United States District Court, D. New Hampshire
Olga L. Gordon, Trustee for the Chapter 7 Estate of Licka Hosch, Appellant and Cross-Appellee
Envoy Mortgage, Ltd., Appellee and Cross-Appellant Opinion No. 2017 DNH 050
C. Proctor, Esq. Lawrence M. Edelman, Esq. Michele E. Kenney,
Esq. Geraldine L. Karonis, Esq.
J. McAuliffe United States District Judge
a consolidated appeal and cross-appeal from a decision by the
United States Bankruptcy Court for the District of New
Hampshire granting the motion of Appellee and
Cross-Appellant, Envoy Mortgage Ltd. (“Envoy”),
to dismiss the complaint filed by the Chapter 7 Trustee for
the Estate of Licka Hosch. For the reasons discussed, the
bankruptcy court's decision is affirmed in all respects.
The Trustee's motion to certify a question of law to the
New Hampshire Supreme Court is denied.
parties agree that this is a “core” proceeding
under 28 U.S.C. § 157(b)(2). Accordingly, this court
reviews the bankruptcy court's conclusions of law de
novo. Its factual findings are, however, entitled to
deference and are reviewed for clear error. See Sheridan
v. Michels (In re Sheridan), 362 F.3d 96, 100 (1st Cir.
2004); White v. Gordon, 558 B.R. 15, 18 (D.N.H.
2016); Bates v. CitiMortgage, Inc., 550 B.R. 12, 16
(D.N.H.), aff'd, 844 F.3d 300 (1st Cir. 2016).
Bankruptcy Court's factual findings are not in dispute.
In November of 2013, in connection with the purchase of real
estate in Hudson, New Hampshire (the “Property”),
Licka Hosch executed a promissory note to Envoy, secured by a
mortgage deed to the Property. Hosch defaulted on her
obligations under the note and, on July 30, 2015, Envoy
conducted a foreclosure sale, at which it was the high
August 27, 2015 - before Envoy recorded a foreclosure deed -
Hosch sought bankruptcy protection by filing a Chapter 13
petition. Under precedent of the bankruptcy court for this
district, Envoy was required to obtain relief from the
automatic stay before recording the foreclosure deed. See
In re Beeman, 235 B.R. 519, 526 (Bankr. D.N.H. 1999).
Accordingly, on September 22, 2015, Envoy filed a motion
seeking relief from the automatic stay.
October 6, 2015, before the bankruptcy court ruled on the
motion for relief from the stay, Hosch moved the bankruptcy
court to convert her case to a Chapter 7 proceeding. That
motion was granted and the Trustee was appointed. The
following day, the Trustee recorded in the registry of deeds
a notice asserting her rights as a lien creditor against the
Property under the provisions of 11 U.S.C. §
October 14, 2015, in the absence of any objection, the
bankruptcy court granted Envoy's motion for relief from
stay in a form order. But, pursuant to Federal Bankruptcy
Rule of Procedure 4001(a)(3), it stayed the effect of that
order for another 14 days. Finally, on November 3, 2015 - 96
days after the foreclosure sale, 28 days after the case was
converted to a Chapter 7 proceeding, and six days after the
expiration of the stay imposed by Rule 4001(a)(3) - Envoy
recorded the foreclosure deed in the registry of deeds.
December of 2015, the Trustee commenced an adversary
proceeding, in which she advanced three claims against Envoy:
In Counts I and II, the Trustee seeks a declaratory judgment
pursuant to 11 U.S.C. § 544(a)(1) and/or (a)(2) that the
Trustee has a first position lien on the Property that is
superior to Envoy's ownership interest by virtue of [her]
intervening lien and Envoy's untimely recordation of the
foreclosure deed and affidavit. . . . [I]n Count III, which
is framed in terms of disallowance of a secured claim
pursuant to 11 U.S.C. § 506(a)(1), the Trustee
essentially requests a declaration that “Envoy's
status as the mortgage holder merged, under the Common Law
Doctrine of Merger, with [its] ownership interest in the
property” such that the estate's interest in the
Property has priority over Envoy's ownership interest.
Order at 9 (document no. 2 at 83). Envoy moved to dismiss all
three of the Trustee's claims, asserting that it timely
recorded the foreclosure deed and, therefore, took title to
the Property free and clear of all encumbrances which did not
have priority over its mortgage, including the Trustee's
lien. Alternatively, Envoy asserted that even if it recorded
the foreclosure deed late, the effect of an untimely
recording would merely render the foreclosure sale void as to
the Trustee. But, said Envoy, its mortgage would remain in
place, with priority over the subsequently-recorded
Bankruptcy court held that: (1) Envoy failed to record the
foreclosure deed in a timely manner, but (2)
“Envoy's mortgage was not extinguished by the
recording of the foreclosure deed under the doctrine of
merger.” Bankruptcy Order at 19. Accordingly, the
bankruptcy court concluded that, “Envoy's mortgage
remains unforeclosed and senior in priority to the
Trustee's asserted lien rights.” Id. The
bankruptcy court then held that the Trustee's complaint
failed to state any viable claims and it granted Envoy's
motion to dismiss.
appeal, the parties advance two arguments. The Trustee
asserts that the foreclosure sale and subsequent (though
untimely) recording of the foreclosure deed were effective to
transfer title to the Property to Envoy, but subject
to the Trustee's rights as a priority lien creditor.
According to the Trustee, when Envoy eventually recorded its
foreclosure deed, it took title to the property and its
mortgage “merged” with its fee interest. And,
because Envoy recorded that foreclosure deed beyond the
statutorily prescribed time (i.e., “late”), New
Hampshire's foreclosure statute provides that the
Trustee's intervening lien was not extinguished. So, says
the Trustee, the bankruptcy court erred in concluding that
Envoy's mortgage remains a valid encumbrance on the
Property, superior to her lien.
on the other hand, does not take issue with the bankruptcy
court's conclusion that its mortgage is superior to the
Trustee's lien, but it does assert that the bankruptcy
court erred in concluding that it failed to record its
foreclosure deed in a timely manner (and, therefore, must
conduct a new foreclosure sale to extinguish the
Trustee's lien and take clear title to the Property).
New Hampshire law, a mortgagee that has exercised the
statutory power of sale must record a foreclosure deed (along
with a copy of the notice of sale and a foreclosure
affidavit) in the appropriate registry of deeds within 60
days of the foreclosure sale. N.H. Rev. Stat. Ann.
(“RSA”) 479:26, I. There is, however, a
“safe harbor” provision which provides that,
“If such recording is prevented by order or stay of any
court or law or any provision of the United States Bankruptcy
Code, the time for such recording shall be extended until 10
days after the expiration or removal of such order or
stay.” Id. Upon recording the foreclosure
deed, the statute provides that “title to the premises
shall pass to the purchaser free and clear of all interests
and encumbrances which do not have priority over such
mortgage.” RSA 479:26, III.
the statute addresses (or attempts to address) the situation
in which a foreclosure deed is not timely recorded,
Failure to record said deed and affidavit within 60 days
after the sale shall render the sale void and of no
effect only as to liens or other encumbrances of
record with the register of deeds for said county
intervening between the day of the sale and the time
of the recording of said deed and affidavit.
RSA 479:26, II (emphasis supplied). Here, the parties
disagree as to the legal consequences that follow when a
mortgagee fails to record a foreclosure deed in a timely
manner and, prior to recordation but after the foreclosure