Cornell v. Envoy Mortg., Ltd. (In re Hosch)
| Decision Date | 28 June 2016 |
| Docket Number | Bk. No. 15–11359–BAH,Adv. No. 15–1091–BAH |
| Citation | 551 B.R. 696,2016 BNH 008 |
| Parties | In re: Licka Hosch, Debtor Mark Cornell, Chapter 7 Trustee, Plaintiff v. Envoy Mortgage, Ltd., Defendant |
| Court | U.S. Bankruptcy Court — District of New Hampshire |
Daniel C. Proctor, Esq., The Law Offices of Daniel C. Proctor, Concord, NH, Attorney for the Plaintiff
Lawrence M. Edelman, Esq., Michele E. Kenney, Esq., Pierce Atwood LLP, Portsmouth, NH, Attorneys for the Defendant
The matter before the Court is the Motion to Dismiss1 filed by the defendant Envoy Mortgage, Ltd. (“Envoy”) and the Trustee's Objection to the Defendant's Motion to Dismiss2 (the “Objection”), filed by the plaintiff Mark P. Cornell (the “Trustee”), Chapter 7 trustee of the bankruptcy estate of Licka Hosch. Through his complaint, the Trustee seeks a declaration that by virtue of his recording a notice asserting rights as a lien creditor under 11 U.S.C. § 544(a) in the appropriate registry of deeds prior to Envoy's recordation of its foreclosure deed, the estate now holds a first position lien on real property owned by Envoy. Envoy asserts that the Trustee has failed to state a claim upon which relief can be granted because the foreclosure deed was recorded within the statutory safe harbor from intervening liens. Alternatively, Envoy argues that the Trustee's intervening lien prevented its mortgage from being extinguished upon the recording of the foreclosure deed such that it remains superior to the lien rights asserted by the Trustee. For the reasons set forth below, the Court grants the Motion to Dismiss.
This Court has authority to exercise jurisdiction over the subject matter and the parties pursuant to 28 U.S.C. §§ 157(a), 1334, and U.S. District Court for the District of New Hampshire Local Rule 77.4(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(K).
The facts of this case are all a matter of public record and therefore, not in dispute. Instead, the parties disagree only as to the legal implications of those facts. In order to understand the dispute, a brief explanation of the legal context framing the controversy is necessary. The Court notes, however, that although this background informs how the present dispute arose, determination of the Motion to Dismiss does not require (or permit) resolution of all these legal issues.
Under New Hampshire law, a mortgagee foreclosing under a power of sale provision in a mortgage “shall within 60 days of the sale” record in the appropriate registry of deeds “the foreclosure deed, a copy of the notice of the sale, and his affidavit setting forth fully and particularly his acts in the premises.” N.H. RSA § 479:26, I. The statute further provides that:
If such recording is prevented by order or stay of any court or law or any provision of the United States Bankruptcy Code, the time for such recording shall be extended until 10 days after the expiration or removal of such order or stay.
Id. Upon recording, “title to the premises shall pass to the purchaser free and clear of all interests and encumbrances which do not have priority over such mortgage.” N.H. RSA § 479:26, III. If, however, the mortgagee fails to record the foreclosure deed and affidavit within 60 days of the foreclosure sale, the sale is rendered “void and of no effect only as to liens or other encumbrances of record with the register of deeds for said county intervening between the day of the sale and the time of recording of said deed and affidavit.” N.H. RSA § 479:26, II. Thus, the 60 day period and any extension thereof operates as a safe harbor for the mortgagee against intervening liens.
In In re Hazleton, 137 B.R. 560 (Bankr.D.N.H.1992), Judge Yacos held that it was unnecessary to obtain relief from stay to record a foreclosure deed after a prepetition foreclosure sale. He reasoned that because a mortgagor-debtor's statutory right of redemption expires once the foreclosure auction is concluded, see N.H. RSA § 479:18, the debtor lacks any state or federal interest in the real property on the petition date, and therefore, the foreclosed property is not property of the estate protected by the automatic stay. In re Hazleton, 137 B.R. at 562. The New Hampshire Supreme Court has since cited Hazelton for the proposition that a mortgagor does not retain any legal or equitable interest in property once a foreclosure auction is held. Barrows v. Boles, 141 N.H. 382, 393, 687 A.2d 979 (1996).
In In re Beeman, 235 B.R. 519, 526 (Bankr.D.N.H.1999), however, Judge Deasy held the subsequent enactment of 11 U.S.C. § 1322(c)(1) abrogated Hazelton as it applied to Chapter 13 cases. That section provides in relevant part:
Notwithstanding subsection (b)(2) and applicable nonbankruptcy law ... a default with respect to, or that gave rise to, a lien on the debtor's principal residence may be cured ... until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law....
11 U.S.C. § 1322(c)(1). Judge Deasy concluded that the plain language of 11 U.S.C. § 1322(b) and (c) provide an independent federal right to cure which preempts state law “with respect to when a Chapter 13 debtor's rights to cure and reinstate a principal residence mortgage are cut off.” In re Beeman, 235 B.R. at 524. Focusing on the word “sold,” he determined that this federal interest under 11 U.S.C. § 1322(c)(1) exists until the completion of the foreclosure process, including the recording of the foreclosure deed:
By stating that a debtor's rights are cut off when a residence is sold at a foreclosure sale, the language envisions the completion of something; namely, the completion of a “sale” of property through foreclosure. The word “sale” is generally defined as the transferring of ownership and title regarding property to a buyer. Thus, the statutory language envisions a debtor's rights being terminated upon the completed transfer of title and ownership to a buyer through a foreclosure sale. Title and ownership generally pass through foreclosure upon the completion of a process, and not upon the occurrence of a single event such as a foreclosure auction. For example, under New Hampshire's power of sale regime, there are numerous steps that must be taken before a foreclosure sale is deemed complete and final.
Id. at 525 (emphasis in original, internal citations omitted). Accordingly, Beeman stands for the proposition that a mortgagee must obtain relief from stay in a Chapter 13 case to record a foreclosure deed despite the conclusion of a prepetition foreclosure auction. Id. at 526–27. Outside the Chapter 13 context, the applicability of Hazelton is unquestioned. Id. at 526 n. 7 ; see also In re Lakes Region Donuts, LLC, No. BR 13–11823–BAH, 2014 WL 1281507, at *10 (Bankr.D.N.H. Mar. 27, 2014) ().
In TD Bank, N.A. v. LaPointe (In re LaPointe), 505 B.R. 589 (1st Cir. BAP 2014), the United States Bankruptcy Appellate Panel for the First Circuit criticized Beeman while reversing a decision of this court that followed Beeman's rationale. The Panel rejected Beeman's interpretation of 11 U.S.C. § 1322(c)(1), concluding:
“The phrase ‘sold at a foreclosure sale’ refers to a sale that occurs at a foreclosure auction.” The additional phrase “conducted in accordance with applicable nonbankruptcy law” is a requirement that the foreclosure was noticed, convened and held in compliance with applicable state laws. “To define the word ‘sold’ as the point at which a deed is transferred to the prevailing bidder subsequent to the date of the auction likewise removes the words ‘foreclosure sale’ from the statute.”
In re LaPointe, 505 B.R. at 597 (emphasis in original, internal citations omitted). The Panel determined that “even though legal title does not pass to the purchaser until the deed has been recorded,” “under New Hampshire law, the foreclosure process is complete as to the mortgagor at the time the gavel falls at the foreclosure auction.” Id. (emphasis in original). Therefore, “a mortgagor does not have a right of redemption after the gavel has fallen and the memorandum of sale is signed,” and, in the absence of a legal or equitable interest, the property is not property of the estate or subject to the automatic stay. Id. Notwithstanding the apparent inapplicability of the automatic stay, the Panel then remanded the matter “to the bankruptcy court for entry of an order granting the Bank's motion for relief from the automatic stay.” Id. at 598.
After LaPointe, this Court stated, albeit in dicta, that “the Beeman decision was criticized in a recent appellate decision, and therefore its precedential value may be limited.” In re Lakes Region Donuts, LLC, 2014 WL 1281507, at *10. Ultimately, neither LaPointe nor Beeman are binding on this Court and both are authority of equal persuasive value, albeit of differing views on the same issue. See Follo v. Morency, 507 B.R. 421, 430 n. 5 (D.Mass.2014) ; In re Dicey, 312 B.R. 456, 459 n. 3 (Bankr.D.N.H.2004) ; In re Virden, 279 B.R. 401, 409 n. 12 (Bankr.D.Mass.2002).
On November 4, 2013, Licka Hosch (the “Debtor”) financed the purchase of real estate located at 148 Robinson Road in Hudson, New Hampshire (the “Property”) through Envoy and granted Envoy a mortgage to secure the obligation. The Debtor defaulted on the obligation, and Envoy conducted a foreclosure sale on July 30, 2015, at which it was the successful bidder. Therefore, in the absence of any stay, Envoy had until September 28, 2015 to record the foreclosure deed and affidavit in the appropriate registry without fear of any intervening liens or encumbrances. See N.H. RSA § 479:26, I.
The Debtor filed a Chapter 13 petition on August 27, 2015.3 It is undisputed that Envoy did not record the foreclosure deed and affidavit prior to the bankruptcy filing....
To continue reading
Request your trial