A mortgagee continued with foreclosure of a mortgage after the
debtor filed bankruptcy because it was not aware of the filing.
When the debtor later sought to vacate the foreclosure and sale,
the mortgagee sought retroactive relief from the stay in order to
validate the foreclosure. A primary question was whether the
mortgagee had constructive notice of the bankruptcy given the
defects in the attempts to send it notice.
After the bankruptcy petition was filed, a state court issued a
judgment of foreclosure. And after dismissal of the bankruptcy
case, a foreclosure sale was held – with the property
conveyed to the mortgagee, who in turn conveyed it to a third
party. When the debtor sought to vacate the foreclosure sale, the
state court directed the mortgagee to file a motion with the
bankruptcy court to determine the applicability of the automatic
stay. Procedurally, the bankruptcy case was already closed. So, the
mortgagee sought to either reopen the case or obtain relief from
the dismissal so that it could request the bankruptcy court to
annul the automatic stay nunc pro tunc.
When the debtor filed her bankruptcy petition, she submitted a
creditor matrix that she completed from memory. The mortgagee's
address was listed as "150 East
27thStreet, New York,
NY" instead of the correct address of "150 East
27thFloor, New York, NY."
As a result, the notice of bankruptcy sent to the mortgagee was
returned as undeliverable.
In an attempt to remedy the situation, the debtor placed the
returned bankruptcy notice in another envelope, which she once
again addressed from memory. This time she had the correct street
address, but neglected to include the floor. The letter was not
returned, and the debtor did not make any further effort to contact
the mortgagee. In the meantime, the debtor did not advise the
clerk's office of the initial error, so it continued to send
notices to the original incorrect address.
The mortgagee testified that it did not have notice of the
debtor's bankruptcy until she sought to vacate the foreclosure
judgment and sale. (In particular, a specific individual was the
only person who reviewed legal notices, and he did not see any
bankruptcy notices.) Given the lack of notice of the bankruptcy,
the mortgagee argued that there were grounds to annul the stay
retroactively and validate the foreclosure.
As a general rule "mail which is properly addressed,
stamped and deposited in the mail system creates a rebuttable
presumption of receipt by the party to whom it has been
addressed." It takes more than a simple allegation of
non-receipt to rebut the presumption. If there is a minor mistake
in the address, courts have found a weakened presumption of
In determining whether a mailing with a defective address raises
(1) a presumption of delivery, (2) no presumption of delivery, or
(3) a weakened presumption, the courts weigh a variety of factors.
Some of the results are as follows:
Use of 660 E. 15 Mile Rd. instead of 6600 E.
15 Mile Rd. meant that there was no presumption, even though
incorrectly addressed pieces sometimes actually arrived.
In contrast, an address that omitted the company name, floor
number and last four digits of the zip plus four still raised a
presumption, in part because the creditor received a subsequent
notice with the same bad address.
The presumption was weakened where the zip code was incorrect
by one digit, but a full presumption was restored because of other
factors (such as the mail was not returned as undeliverable).
Letters sent to a proper address but with no indication of a
person or department did not provide notice because the employee
who received the letter would not know where to direct it.
In this case the second notice was sent to the correct street
address but did not include the suite or floor number. The
mortgagee was not well known and there were ~100 other companies
located at the street address. Under these circumstances, the court
found a weakened presumption.
A weakened presumption of delivery can be rebutted by simple
testimony of non-receipt. Based on credible mortgagee testimony,
the court concluded that the mortgagee did not receive notice and
had no actual notice or knowledge of the bankruptcy until after the
The court then went on to determine that the situation warranted
relief from the order of dismissal, and the mortgagee was entitled
to have the stay retroactively annulled. (The opinion also notes at
the end that even if there had been a full presumption of delivery,
it would still be appropriate to annul the automatic stay even if
the mortgagee was charged with constructive knowledge of the
bankruptcy because other factors weighed in favor of granting
It is interesting to see the small mistakes that can have
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
A seller's failure to give notice of a bankruptcy sale of real property to a party who had a right of first refusal led a bankruptcy court to rule that the right of first refusal survived the seller's bankruptcy...
An important aspect of the Puerto Rico Oversight, Management, and Economic Stability Act, 48 U.S.C. §§ 2101–2241 ("PROMESA")—the temporary stay of creditor collection efforts that came into effect upon its enactment—was the subject of a ruling handed down by the U.S. Court of Appeals for the First Circuit.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).