy Procedure (“Fed. R. Bankr. P.”) 4001(a)(3) provides that “[a]n
order granting a motion for relief from an automatic stay made in accordance with Rule
4001(a)(1) is stayed until the expiration of 14 days after the entry of the order, unless the court
orders otherwise.” As such, the order lifting the automatic stay did not become effective until
July 18, 2013. (See App. Rec. 17 at Tr. 75:17–23.)
On October 7, 2013, ALS filed a proof of claim amending Claim No. 13 in the
Bankruptcy Action. (App. Rec. 9, Ex. 1.) The proof of claim sought to amend the total amount
due to ALS under the Note from $4,378,209.67 to $4,586,884.16 “plus certain other fees,
expenses, indemnification claims, and interest.” (Id.) The Bankruptcy Court assigned Claim No.
18 in the Bankruptcy Action to ALS. (Id.)

5

3. The Original Stipulation to Sell the Miami Property
On December 4, 2013, the Trustee and ALS entered into a stipulation regarding the sale
of the Miami Property (the “Original Stipulation”). (App. Rec. 6.) The Original Stipulation
provided that:
(i) ALS would have an “allowed claim” in the amount of $4,586,884.16 and if the
Trustee sells the Miami Property for more than that amount, “interest and fees
accrued and accruing since the Petition Date until the date that the ALS Claim is
paid”; (ii) the Trustee would proceed with the sale and marketing of the Miami
Property; and (iii) ALS agreed to “carve out from the proceeds of the sale of the
Miami Property” in the amount of $125,000 for the Trustee to use in its discretion
to pay out other claims on the Bankruptcy Estate and costs and commissions
related to closing the transaction.
(Id.) On December 20, 2013, the Trustee filed a motion for entry of an order approving
the Original Stipulation. (Id.)
4. The Appellant’s Objection to the Original Stipulation and ALS’s Claim
On January 2, 2014, the Appellant filed a motion objecting to the Original
Stipulation. (App. Rec. 8
On January 3, 2014, the Appellant filed an objection to ALS’s Claim No. 18
asserting the same objections as he did in his motion objecting to the Original Stipulation.
(Id.)
On January 31, 2014, the Trustee and ALS filed an amended stipulation regarding
the sale of the Miami Property (the “Amended Stipulation”). The Amended Stipulation,
increased the “Carve-Out” for the Bankruptcy Estate from $125,000 to $250,000. (App.
Rec. 19, at ¶ 5.) It also provided several additional terms, including that “[i]n the event
that the Miami Property sells for a purchase price in excess of $5,000,000, the estate and
ALS will share the additional funds in a 50%/50% division.” (Id. at ¶ 6.) The Amended
Stipulation further provided that “ALS would be authorized and allowed to commence
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and or continue its foreclosure action on the [Miami] Property up to the point of sale.”
(Id. at ¶ 8.)
In support of the Amended Stipulation, the Trustee filed a declaration stating that
both the Original and Amended Stipulation were “products of arms-length negotiations
between the Parties and . . . were entered into in good faith.” (App. Rec. 15, at ¶ 15.)
The Trustee also represents that, “I believe that the terms of the Revised Stipulation
provide an immediate cost savings and benefit to the estate as there is a guaranty of
payment, through the Carve-Out, and the estate will not be testing the real estate waters at
a cost that may not be recouped on a low sales price and which would otherwise be
charged to the estate at the expense of the creditors.” (Id. at ¶ 17.) As such, the Trustee
concluded that “in my best business judgment . . . the terms and conditions of the Revised
Stipulation are reasonable and within the best interest of the Debtor’s estate and its
creditors.” (Id. at ¶ 18.)
5. The February 3, 2014 Hearing
On February 3, 2014, Judge Trust held a hearing to decide the motion by ALS for
approval of the Amended Stipulation and to address the Appellant’s objection. Present at the
hearing were counsel for the Trustee, the Appellant, and ALS. (App. Rec. 17.) Judge Trust
heard oral argument from ALS and the Appellant. (Id. at Tr. 1–17; 56–71.) The court treated the
Trustee’s Declaration as his direct testimony and permitted counsel for the Appellant to crossexamine the Trustee. (Id. at Tr. 17–53.)
At the hearing, the Appellant argued that Judge Trust should reject the Amended
Stipulation and wait to sell the Miami Property until the Appellant’s objection to ALS’s claim
for $4,586,884.16 is resolved. (Id. Tr. 68:3–6.) Although the Amended Stipulation guarantees
7

that the Bankruptcy Estate would receive $250,000 from the sale of the Miami Property, the
Appellant asserted that the Bankruptcy Estate could receive more money if the Appellant is
successful in extinguishing ALS’s $4,586,884.16 claim on the Miami Property. (Id.) Thus, the
Appellant argued that the Trustee would be better off waiting to sell the Miami Property than
proceeding with the sale under the conditions provided for in the Amended Stipulation. (Id. at
69:6–12.)
Judge Trust rejected the Appellant’s argument because it did not find the Appellant’s
objection to be meritorious. (Id. at 76:1–5.) Judge Trust noted that the Appellant’s argument is
premised on his contention that the statute of limitations had expired on ALS’s foreclosure claim
pursuant to Fla. Stat. §§ 95.11(2)(b), which provides that “an action to foreclose a mortgage”
must commence within five years. (Id.) The Bankruptcy Court found this argument problematic
for two reasons.
First, Judge Trust concluded that it is not clear whether the statute of limitations is tolled
during the pendency of the automatic stay, and thus ALS’s foreclosure claim may not be timebarred. (Id. at Tr. 79:1–8.) However, the court declined to decide the issue because the “parties
didn’t provide any briefing on that issue.” (Id.)
Second, the court found that even if the five-year statute of limitations on foreclosing the
Miami Property had expired, ALS still had a valid lien on the Miami Property pursuant to Fla.
Stat. Ann. § 95.281, which provides:
(1) The lien of a mortgage or other instrument encumbering real property, herein
called mortgage, except those specified in subsection (5), shall terminate after the
expiration of the following periods of time:
(a) If the final maturity of an obligation secured by a mortgage is
ascertainable from the record of it, 5 years after the date of maturity.

8

(b) If the final maturity of an obligation secured by a mortgage is not
ascertainable from the record of it, 20 years after the date of the
mortgage[.]
Fla. Stat. Ann. § 95.281 (West).
Since the stated maturity on the Wachovia mortgage was May 1, 2035, the court found
that under Florida Statute Section 95.281, the “lien now held by ALS is valid under Florida law
until May of 2040.” (App. Rec. 17 at Tr. 77:2–8.) Thus, even if ALS could not foreclose on the
Miami Property, it still had a valid and enforceable lien on the property pursuant to Fla. Stat.
Ann. § 95.281. (Id. at Tr. 79:14–24) For example, 11 U.S.C. § 363(f) provides that the Trustee
can sell a property “free and clear of [any] interest in such property” according to certain
conditions. Judge Trust noted that were the Trustee to sell the Miami Property pursuant to 11
U.S.C. § 363(f), ALS, as a holder of the first mortgage, would be entitled to the proceeds of the
sale up to the $4,586,884.16 due under the Mortgage. (Id.) In this way, the court reasoned that
ALS could still enforce its claim against the Miami Property without foreclosing on it. (Id.)
Turning to the merits of the Amended Stipulation, Judge Trust noted that “there’s no
evidence [the Trustee would] be able to sell [the Miami Property] for more than the outstanding
amount of the two mortgages of record against the property.” (Id. at Tr. 80:12–20.) Judge Trust
indicated that there had been some controversy as to the value of the Miami Property. (Id.) At
one time BSI, ALS’s apparent predecessor in interest, argued that the property was worth $4.2
million but no party had ever argued that the Miami Property was worth more than the nearly $5
million it would take to settle the claims on the Miami Property under the first and second
mortgages. (Id. at Tr. 80:1–12.) Thus, Judge Trust concluded that there was a substantial risk
that the Bankruptcy Estate would receive nothing if the Miami Property sold for less than $5
million. Given the uncertainty in the sales value of the Miami Property, Judge Trust concluded
9

that the Amended Stipulation was “within the range of reasonableness” because it provided a
carve-out that guaranteed that the Bankruptcy Estate $250,000 in proceeds from the sale of the
Miami Property. (Id. at Tr. 81:8–15.)
Thus, the Bankruptcy Court approved the Amended Stipulation subject to several minor
modifications. (Id. at Tr. 81:1–15.)
On March 3, 2014, the Bankruptcy Court entered an order approving the Amended
Stipulation, which was revised slightly to be consistent with Judge Trust’s ruling at the February
3, 2014 hearing.
B. Procedural Background
On June 23, 2014, the Appellant appealed from the March 3, 2014 Order by Judge Trust
approving the Amended Stipulation. The Appellant asserts that the Bankruptcy Court erred in
approving the Amended Stipulation authorizing the sale of the Miami Property. He contends
that the Bankruptcy Estate could have obtained a better deal if it had waited to sell the property
until the Bankruptcy Court ruled on the Appellant’s objection to ALS’s $4,655,412.45 claim on
the Miami Property. (Reply Mem. of Law at 10.) This argument relies on the premise that the
Appellant’s objection to the claim by ALS — namely, that ALS does not have a valid and
enforceable lien on the Miami Property because the five year statute of limitations on foreclosure
actions Fla. Stat. §§ 95.11(2)(b) had expired — is likely to succeed.
However, the Bankruptcy Court found that the Appellant’s objection was not likely to
succeed because (i) it is not clear under Florida law whether the statute of limitations had been
tolled during the pendency of the Bankruptcy Action; and (ii) even if ALS was barred from
commencing a foreclosure action pursuant to Fla. Stat. §§ 95.11(2)(b), ALS still has a valid and

10

enforceable lien on the Miami Property pursuant to Fla. Stat. Ann. § 95.281. (App. Rec. 17 at
Tr. 79:14–24.)
The Court need not reach the first issue because it finds that the Bankruptcy Court did not
err with respect to the second issue.
II. DISCUSSION
A. Legal Standards
This Court has jurisdiction to hear an appeal from a decision of a bankruptcy court
pursuant to 28 U.S.C. § 158(a). Section 158(a) provides that “[t]he district courts of the United
States shall have jurisdiction to hear appeals . . . from final judgments, orders, and decrees; ...
[and,] with leave of court, from other interlocutory orders and decrees . . . of bankruptcy judges.”
When reviewing a bankruptcy court’s decision, its “factual findings will be upheld unless
clearly erroneous, and its legal conclusions are reviewed de novo.” In re Flanagan, 503 F.3d
171, 179 (2d Cir. 2007); see also In re Overbaugh, 559 F.3d 125, 129 (2d Cir. 2009) (“We
review the bankruptcy court's factual findings for clear error, and its legal conclusions de novo.”)
(citation omitted). “Mixed questions of law and fact are reviewed ‘either de novo or under the
clearly erroneous standard depending on whether the question is predominantly legal or
factual.’” In re Grubb & Ellis Co., 523 B.R. 423, 437 (S.D.N.Y. 2014) (quoting Italian Colors
Rest. v. Am. Express Travel Related Servs. Co., 554 F.3d 300, 316 n. 11 (2d Cir. 2009), vacated
on other grounds by, Am. Exp. Co. v. Italian Colors Rest., 130 S. Ct. 2401, 176 L. Ed. 2d 920
(2010)).
However, the standard of review differs with respect to orders by a bankruptcy court
pursuant to Fed. R. Bankr. P. 9019. Pursuant to Fed. R. Bankr. P. 9019, a bankruptcy court may
“on motion by the trustee and after notice and hearing” “approve a compromise or settlement.”
11

In the present case, the Bankruptcy Court approved the Amended Stipulation pursuant to Rule
9019 upon motion by the Trustee, notice, and a hearing. In particular, at the February 3, 2014
hearing, the Bankruptcy Court noted: “[T]he settlement falls within the range of reasonableness
under Rule 9019[.]” (See App. Rec. 17 at Tr. 74:5–13.)
Courts in this Circuit have considered the following factors in assessing the
reasonableness of a proposed settlement:
(1) the balance between the litigation’s possibility of success and the settlement’s
future benefits; (2) the likelihood of complex and protracted litigation, ‘with its
attendant expense, inconvenience, and delay,’ including the difficulty in
collecting on the judgment; (3) ‘the paramount interests of the creditors,’
including each affected class's relative benefits ‘and the degree to which creditors
either do not object to or affirmatively support the proposed settlement’; (4)
whether other parties in interest support the settlement; (5) the ‘competency and
experience of counsel’ supporting, and ‘[t]he experience and knowledge of the
bankruptcy court judge’ reviewing, the settlement; (6) ‘the nature and breadth of
releases to be obtained by officers and directors’; and (7) ‘the extent to which the
settlement is the product of arm’s length bargaining.’
In re Iridium Operating LLC, 478 F.3d 452, 462 (2d Cir. 2007) (quoting In re WorldCom, Inc.,
347 B.R. 123, 137 (Bankr. S.D.N.Y. 2006)); see also In re Leatherstocking Antiques, Inc., No.
13 CIV. 5609 (ER), 2014 WL 3585511, at *5 (S.D.N.Y. July 21, 2014).
When reviewing a bankruptcy court’s approval of a settlement on appeal, the district
court reviews “the legal standards applicable to the evaluation of a settlement under Bankruptcy
Rule 9019 de novo” and the bankruptcy court’s application of those principles for “abuse of
discretion.” In re Refco Inc., 505 F.3d 109, 116 (2d Cir. 2007) (citing In re Iridium Operating
LLC, 478 F.3d 452, 461 n. 13 (2d Cir. 2007)); see also In re Osborne, No. 13-CV-8211 CS, 2014
WL 2738558, at *2 (S.D.N.Y. June 17, 2014) (“A bankruptcy court’s decision approving a
settlement under Bankruptcy Rule 9019 is reviewed for abuse of discretion.”) (citing In re Refco
Inc., 505 F.3d at 116); In re Leatherstocking Antiques, Inc., No. 13 CIV. 5609 (ER), 2014 WL
12

3585511, at *4 (S.D.N.Y. July 21, 2014) (“A bankruptcy court’s articulation of the legal standard
used to evaluate the settlement is a matter of law to be reviewed de novo on appeal, while the
court’s application of those legal principles — in other words, its decision to approve the
particular settlement at hand — is reviewable only for abuse of discretion.”).
Abuse of discretion is a relatively low standard to meet — “[a]n abuse of discretion . . .
may be found only if ‘no reasonable man could agree with the decision’ to approve the
settlement.” In re Homesteads Cmty. at Newtown, LLC, No. 3:13-CV-00602 (CSH), 2014 WL
7895746, at *4 (D. Conn. July 31, 2014) (quoting In re E. 44th Realty, LLC, No. 05 BR. 16167
(RDD), 2008 WL 217103, at *6 (S.D.N.Y. Jan. 23, 2008)); see also In re Delta Air Lines, Inc.,
374 B.R. 516, 522 (S.D.N.Y. 2007) (“‘The bankruptcy court will have abused its discretion if ‘no
reasonable man could agree with the decision’ to approve a settlement.”) (quoting In re Frost
Bros., Inc., 91 Civ. 5244, 1992 WL 373488, at *4 (S.D.N.Y. Dec.2, 1992)).
At the outset, the Court notes that it is not entirely clear what standard of review is
applicable to the Appellant’s argument on appeal. As described above, the Appellant challenges
the conclusion by the Bankruptcy Court that ALS has a valid and enforceable lien. This
conclusion could be viewed as a part of the Bankruptcy Court’s evaluation of the merits of the
Amended Stipulation, in which case the Court would review the March 3, 2014 Order for abuse
of discretion. However, the Bankruptcy Court’s finding might also be viewed as a conclusion of
law, in which case the Court would review the March 3, 2014 Order de novo. Out of an
abundance of caution, the Court will review the Bankruptcy Court’s conclusion that ALS has a
valid and enforceable lien on the Miami Property de novo.

13

B. As to Whether ALS Has a Valid and Enforceable Lien on the Miami Property
The Appellant argues that ALS does not have a valid and enforceable lien on the Miami
Property because ALS is time-barred under Fla. Stat. § 95.11(2)(b) from foreclosing on the
property.
Fla. Stat. § 95.11(2)(b) provides that “an action to foreclose a mortgage” must commence
within five years. Under Florida law, the statute of limitations on foreclosure actions does not
begin to run on the mortgage holder until the last payment of the mortgage is due. Matos v.
Bank of New York, No. 14-21954-CIV (FAM), 2014 WL 3734578, at *2 (S.D. Fla. July 28,
2014) (“That statute of limitations does not begin to run until the last payment of the mortgage is
due[.]”) (citing Locke v. State Farm Fire & Casualty Co., 509 So.2d 1375, 1377 (Fla. Dist. Ct.
App. 1987)); see also Deutsche Bank Trust Co. Americas v. Beauvais, No. 3D14-575 (KEM),
2014 WL 7156961, at *3 (Fla. Dist. Ct. App. Dec. 17, 2014) (“The statute of limitations begins
to run when a cause of action accrues, and [a] cause of action accrues when the last element
constituting the cause of action occurs.”) (quoting City of Riviera Beach v. Reed, 987 So.2d 168,
170 (Fla. Dist. Ct. App. 2008)).
However, where, as here, the mortgage contains a clause permitting the mortgage holder
to accelerate the amount due, the statute of limitations may commence when the creditor “takes
affirmative action and advises the debtor that acceleration option has been exercised.” Matos v.
Bank of New York, 2014 WL 3734578 at *2 (citing Greene v. Bursey, 733 So.2d 1111, 1114–15
(Fla. Dist. Ct. App. 1999)); see also Smith v. F.D.I.C., 61 F.3d 1552, 1561 (11th Cir. 1995)
(“When the promissory note secured by the mortgage contains an optional acceleration clause,

14

the foreclosure cause of action accrues, and the statute of limitations begins to run, on the date
the acceleration clause is invoked or the stated date of maturity, whichever is earlier.”).
The Appellant contends that Wachovia, a predecessor to ALS, accelerated the mortgage
on May 11, 2007 when it initiated a foreclosure action in the Circuit Court of the Eleventh
Judicial District in Miami-Dade County. (The Appellant’s Mem. of Law at 9.) Thus, according
to the Appellant, the statute of limitations on ALS’s foreclosure claim ran from May 11, 2007
through May 11, 2012. (Id.)
On October 19, 2011, the Appellant filed a voluntary bankruptcy petition before this
Court. Pursuant to the provisions of 11 U.S.C. § 362, the filing of a voluntary bankruptcy
petitions results in an automatic stay of “any act to create, perfect, or enforce any lien against
property of the estate.” Thus, the bankruptcy petition precluded ALS from foreclosing on the
Miami Property during the pendency of the Bankruptcy Action. According to the Appellant, the
statute of limitations on ALS’s foreclosure claim was not tolled during the pendency of the
automatic stay and expired on May 11, 2012. (The Appellant’s Mem. of Law at 9.)
However, pursuant to the section of 11 U.S.C. § 108(c)(2), a creditor can bring a
claim whose statute of limitations has expired during the pendency of an automatic stay
“within 30 days after notice of the termination or expiration of the stay.” On July 3,
2013, Judge Trust issued an order lifting the stay so that ALS could pursue a foreclosure
claim on the Miami Property. (See Feb. 3, 2014 Hearing Tr. 75:17–23.) This Order
became effective on July 18, 2013. (Id.) ALS failed to commence a foreclosure
proceeding on the Miami Property within 30 days of July 18, 2013, when the stay was
lifted. Thus, the Appellant contends that ALS does not have a valid claim with respect

15

to the Miami Property because ALS is time-barred from initiating a foreclosure
proceeding to enforce the Mortgage. (Id. at ¶ 24.)
Judge Trust rejected the Appellant’s argument because it found that even if
ALS’s foreclosure claim was time-barred pursuant to § 95.11(2)(b), ALS still had a valid
and enforceable lien against the Miami Property under Fla. Stat. Ann. § 95.281. (App.
Rec. 17 at Tr. 76:6–13.)
As stated above, Fla. Stat. § 95.281 provides, in relevant part, that a “lien of
mortgage” “shall terminate after the expiration” of “5 years after the date of maturity”
“ascertainable from the record [of the mortgage].” The Mortgage held by ALS has a
maturity date of May 1, 2035. (App. Rec. 17 at Tr. 77:2–8.) Thus, ALS’s lien on the
Miami Property secured by the Mortgage is valid under the provisions of § 95.281 until
May 1, 2040. (Id.)
In so holding, Judge Trust relied on Houck Corp. v. New River Ltd., 900 So.2d
601 (Fla. Dist. Ct. App. 2d Dist. 2005). There, a mortgage holder appealed a trial court’s
decision to dismiss its foreclosure action against a homeowner as time-barred under the
five-year statute of limitations set forth in Fla. Stat. § 95.11(2)(c). Id. at 602. On appeal,
the mortgage holder argued that Fla. Stat. § 95.281, which sets forth a twenty year period
of limitations, was the applicable statute of limitations and thus, his foreclosure claim
was not time-barred. Id.
The state appellate court rejected the mortgage holder’s argument because it
found that Fla. Stat. § 95.281 is a “statute of repose,” which governs the validity of the
lien and not the time period for when a plaintiff can enforce that lien through foreclosure.
Id. at 603 (“Section 95.281(1)(b), conversely, establishes an ultimate date when the lien
16

of the mortgage terminates and is no longer enforceable.”). On the other hand, the court
found that section 95.11(2)(c), is a “statute of limitations” that governs when a note
holder can initiate a foreclosure action. Id. (“A ‘statute of limitations’ is a procedural
statute that prevents the enforcement of a cause of action that has accrued . . . It does not
determine the underlying merits of the claim but merely cuts off the right to file suit on
that claim.”) (citing Allie v. Ionata, 503 So.2d 1237, 1240-41 (Fla. 1987)).
Thus, the appellate court in Houck affirmed the trial court’s decision to apply a
five-year statute of limitations under Section 95.11(2)(c) to the mortgage holder’s
foreclosure claim, and not the 20 year limitation provided in Fla. Stat. § 95.281. Id. at
605. However, the appellate court noted in dicta that even though the mortgage holder
could not foreclose on the property, it still had a valid lien on the property which it could
enforce in the event that the homeowner decided to sell the property. See id. (“Thus,
when the mortgage was assigned to Houck in 2003, Houck had no legal recourse to
collect the debt secured by the mortgage; its only recourse would have been to enforce
the lien in the event New River attempted to sell the property before November 1,
2004.”).
Other Florida courts have relied on this dicta in Houck to dismiss quiet title claims made
to extinguish a mortgage holder’s lien on a property on the ground that the five-year statute of
limitations period for foreclosure actions had expired. For example, in Matos v. Bank of New
York, No. 14-21954-CIV (FAM), 2014 WL 3734578, at *1 (S.D. Fla. July 28, 2014), a property
owner commenced a quiet title action against a mortgage holder alleging that the five-year
statute of limitations under Section 95.11(2)(c) for pursuing a foreclosure action had expired, and
therefore, the court should extinguish the mortgage holder’s lien against the property. In
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granting the mortgage holder’s motion to dismiss the claim, the court noted that the mortgage
had a maturity date of September 1, 2036. Id. at *3.
Thus, the court found that the under Section 95.281, the mortgage holder had a valid and
enforceable lien until September 1, 2041 — five years after the maturity date contained in the
recorded mortgage. Id. Therefore, even if the statute of limitations on foreclosure actions had
expired, the court found that the mortgage holder’s lien “continues to exist” and cannot be
extinguished by a quiet title action. See id. (“So regardless of the statute of limitations, [the
mortgage holder] is entitled to judgment against the [property holder] because its lien continues
to exist until barred by the statute of repose contained in Florida Statutes § 95.281(1).”); see also
St. Louis Condo. Ass'n, Inc. v. Nationstar Mortgage LLC, No. 14-21827-CIV, 2014 WL
6694780, at *2 (S.D. Fla. Nov. 26, 2014) (“The express maturity date of the Note and Mortgage
is November 1, 2036 . . . . Accordingly, the Mortgage lien will not terminate until 2041 and [the]
[p]laintiff's quiet title action is without merit.”); Deutsche Bank Trust Co. Americas v. Beauvais,
No. 3D14-575, 2014 WL 7156961 (KME), at *11 (Fla. Dist. Ct. App. Dec. 17, 2014) (reversing
the decision by a trial court that a lien was null and void because the five year statute of
limitations on foreclosure actions expired, reasoning that “pursuant to section 95.281(1)(a), the
mortgage lien remains valid until March 1, 2041, five years from the date of maturity as reflected
in the recorded mortgage securing the obligation.”).
Here, as in Matos, the Mortgage on the Miami Property has a maturity date of May 1,
2035. (App. Rec. 10, Ex. C.) As such, under Fla. Stat. § 95.281, which provides that lien on a
mortgage shall not expire until five years after the date of maturity, ALS has a valid lien on the
Miami Property until May 1, 2040. Thus, even if the five year statute of limitations under
Section 95.11(2)(c) barred ALS from foreclosing on the Miami Property, it did not render its
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claim against the Bankruptcy Estate under the Mortgage invalid or unenforceable. See Matos,
2014 WL 3734578 (“So regardless of the statute of limitations, BONY is entitled to judgment
against the Plaintiffs because its lien continues to exist until barred by the statute of repose
contained in Florida Statutes § 95.281(1).”); Houck, 900 So. 2d at 603 (“The limitations period
provided in section 95.11(2)(c) does not affect the life of the lien or extinguish the debt; it merely
precludes an action to collect the debt after five years.”).
The Appellant contends that even if ALS has a valid lien on the Miami Property, ALS
cannot enforce the lien because ALS is time-barred from foreclosing on the Miami Property.
(The Appellant’s Mem. of Law at 10.) In so arguing, the Appellant relies on In re Wilder, 178
B.R. 174 (Bankr. E.D. Mo. 1995). In that case, a state agency overpaid a debtor in public
assistance funds. After discovering the overpayment, the agency filed a motion in the debtor’s
bankruptcy proceeding requesting a judgment that the money paid to the debtor was a nondischargeable debt pursuant to 11 U.S.C. § 523(a)(2). Id. The court dismissed the state agency’s
claim because the statute of limitations for making a claim under 11 U.S.C. § 523(a)(2) had
expired. Id. The court reasoned that the “expiration of the statute of limitations extinguished the
[state agency’s] right to enforce this obligation owed to it by the Debtor. Absent an enforceable
obligation, there is no right to payment.” Id.
Here, by contrast, ALS seeks to enforce a lien arising out of a mortgage. As described
above, it is well-established that under Florida law the five year statute of limitations governing
foreclosure actions does not otherwise affect the validity or enforceability of a lien created by a
mortgage. See Houck Corp., 900 So. 2d at 603 (Fla. Dist. Ct. App. 2005) (“The limitations
period provided in section 95.11(2)(c) does not affect the life of the lien or extinguish the debt; it
merely precludes an action to collect the debt after five years.”). Thus, here, unlike in In re
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Wilder where the plaintiff had no other method to enforcing its debt, ALS has other avenues to
enforce the Mortgage even if it is time-barred from initiating foreclosure proceedings. See Kaan
v. Wells Fargo Bank, N.A., 981 F. Supp. 2d 1271, 1274 (S.D. Fla. 2013) (“Even if the statute of
limitations barred foreclosure due to payment defaults within the last five years, the lien would
still be enforceable if Plaintiff breaches or defaults in other ways.”); Houck Corp., 900 So. 2d at
605 (finding that the mortgage holder had “legal recourse” “to enforce the lien” even without
foreclosing on the property “in the event [the debtor] attempted to sell the property before
November 1, 2004.”).
For example, as the Bankruptcy Court correctly noted, if the Trustee were to sell the
Miami Property, ALS, as a holder of the first mortgage, would still be entitled to the first
$4,655,412.45 in proceeds generated by the sale of the property. (See App. Rec. 17 at Tri.
79:16–21) (“There’s no controversy from this Court’s vantage point as to whether or not ALS's
lien continues to be a valid lien, if not unenforceable by foreclosure meaning that absent this
settlement if the trustee were to seek to sell the Miami property.”). Thus, ALS continues to have
a valid and enforceable claim against the Bankruptcy Estate under the Mortgage irrespective of
the five-year statute of limitations on the foreclosure actions. Accordingly, the Court finds In re
Wilder to be inapplicable to this Appeal.
Therefore, for the foregoing reasons, the Court finds that the Bankruptcy Court was
correct in overruling the Appellant’s objection and finding that ALS has a valid and enforceable
claim against the Miami Property in the amount of $4,655,412.45.
C. As to Whether the Bankruptcy Court Otherwise Abused Its Discretion in Approving the
Amended Stipulation
It is not clear whether the Appellant objects to the Bankruptcy Court’s March 3, 2014
Order approving of the Amended Stipulation for reasons other than those discussed above —
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namely, that the Bankruptcy Court erred in finding that ALS has a valid and enforceable claim
against the Miami Property. However, to the extent the Appellant does so object, the Court finds
that the Bankruptcy Court did not abuse its discretion in approving the Amended Stipulation.
As described above, pursuant to Fed. R. Bankr. P. 9019, a Bankruptcy Court can approve
a stipulation or settlement after notice and a hearing provided that it “canvass[es] the issues and
see[s] whether the settlement ‘fall[s] below the lowest point in the range of reasonableness.”’ In
re W.T. Grant Co., 699 F.2d at 608; see also In re Residential Capital, LLC, 2015 WL 739829 at
*7 n. 6 (“[T]he Bankruptcy Court was not required to comprehensively review the settlement,
only to determine that it did not fall beneath the lowest level of reasonableness.”).
When reviewing a bankruptcy court’s approval of a settlement on appeal, the Court
reviews “the legal standards applicable to the evaluation of a settlement under Bankruptcy Rule
9019 de novo” and the bankruptcy court’s application of those principles to the settlement for
“abuse of discretion.” In re Refco Inc., 505 F.3d at 116 (2d Cir. 2007) (citing In re Iridium
Operating LLC, 478 F.3d at 461 n. 13).
As an initial matter, the Court notes that Judge Trust explicitly considered the
“reasonableness” of the Amended Stipulation in light of the required factors described above.
Therefore, the Court finds that Judge Trust applied the correct legal standard in considering the
merits of the Amended Stipulation. See, e.g., Alford v. Dribusch, No. 1:14-CV-558 (DNH),
2014 WL 7243321, at *3 (N.D.N.Y. Dec. 19, 2014) (“As an initial matter, the bankruptcy court
expressly acknowledged the governing legal standard-noting its conclusion that the Trustee’s
proposal was ‘well within the range of reasonableness under the 2nd Circuit test.’”).
Moreover, the Court finds that Judge Trust did not abuse his discretion in applying these
principles in assessing the terms of the Amended Stipulation. In his decision Judge Trust
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touched upon many of the factors that bankruptcy courts in this Circuit have considered when
assessing a settlement or stipulation, such as, the balance between the litigation’s possibility of
success and the settlement’s future benefits”; “the paramount interests of the creditors’; and “the
extent to which the settlement is the product of arm’s length bargaining.” In re Iridium
Operating LLC, 478 F.3d at 462 (quoting In re WorldCom, Inc., 347 B.R. 123, 137 (Bankr.
S.D.N.Y. 2006)).
In particular, Judge Trust considered evidence that the Miami Property may not be worth
more than the amount of the two existing mortgages on the property: “So it would appear to the
Court that there is a substantial hurdle faced by the trustee for him to . . . reduce the property of
the estate to cash for distributive purposes. He might be able to sell it, but there’s no evidence
he'd be able to sell it for more than the outstanding amount of the two mortgages of record
against the property.” (App. Rec. 17 at Tr. 80:13–20.) On the other hand, the Bankruptcy Court
noted that the Amended Stipulation provided the Bankruptcy Estate with a guaranteed $250,000
from the sale of the Miami Property. (Id. at Tr. 81:8–15.) Weighing the uncertainty in the sale
value of the Miami Property against the benefit to the Bankruptcy Estate of a guaranteed
$250,000, Judge Trust found that the Amended Stipulation to be “within the range of
reasonableness under Rule 9019” and “a proper exercise by the [T]rustee of his business
judgment.” (Id. at Tr. 74:5–13.)
Nothing in the record or in the arguments presently before the Court undermines the
reasonableness of the Bankruptcy Court’s consideration and approval of the Amended
Stipulation. See In re Leatherstocking Antiques, Inc., 2014 WL 3585511, at *6 (“In short,
nothing in the record below or in the arguments presently before the [c]ourt undermines the
reasonableness of the [t]rustee’s decision to enter into-let alone the Bankruptcy Court's approval
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of-the Winston Stipulation.”); Alford v. Dribusch, No. 1:14-CV-558 (DNH), 2014 WL 7243321,
at *3 (N.D.N.Y. Dec. 19, 2014) (“[T]he bankruptcy court fulfilled its obligation to consider the
appropriate factors in balancing the value of further litigation against the realistic benefits of the
settlement proposal. Accordingly, the bankruptcy court’s February 12, 2014 order approving the
[t]rustee's proposed settlement will be affirmed.”).
As the Court finds no infirmity in the March 3, 2014 Order approving the Amended
Stipulation, the Court affirms the decision below.
III. CONCLUSION
For the foregoing reasons, it is hereby ordered that the March 3, 2014 Order is affirmed.
The Clerk of the Court is directed to close this case.

SO ORDERED.
Dated: Central Islip, New York
March 21, 2015

_/s/ Arthur D. Spatt____
ARTHUR D. SPATT
United States District Judge

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