510 B.R. 720
Bankr. S.D.N.Y.2014Background
- Debtor (Maria Salov) occupied 750 Route 292, a property sold at foreclosure to FNMA on June 3, 2013; Nationstar previously held the mortgage.
- Debtor filed a Chapter 13 petition on October 13, 2013 and counsel notified creditors' counsel of the filing on multiple occasions.
- On October 17, 2013 Fein, Such & Crane (creditors’ counsel) filed and served a state-court motion for a post-foreclosure writ of assistance (captioned in Nationstar’s name but alleging FNMA as purchaser) without seeking stay relief from the bankruptcy court.
- Debtor moved for contempt alleging violations of the automatic stay under 11 U.S.C. § 362(a)(1) and (a)(3); the state-court writ was withdrawn after the motion was filed.
- The bankruptcy court found the creditors violated the automatic stay, held FNMA and Nationstar jointly and severally liable, awarded $7,635 in actual damages and $10,000 in punitive damages, and explained that Debtor’s possessory (but not ownership) interest was property of the estate protected by the stay.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether filing/serving a post-foreclosure writ against Debtor after petition violated § 362(a)(1) | Filing a writ is commencement/continuation of a judicial proceeding against the debtor and thus violated § 362(a)(1) | No stay because Debtor had no legal/equitable ownership interest after foreclosure sale | Yes. Serving/filing the writ against the debtor after notice of the petition violated § 362(a)(1) |
| Whether a debtor’s mere possessory interest is "property of the estate" under § 541 and protected by § 362(a)(3) | Debtor’s possessory interest (occupancy) is an estate interest and a writ to obtain possession targets estate property | Creditors: foreclosure extinguished any interest; only ownership/right-to-redeem matters so no estate property was affected | Yes. Mere possessory interest is property of the estate; seeking a writ to divest possession violated § 362(a)(3) |
| Whether creditors had duty to seek stay relief before pursuing state-court possession remedies | Creditors must obtain stay relief before post-petition possession actions; debtor’s counsel gave notice and warned them | Creditors claimed good-faith belief no stay applied and that deliver of deed was ministerial | Court: creditors had a duty to seek relief; good-faith belief did not excuse proceeding without relief |
| Appropriate damages for willful stay violation | Seek actual fees and punitive damages for willful violation | Creditors contested liability and sought offsets; argued one or the other creditor was responsible | Court awarded $7,635 actual damages and $10,000 punitive damages, holding FNMA and Nationstar jointly and severally liable |
Key Cases Cited
- Eastern Refractories Co. Inc. v. Forty Eight Insulations Inc., 157 F.3d 169 (2d Cir. 1998) (automatic stay is a fundamental debtor protection)
- Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522 (2d Cir. 1994) (automatic stay takes effect immediately upon filing)
- Rodgers v. County of Monroe (In re Rodgers), 333 F.3d 64 (2d Cir. 2003) (delivery of deed after foreclosure may be ministerial and not necessarily pull property into estate)
- Crysen/Montenay Energy Co. v. Esselen Assoc., Inc. (In re Crysen/Montenay Energy Co.), 902 F.2d 1098 (2d Cir. 1990) (punitive damages appropriate where creditor willfully violates stay and maliciousness may justify punitive award)
- 48th Street Steakhouse, Inc. v. Rockefeller Ctr., Inc. (In re 48th Street Steakhouse), 835 F.2d 427 (2d Cir. 1987) (a mere possessory interest can trigger automatic stay protection)
- Atlantic Bus. & Cmty. Dev. Corp. v. ICC (In re Atlantic Bus. & Cmty. Dev. Corp.), 901 F.2d 325 (3d Cir. 1990) (possessory interests fall within § 541 and are protected by § 362)