Cerrato v. Bac Home Loans Servicing (In re Cerrato)

504 B.R. 23

In re: Antonio Cerrato aka Antonio Cerrato Breve, Debtor.Antonio Cerrato, Plaintiff,

v.BAC Home Loans Servicing, f/k/a Countrywide Home Loans Servicing, L.P. and Bank of America, N.A., Defendants.

Case No. 12–47995–CEC

Adv. Proc. No. 13–01138–CEC

United States Bankruptcy Court, E.D. New York.

Filed 1/24/2014

Brian McCaffrey, Esq., Brian McCaffrey, P.C., 88–18 Sutphin Boulevard, 1st Floor, Jamaica, New York 11435, Attorney for Plaintiff.

Lisa Milas, Esq., Frenkel Lambert Weiss Weisman & Gordon LLP, 53 Gibson Street, Bay Shore New York 111706, Attorney for Defendants.

Chapter 13

DECISION

CARLA E. CRAIG, Chief United States Bankruptcy Judge

This adversary proceeding was commenced by Antonio Cerrato (“Cerrato”, or “Plaintiff”), the debtor in the above captioned chapter 13 proceeding, to avoid a pre-petition foreclosure sale and to quiet title to real property. The defendants, BAC Home Loan Servicing and Bank of America N.A. (together, “BAC” or “Defendants”), filed a motion to dismiss the adversary proceeding, contending that Cerrato's rights in the real property were extinguished as of the conclusion of the foreclosure sale and that the foreclosure sale cannot be avoided. Because Cerrato has not pleaded any fact that could be a basis for avoiding the foreclosure sale, the motion to dismiss is granted.

Jurisdiction

This Court has jurisdiction of this core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A)(B), (E), (H), (K) and (O), 28 U.S.C. § 1334, and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Federal Rule of Bankruptcy Procedure 7052.

Background

The following facts are not in dispute.

On November 20, 2012, Cerrato filed a voluntary petition under chapter 7 of title 11 of the United States Code (the “Bankruptcy Code”). The case was converted from chapter 7 to chapter 13, pursuant to § 706(a) of the Bankruptcy Code, on March 22, 2013. On April 30, 2013 Cerrato filed this adversary proceeding against BAC.

Prior to the filing of the bankruptcy petition, on September 20, 2002, Cerrato executed a note in the amount of $232,435 (the “Note”) in favor of BAC. (BAC's Mot. to Dismiss Ex. A, Adv. Pro. No 13–01138–CEC, ECF No. 10). The Note was secured by a mortgage (the “Mortgage”), executed the same day, which granted a lien on property located at 80–68 89th Avenue in Woodhaven, New York (the “Property”). Id. Ex. B. The Mortgage was recorded in the Office of the City Register of the City of New York on July 29, 2003. Id.

Cerrato defaulted on the Note, and on March 29, 2009, BAC commenced a foreclosure action against Cerrato in the Supreme Court of the State of New York, Queens County (the “Foreclosure Action”). (Compl. at ¶ 11, Adv. Pro. No 13–01138–CEC, ECF No. 1). BAC obtained a Judgment of Foreclosure and Sale from the New York State Supreme Court on November 27, 2009 (the “Foreclosure Judgment”). Id. at ¶ 12. The Foreclosure Judgment was recorded with the Queen's County Clerk on December 11, 2009. (BAC's Mot. to Dismiss Ex. G, Adv. Pro. No. 13–01138–CEC, ECF No. 10).

The Foreclosure Sale was conducted on April 9, 2010 and resulted in BAC purchasing the Property. (Compl. at ¶ 12, Adv. Pro. No 13–01138–CEC, ECF No. 1; BAC's Mot. to Dismiss Ex. J, Adv. Pro. No 13–01138–CEC, ECF No. 10). On November 3, 2010, the Referee's Report of Sale was filed with the Queens's County Clerk. (BAC's Mot. to Dismiss Ex. J, Adv. Pro. No 13–01138–CEC, ECF No. 10). Following the Foreclosure Sale, the referee issued a deed to BAC (the “Referee's Deed”), although the New York State Real Estate Transfer Tax was never paid. Id. at ¶ 12–13. As of the Cerrato's petition date, the Referee's Deed was still not recorded and Cerrato was still the owner of record. Id. at ¶ 14, 18.

Arguments

The Plaintiff's complaint alleges that the Defendants wrongfully obtained the Referee's Deed in contravention of the Foreclosure Judgment, New York State Real Property Actions and Proceedings Law § 1354, and New York State Tax Law § 1410, and that the deed was delivered prematurely and without authority. The Plaintiff also asserts that he is entitled to step into the shoes of the chapter 13 trustee and to avoid the transfer of the Property pursuant to Bankruptcy Code §§ 544, 547, 548, and 549.

The Defendants assert that the Cerrato's legal and equitable interests in the Property terminated upon conclusion of the foreclosure sale, and the fact that the Referee's Deed has not been recorded does not revive the Cerrato's interest in the Property. The Defendants maintain that the failure to pay transfer taxes under applicable New York State law does not provide a basis to avoid the Foreclosure Judgment, the Foreclosure Sale, or the Referee's Deed. The Defendants also contend that, as a matter of law, Plaintiff is not entitled to relief pursuant to §§ 544, 547, or 548 of the Bankruptcy Code, and that Cerrato lacks standing to pursue an avoidance action.

Legal Standard

Rule 12(b)(6) provides that a complaint may be dismissed “for failure to state a claim upon which relief can be granted[.]” Fed.R.Civ.P. 12(b)(6); seeFed. R. Bankr.P. 7012(b). The purpose of Rule 12(b)(6) “ ‘is to test, in a streamlined fashion, the formal sufficiency of the plaintiff's statement of a claim for relief without resolving a contest regarding its substantive merits.’ ” Halebian v. Berv, 644 F.3d 122, 130 (2d Cir.2011) (quoting Global Network Commc'ns, Inc. v. City of New York, 458 F.3d 150, 155 (2d Cir.2006)).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). In making this determination, a court must liberally construe the complaint, accept the factual allegations as true, and draw all reasonable inferences in favor of the plaintiff. SeeGoldstein v. Pataki, 516 F.3d 50, 56 (2d Cir.2008). However, courts “are not bound to accept as true a legal conclusion couched as a factual allegation.” Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986); seeIqbal, 556 U.S. at 678, 129 S.Ct. 1937 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”). “Determining whether a complaint states a plausible claim for relief” is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. In other words, plausibility “ ‘depends on a host of considerations: the full factual picture presented by the complaint, the particular cause of action and its elements, and the existence of alternative explanations so obvious that they render plaintiff's inferences unreasonable.’ ” Fink v. Time Warner Cable, 714 F.3d 739, 741 (2d Cir.2013) (quoting L–7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 430 (2d Cir.2011)).

Discussion

A. The Plaintiff's Rights in the Property After the Foreclosure Sale

The Plaintiff asserts that because the Referee's Deed was never recorded, he is still the owner of record, and that Property is therefore property of the estate within the meaning of § 541 of the Bankruptcy Code. BAC argues that the pre-petition completion of the foreclosure sale extinguished the Plaintiff's rights in the Property, whether or not the deed was subsequently delivered or recorded, and that because the Plaintiff has no rights in the Property, it is not property of the estate.

The bankruptcy estate is comprised of, among other things, “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). However, the Bankruptcy Code does not define these interests; a debtor's property interests are created and defined by state law. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). “Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.” Id. at 55, 99 S.Ct. 914. A debtor's right to reinstate a mortgage in a Chapter 13 case is dependent on his interest in the property, as defined by state law. In re Ghosh, 38 B.R. 600, 603 (Bankr.E.D.N.Y.1984) (citing Matter of Valente, 34 B.R. 804 (Bankr.D.Conn.1982)).

It is well established that under New York law, a debtor's right of redemption of, and interest in, real property is extinguished by a foreclosure sale, whether or not the deed has been delivered. Norwest Mtge., Inc. v. Brown, 35 A.D.3d 682, 683, 830 N.Y.S.2d 158 (N.Y.App.Div.2006); GMAC Mortg. Corp. v. Tuck, 299 A.D.2d 315, 750 N.Y.S.2d 93 (N.Y.App.Div.2002); United Capital Corp. v. 183 Lorraine St. Assocs., 251 A.D.2d 400, 675 N.Y.S.2d 543 (N.Y.App.Div.1998). The Second Circuit Court of Appeals and bankruptcy courts within the state of New York agree. Rodgers v. County of Monroe (In re Rodgers), 333 F.3d 64, 67–68 (2d Cir.2003); In re Mizuno, 288 B.R. 45, 49 (Bankr.E.D.N.Y.2002) (rejecting debtor's contention “that he continued to have an equitable right to redeem the property up until the point of the actual conveyance of the deed from the Referee” to the purchaser); In re Cretella, 42 B.R. 526, 532 (Bankr.E.D.N.Y.1984) (“It is thus abundantly clear that the mortgagor has no legal or equitable interest in real property after a foreclosure sale, even if the formal transfer of the title has not taken place, unless of course he has the right to redeem.”); Ghosh, 38 B.R. at 602 (“Under New York law a debtor loses all equitable and legal interest in property validly sold at foreclosure whether or not the deed to that property has been delivered to the purchaser.”); In re Butchman, 4 B.R....