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In re Ward

filed as amended january 27 1988.: January 15, 1988.

IN RE CYNTHIA WARD, DEBTOR-APPELLEE. BOWEST CORPORATION, APPELLANT


On Appeal from the United States District Court for the District of New Jersey (Camden), D.C. Civil No. 86-3656.

Gibbons, Chief Judge, Sloviter, and Cowen, Circuit Judges.

Author: Sloviter

Opinion OF THE COURT

SLOVlTER, Circuit Judge.

The property at issue in this appeal was the marital home owned as tenants by the entirety by appellee Cynthia Ward, now the debtor in a proceeding under Chapter 13 of the United States Bankruptcy Code, 11 U.S.C. 1301 et seq. (1982 & Supp. IV 1986), and Charles Ward, appellee's spouse, who was the debtor in a previously filed bankruptcy proceeding. Bowest Corporation, the mortgagee, purchased the property in a foreclosure sale conducted without knowledge of the automatic stay in effect pursuant to the bankruptcy of Charles Ward. The bankruptcy court, affirmed by the district court, set aside the sale. Bowest contends here that the stay in Charles Ward's bankruptcy did not prevent sale of the home to satisfy a claim against Cynthia Ward's interest, that Bowest's purchase is protected by the good-faith exception of 11 U.S.C. 549(c) (Supp. IV 1986), and that the bankruptcy court erred in refusing to vacate from the stay in Cynthia Ward's bankruptcy under 11 U.S.C. 362(d) (1982 & Supp. IV 1986). We disagree, and affirm.

I.

Procedural History

To understand the present dispute it is necessary to review the events in a prior bankruptcy. The real property in question here, located at 1250 Thurman Street, Camden, New Jersey, was the subject of an October 1985 foreclosure judgment obtained by Bowest, the mortgagee. Apparently fearing, inter alia, execution on that judgment, Charles Ward filed a petition in bankruptcy under Chapter 7 on January 9, 1986, triggering the automatic stay provision of 11 U.S.C. 362(a). On January 24, 1986, the sheriff of Camden County conducted a sale of the property to satisfy Bowest's October judgment. Bowest purchased and assigned said real estate.*fn1 On February 7, 1986, the sheriff executed and delivered a deed for the property to Bowest. For reasons unknown, Bowest never recorded this deed.*fn2

Cynthia Ward filed her own petition for bankruptcy under Chapter 13 on March 3, 1986, and filed a plan that proposed to cure the arrears on the mortgage held by Bowest and to resume current payments. Thereafter, Bowest filed its motion for an order vacating the stay and confirming the sheriff sale, and Cynthia Ward filed a cross-motion to set aside the pre-petition sale and transfer of the premises. The bankruptcy court delivered an oral opinion denying Bowest's motion and granted the debtor's cross-motion, and the district court affirmed.

II.

Validity of the Sheriff ' s Sale

Bowest's first contention is that the automatic stay following commencement of Charles Ward's bankruptcy did not protect Cynthia Ward's interest in the property. Bowest argues that it acquired Cynthia Ward's possessory life estate and defeasible right of survivorship in the property at the foreclosure sale. Bowest's argument is based on its contention that, under New Jersey law, "creditors of either spouse may levy and execute upon a spouse's right of survivorship where property is held as tenants by the entirety." Appellant's Brief at 12.

Bowest misconceives the issue on appeal. The issue is not whether Cynthia Ward had an interest Bowest could reach by some method. See Newman v. Chase, 70 N.J. 254, 359 A.2d 474 (1976). It is simply, as the bankruptcy and district courts recognized, whether Bowest could acquire any interest in the property as a consequence of the foreclosure sale conducted after Charles Ward's petition was filed. The answer is clear: it could not.*fn3

This court has previously explained that the statutory definition of a debtor's estate, which comprises "all legal or equitable interests of the debtor in property" at the time the case is filed, 11 U.S.C. 541(a), "is certainly broad enough to include an individual debtor's interest in property held as a tenant by the entirety." Napotnik v. Equibank & Parkvale Savings Ass'n, 679 F.2d 316, 318 (3d Cir. 1982); cf. 11 U.S.C. 522(b)(2) (1982) (allowing exemption from estate property of debtor's interest in entirety property notwithstanding section 541). To sustain Bowest's position, it would be necessary to hold that the ...


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