Cook v. Huey
Filing
6
MEMORANDUM-DECISION AND ORDER affirming bankruptcy court's 10/5/12 Memorandum-Decision and Order denying debtors relief. Signed by Judge David N. Hurd on 10/4/13. (sfp, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
------------------------ -----------JEFFREY A. COOK and SHERRIE A. COOK,
Appellants,
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5:12-CV-1713
DAVID HUEY,
Appellee,
------------------------------------APPEARANCES:
OF COUNSEL:
THE TURTURO LAW FIRM
Attorney for Appellants
2 South Street - Suite 309
Auburn, NY 13021
THOMAS F. TURTURO, ESQ.
THE THURSTON LAW OFFICES, PC
Attorney for Appellee
100 Genesee Street
Auburn, NY 13021
DAVID B. THURSTON, ESQ.
OFFICE OF MARK W. SWIMELAR
Trustee
250 South Clinton Street
Suite 203
Syracuse, NY 13202
MARK W. SWIMELAR, ESQ.
OFFICE OF THE UNITED STATES TRUSTEE
10 Broad Street
Room 105
Utica, NY 13501
TRACY HOPE DAVIS, ESQ.
DAVID N. HURD
United States District Judge
MEMORANDUM-DECISION and ORDER
I. INTRODUCTION
Appellants Jeffrey A. and Sherrie A. Cook ("the Cooks" or "debtors") appeal from a
decision of United States Bankruptcy Judge Margaret Cangilos-Ruiz, dated October 5, 2012,
denying their motion to enforce the automatic stay provisions of 11 U.S.C. §§ 362(a)(3) and
(5) and avoid the transfer of legal title of their residence to David Huey ("Huey"). The debtors
filed a Notice of Appeal on November 11, 2012. No opposition has been filed. This appeal
was considered on submission without oral argument.
II. BACKGROUND
The Cooks filed a petition for Chapter 13 bankruptcy relief on the afternoon of July
5, 2012. They listed their residence, located at 2733 Franklin Street, Weedsport, New York,
at a value of $129,000. The home was listed subject to two mortgages. The first mortgage
was held by Nationstar Mortgage, LLC ("Nationstar"), in the amount of $59,000. First
Niagara Bank held the second mortgage in the amount of $56,120. The debtors also
claimed a homestead exemption in the remaining equity of $22,880 in the property.
On the morning of July 5, 2012, prior to the filing of their Chapter 13 petition, the
Cooks' residence was sold to Huey at a foreclosure sale by Nationstar for $66,000. Although
the debtors were aware of the pending foreclosure proceeding, they believed that the sale
was scheduled for July 9, 2012.
Attorney for the debtors filed a motion on August 19, 2012, seeking to enforce the
automatic stay provisions of 11 U.S.C. §§ 362(a)(3) and (5) and invalidate the foreclosure
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sale.1 The motion was unopposed, and a hearing was held on September 11, 2012. Judge
Cangilos-Ruiz denied the motion from the bench on September 11, 2012. A written decision
was filed on October 5, 2012. This appeal followed.2
III. STANDARD OF REVIEW
In reviewing a bankruptcy court's decision, district courts apply a de novo standard
of review to conclusions of law and a clearly erroneous standard to findings of fact. In re
Manville Forest Prods. Corp., 209 F.3d 125, 128 (2d Cir. 2000). Although this appeal is
unopposed, "the appellant must still establish that there was reversible error" to be granted
relief. Swimelar v. Baker, No. 5:09-CV-502, 2009 WL 3644336, at *1 (N.D.N.Y. Oct. 28,
2009) (Suddaby, J.), aff'd 604 F.3d 727 (2d Cir. 2010).
IV. DISCUSSION
The Cooks assert that the Bankruptcy Court erred in finding that their residence was
not part of the bankruptcy estate subject to the automatic stay provisions of 11 U.S.C.
§§ 362(a)(3) and (5).3 They argue the Bankruptcy Court incorrectly concluded that the
foreclosure sale, which occurred prior to the filing of their bankruptcy petition, divested them
of all legal and equitable interests in the property. The debtors contend that their home
should have been brought into the bankruptcy estate, subject to the automatic stay
provisions of the Bankruptcy Code, due to their equitable possessory interest in the property
at the time the Chapter 13 petition was filed.
1
Debtors also argued that the foreclosure sale was a fraudulent transfer and must be voided
under 11 U.S.C. § 548(a).
2
On appeal, debtors abandoned the argument that the foreclosure sale was a fraudulent
transfer.
3
Title 11 hereinafter referred to as "the Bankruptcy Code."
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The automatic stay provisions which the Cooks seek to invoke enjoin "any act to
obtain possession of . . . or to exercise control over property of the estate," and "any act
to . . . enforce against the property of the debtor any lien." 11 U.S.C. §§ 362(a)(3) & (5). In
order to invoke the protections of the automatic stay with regards to their home, the debtors
must establish that the home is part of the bankruptcy estate. The estate includes "all legal
or equitable interests of the debtor in property as of the commencement of the case." 11
U.S.C. § 541(a)(1). In order to show that their home is part of the bankruptcy estate subject
to the automatic stay, the debtors must establish that they continued to possess a legal or
equitable interest in their home at the time their bankruptcy petition was filed.
The Cooks do not claim to have a legal interest in the property. Instead, they assert
that their possession of the residence following foreclosure constitutes an equitable interest
sufficient to invoke the automatic stay. The cases upon which the debtors rely show that
when a debtor files for bankruptcy, a residual equitable interest in property may be sufficient
to bring the property into the bankruptcy estate. See generally United States v. Whiting
Pools, Inc., 462 U.S. 198 (1983); Weber v. SEFCU, 719 F.3d 72, 79 (2d Cir. 2013) ("Whiting
Pools teaches that the filing of a petition will generally transform a debtor's equitable interest
into a bankruptcy estate's possessory right."). For example, a tenant's equitable possessory
interest in property, following the issuance of a warrant for eviction based on non-payment of
rent on an unexpired leasehold allowed the tenant to petition the court to vacate the warrant
for good cause. In re Onio's Italian Rest. Corp., 42 B.R. 319, 320 (Bankr. S.D.N.Y. 1984).
When the tenant then filed for bankruptcy after the issuance of the eviction warrant, the
equitable interest in the unexpired leasehold was brought into the bankruptcy estate subject
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to the automatic stay. Id. at 321. This allowed the bankruptcy court to stay the warrant for a
reasonable time. Id.
In this case however, the Cooks do not have any legal or equitable interest in their
residence which would have allowed the property to be brought into the bankruptcy estate.
In New York, a mortgagor whose property has been foreclosed upon continues to possess
an equitable right of redemption with regards to that property until a foreclosure sale occurs.
Norwest Mtge., Inc. v. Brown, 35 A.D.3d 682, 683 (N.Y. App. Div. 2d Dep't 2006). Generally,
once the sale takes place, the right is extinguished as a matter of law and cannot be revived.
Id. at 684.
A valid foreclosure sale took place prior to the filing of the Cooks' bankruptcy petition
and divested them of any legal or equitable rights to the property. They have abandoned
their argument to set aside the sale based on a fraudulent transfer under 11 U.S.C. § 548(a).
They also concede the good faith of the purchaser and do not argue that there were any
irregularities with respect to the foreclosure sale. Mot. Hr'g Tr. 7:4–9, Sept. 11, 2012. The
automatic stay prevents future acts but cannot be applied retroactively to invalidate past acts.
Piccolo v. Dime Savings Bank of N.Y., 145 B.R. 753, 756 (N.D.N.Y. 1992) (Cholakis, J.).
Accordingly, the Bankruptcy Court did not err in finding that the Cooks' residence is not
protected under the automatic stay provisions of the Bankruptcy Code because it could not
be brought into the bankruptcy estate at the time of filing. See id.
V. CONCLUSION
The facts upon which the Bankruptcy Court based its decision were undisputed.
There was no error in finding that the valid foreclosure sale which occurred prior to the filling
of the Cooks' bankruptcy petition divested the debtors of any legal or equitable interests in
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the property. Therefore, their residence did not become property of the bankruptcy estate
subject to the protections of the automatic stay.
Therefore, it is
ORDERED that
The bankruptcy court's October 5, 2012 Memorandum-Decision and Order denying
debtors relief is AFFIRMED.
IT IS SO ORDERED.
Dated: October 4, 2013
Utica, New York.
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