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IN THIS FORECLOSURE ACTION, THE BANKRUPTCY STAY DID NOT TERMINATE WHEN DEFENDANT BOUGHT THE SUBJECT PROPERTY FROM THE BANKRUPTCY ESTATE; THE STAY TERMINATED LATER WHEN DEFENDANT RECEIVED A DISCHARGE FROM THE BANKRUPTCY COURT; THE FORECLOSURE ACTION WAS THEREFORE TIMELY (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Dowling, in a matter of first impression, determined the foreclosure action, which had been stayed when defendant twice filed for bankruptcy, was timely brought. If the stay ceased when defendant bought the subject property from the bankruptcy estate, the foreclosure would have been untimely. But the Second Department held that the stay did not cease until the subsequent discharge order, rendering the action timely:

… [D]efendant’s purchase of the Middle Pond Road property from the bankruptcy estate pursuant to the November 26, 2013 order did not terminate the automatic bankruptcy stay barring commencement of the instant foreclosure action, but rather, under the circumstances of this case, the automatic bankruptcy stay terminated when the defendant received a discharge from the Bankruptcy Court on November 3, 2014.

Pursuant to the plain language of 11 USC § 362(c)(1), the discharge of the … property from the bankruptcy estate pursuant to the November 26, 2013 order terminated the stays of an act against “property of the estate,” which stays are established by 11 USC § 362(a)(3) and (4). Here, however, upon the defendant’s purchase of the … property from the bankruptcy estate pursuant to November 26, 2013 order, ownership of the … property returned to the defendant, as debtor in the bankruptcy proceeding … . Consequently, the termination of the stay of an act against “property of the estate” provided for by 11 USC § 362(c)(1) has no bearing on the stays established by 11 USC § 362(a)(1) and (5), which expressly apply to acts taken against “the debtor” or “property of the debtor,” and which continued in effect. Deutsche Bank Natl. Trust Co. v Lubonty, 2022 NY Slip Op 04288, Second Dept 7-6-22

Practice Point: Here whether the foreclosure action was timely depended on when the bankruptcy stay terminated. The defendant in the foreclosure action was the “debtor” in the bankruptcy proceeding. The defendant bought the property which was the subject of the foreclosure action from the bankruptcy estate. Based on the applicable bankruptcy statute, the bankruptcy stay did not terminate when defendant bought the property. It terminated later when defendant received a discharge from the Bankruptcy Court. Because the stay terminated on the later date, the foreclosure action was timely.

 

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