In re Salov
Chapter 13
MEMORANDUM DECISION FINDING A VIOLATION OF THE AUTOMATIC STAY AND AWARDING DAMAGES
Thе Debtor filed a motion for contempt by Order to Show Cause against Federal National Mortgage Association (“FNMA”) and Nationstar Mortgage, LLC (“Nations-tar”) alleging a violation of the automatic stay pursuant to 11 U.S.C. § 362(a)(1) and 11 U.S.C. § 362(a)(3). The asserted violation arises from the issuance of a post-petition summons and complaint seeking a writ of assistance where the parties were notified of the bankruptcy filing. For the reasons set forth in this memorandum decision, the Court finds that a violation of the automatic stay did occur and awards damages.
Jurisdiction
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Amended Standing Order of Reference signed by Chief Judge Loretta A. Preska dated January 31, 2012. This is a “core proceeding” under 28 U.S.C. § 157(b)(2)(A) (matters concerning the administration of the estate); (G) (motions to terminate, annul, or modify the automatic stay).
Background
The Debtor resides at 750 Route 292, Holmes, N.Y. 12531 (“Property”). See
On October 11, 2013, approximately one week after being served with the ten-day notice, the Debtor filed for chapter 13. Id. ¶ 12. On October 15, 2013, Debtor’s counsel called Creditors’ counsel advising them of the Debtor’s filing. Id. ¶ 14. On October 16, 2013, Debtor’s counsel sent an email advising Creditors’ counsel of the same. Id. ¶ 15., Ex. E. On October 17, 2013, Nationstar, by its attorneys, filed a motion for a post-foreclosure writ of assistance and sent the same for service upon the Debtor. Id. ¶ 16, Ex. F. The caption of the motion named Nationstar as the plaintiff, even though its interest terminated on June 3, 2013. Id. ¶ 17, Ex. F. The body of the motion named FNMA as the party taking action. Id. Neither party applied to this Court for relief from the automatic stay.
On November 8, 2013, counsel for the Debtor faxed a letter to Creditors’ counsel stating that Creditors were in violation of the automatic stay. Id. ¶ 18, Ex. G. On November 11, 2013, Creditors’ counsel replied, outlining reasons why it believed the stay did not apply. Id. ¶ 19, Ex. H. Shortly thereafter, Debtor’s counsel filed a Motion for Contempt by Order to Show Cause against Nationstar. See Pl.’s Mot. for Contempt, ECF No. 9. The Court signed the Order to Show Cause on November 14, 2013. See Order to Show Cause, ECF No. 10.
On November 18, 2013, Nationstar filed an objection to the Order to Show Cause. Nationstar argues that “nothing related to the subject property passed into the Bankruptcy Estate, and thus, no automatic stay applied.” See Opp’n, ECF No 12. Na-tionstar also argues that it should not be held in contempt since its interest terminated following the delivery of the Referee’s Deed. Id. ¶ 28.
On November 19, 2013, Creditors’ counsel withdrew its motion pending before the Dutchess County Supreme Court. See Joint Stmt. ¶ 21, Ex. I. Also on November 19, 2013, the Court held a hearing, found that the automatic stay was violated, and awarded actual damages. On November 25, 2013, the Court entered an order granting Debtor’s Motion for Contempt and awarded $2,550.00 against Nationstar. See Order Granting Award for Actual Damages, ECF No. 20. On November 26, 2013, counsel for the Debtor filed an application for punitive damages. See Mot. to Approve Appl. for Award of Punitive Damages, ECF No. 24.
On December 6, 2013, Nationstar filed an objection to the Court order and opposition to the Debtor’s application for punitive damages, arguing that FNMA and not Nationstar violated the stay. See Opp’n, ECF No. 26. At the January 15, 2014 hearing, the Court instructed counsel for the Debtor to file a Motion for Contempt by Order to Show Cause against FNMA.
On March 5, 2014, FNMA filed an objection and opposition tо the Order to Show Cause. See Opp’n, ECF No 68. FNMA argues that actual and punitive damages should be denied since no possessory interest transferred into the estate and consequently no automatic stay applied. Id. ¶ 20-57. Alternatively, FNMA argues that any damages awarded should be offset and reduced between $7,238.70 and $26,427.79 due to Debtor not having paid to remain in the Property and FNMA’s good faith belief that no possessory interest transferred. Id. ¶ 58-64.
At the March 11, 2014 hearing, the Court adjourned the contempt motions to May 6, 2014. The Court ordered the parties to submit a statement of undisputed facts and party briefs. See Joint Stmt. Nationstar maintains that under New York Real Property Law their interest terminated upon delivery of the Referee’s Deed. See Mem. of Law, ECF 86. FNMA argues that the Property did not transfer into the bankruptcy estate pursuant to § 541. See Mem. of Law, ECF 87. Debt- or continues to allege that the parties violated the stay by commencing and continuing a judicial proceeding in contravention of § 362(a)(1). See Mem. of Law, ECF. 85. Debtor also maintains that her “mere possessory” interest in the property passed into the estate pursuant to § 541. Id. Debtor’s counsel requests actual damages in the amount of $7,635.00 and additional punitive damages. Id. ¶ 36, Ex. C.
Discussion
I. The Automatic Stay
The filing of a bankruptcy petition invokes the powerful protection of the automatic stay under 11 U.S.C. § 362. The automatic stay is “one of the fundamental debtor protections provided by the bankruptcy code.” Eastern Refractories Co. Inc v. Forty Eight Insulations Inc.,
a. Stay Violation under § 362(a)(1) of the Bankruptcy Code
Pursuant to § 362(a)(1), a bankruptcy petition operates as an automatic stay to “all entities of ... 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.... ” 11 U.S.C.
On June 3, 2013, FNMA purchased the Debtor’s residence at a foreclosure sale. Joint Stmt. ¶ 6, Ex. B. On October 13, 2013, the Debtor filed for chapter 13. Creditors were informed of the bankruptcy proceeding on three separate occasions: i) the Bankruptcy Court noticed Nationstar of the commencement of the bankruptcy case by mailing the § 341 notice to its counsel, Fein Such; ii) Debtor’s counsel called Fein Such and informed them of the bankruptcy on October 15, 2013; and iii) Debtor’s counsel faxed Fein Such and asked them not to proceed with the eviction in light of Debtor’s bankruptcy filing on October 16, 2013. Id. ¶ 13-16. Despite acknowledging notice of the Debtor’s bankruptcy filing, on October 17, 2013, Creditors’ attorney, Fein Such, prepared and filed a motion for a post-foreclosure writ of assistance without obtaining relief from the automatic stay from this Court. Id. ¶ 17.
Creditors argue that they did not need to seek stay relief as they believed that the Debtor had no legal or equitable interest in the Property. See Mem. of Law ¶ 8, ECF 87. Creditors’ argument that the Debtor had no interest in the Property ignores § 362(a)(1) of the Bankruptcy Code. In its most basic terms, the automatic stay prevents the “commencement or continuation of legal proceedings ... against the debtor.” 11 U.S.C. § 362(a)(1) (emphasis added). Nationstar, thrоugh its counsel, Fein Such, admits that it sued the Debtor because she potentially had an interest in the Property. See Obj. ¶ 7, ECF No. 12. (“Marija Salov was sued and served as a ... person who may have had an occupancy interest in the premises.”).
b. Stay Violation under § 362(a)(3) of the Bankruptcy Code.
Having found that the automatic stay was violated under § 362(a)(1), the Court has ample power to award damages pursuant to § 362(k). 11 U.S.C. § 362(k). Despite this, the Court will address whether the Creditors also violated the stay pursuant to § 362(a)(3). Section 362(a)(3) provides that “any act to obtain possession of property of the estate or of property from the estate” is a violation of the automatic stay. 11 U.S.C. § 362(a)(3). According to § 541, the estate includes “all legal and equitable interests of the debtor in property at the commencement of the case.” 11 U.S.C. § 541(a)(1).
i. Debtor’s ownership interest is not relevant
It is well established that a debtor does not have an ownership interest in a property once the right to redeem is extinguished following a foreclosure sale and, as such, a debtor has no ability to prevent the delivery of the deed. Cerrato v. BAC
Here, Creditors argue that the foreclosure proceeding extinguished the Debtor’s legal and equitable interest in the estate. See Mem. of Law ¶ 3-4, ECF 87; see also Obj. ¶ 37, ECF No. 12. In support of their argument, FNMA attorneys cite In re Rodgers. See Mem. of Law ¶ 4-5, ECF 87. In that case, a debtor filed for bankruptcy following the foreclosure sale of their home. Rodgers v. Cnty. of Monroe (In re Rodgers),
Creditors also argue that Cook v. Huey applies.
By citing these cases, Creditors argue that since the Property was sold at foreclosure, Debtor has no legal or equitable interest in the Property. However, “property of the estate” is not as simplistic as Creditors would like to make it. Rather, the issues at play in this proceeding are nuanced and an in-depth understanding of property rights and bankruptcy law is necessary to parse them.
ii. Debtor’s possessory interest
Property of the estate encompasses all rights and interests that a Debtor may have in a property. The right to own is a separate right from the right to possess or the right to occupy and yet, all are property of the estate. When a debtor is attempting to redeem a piece of real property or is attempting to prevent the transfer of a deed, it is the debtor’s ownership interest that is in question — not the pos-sessory interest.
Indeed, the Second Circuit in In re Rodgers recognized this distinction when they stated: “Although Rodgers may have retained ... a limited right of possession — the delivery of the deed was a ministerial act that did not impair any property interest retained by Rodgers and, thus,
Here, the Debtor’s ownership interest in the Property is not relevant. Debtor is not and never was the owner of the Propеrty. As such, under state law, Debtor never had a right to redeem. She never had an interest in the delivery of the deed. What Debtor did have — and continues to have — is a possessory interest in the real property, which was not affected by the foreclosure sale and remains property of the estate.
“It is well settled that a debtor’s mere possessory interest in premises, even absent any legal interest, is protected by the automatic stay.” In re Dominguez,
Judge Blackshear in In re Reinhardt discusses the fact that “federal legislative history supports the contention that Congress intended for residual possessory interest to fall within the definition of a bankruptcy estate.” In re Reinhardt,
iii. Writ of assistance
If the Debtor had no post-foreclosure interest, New York Real Property Law would not require a purchaser to file a writ of assistance against an occupant whо refuses to surrender the property and a sheriff could immediately evict the occupant. Yet, this is not the process that is outlined under New York Property Law.
New York Real Property Law § 221 states:
Where a judgment affecting the title to, or the possession, enjoyment or use of, real property allots to any person a distinct parcel of real property, or contains a direction for the sale of real property, or confirms such an allotment or sale, it also may direct the delivery of the possession of the property to the person entitled thereto, subject to the rights and obligations set forth in section thirteen hundred five of this chapter.
If a party, or his representative or successor, who is bound by the judgment, withholds possession from the person thus declared to be entitled thereto, the court, by order, in its discretion, besides punishing the disobedience as a contempt, may require the sheriff to put that person into possession. Such an order shall be executed as if it were an execution for the delivery of the possession of the property.
N.Y. Real Prop. Law § 221 (McKinney 2014). Thus, pursuant to the plain language of § 221, under New York law, a writ of assistance is necessary in order to “put [the purchaser] into possession.” Id. Nationstar, through its counsel, Fein Such, admitted that the Debtor was “sued and served as a рerson who may have had an occupancy interest in the premises.” See Obj. ¶ 7, ECF No. 12.
Case law makes clear that the writ of assistance is not a ministerial act like the delivery of a deed. “A ministerial act is one that is essentially clerical in nature.” Soares v. Bockton Credit Union (In re Soares),
Before a writ of assistance will issue, the movant is required to provide a certain amount of process to a defendant to the action, such as exhibiting a deed, and the application for a writ of assistance can be denied for failure to provide this process. See Colony Mortgage. Bankers v. Mercado,
This Court finds the reasoning of the court in St. Clair persuasive. St. Clair v. Beneficial Mortg. Co. (In re St. Clair),
An even more persuasive decision, Perl, was issued between the Court’s May 6, 2014 oral ruling and the publication of this written decision and provides a comprehensive discussion of the issues at play in this case. Eden Place, LLC v. Perl (In re Perl), — B.R. -, -,
In this case, the writ of assistance was filed post-petition. The Debtor’s four-year “mere possessory” interest, even without a legal interest, is still an interest, and thus falls within the meaning of property of the estate. This conclusion, that the Debtor maintained а possessory interest in the Property, is consistent with New York state law dating at least as far back as 1890, as is indicated from the following discussion:
The writ of assistance, so far as foreclosures are concerned, is an old chancery writ.... It may be had to enforce any judgment or order awarding the possession of real property, other than the common judgment, in a direct action for land. A writ of assistance is, in ordinary cases, the process for giving possession of land under an adjudication, and will be granted upon the sale being confirmed, and proof that the purchaser has received a deed of conveyance from the mastеr, which has been shown to the party in possession, accompanied by ademand of possession, which has been refused.
The judgment herein cannot be enforced in respect to possession by execution, and the relief required must be obtained by this writ.
O’Connor v. Schaeffel,
II. Creditor has a Duty to Obtain Relief from the Stay.
The Court does not believe that finding a stay violation in this case places any higher burden upon creditors than is provided by the Bankruptcy Code. The fact is that Creditors could have avoided this result had they heeded Debt- or’s counsel’s warnings and sought relief from the automatic stay in this Court. “[I]t is not the debtor’s responsibility to take action that ensures that she received protection of the automatic stay; rather the creditor bears the burden of seeking relief from the automatic stay before taking post-petition collection actions.” In re Braught,
“[Wjhile ... [possessory] rights on the рart of the debtor ... trigger the applicability of the automatic stay in the first instance, they are not determinative of the fundamentally different question as to whether the stay, once triggered, should be modified or terminated for cause.” In re Éclair Bakery Ltd.,
Simply put, the fact that cause existed to lift the stay is not relevant to a determination as to whether the stay has been violated. See Perl, — B.R. at -,
III. Actual and Punitive Damages Against Nationstar and FNMA
a. Nationstar and FNMA are Jointly and Severally Liable
Nationstar argues that it had no involvement in the violation of the automatic stay as its interest in the Property transferred to FNMA four months prior to the occurrence of the violation. Nations-tar argues that under New York Property law, the purchaser of a foreclosed property is permitted to file for a writ of assistance under the foreclosure action caption so long as any person sought to be dispossessed was a party to the underlying foreclosure action. Nationstar in support of its argument cites Lincoln First Bank v. Polishuk,
Lincoln First Bank does not adequately address Nationstar’s argument. Rather, the case contains one sentence in which the court finds that the motion for a writ of assistance is proper, despite the caption
Despite the fact that the parties agree in the statement of undisputed facts that FNMA prepared the motion for post-foreclosure writ of assistance, this Court cannot definitively conclude that Nationstar was not the movant. See Joint Stmt. ¶ 16. Nationstar is the named Plaintiff in the post-petition action. Moreover, the Creditors share counsel and it is unclear at this time whether Fein Such was acting on behalf of Nationstar, FNMA, or both Creditors at the time it filed the motion. There is simply no way for the Debtor or the Court to determine who, ultimately, is liable. Rather, the Creditors must come forth with evidence showing one or the other made the ultimate decision.
Accordingly, the Court holds both Na-tionstar and FNMA jointly and severally liable — subject to one or the other bringing an action for exculpation. If FNMA believes that it is the responsible party, it may voluntarily assume liability for the stay -violation.
b. Actual Damages pursuant to § S62(k)
Pursuant to § 362(k)(l), “an individual injured by any willful violation of the stay provided by this section shall recover actual damages, including costs and attorney’s fees, and in appropriate circumstances, may recover punitive damages.” 11 U.S.C. § 362(k)(l). The party moving for damages bears the burden of proof. In re Pachman,
It is clear that Creditors, through their counsel, were aware that an automatic stay was in effect. On October 15 2013, Creditors’ counsel received a call from Debtor’s counsel advising them of the filing. See Joint Stmt. ¶ 14. On October 16, 2013, Debtor’s counsel transmitted a fax to Creditors’ counsel stating the same. See id. ¶ 15. Creditors’ counsel reviewed the bankruptcy petition and concluded that the property did not enter the estate. See Opp’n ¶ 23, ECF No. 12. On October 17, 2013, Creditors’ counsel prepared a motion for a writ of assistance and sent the same for service and filing. See Joint Stmt. ¶ 16.
The fees sought by Debtor’s counsel are reasonable. An hourly rate of $275 per hour for attorney time and $100 per hour for legal assistant time is at or below the average rate for legal professionals in this district. See Mem. of Law ¶ 36, ECF 85, Ex. C. Due to the complexity of the case, the hours spent by Debtor’s counsel are reasonable. Id.
Accordingly, Nationstar and FNMA are jointly and severally liable for actual damages in the amount of $7,635.00.
c. Nationstar and FNMA are Jointly and Severally Liable for Punitive Damages
The Second Circuit has stated, where a party has willfully violated the automatic stay,
[a]n additional finding of maliciousness or bad faith on the part of the offending creditor warrants the further imposition of punitive damages.... This standard encourages would be violator to obtain declaratory judgments before seeking to vindicate their interests in violation of an automatic stay, and thereby protect debtors’ estates from incurring potentially unnecessary legal expenses in prosecuting stay violations.
Crysen/Montenay Energy Co. v. Esselen Assoc., Inc. (In re Crysen/Montenay Energy Co.),
[When] a person takes a deliberate act ... in violation of a stay, which the violator knows to be in existence ...such an act need not be performed with specific intent to violate the stay. Rather, so as long as the violator possessed general intent in taking actions which have the effect of violating the automatic stay, the intent required ... is satisfied.
Sucre v. MIC Leasing Corp. (In re Sucre),
In determining an award for punitive damages, the Court is guided by factors set out in In re B. Cohen & Sons Caterers, Inc.: “(1) the nature of the defendant’s conduct; (2) the defendant’s ability to pay; (3) the motives of the defendant; and (4) any provocation by the debtor.”
Here, FNMA was aware of the bankruptcy filing. See Joint Stmt. ¶ 13-15. Rather than seek to have the automatic stay lifted, Creditors unilaterally concluded that the property was not part of the estate and procеeded with filing and serving a motion for a writ of assistance. See Opp’n ¶ 23, ECF No. 12. In response to Debtor’s counsel’s protestations that they had violated the stay, Creditors’ counsel wrote Debtor’s counsel a letter which stated:
Unfortunately, I do not agree with your broad conclusion that the § 362(a) automatic stay applies in this matter....
[Y]ou are not the first to try this gambit on a post-foreclosure eviction that I have handled. Your threat of a Motion for Contempt does not change the clearly established law. Indeed, I caution you that such a motion would likely violate Bankruptcy Rule 9011.
See Joint Stmt. ¶ 19, Ex. H. As to the first factor, Creditors’ conduct and threats in this case are egregious. As to the second factor, Creditors are large financial organizations capable of paying damages. As to the third factor, Creditors’ motive was to evict the Debtor from the residence despite the bankruptcy proceeding; Creditors did not even mention that there was a pending bankruptcy case in their state court motion papers. Id. ¶16, Ex. F. As to the fourth factor, there is no evidence of provocation by the Debtor. While FNMA, does allege that Debtor’s daughter-in-law called its counsel and made “veiled threats,” such conduct does not rise to the level of provocation and certainly does not excuse a viоlation of the automatic stay by these large organizations. See Opp’n ¶ 12, ECF No. 68. Moreover, FNMA states that the day after the initial phone call, Debtor’s daughter-in-law called back and advised them that she did not represent the Debtor. Id. at 13. Debtor also called stating same. Id. at 15. As to the fifth factor, Creditors are both sophisticated corporations represented by counsel and capable of understanding the consequences of their actions.
From the letter addressed to Debtor’s counsel, it is clear that Creditors believed that they, and not the Court, had the authority to determine whether the automatic stay was in effect. See Joint Stmt. ¶ 19, Ex. H. By making such a determination, Creditors ran the risk that their actions would be declared void ab initio and that they would be subject to damages. In re Braught,
Creditors could have prevented this outcome by doing a very simple thing—filing a motion for relief from the automatic stay
Accordingly, Debtor has met the requirements for punitive damages.
Conclusion
For the foregoing reasons, Nationstar and FNMA are jointly and severally liable and are direсted to pay Debtor’s actual damages in the amount of $7,635.00. As for punitive damages, the Court awards $10,000.00, jointly and severally, in the hope that Creditors will think twice about not seeking an order from this Court in future cases. Debtor’s counsel should submit an order consistent with this memorandum decision.
. All references to ECF are from case number 13-37269 unless otherwise indicated.
. All facts are taken from the Statement of Undisputed Facts Between FNMA, NationS-tar and Debtor (“Joint Stmt.”) unless otherwise indicated. See ECF No. 83.
. The Court notes that the original court refers to the Debtor as a "Jane Doe.” This is not a true statement as the motion very clearly lists the Debtor as “Maria Salov” in its caption. See Joint Stmt., Ex. F.