Generally, the answer is no and servicers know the drill. A foreclosure sale is scheduled for Wednesday and goes ahead smoothly (a third party is the successful bidder.) Unbeknownst to the servicer, however, the borrower filed a bankruptcy petition on Tuesday B obviously before the sale. Because the filing of a bankruptcy petition imposes an automatic stay B even if the filing was a secret B the sale is void. But a recent New York case addresses special circumstances whereby the sale may be declared valid and exploring those is the mission here. [See Bank of America v. Duncan, N.Y.L.J., Jun. 11, 2003, at 26, col. 5 (Sup. Ct., Nass. Co., DeMaro, J.)].
Normally, of course, any effort to attack an automatic stay or to seek a declaration that an intercepted foreclosure sale is valid must be pursued in bankruptcy court. In this case, though, by the time the sale bidder moved for the order to validate the sale, the bankruptcy case had been dismissed. That gave the state court jurisdiction to rule on the matter.
In what will be designed to be a more succinct fashion, here are the points and circumstances highlighted by the court which may offer helpful focus.
It is apparent that the group of circumstances which came together in this one case are likely to be uncommon. Nevertheless, these things do happen and it can be meaningful to be aware of the factors. Oh yes, the court declared the foreclosure sale valid.
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.