Partition Order Eclipses
Bankruptcy
When a property must be partitioned by sale, the parties' ownership interests in the property are cut off upon entry of the judgment, not when the property is actually sold. So holds the U. S. District Court for the Eastern District of New York, affirming a Bankruptcy Court order on appeal. Varrone v. Brady (In re: Karen Varrone), No. 11 CV 2199(SJF) (E.D.N.Y., March 30, 2012).
Varrone and Brady are sister and brother. They jointly owned the parcel at issue. In 2008, he commenced an action in state court seeking partition of the parcel. The state court granted the relief and entered an interlocutory judgment of partition and sale pursuant to RPL §915. In addition, the court impressed Varrone’s interest with several liens for the benefit of Brady. Subsequently, Varrone filed a Chapter 7 bankruptcy petition in November, 2010. Claiming that her homestead exemption was impaired, she then moved to avoid the liens pursuant to §522(f) of the Bankruptcy Code. The Bankruptcy Court denied the motion.
On appeal, Varrone argued that since the partition sale had not yet taken place when she filed her petition, her interest in the parcel became part of the bankruptcy estate and was entitled to benefit from the homestead exemption. The Court relied on the definition of “ownership” from Black’s Law Dictionary and reasoned that a judgment of partition by sale does not permit of an equity of redemption (unlike a foreclosure or tax sale). It held that upon entry of the judgment the debtor “effectively lost any proprietary interest in the premises and merely retained an equitable interest in a portion of the proceeds from the sale of the premises.”
COMMENT:
By this reasoning, the “proprietary interests” of both siblings were cut off upon entry of the judgment. So, who owns the property between the entry of judgment and the sale? And what of the burdens that attend ownership, such as premises liability? Can both parties be kept out of possession pending the sale? The Court cited no case on point. If the District Court’s decision is itself appealed, perhaps a certified question to the Court of Appeals will yield a more authoritative answer.