In re Harmony Holding Grp., LLC

655 B.R. 849

IN RE: HARMONY HOLDING GROUP, LLC, Debtor.

Case No. 8-23-73500-las

United States Bankruptcy Court, E.D. New York

Signed November 7, 2023

Robert Michael Manners, Robert M. Manners, Esq., Westbury, NY, for Debtor.

MEMORANDUM DECISION DETERMINING THAT AUTOMATIC STAY DOES NOT PRECLUDE DELIVERY OF REFEREE'S DEED TO PURCHASER AT PREPETITION FORECLOSURE SALE

Louis A. Scarcella, United States Bankruptcy Judge

Before the Court is the motion of Carmichael JY L.P. ("Lender") filed on September 27, 2023 (the "Stay Relief Motion" or "Mot.") [Dkt. No. 16] seeking entry of an order: (1) declaring that the automatic stay imposed under 11 U.S.C. § 362(a) does not preclude the transfer of the deed to the successful purchaser at a prepetition foreclosure sale of Debtor's real property located at 950 Jericho Turnpike, Westbury, New York (the "Property") or, if the automatic stay applies, (i) terminating the stay pursuant to 11 U.S.C. § 362(d)(1) and/or (d)(2) to allow the transfer of the deed to the Property and (ii) granting in rem relief pursuant to 11 U.S.C. § 362(d)(4)¹ with respect to the Property; or (2) in the alternative, dismissing this chapter 11 case. Debtor did not file timely written opposition to the Stay Relief Motion.² The Court heard oral argument on October 19, 2023 (the "October 19 Hearing").

After careful consideration of the Stay Relief Motion, the parties' arguments, and the relevant law, and for the reasons set forth on the record of the October 19 Hearing, the Court determined that: (i) the automatic stay imposed by § 362(a) did not preclude the post-petition delivery of the deed to the successful purchaser of the Property at the prepetition foreclosure sale, and (ii) even if the automatic stay prevented the post-petition delivery of the deed, stay relief was warranted under § 362(d)(1) and (d)(2).

The Court entered an order granting the Stay Relief Motion on October 23, 2023 (the "October 23 Order") consistent with its findings and conclusions at the October 19 Hearing. [Dkt. No. 38]. This Memorandum Decision explains further the bases of the Court's ruling. It does not change the substance of the Court's ruling at the conclusion of the October 19 Hearing and as set forth in the October 23 Order.

JURISDICTION

The Court has jurisdiction over this matter under 28 U.S.C. § 1334 and the Standing Order of Reference of the United States District Court for the Eastern District of New York, dated August 28, 1986 (Weinstein, C.J.), as amended by Order dated December 5, 2012 (Amon, C.J.) entered in accordance with 28 U.S.C. § 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(G) in which final orders or judgment may be entered by this Court pursuant to 28 U.S.C. § 157(b)(1).

BACKGROUND

The relevant facts are not in dispute except as otherwise noted.³ On or about July 29, 2008, Debtor executed and delivered a note in the amount of $385,000 to Flushing Savings Bank, FSB (the "Note"). Hofstedter Decl. ¶ 3. The Note evidenced a loan made by Flushing to Debtor on July 29, 2008, in the principal amount of $385,000. Id. On the same day, Debtor executed a mortgage (the "Mortgage") securing the Note and encumbering the Property. Id. ¶ 4, Hofstedter Ex. A. The Mortgage was recorded in the Office of the Nassau County Clerk on August 13, 2008. Id. ¶ 5.

The Note and Mortgage were assigned to Lender on May 19, 2017. Id. ¶ 7, Hofstedter Ex. B. Lender commenced a foreclosure action with respect to the Property in state court on April 20, 2017. Id. ¶ 12, Hofstedter Ex. D; Mot. ¶ 6. Interest and real estate taxes continued to accrue on the Property. Mot. ¶ 6. Lender obtained a judgment of foreclosure and sale on January 15, 2019. Id. ¶ 6, Ex. A; Hofstedter Decl. ¶ 15, Hofstedter Ex. E. Lender scheduled multiple sales of the Property but agreed to extend the sale date affording Debtor numerous opportunities to settle the amount due. Mot. ¶ 6.

On the eve of a foreclosure sale scheduled for May 2, 2022, Debtor commenced its first chapter 11 case in this Court (the "First Bankruptcy Case"). Mot. ¶ 8. [Case No. 22-70952, Dkt. No. 1]. The parties executed a stipulation to dismiss the First Bankruptcy Case, which was so-ordered by the Court on August 18, 2022. [Case No. 22-70952, Dkt. No. 64]. The stipulation afforded Debtor the opportunity to sell the Property and tender funds to Lender in an amount sufficient to satisfy its debt by March 1, 2023. Id. The Court entered an order dismissing the First Bankruptcy Case on October 17, 2022, and the case was closed on December 19, 2022. [Case No. 22-70952, Dkt. No 70].

Debtor was unable to sell the Property and tender funds to Lender by the agreed-upon deadline of March 1, 2023. Mot. ¶ 10. The Property was thereafter sold to Kamran Ghazvini of QWNY Corp. (the "Purchaser") at a prepetition foreclosure sale on March 2, 2023. Id. ¶ 11. The Purchaser delivered a deposit to the court-appointed referee. Id.

Debtor sought a stay of delivery of the deed in state court. Id. ¶ 12. On March 3, 2023, Debtor was granted a temporary restraining order. Id. ¶ 12, Ex. D. On September 20, 2023, the state court entered an order vacating the temporary restraining order and denying Debtor's motion to vacate the sale. Id. at 12. On that same day, Debtor filed a petition commencing this chapter 11 case. [Case No. 23-73500, Dkt. No. 1]. Lender filed the Stay Relief Motion on September 27, 2023. [Dkt. No. 16]. Debtor did not file written opposition to the Stay Relief Motion. Aviva Francis (counsel to Lender), Robert Michael Manners (proposed counsel to Debtor), Stan Y. Yang (Office of the United States Trustee), and Peter Kamran of Lester Korinman Kamran & Masini, P.C. appeared at the hearing held on the Stay Relief Motion on October 19, 2023 (the "October 19 Hearing").⁴

For the reasons set forth on the record at the October 19 Hearing, the Court found in favor of Lender and overruled any objection by Debtor and subsequently entered the October 23 Order.⁵ Consistent with its determination on the record and in the October 23 Order, Debtor lost all legal or equitable interest in the Property when the Property was sold at the prepetition foreclosure sale and, as such, (i) the Property is not property of Debtor's bankruptcy estate under § 541(a)(1) and (ii) the automatic stay imposed under § 362(a) does not preclude transfer of the deed by the referee to the successful purchaser at the prepetition foreclosure sale. Additionally, as further set forth on the record and in the October 23 Order, even if the stay were applicable to prevent the transfer of the deed, Lender sufficiently demonstrated "cause" to lift the stay pursuant to § 362(d)(1) and satisfied the grounds for stay relief under § 362(d)(2).⁶

DISCUSSION

I. LEGAL STANDARD

A. Property of the Estate

The filing of a petition in bankruptcy creates an estate that consists of "all legal or equitable interest of the debtor in property as of the commencement of the case." See 11 U.S.C. § 541(a)(1). As stated above, on September 20, 2023 (the "Petition Date"), Debtor filed a petition for relief under chapter 11 of the Bankruptcy Code. [Dkt. No. 1]. To determine whether Debtor had any legal or equitable interest in the Property as of the Petition Date, the Court looks to applicable state law. See In re Smith, 7 B.R. 106, 107 (Bankr. W.D.N.Y. 1980); see also generally In re DeFlora Lake Dev. Assocs., Inc., 628 B.R. 189, 197 (Bankr. S.D.N.Y. 2021) ("Whether the debtor has a legal or equitable interest in property such that it becomes 'property of the estate' under section 541 is determined by applicable state law.") (citing Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979)); In re Hilsen, 405 B.R. 49, 56 (Bankr. E.D.N.Y. 2009) ("The question of whether a debtor has an interest in property that passes to the bankruptcy estate upon the commencement of the case . . . may be determined by the bankruptcy court and is informed by applicable state law."). In sum, nonbankruptcy law determines the "legal or equitable interests of the debtor" in property for the purpose of applying § 541(a)(1). As stated by the Supreme Court in Butner, "[t]he federal bankruptcy court should take whatever steps are necessary to ensure that the mortgagee is afforded in federal bankruptcy court the same protection he would have under state law if no bankruptcy had ensued." See Butner, 440 U.S. at 56, 99 S.Ct. 914.

B. The Automatic Stay

The filing of a petition for relief under the Bankruptcy Code automatically triggers the protection of the automatic stay under § 362(a). See 11 U.S.C. § 362(a). The automatic stay is pervasive, and "serves one of the core purposes of bankruptcy, by enabling the bankruptcy court to centralize all disputes concerning property of the debtor's estate so that reorganization can proceed efficiently, unimpeded by uncoordinated proceedings in other arenas." See S.E.C. v. Miller, 808 F. 3d 623, 630 (2d Cir. 2015) (quotation marks and citations omitted).

Section 362(d) authorizes the court to grant relief from the automatic stay as follows:

(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—

(1) for cause, including the lack of adequate protection of an interest in property of such party in interest;

(2) with respect to a stay of an act against property under subsection (a) of this section, if—

(A)the debtor does not have an equity in such property; and

(B) such property is not necessary to an effective reorganization.

11 U.S.C. § 362(d)(1)-(2). Stay relief under § 362(d) is mandatory, not permissive, if the statutory conditions are met. See In re Zeoli, 249 B.R. 61, 63 (Bankr. S.D.N.Y. 2000) ("Congress has provided that 'the Court shall grant relief from the stay . . .' for any of the reasons stated in the three subsections.").

1. 11 U.S.C. § 362(d)(1)

The ...