In re Scubla – Success before the Bankruptcy Appellate Panel

An excellent result for our client! A Chapter 11 debtor sold real estate and filed an adversary proceeding seeking to declaratory judgment that the mortgage had been previously discharged. The Bankruptcy Court entered summary judgment in favor of the lender finding that the mortgage, which had been modified prior to the bankruptcy under New York law by a Consolidation, Extension, and Modification Agreement (or CEMA), was not discharged when a subsequent mortgage holder recorded a discharge of the original mortgage, but not the modified mortgage. When the mortgage was modified, the debtor and lender made substantive changes to the language of the standard CEMA forms and thereby changed the character of the transaction, leaving the original mortgage intact and independently enforceable. When the subsequent mortgage holder discharged the original mortgage, it had no effect on the modified mortgage, which was not referenced in the recorded discharge. The modified mortgage was held to be enforceable in the Chapter 11 case. Read the published case here: https://casetext.com/case/scubla-v-new-rez-llc-in-re-scubla