Deutsche Bank Nat'l Trust Co. v. Lubonty

171 N.Y.S.3d 556

DEUTSCHE BANK NATIONAL TRUST COMPANY, etc., respondent,

v.Gregg LUBONTY, appellant, et al., defendants.

2019–07651

Index No. 617778/18

Supreme Court, Appellate Division, Second Department, New York.

Argued—January 28, 2022

July 6, 2022

Lester & Associates, P.C., Garden City, NY (Seung Woo Lee and Peter Kamran of counsel), for appellant.

Hinshaw & Culbertson, LLP, New York, NY (Schuyler B. Kraus of counsel), for respondent.

ANGELA G. IANNACCI, J.P., ROBERT J. MILLER, JOSEPH J. MALTESE, DEBORAH A. DOWLING, JJ.

OPINION & ORDER

DOWLING, J.

I. Introduction

The main issue on this appeal is whether the applicable statute of limitations has expired, precluding the plaintiff from foreclosing a mortgage given by the defendant Gregg Lubonty (hereinafter the defendant) on certain real property located on Middle Pond Road in Southampton (hereinafter the Middle Pond Road property). Resolution of this issue turns upon the interplay between subsections 362(a) and (c) of the 1978 Bankruptcy Code (11 USC), and the interpretation of that statutory scheme as applied to the circumstances of this case. For the reasons set forth below, we hold that this action was not time-barred.

II. Relevant Facts and Procedural History

On May 22, 2007, nonparty American Home Mortgage Acceptance, Inc., commenced an action (hereinafter the 2007 foreclosure action) against the defendant to foreclose a mortgage encumbering the Middle Pond Road property. The complaint filed in the 2007 foreclosure action elected to call due the entire unpaid balance. On June 26, 2007, the defendant filed a voluntary chapter 11 petition in bankruptcy (hereinafter the first bankruptcy proceeding), which was later dismissed by order of the United States Bankruptcy Court for the Southern District of Florida (hereinafter the Bankruptcy Court) dated November 24, 2009. The complaint in the 2007 foreclosure action was dismissed on June 25, 2009, during the pendency of the first bankruptcy proceeding.

Thereafter, on October 19, 2011, the defendant filed a second voluntary chapter 11 petition in bankruptcy, which was later converted to a chapter 7 (hereinafter the second bankruptcy proceeding). By so-ordered "stipulation and order by and between the Chapter 7 trustee and the debtor resolving the [bankruptcy] estate's interests in certain real properties and funds" dated November 26, 2013, the defendant agreed to "acquire the [bankruptcy] estate's interest" in four properties located in Southampton, including the Middle Pond Road property, in exchange for the defendant's payment of $25,000 (hereinafter the November 26, 2013 order). The defendant completed the payments required by the November 26, 2013 order on June 1, 2014. On November 3, 2014, the defendant received a "standard discharge" in the second bankruptcy proceeding, which was subsequently marked "closed" on January 23, 2017.

On September 12, 2018, the plaintiff commenced this action against the defendant, among others, to foreclose the mortgage encumbering the Middle Pond Road property. The defendant moved pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against him as barred by the statute of limitations, since the mortgage debt had been accelerated more than six years earlier on May 22, 2007, upon the commencement of the 2007 foreclosure action, and pursuant to CPLR 3211(a)(8) to dismiss the complaint insofar as asserted against him for lack of personal jurisdiction. In opposition, the plaintiff argued, among other things, that the statute of limitations for the commencement of this action had been tolled by the automatic bankruptcy stays in place following the defendant's filing of the first bankruptcy proceeding in 2007 and the second bankruptcy proceeding in 2011. In an order dated June 19, 2019, the Supreme Court denied the defendant's motion. The defendant appeals.

III. Analysis

Resolution of whether this action was time-barred turns upon the date on which the automatic bankruptcy stay barring commencement of a mortgage foreclosure action against the defendant with respect to the Middle Pond Road property, in effect following the commencement of the second bankruptcy proceeding, terminated. The defendant argues that the automatic bankruptcy stay terminated on November 26, 2013, the date of the November 26, 2013 order pursuant to which the defendant purchased the Middle Pond Road property from the bankruptcy estate. The plaintiff argues that the automatic bankruptcy stay terminated on November 3, 2014, the date on which the defendant received a discharge in the second bankruptcy proceeding. We note that, contrary to the defendant's contention, neither this Court in ( Lubonty v. U.S. Bank N.A., 159 A.D.3d 962, 74 N.Y.S.3d 279 ) nor the Court of Appeals in ( Lubonty v. U.S. Bank N.A., 34 N.Y.3d 250, 116 N.Y.S.3d 642, 139 N.E.3d 1222 ) have previously determined the legal issue of whether the November 26, 2013 order, in fact, terminated the automatic bankruptcy stay barring commencement of the instant foreclosure action (see People v. Bing, 76 N.Y.2d 331, 338, 559 N.Y.S.2d 474, 558 N.E.2d 1011 ). In addition, the plaintiff's argument that the automatic bankruptcy stay terminated on November 3, 2014, although raised for the first time on appeal, is properly considered by this Court as it "presents a pure question of law that appears on the face of the record and ‘could not have been avoided if raised at the proper juncture’ " ( Federal Natl. Mtge. Assn. v. Walter, 199 A.D.3d 889, 890, 154 N.Y.S.3d 450, quoting Wells Fargo Bank, N.A. v. Mone, 185 A.D.3d 626, 628, 127 N.Y.S.3d 488 ; see Loiacono v. Goldberg, 240 A.D.2d 476, 658 N.Y.S.2d 138 ).

A. The Statute of Limitations and 11 USC § 362

An action to foreclose a mortgage is generally subject to a six-year statute of limitations (see CPLR 213[4] ). "When a mortgage is payable in installments, which is the typical practice, an acceleration of the entire amount due begins the running of the statute of limitations on the entire debt" ( Deutsche Bank Trust Co. Ams. v. Marous, 186 A.D.3d 669, 670, 130 N.Y.S.3d 101 [internal quotation marks omitted]).

Section 362(a) of the 1978 Bankruptcy Code (11 USC) provides that the filing of a voluntary petition in bankruptcy operates to stay, among other things, "the commencement or continuation ... 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" ( id. § 362 [a][1]); "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" ( id. § 362 [a][3]); "any act to create, perfect, or enforce any lien against property of the estate" ( id. § 362 [a][4]); and "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" ( id. § 362 [a][5]).

This Court has explained that the filing of a petition for protection under the Bankruptcy Code imposes "an automatic stay of any mortgage foreclosure actions" ( Mercury Capital Corp. v. Shepherds Beach, Inc., 281 A.D.2d 604, 605, 723 N.Y.S.2d 48 ). "The effects of [the automatic] stay are wide-ranging and limit virtually all judicial action against the debtor and any codebtors: ‘The automatic stay is designed to provide blanket relief from creditor action’ " ( Lubonty v. U.S. Bank N.A., 34 N.Y.3d at 258, 116 N.Y.S.3d 642, 139 N.E.3d 1222, quoting In re Newberry, 604 B.R. 37, 40 [E.D. Mich.] ), "and any exceptions from the stay are narrowly written and ‘strictly construed’ " ( Lubonty v. U.S. Bank N.A., 34 N.Y.3d at 258, 116 N.Y.S.3d 642, 139 N.E.3d 1222, quoting In re Montgomery, 525 B.R. 682, 693 [W.D. Tenn.] ; see Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1206 [3d Cir.] ; In re Bialac, 712 F.2d 426, 431 [9th Cir.] ). The automatic bankruptcy stay of 11 USC § 362 is a "statutory prohibition" which operates under CPLR 204(a) to stay the limitations period for commencement, or continuation, of a foreclosure action (see Lubonty v. U.S. Bank N.A., 34 N.Y.3d at 258, 116 N.Y.S.3d 642, 139 N.E.3d 1222 ; Nationstar Mtge., LLC v. Jackson, 192 A.D.3d 813, 815, 144 N.Y.S.3d 81 ; U.S. Bank N.A. v. Joseph, 159 A.D.3d 968, 970, 73 N.Y.S.3d 238 ; Lubonty v. U.S. Bank N.A., 159 A.D.3d at 963–964, 74 N.Y.S.3d 279, affd 34 N.Y.3d 250, 116 N.Y.S.3d 642, 139 N.E.3d 1222 ; PSP–NC, LLC v. Raudkivi, 138 A.D.3d 709, 711, 29 N.Y.S.3d 51 ; Zuckerman v. 234–6 W. 22 St. Corp., 267 A.D.2d 130, 130, 699 N.Y.S.2d 284 ).

The stay imposed by 11 USC § 362(a) is terminated upon the happening of certain events proscribed by 11 USC § 362(c). Pursuant to 11 USC § 362(c)(1), "the stay of an act against property of the [bankruptcy] estate under subsection (a) of [ 11 USC § 362 ] continues until such property is no longer property of the [bankruptcy] estate." The legislative history of 11 USC § 362(c) explains that 11 USC § 362(c)(1) "terminates a stay of an act against property of the estate when the property ceases to be property of the estate, such as by sale, abandonment, or exemption. It does not terminate the stay against property of the debtor if the property leaves the estate and goes to the debtor " ( HR Rep 95–595, 95th Cong, 1st Sess at 343, reprinted in 1978 U.S.Code Cong & Admin News at 6299 [emphasis added]).

Where the act stayed is not one against "property of the estate," 11 USC § 362(c)(2) provides that a stay under 11 USC § 362(a) "continues until the earliest of ... the time the case is closed; ... the time the case is dismissed; or ... the time a discharge is granted or denied" ( id. § 362 [c][2]). A bankruptcy court may also grant relief from the stay "[o]n request of a party in interest ... with respect to a stay of an act against property under [ 11 USC § 362(a) ] if ... such property is not necessary to an effective reorganization" ( id. § 362 [d][2]; see Maritime...