Grubbs v. Houston First American Sav. Ass'n, 82-2544

• Decision Date: 17 October 1983
• Docket Number: No. 82-2544,82-2544
• Citation: 718 F.2d 694,9 C.B.C.2d 478
• Parties: 9 Collier Bankr.Cas.2d 478, 11 Bankr.Ct.Dec. 396, Bankr. L. Rep. P 69,421 Ronald E. GRUBBS, Plaintiff-Appellant, v. HOUSTON FIRST AMERICAN SAVINGS ASSOCIATION, Defendant-Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 694

718 F.2d 694

9 Collier Bankr.Cas.2d 478, 11 Bankr.Ct.Dec. 396,

Bankr. L. Rep. P 69,421

Ronald E. GRUBBS, Plaintiff-Appellant, v. HOUSTON FIRST AMERICAN SAVINGS ASSOCIATION, Defendant-Appellee.

No. 82-2544

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Oct. 17, 1983.

Michael J. Pledger, Houston, Tex., for plaintiff-appellant.

Calvin, Dylewski, Gibbs, Maddox & Russell, Don F. Russell, Houston, Tex., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before REAVLEY, GARWOOD and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

Ronald E. Grubbs appeals from the decision of the district court affirming the bankruptcy court's order which denied confirmation of his amended petition and plan under Chapter 13 of the Bankruptcy Code. The bankruptcy court had ruled that Grubbs' plan could not be confirmed for the reason that it proposed to cure a pre-petition default and acceleration on a debt on Grubbs' principal residence contrary to Section 1322(b) of the Code, 11 U.S.C. Sec. 1322(b). Finding that the plan should not have been confirmed, we affirm. ^*

I.

Houston First American Savings Association (Houston First), on April 3, 1979, loaned Grubbs the sum of $12,530.16 in return for a promissory note and a mechanic's lien deed of trust secured by Grubbs' principal residence. This constituted a second lien encumbrance on Grubbs' principal residence, the first lien being held by Sam Houston Mortgage Corporation. After attempting to obtain past due payments from Grubbs, Houston First, on February 11, 1980, pursuant to the terms of the note and the mechanic's lien contract, notified Grubbs that it had elected to accelerate the note's maturity and demanded payment for the full amount. Houston First advised Grubbs that if the full amount were not paid by March 4, 1980, his residence would be sold to satisfy the debt in accordance with the terms and provisions of the mechanic's lien contract and pursuant to state law.

On February 29, 1980, Grubbs filed a petition for relief under Chapter VII of the Bankruptcy Code. This action stayed the foreclosure proceedings which had been instituted by Houston First. The property securing the loan was exempted by Grubbs as his homestead. Grubbs received his discharge in bankruptcy on December 1, 1980. Grubbs' debt to Houston First, secured by the second lien on his residence, was, of course, not discharged.

On June 4, 1981, Houston First filed suit in the state district court of Harris County, Texas, seeking judgment against Grubbs for the balance of the debt, for foreclosure of its lien and adjudication of the priority of its lien, and for order of sale. On or about July 1, 1981, Grubbs filed a Chapter 13 petition with the bankruptcy court which automatically stayed Houston First's state court proceedings.

Houston First then filed a motion in the bankruptcy court to modify the statutory automatic stay which was imposed as a result of Grubbs' Chapter 13 proceeding. Before the court ruled on this motion, Grubbs, on February 26, 1982, asked the bankruptcy court to dismiss his Chapter 13 proceeding. However, on that same day, Grubbs filed another Chapter 13 proceeding.

Pursuant to his Chapter 13 plan, Grubbs proposed to pay Houston First the total amount of the accelerated debt of $11,701.00 over the thirty-six-month term of the plan. He stipulated that the note due Houston First was properly accelerated and that the full amount of the note had come due some two years prior to the filing of his Chapter 13 petition.

Houston First filed its Objection to Plan claiming that Grubbs' proposal to pay the debt over the thirty-six-month term of the plan did not satisfy the requirements of Section 1322(b) of the Code, 11 U.S.C. Sec. 1322(b). It based its objection on the fact that the full amount of the debt had matured and was due prior to the filing of Grubbs' Chapter 13 petition.

Finding that Grubbs' Chapter 13 plan could not be confirmed for the reason that it proposed to cure a pre-petition default and acceleration on a debt on Grubbs' principal residence contrary to the provisions of Section 1322(b), the bankruptcy court issued a Memorandum Opinion and Order denying confirmation on June 7, 1982.

Grubbs appealed the Order Denying Confirmation to the United States District Court for the Southern District of Texas. In his appeal, Grubbs primarily argued that the provisions of Section 1322(b)(5) allowed him to cure any default, including a pre-petition default and acceleration on a debt on his principal residence. The district court affirmed the bankruptcy court's order denying confirmation of his plan. From that decision, Grubbs appeals to this court.

II.

The single issue presented in this appeal is whether Grubbs, after defaulting on a home loan and after the outstanding principal and accrued interest had become immediately due and payable under state law, may cure the pre-petition default and acceleration under a Chapter 13 plan which proposes to pay the total amount due over a thirty-six-month period. At the beginning we note that the courts are in sharp disagreement over this question. For a review, see Sable, A Chapter 13 Debtor's Right to Cure Default Under Section 1322(b): A Problem of Interpretation 57 Am.Bank R.L.J. 127 (1982); Comment, Home Foreclosures Under Chapter 13 of the Bankruptcy Reform Act, 30 U.C.L.A.L.Rev. 637 (1983).

Because this case presents a question of statutory construction, our principal task is the ascertainment of Congressional intent. There is very little, however, in the language of the statute, or its legislative history, that reveals how Congress intended Chapter 13 to apply to home foreclosure proceedings.

It is clear from the language of the statute that Congress intended to allow a debtor to cure defaults on a mortgage or note on his home. It is not as clear, however, whether a debtor may cure a default which has resulted, as in the case here, in acceleration of the total amount due.

The relevant parts of Section 1322(b) which must be applied in resolving this issue read as follows:

(b) ... the plan may--

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* * *

(2) modify the rights of holders of secured claims other than a claim secured only by a security interest in real property that is the debtor's principal residence, or of holders of unsecured claims; (3) provide for the curing or waiving of any default;

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(5) notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;

....

Grubbs argues that Section 1322(b)(3) is available to him and allows him to cure his pre-petition default on the debt secured by a security interest in his home. This section must be examined in the context of the other provisions of Section 1322(b) and must be read in a manner that gives effect to each paragraph. When this is done, this court finds itself in agreement with the pertinent statements made in In Re Williams, 11 B.R. 504, 506 (Bkrtcy.S.D.Tex.1981). In rejecting a debtor's argument that Section 1322(b)(3) allowed him to cure a pre-petition default which had been accelerated on a home loan, the court stated as follows:

Although Sec. 1322(b)(3) states that any default may be cured or waived, it appears to the court that (b)(3) was not intended to apply where (b)(5) (which also provides that any default may be cured) is applicable. Congress provided in (b)(2) that the rights of holders of claims secured by the debtor's principal residence may not be modified by a plan. Congress further provided an exception to (b)(2) in (b)(5); a default may be cured within a reasonable time if the last payment is due after the last plan payment is due. It is not literally possible for both (b)(3) and (b)(5) to be applicable in this instance--either the debtor may cure any defaults on the debts on their home or they can cure those defaults only if the last payment is due after the final plan payment is due. Since (b)(5) makes specific reference to (b)(2), the court believes that Congress intended the "cure" provision of (b)(5) rather than the "cure" provision of (b)(3) to apply to claims secured only by a security interest in real property that is the debtor's principal residence. This view is supported by legislative history. The Senate debate on Bankruptcy Code contains this reference to Sec. 1322(b):

Section 1322(b)(2) of the House amendment represents a compromise agreement between similar provisions in the House bill and Senate amendment. Under the House amendment, the plan may modify the rights of holders of secured claims other than a claim secured by a security interest in real property that is the debtor's principal residence. It is intended that a claim secured by the debtor's principal residence may be treated with under Section 1322(b)(5) of the House amendment. (emphasis added).

124 Cong.Rec.S. 17,423 (daily ed. 1978).

This interpretation is bolstered by a review of Sec. 1124(2)(A) and (B). This section allows a Chapter 11 plan to cure any default (other than a Sec. 365(b)(2) default) and to reinstate the maturity of a debt acceleration after a default as such maturity existed before the default. The debtors urge that Congress would not have provided for this right in reorganization cases without intending that it also apply to Chapter 13 cases. However, the court thinks that Sec. 1124(2)(B) demonstrates that Congress was aware of the problems presented by accelerated debts and could have given Chapter 13 debtors the right to cure and reinstate accelerated debts on the residences of Chapter 13 debtors but simply chose not to do so. Furthermore, section 103, which deals with the applicability of chapters, does not make Sec. 1124 applicable to proceedings under ...