In re Schroeder
Apr 02, 2015OUTCOME: Client prevailed
The issue in the case was whether the Court could to determine the existence of a lien on property that the debtor acquired after the filing of a petition for relief under Chapter 13. In January of 20 ... 06, the debtor purchased his home and borrowed $67,925 from Delta Funding Corporation. Thereafter, Delta assigned the note and mortgage to HSBC Bank. After the debtor neglected to pay the real property taxes for the property in South Dayton, the County of Cattaraugus initiated a tax foreclosure proceeding in 2010. The debtor and HSBC did not oppose the foreclosure and made no attempt to cure any tax arrearage. A default judgment of foreclosure was then entered on March 23, 2011. The debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code on April 6, 2011. Although Cattaraugus County had already completed its tax foreclosure, Schroeder filed schedules which asserted an interest in the home. Then on or about April 29, 2011, the County accepted the sum of $10,015.99 as consideration for a reconveyance of the property to the debtor. The County’s deed to the debtor was executed on May 24, 2011, and was recorded on June 7, 2011. Meanwhile, the debtor also proposed a plan under Chapter 13, which this Court confirmed by Order dated December 15, 2011. Although the Plan contemplated payment of any allowed claim for mortgage arrears, no proof of claim was ever filed on behalf of HSBC. Then on May 24, 2013, the debtor commenced an adversary proceeding in which he sought judgment declaring that the mortgage of HSBC has been extinguished and is no longer a valid lien. In response, HSBC moved to dismiss the complaint. HSBC contended that this court lacks subject matter jurisdiction to consider the present adversary proceeding. Specifically, it argued that because the tax 11-11145B; AP13-1026B 3 1 Cattaraugus County adjoins Erie County, where the Bar Association has adopted standards of title examination. These standards provide that “[i]nsurance of marketability of title may properly be required when less than ten(10) years have expired” since the recording of a Referee’s Deed in an in rem tax foreclosure. BAR ASS’N OF ERIE CNTY. N.Y. STANDARDS OF TITLE EXAMINATION, standard 24, at 13-14 (rev. Dec. 31, 2006). As to matters that are moot or otherwise resolved by state court, HSBC believes that the bankruptcy courts have no jurisdiction. The Court sided with the debtor and allowed the adversary proceeding to continue. The Court rule that "the final judgment of tax foreclosure served only to determine the rights of the County, and not the interests of a subsequent purchaser. Although subsequent rights may flow from the prior foreclosure, no court has finally declared the competing rights of the prior mortgagee. Indeed, when he initiated the present action, the debtor had no basis to assume the absence of defenses to his claim of superior title. Cattaraugus County had conveyed its interest by quit claim deed, without any warranty of title. Further, the deed contained an affirmative covenant “to the effect that said Cattaraugus County shall in no event be or become liable for any defects in the title so conveyed for any cause whatsoever.” To the extent of any defect in the foreclosure process, Schroeder would endure the resulting consequences, including whatever claim HSBC might assert with regard to the preservation of its lien. Within the chain of title, a recent foreclosure in rem suggests a potential title objection that a party might appropriately cure through an action to quiet title.1 Essentially, the present adversary proceeding seeks this result. Accordingly, it addresses issues that remain outstanding and not moot. Jurisdiction with regard to this adversary proceeding is proper under 28 U.S.C. § 157."
