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In Re: andrew J. Rejman and Pamela A. Rejman

May 14, 2012

IN RE: ANDREW J. REJMAN AND PAMELA A. REJMAN,
DEBTOR/APPELLEE,



Bankr. Case No. 09-60593

The opinion of the court was delivered by: Mae A. D'Agostino, U.S. District Judge:

Chapter 13

MEMORANDUM-DECISION AND ORDER

INTRODUCTION

This appeal stems from a proceeding filed by the debtors-appellees, Andrew J. Rejman and Pamela A. Rejman ("debtors") under Chapter 13 of the Bankruptcy Code. Presently before this Court is an appeal by creditor-appellant Michael Milkowski ("creditor" or "Milkowski") from an Order signed by Hon. Diane Davis, United States Bankruptcy Judge for the Northern District of New York, on July 7, 2011, which confirmed, over creditor's objection, the debtor's Amended Chapter 13 Plan. (Dkt. No. 4). The debtors have not responded to the appeal.

BACKGROUND

The underlying facts are not in dispute and are taken from the parties' Joint Stipulation of Facts dated February 11, 2011:

Debtor, Andrew J. Rejman, is the owner of a parcel of commercial property on 907 Park Avenue, Syracuse, New York 13204 ("Syracuse Property"). Creditor, Michael Milkowski, is the holder of a Note and Mortgage for the Syracuse Property ("Syracuse Mortgage"). The mortgage was recorded with the Onondaga County Clerk on January 23, 1991. On December 30, 1991, the Note and Mortgage was modified. On December 30, 1991, the Mortgage Modification Agreement was recorded with the Onondaga County Clerk. Debtors, Andrew J. Rejman and Pamela A. Rejman, own a one-family home at 6192 Trenton Road, Utica, New York 13502 ("Utica Property"). The Utica Property is debtors' residence. In October 1993, debtors executed a Note and Mortgage to Milkowski secured by the Utica Property ("Utica Mortgage"). On October 7, 1993, the mortgage was recorded in the Oneida County Clerk's Office.

On December 1, 2005, debtors executed a Consolidated Mortgage which states: This mortgage is a consolidation and continuation except as noted of two previous separate mortgages into one monthly payment entity. The two mortgaged properties were previously recorded in Liber 2766, pages 497 in Oneida County, and also in Liber 6105, page 173 in Onondaga County and still are valid. The conditions for first mortgages are the same as in the Note and Mortgage dated October 6, 1993 and also as in Modification Agreement dated December 30, 1991, except as noted throughout this document.

The Consolidated Mortgage was never recorded.

On March 15, 2009, debtors filed a Chapter 13 Bankruptcy petition and a proposed Chapter 13 Plan which Plan did not provide for payment of the Consolidated Mortgage. On July 10, 2009, creditor filed a Proof of Claim in the amount of $298,402.24. Creditor obtained, without opposition, an order lifting the stay as it related to the Syracuse Property and commenced a foreclosure action on the Syracuse Property. The action is pending in Onondaga County Supreme Court. On January 26, 2011, debtors filed a Proposed Amended Plan and proposed to surrender the Syracuse Property and pay what they claim is the full amount of the fair market value of the Utica Property, $142,000.00, in full satisfaction of the Utica Mortgage lien. Creditor disputes debtors' value of the Utica Property.

On September 22, 2010, the creditor filed an Objection to Confirmation of Debtors' Chapter 13 Plan arguing that the proposal was not in good faith and not in compliance with 11 U.S.C. §§ 1322 and 1325.

The debtors, Chapter 13 trustee and creditor filed memorandums of law relating to the Proposed Plan and Objections. The debtors and trustee argued that the unrecorded consolidated mortgage between the creditor and debtor was a valid mortgage, regardless of the fact that it was never filed. Further, they argued because that binding and valid mortgage is secured by both residential and nonresidential property, the debtors could modify the consolidated mortgage and "cramdown" the mortgage pursuant to 11 U.S.C. § 1322(b) by paying creditor the full value of their residence. Debtors further claimed that upon payment of the full value, debtors were entitled to a discharge of any mortgage liens held by creditor on the Utica property. Conversely, creditor claimed that because the consolidated mortgage was never recorded, it could not be foreclosed upon, discharged or released pursuant to New York State Tax Law, Section 258(1). Accordingly, there were two enforceable, separate mortgages at issue. Further, creditor asserted that the Utica Mortgage was secured solely by the Utica Property and therefore, pursuant to § 1322(b)(2), debtors could not cramdown the Utica Mortgage because it was secured by their principal residence.

On March 31, 2011, Judge Davis held a confirmation hearing. The court issued an oral decision on creditor's objection to confirmation of debtors' amended plan. Relying on a prior decision by retired Chief Judge Stephen D. Gerling in the case of In Re Hotel Syracuse, Inc., 271 B.R. 443 (Bankr. N.D.N.Y. 2001), the Court noted, "New York Tax Law ยง 258(1) . . . is not substantive but, rather, 'it is a revenue raising statute, nothing more'". The Court continued, "New York courts have held that a mortgage could be admitted in a foreclosure action by the mortgagee simply by paying the mortgage recording tax". The Court held, "Milkowski's argument that he may not have foreclosed on the consolidated ...


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