First Federal Sav. and Loan Ass'n of Rochester v. Brown

• Decision Date: 23 December 1980
• Citation: 78 A.D.2d 119,434 N.Y.S.2d 306
• Parties: FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROCHESTER, formerly Fair City Savings & Loan Association of Syracuse, New York, Plaintiff, v. Robert N. BROWN et al., Defendants. Barbara Bex BROWN, Respondent, v. Virginia M. DELLINGER, d/b/a Dellinger Art and Antiques, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 306

434 N.Y.S.2d 306

78 A.D.2d 119

FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROCHESTER,

formerly Fair City Savings & Loan Association of

Syracuse, New York, Plaintiff, v. Robert N. BROWN et al., Defendants.

Barbara Bex BROWN, Respondent, v. Virginia M. DELLINGER, d/b/a Dellinger Art and Antiques, Appellant.

Supreme Court, Appellate Division, Fourth Department.

Dec. 23, 1980.

Harold K. Simons, Hamilton, for appellant.

Smith, Sovik, Kendrick, McAuliffe & Schwarzer, P. C., Syracuse, for respondent (Kevin R. McAuliffe, Syracuse, of counsel).

Before DILLON, P. J., and SIMONS, HANCOCK, CALLAHAN and MOULE, JJ.

CALLAHAN, Justice.

We are again called upon to resolve a dispute concerning the homestead exemption under section 5206 (subd. (a)) of the CPLR. Both parties rely upon our pronouncement in Wyoming County Bank & Trust Co. v. Kiley, 75 A.D.2d 477, 430 N.Y.S.2d 900, and utilize language therefrom in support of their respective positions. On this appeal, we are confronted with competing claims to surplus moneys from a foreclosure proceeding by the bankrupt-owner versus a judgment creditor. The question presented for our determination is whether the "homestead exemption" of section 5206 applies to surplus moneys arising out of the foreclosure sale of real property held as tenants by the entirety.

Robert N. Brown and Barbara Bex Brown, his wife, were the owners of real property in Syracuse, New York. On September 19, 1978, Virginia M. Dellinger d/b/a Dellinger Art and Antiques (Dellinger), took a judgment for $1,710.15 against the Browns which became a lien against their real property. Then, in September 1979, the First Federal Savings and Loan Association of Rochester, which held the mortgage on the Brown premises, instituted a foreclosure action. The property was sold pursuant to a judgment of foreclosure on February 28, 1980 resulting in an $8,667.02 surplus; the proceeds of sale were deposited with the commissioner of finance pursuant to section 1441 of the Real Property Actions and Proceedings Law. On March 20, 1980 Barbara Bex Brown filed a notice of claim to the surplus moneys claiming that she was "the owner of the equity in the property foreclosed (her homestead) all of which is exempt from the application to the satisfaction of money judgments pursuant to CPLR 5206." Thereafter, on April 3, 1980, Robert N. Brown and Barbara Bex Brown filed voluntary petitions in bankruptcy listing the surplus moneys as assets of the bankrupt and claimed such funds to be exempt. Without specifying his reasons, the trustee in bankruptcy determined that he had "no interest or right to the funds" and forwarded a letter to the commissioner of finance to advise him of that fact and "(his) release as trustee to any interest in the funds."

Barbara Bex Brown, by motion returnable at Special Term, initiated a proceeding pursuant to section 1361 of the Real Property Actions and Proceedings Law to (1) confirm the referee's report of sale and (2) obtain an order directing payment of all surplus funds to her in accordance with her notice of claim previously filed. Dellinger, both in her notice of claim with respect to the surplus money proceedings and appearing in opposition to the motion, claimed a superior right to the surplus moneys by virtue of her judgment lien docketed prior to the foreclosure sale. The court in a letter to the judgment creditor advised that an order was signed releasing the surplus moneys to Robert N. Brown and Barbara Bex Brown. Without making any reference, the court ascertained that inasmuch as the trustee in bankruptcy had abandoned any claim to the funds, then the funds claimed by Barbara Bex Brown to be exempt in those proceedings became hers by virtue of the trustee's acknowledgement of that exemption. The order, the subject of this appeal, recited "it further appearing that Barbara Bex Brown is the owner of the equity of redemption (her homestead) all of which is exempt from the application to the satisfaction of money judgment pursuant to CPLR 5206." The court thereupon confirmed the report of sale and directed the Onondaga County Clerk to pay over all surplus moneys to Barbara Bex Brown pursuant to section 1361. It is from this order that Dellinger, the judgment creditor, appeals.

At the outset, the court erroneously concluded that inasmuch as the trustee in bankruptcy had relinquished any interest or right to the funds claimed as exempt in the bankruptcy proceeding, then these funds were likewise exempt (as homestead) under section 5206 (subd. (a)) of the CPLR. Where a bankruptcy trustee abandons an asset, he is to be treated as never having had title to it; the abandonment relates back so that the title stands as if no assignment had been made (Brown v. O'Keefe, 300 U.S. 598, 602, 57 S.Ct. 543, 546, 81 L.Ed. 827; Rosenblum v. Dingfelder, 2nd Cir., 111 F.2d 406). Thus, upon the bankruptcy trustee's abandonment of the surplus moneys in the instant case, title related back to the time just prior to the institution of the bankruptcy proceedings when the surplus moneys were deposited with the commissioner of finance, subject to the rights of any valid claims thereto.

The Browns maintain that, as owners of realty as tenants by the entirety, any surplus proceeds from a foreclosure sale constructively remain real property entitled to the homestead shelter. Further, they claim that upon filing the petition in bankruptcy, this asset automatically vested in the trustee and that upon his abandonment, the funds reverted to them as after acquired property. The judgment creditor, Dellinger, on the other hand contends that any funds in a surplus money proceeding are personal property not subject to the "homestead exemption".

Our decision in Wyoming Country Bank & Trust Co. v. Kiley, 75 A.D.2d 477, 430 N.Y.S.2d 900, supra, concerned the rights of a mortgage-secured...