There is welcome comfort out there – in the new Bankruptcy Code which servicers should be aware of, and a new case in New York.
Lenders and servicers know the historic drill. A borrower, desperate to stave off the foreclosure, files a petition in bankruptcy (often lacking good faith) which of course instantly imposes an automatic stay. Eventually the case is dismissed, or voluntarily withdrawn. The foreclosure then continues, only to be intercepted by a bankruptcy filing by the borrower’s husband ( a co-borrower). When his case evaporates, the wife files anew – on and on in various sequences.
These abusive filings are addressed in two ways: by the protection afforded in the new Bankruptcy Code and via servicer self help.
A quick refresher on the Bankruptcy Code in this area can always be worthy. Once a borrower (called a debtor after a bankruptcy filing) has had a bankruptcy petition dismissed, any new filing only provides a stay of 30 days (unless continued by an order upon application to the court.) [See 11 USC ‘362(c)(3)(A) and (B)].
If there is a second or further filing within one year after a petition has been dimissed, no stay goes into effect. [See 11 USC ‘362(c)(4)(A)(i)]. This, then is certainly some help to mortgage holders.
However, all this is beneficial to a servicer where one borrower is a serial filer. But it is ineffective, or less effective, if a group of borrowers file in sequence, which is where the self help comes in. There needs to be a way to stop these continuous filings. And there can be. When a servicer is faced with abusive filings, upon a motion for relief from the automatic stay, language such as the following can be sought in the order: AThat any future filings by the debtor and/or the co-mortgagor and any person or occupant with an interest in the premises within 180 days from the entry of the order vacating the automatic stay, shall not operate as an automatic stay against the movant, except upon proper application to the court.@
The new case in New York confirms that such language will be enforced. [Manufacturers & Traders Trust v. Foy, ________ A.D. 3d ____, ____ NYS 2d ______ (2d Dept 2007)]. In that case, an order using the noted language had been obtained and when the borrower filed a bankruptcy petition within 180 days, but the servicer proceeded with the sale anyway, the borrowers= motion to vacate the sale was denied. The court held that the language was effective and that there was no requirement that the order be served upon the borrowers.
In sum, proceeding vigorously to bar stays in future filings where there has been abuse by borrowers should be considered.
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.