Summary
The Appellate Division, Second Department held that a mortgage foreclosure action was not barred by the six-year statute of limitations because the defendant's bankruptcy proceedings tolled the limitations period. The court concluded that the automatic bankruptcy stay continued until the defendant received a discharge, rather than ending when the property was transferred from the bankruptcy estate to the defendant. The court also held that the defendant's conclusory denial did not rebut the presumption of proper service and affirmed the order denying dismissal.
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Practice areas
Questions Presented
- Whether the automatic bankruptcy stay terminated when the debtor acquired the mortgaged property from the bankruptcy estate or when the debtor received a discharge, and consequently whether the foreclosure action was barred by the six-year statute of limitations.
- Whether the defendant's conclusory affidavit denying residence at the service address rebutted the presumption of proper service and required dismissal for lack of personal jurisdiction.
Holdings
- The automatic bankruptcy stay applicable to acts against the debtor and the debtor's property under 11 U.S.C. § 362(a)(1) and (5) did not terminate when Lubonty acquired the property from the bankruptcy estate. Under § 362(c)(2), the stay continued until the earliest of case closure, dismissal, or discharge, which here was the November 3, 2014 discharge. The bankruptcy stays tolled the foreclosure limitations period under CPLR 204(a), making the September 2018 foreclosure action timely.
- The process servers' affidavits established a presumption of valid service under CPLR 308(2), and Lubonty's unsubstantiated and conclusory affidavit did not rebut that presumption. Dismissal for lack of personal jurisdiction was therefore properly denied.
Key quotations
“In applying these rules of construction, we find that the defendant'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.” (at 3)
“Therefore, pursuant to CPLR 204(a), the defendant's bankruptcy filings tolled the statute of limitations for a period of approximately five years and five months, thereby extending the limitations period to November 2018.” (at 4)
Factual background
A foreclosure action commenced on May 22, 2007, accelerated the entire mortgage debt. Lubonty filed a Chapter 11 bankruptcy petition on June 26, 2007; that proceeding was dismissed on November 24, 2009. He filed a second Chapter 11 petition on October 19, 2011, later converted to Chapter 7, and obtained the Middle Pond Road property from the bankruptcy estate under a November 26, 2013 order. He received a discharge on November 3, 2014, and Deutsche Bank commenced the present foreclosure action on September 12, 2018.
Procedural history
A predecessor commenced a foreclosure action in 2007 and accelerated the mortgage debt. Lubonty subsequently filed two bankruptcy proceedings, and the 2007 foreclosure action was dismissed during the first proceeding. Deutsche Bank commenced the present foreclosure action in September 2018. The Supreme Court, Suffolk County, denied Lubonty's motion to dismiss, and the Appellate Division affirmed.