Bankruptcy Court will Not Revisit State Court Foreclosure Decision

October 13, 2014

by: Beth Haden and Mark Stingley

A Memorandum of Decision recently entered in In re 56 Walker, LLC, Case No. 13-11571 (ALG), Bankr. S.D.N.Y. (Mar. 25, 2014), provides clear guidance as to the effect of a state court decision granting summary judgment in favor of a secured lender in a foreclosure action prior to the Debtor’s bankruptcy filing.  The collateral estoppel, res judicata and Rooker-Feldman doctrines each separately served as grounds for the Bankruptcy Court’s finding that it was unable to review the prior state court decision.

In 56 Walker, the Debtor’s sole asset was a six-story mixed-use building in New York, New York. The property was pledged as security for a mortgage loan with Broadway Bank. The Debtor defaulted, and Broadway Bank commenced a foreclosure action against the Debtor in the Supreme Court of New York, New York County. After a first chapter 11 case was dismissed, MB Financial Bank, N.A. (having acquired the loan

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