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Wisotzke v. Ontario County

June 23, 2009


The opinion of the court was delivered by: David G. Larimer United States District Judge


This is an appeal from a decision of United States Bankruptcy Judge John C. Ninfo, II (Dkt. #1, Att. 15). In that decision and order, Judge Ninfo determined that certain real property (the "Property") was not part of the appellant's Chapter 13 bankruptcy estate, because at the time the appellant's bankruptcy petition was filed, title to the Property had been transferred to appellee Ontario County (the "County"). The County now moves to dismiss the appeal (Dkt. #2). For the reasons set forth below, that motion is granted.


On October 2, 2007, the County commenced an in rem foreclosure proceeding to recover delinquent taxes, due since January 1, 2006, on the Property. The Property had been owned by the late parents of appellant John Wisotzke ("debtor"), and was his primary residence at the time of the foreclosure proceeding. Although the debtor was personally served with the required notices, he did not answer or otherwise act to prevent the foreclosure. January 18, 2008, the final day upon which the debtor could have acted to redeem the Property from foreclosure, expired without any redemption efforts.

On February 29, 2008, the County was granted a default judgment before the foreclosure court by which possession and title to the Property was transferred to the County. It scheduled the Property for auction. The debtor did not move to reopen the default.

On May 14, 2008, just before the auction was to take place, the debtor filed a Chapter 13 bankruptcy petition, listing the Property as an asset. Later that afternoon, the County auctioned off the Property in accordance with the default judgment of foreclosure, and it was purchased by appellee Donald Brault.

On May 16, 2008, the County petitioned the Bankruptcy Court for an order declaring that the Property is not an asset of the debtor's estate pursuant to 11 U.S.C. §541 ("Section 541"). 11 U.S.C. §541(a)(1) (defining "property of the estate" as, inter alia, "all legal or equitable interests of the debtor in property as of the commencement of the case").

On August 14, 2008, the Bankruptcy Court issued the decision appealed from, which found that the default judgment in the in rem tax foreclosure proceeding had effected a transfer of title to the Property to the County, and that the debtor's right to the Property expired, at the latest, upon the debtor's last day to move to reopen the default. By operation of N.Y. Real Property Tax Law ("RPTL") §1131, that date fell on or about March 30, 2008, thirty (30) days after entry of the default judgment. Because the debtor never moved to reopen the default within that time, his rights to the Property, if any, had long since expired when he filed his Chapter 13 petition on May 14, 2008, and the Property was not part of his bankruptcy estate. This appeal followed.

I. Applicable New York State Law

Initially, appellant argues that the Bankruptcy Court should have deferred to the principle, enumerated in the matter of In re Rodgers, 333 F.3d 64 (2d Cir. 2003), that a foreclosure debtor's rights are not extinguished until real property is actually auctioned, regardless of whether a judgment of foreclosure has already been obtained. See Rodgers, 333 F3d. 64 at 66 (a foreclosure debtor's rights continue until the foreclosed property is auctioned). Appellant reasons that because a bankruptcy estate consists of all interests owned at the time the petition is filed, and the debtor's petition was filed a few hours before the Property was sold at auction, the Property was therefore part of the estate.

I agree with the Bankruptcy Court that appellant's reliance upon Rodgers is misplaced. Rodgers arose out of Monroe County, a municipality which opted out of N.Y. RPTL Article 11 and enacted its own mechanisms for collecting delinquent taxes -- mechanisms which explicitly provide for an extension of the mortgagor's interests until noon on the day preceding the auction. As such, the Rodgers court never considered the impact of N.Y. RPTL §1131, which governs here because Ontario County did not opt out of Article 11. N.Y. RPTL §1131 establishes that a debtor's rights are extinguished at the time his right to redeem the Property expires. Thus, the Bankruptcy Court's finding that, based upon N.Y. RPTL §1131, the appellant lost legal and equitable title to the Property by failing to timely redeem it, was not an abuse of discretion.

II. 11 U.S.C. Section 1322(c)(1)

Appellant also argues that the Bankruptcy Court committed reversible error when it declined to find that the debtor's right to redeem the Property was extended or resurrected by 11 U.S.C. §1322(c)(1), which provides that a default with respect to a debtor's primary residence may be cured up to such time as "such residence is sold at a foreclosure sale conducted in accordance with non-bankruptcy law..." Appellant contends that in this case, the functional equivalent of a Section 1322 mortgage "foreclosure sale" was the public auction of the Property.

Although this issue is one of first impression in this district, I note that one district court in this Circuit has found that Section 1322(c)(1) operates to expand a debtor's state-law rights by tolling, or extending, a bankruptcy debtor's time to rectify a mortgage default on his residence. See In re Pellegrino, 284 B.R. 326, 330 (Bankr. D. Conn. 2002) (Section 1322(c)(1) "extend[s] to debtors an ample, uniform federal window for curing a mortgage default, even if that time extends beyond the period provided by state law"). Because Section 1322(c)(1), like nearly all federal statutes, preempts contrary state law, appellant urges that ...

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