Borrower’s Husband Files Bankruptcy – Who Cares?

This appears to be a no brainer, so why need it even be one of our alert subjects?  First, basics, even those apparently elemental, are always worthy of re-emphasis for all of us.  Second, someone made the argument – and it even went to an appeal level court – so the ideas are floating around in someone’s mind, ready to cause mischief.  Servicers should always know where they stand in this regard.

Here are the events which confirm the point.  Wife is the owner of the house and the sole borrower.  Upon her default, a mortgage foreclosure action is begun and some time before the sale her husband files a petition in bankruptcy.  The sale is held nevertheless and the property was sold to a third party bidder.

Upon the bidder’s motion to direct the referee to deliver the deed and confirm the sale (apparently the referee was dithering because of the bankruptcy filing by the husband) the borrower wife opposed, arguing that the automatic stay which would arise from a bankruptcy filing had prohibited the sale.

Certainly not said the court.   The husband’s bankruptcy filing did not stay the foreclosure sale.  He was not an owner of the property, did not sign the note, was not a defendant in the case and was not a necessary party in the foreclosure action.  (The wife was the borrower and the owner.)  Consequently, there was no violation of the stay and the referee was required to convey the deed as the third party bidder requested.  [Northwest Bank Minnesota v. Pittman-Hudson, 15 A.D.3d 460, 790 N.Y.S.2d 69 (2d Dept. 2005)].

Yes, the servicer won.  But even a truly baseless defense such as this cost time and money and this even had to go to an appeal level court.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.