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In re Perosio

November 21, 2006

IN RE: MARC E. PEROSIO AND DEBRA J. PEROSIO, DEBTORS.
MARC E. PEROSIO AND DEBRA J. PEROSIO, APPELLANTS,
v.
NBT BANK NATIONAL ASSOCIATION AND (LEK) UNITED STATES OF AMERICA, APPELLEES.



MEMORANDUM-DECISION AND ORDER*fn1

I. INTRODUCTION

Marc E. Perosio and Debra J. Perosio ("Debtors" or "Appellants") appeal from a Memorandum-Decision, Findings of Fact, Conclusion of Law and Order ("MDO") of the United States Bankruptcy Court for the Northern District of New York (Gerling, Chief B.J.) entered March 2, 2005, granting a motion to dismiss filed by the United States of America, Department of Agriculture, Farm Services Agency ("FSA" or "Appellee"); denying motions for summary judgment against FSA and NBT National Bank Association ("NBT" or "Appellee") filed by Appellants; denying without prejudice a motion for reformation of mortgages filed by FSA; and modifying an automatic stay to allow Appellees to seek reformation of their mortgages in State court. Notice of Appeal (Dkt. No 1, Attach. 53) at 1.

Appellants assert that the Bankruptcy Court committed error in (1) its interpretation of 11 U.S.C. § 547 with regard to NBT's lis pendens as a preferential transfer, (2) its interpretation of 11 U.S.C. § 544(a)(3) with regard to the voidability of the mortgages held by FSA and NBT, and (3) its decision as a matter of law that a bona fide purchaser would have constructive notice of recorded documents within Appellants' chain of title. Appellants' Br. (Dkt. No. 6) at 26--27. This Court has jurisdiction pursuant to 28 U.S.C. § 158(a). See In re Litas Int'l, Inc., 316 F.3d 113, 116 (2d Cir. 2003); FED. R. BANKR. P. 8001(a). For the following reasons, the March 2, 2005 MDO of the Bankruptcy Court is affirmed.

II. FACTS

As neither party disputes any material fact on appeal, the Court notes the following chronology of events as set forth in substantial part by the Bankruptcy Court. MDO (Dkt. No. 1, Attach. 49) at 4--7.

Irving T. Brown and Elizabeth A. Brown conveyed three parcels (Parcels I, II, and III) of land to Appellants by deed dated May 13, 1980. The Parcels were located in New York's Cayuga and Tompkins Counties. Included in the deed was a description not only of Parcels I, II, and III, but also of four parcels excepted from Parcels I and II ("Exceptions").

On or about February 2, 1999, Appellants executed a note in the amount of $292,000 and mortgages in the amounts of $50,000 and $240,000 in favor of Central National Bank ("CNB"), predecessor in interest to NBT. It was intended by the parties that the mortgages cover Appellants' interests in Parcels I, II, and III. However, the mortgages only contained a description of the Exceptions to Parcels I and II, as well as a description of Parcel III. They did not contain any descriptions of Parcels I and II as set forth in the original deed to Appellants.

On or about May 10, 2001,*fn2 Appellants executed a note and mortgage in the amount of $200,000 in favor of FSA, with the intent that it cover Appellants' interest in Parcels I, II, and III. On the same date, Appellants executed a second note and mortgage in the amount of $30,250 in favor of FSA, with the intent of conveying an interest in Parcels I, II, and III. Like the CNB mortgages, the land descriptions in the May 10 mortgages described Parcel III, as well as the Exceptions to Parcels I and II. They did not contain a description of Parcels I and II.

On or about October 3, 2003, NBT filed a Notice of Pendency ("lis pendens") and an Amended Notice of Pendency in the Office of the Clerk for Tompkins County. On or about October 14, 2003, NBT also filed a Notice of Pendency and an Amended Notice of Pendency in the Office of the Clerk for Cayuga County. The Notices were filed in actions by NBT to foreclose its two mortgages and to reform the real property descriptions found in the mortgages.

On or about November 12, 2003, Appellants filed a voluntary petition pursuant to Chapter 12 of the Bankruptcy Code (the "Code"). Thereafter, on or about February 13, 2004, Appellants filed an adversarial proceeding against Appellees seeking to avoid both NBT's and FSA's mortgages under 11 U.S.C. § 544(a)(3), and to avoid NBT's lis pendens as preferential transfers under 11 U.S.C. § 547.*fn3

III. DISCUSSION

A. Standards of Review

In reviewing the Bankruptcy Court's decision, this Court reviews conclusions of law de novo. In re Manville Forest Prods. Corp., 209 F.3d 125, 128 (2d Cir. 2000); In re Petition of Bd. of Dirs. of Hopewell Int'l Ins. Ltd., 275 B.R. 699, 703--04 (Bankr. S.D.N.Y. 2002); FED. R. BANKR. P. 8013.The Bankruptcy Court's factual determinations are reviewed for clear error. MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 107 (2d Cir. 2006).

When the Bankruptcy Court's ruling is based on undisputed facts, as is the case here, this Court reviews the Bankruptcy Court's dismissal of Appellants' complaint against FSA and its denial of Appellants' cross-motion for summary judgment de novo. In re Nemko, Inc., 202 B.R. 673, 677 (E.D.N.Y. 1996) (citing In re Males, 999 F.2d 607, 609 (2d Cir. 1993)). This Court also reviews the Bankruptcy Court's denial of Appellants' motions for summary judgment de novo. Keeffe v. Natalie, 337 B.R. 11, 13 (N.D.N.Y. 2006) (Kahn, D.J.). Appellants are entitled to summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the [Appellants are] entitled to judgment as a matter of law." See FED. R. BANKR. P. 7056 (making FED. R. CIV. P. 56 applicable to bankruptcy adversary proceedings). Appellants must make a prima facie showing that they are entitled to ...


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