Clark, Matter of

• Decision Date: 06 July 1984
• Docket Number: No. 83-2269,83-2269
• Parties: 10 Collier Bankr.Cas.2d 1280, Bankr. L. Rep. P 69,929 In the Matter of Hugh R. CLARK and Joanne Clark, Debtors-Appellants. Federal Land Bank of St. Paul, Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 869

738 F.2d 869

10 Collier Bankr.Cas.2d 1280, Bankr. L. Rep. P 69,929

In the Matter of Hugh R. CLARK and Joanne Clark, Debtors-Appellants Federal Land Bank of St. Paul, Appellee.

No. 83-2269.

United States Court of Appeals Seventh Circuit.

Argued Feb. 24, 1984.

Decided July 6, 1984.

John G. Barsness, Madison, Wis., for debtors-appellants.

Peter F. Herrell, Jordon, Herrell & Thiel, Eau Claire, Wis., for appellee.

Before ESCHBACH and POSNER, Circuit Judges, and MARSHALL, District Judge. ^*

PRENTICE H. MARSHALL, District Judge.

The question presented in this appeal is whether a debtor who has filed a petition in bankruptcy under chapter 13 of the Bankruptcy Code is entitled under the Code to "cure" a default on a residential mortgage loan though he filed the bankruptcy petition only after a state court had entered a judgment of foreclosure. The district court, 32 B.R. 711, on appeal from a final order confirming the debtors' plan, held that he cannot. We reverse.

On September 4, 1974, appellants Hugh and Joanne Clark obtained a loan from appellee Federal Land Bank of St. Paul ("Bank") secured by a first mortgage of appellants' farm in Jackson County, Wisconsin. The farm included a residence that appellants used until the winter of 1981-82 when their gas service was cut off due to nonpayment of their bill, leading to frozen pipes and resultant water damage to the home.

On September 3, 1981, the Bank commenced a foreclosure action against the Clarks in the Circuit Court of Jackson County, Wisconsin. The Clarks did not respond to the lawsuit. On February 2, 1982, the circuit court found pursuant to Wis.Stat.Ann. Sec. 846.102 (West 1977 & Supp.1983) ¹ that appellants had abandoned the premises and that they had made no homestead claim under id. Sec. 846.11, ² and it entered a judgment of foreclosure. Under Sec. 846.102, foreclosure sale was authorized any time after April 2, 1982.

On May 27, 1982, before sale of the property and before notice of sale was given, the Clarks filed a petition in bankruptcy under chapter 13 of the Bankruptcy Code, 11 U.S.C. Sec. 1301-30 (1982). The plan confirmed by the bankruptcy court pursuant to id. Sec. 1325 on October 15, 1982 provides for payments over a period of thirty-six months to cure prior defaults in payment on the mortgage loan while maintaining current payments. The bankruptcy court found that the bank was adequately protected. Id. Sec. 1325(a)(5)(B)(ii). It determined that the value of the property was over $130,000 and found that the bank's security interest for its claim of approximately $24,000 was junior only to unpaid taxes and a mechanic's lien of approximately $5,000.

The Bank appealed to the district court, arguing that mortgagors of a farm including a residence are not entitled under chapter 13 to cure their defaults and restore their mortgage payments once a judgment of foreclosure is entered against them. The district court accepted the Bank's position and on June 16, 1983 entered an order reversing the bankruptcy court's approval of the plan and remanding the case to the bankruptcy court. This appeal followed.

Despite the judgment of foreclosure, the Clarks still had an interest in the property at the time they filed their petition in bankruptcy, such that the property was part of the estate under 11 U.S.C. Secs. 541 and 1307. Under Wisconsin law, a mortgagee has only a lien on the mortgaged property even after a judgment of foreclosure is entered. Neither equitable nor legal title passes until the foreclosure sale is held. A judgment of foreclosure "does little more than determine that the mortgagor is in default, the amount of principal and interest unpaid, the amounts due to plaintiff mortgagee for taxes, etc.... The judgment does not destroy the lien of the mortgage but rather judicially determines the amount thereof." Marshall & Ilsley Bank v. Greene, 227 Wis. 155, 164, 278 N.W. 425, 429 (1938). ³ See also Bank of Commerce v. Waukesha County, 89 Wis.2d 715, 723, 279 N.W.2d 237, 241 (1979) (Wisconsin follows "lien" theory of mortgages); In re Lynch, 12 B.R. 533, 534-35 (Bankr.W.D.Wis.1981) (mortgagor loses interest in property only after foreclosure sale).

The curing of defaults in chapter 13 cases is governed by Sec. 1322, the pertinent parts of which provide that

(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;

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11 U.S.C. Sec. 1322(b) (1982).

Under Sec. 1322(b)(2), if what the bankruptcy court did was a modification of the Bank's rights, it was not permitted, as the Bank's claim was secured only by its security interest in the Clarks' property, which includes their principal residence. ⁴ The Clarks argue that the bankruptcy court merely permitted them to cure the default, which they argue was permitted under (b)(5). The Bank responds that (b)(5) was unavailable here, for reasons we will discuss in a moment. We will address these issues in turn.

The terms "modify" and "cure" are nowhere defined in the Bankruptcy Code. However, it is clear that Congress intended "cure" to mean something different from "modify"; otherwise, in light of (b)(2), (b)(3) would be superfluous. It is well established that a court should avoid a construction of a statute that renders a portion of the statute superfluous. See Bird v. United States, 187 U.S. 118, 124, 23 S.Ct. 42, 44, 47 L.Ed. 100 (1902); Payne v. Panama Canal Co., 607 F.2d 155, 164 (5th Cir.1979); United States v. Blasius, 397 F.2d 203, 207 n. 9 (2d Cir.1968), cert. dismissed, 393 U.S. 1008, 89 S.Ct. 615, 21 L.Ed.2d 557 (1969).

Absent a persuasive reason to the contrary, we are to attribute to the words of a statute their common meaning. See, e.g., NLRB v. Amax Coal Co., 453 U.S. 322, 329, 101 S.Ct. 2789, 2794, 69 L.Ed.2d 672 (1981); Watt v. Alaska, 451 U.S. 259, 266, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981). The common meaning of "cure" is to remedy, restore, remove, or rectify, see Webster's Third International Dictionary 555 (1971), and as the term relates to defaults, "cure" means to restore matters to the status quo ante. See, e.g., Jack LaLanne Biltmore Health Spa, Inc. v. Builtland Partners, 99 A.D.2d 705, 471 N.Y.S.2d 854, 856 (1984) (default on lease); Carolina Commercial Bank v. Allendale Furniture Co., 280 S.C. 247, 312 S.E.2d 569, 571-72 (1984) (default on mortgage loan); Chesterton State Bank v. Coffey, 454 N.E.2d 1233, 1237 (Ind.App.1983) (using cure in the sense of "remedy"); Federal National Mortgage Association v. Bryant, 62 Ill.App.3d 25, 28, 18 Ill.Dec. 869, 378 N.E.2d 333, 336 (1978) (mortgage). Ordinarily, the means by which one cures a default is by paying all amounts due and owing; however, "cure" is the end, not the means, and what the term refers to is the restoration of the way things were before the default. Thus, the plain meaning of "cure," as used in Sec. 1322(b)(2) and (5), is to remedy or rectify the default and restore matters to the status quo ante.

Acceleration of a debt is a standard consequence of a default in payments. Most notes are like the one the Clarks executed here and provide that the lender can accelerate the payments upon default. Since to cure means to restore matters to the way they were before the default, we think that the power to cure in Sec. 1322(b) necessarily includes the power to de-accelerate the payments on the note. De-acceleration, therefore, is not a form of modification banned by (b)(2) but rather is a permissible and necessary concomitant of the power to cure defaults. Accord, Grubbs v. Houston First American Savings Association, 730 F.2d 236 (5th Cir.1984) (en banc); DiPierro v. Taddeo (In re Taddeo), 685 F.2d 24 (2d Cir.1982). ⁵

This construction is supported by the legislative history of Sec. 1322(b). The court in Grubbs examined that history extensively, and we will not repeat the details here. Section 1322(b) was, with the exception of two amendments, the version found in the House of Representatives' proposed bankruptcy bill, H.R. 8200. As originally introduced, H.R. 8200 provided in Sec. 1322(b) that the debtor's plan could

(2) modify the rights of holders of secured claims or of holders of unsecured claims;

(3) provide for the curing or waiving of any default;

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(5) 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;

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Subsections (b)(2) and (3) related to debts subject to adjustment under a chapter 13 plan--for the most part, any pre-petition obligation not extending beyond the term of the plan. Subsection (b)(5) related to long-term obligations not subject to discharge since the term of their payment extended beyond the expiration of the plan. See also 11 U.S.C. Sec. 1328(a) (1982). Grubbs, 730 F.2d at 243. As originally proposed, therefore, Sec. 1322(b) would have permitted the modification of any secured indebtedness and the curing of any default.

H.R. 8200 was patterned after the proposed legislation of the Bankruptcy Commission. The Commission's proposal, Sec. 6-201(2), (4), provided that the plan could

(2) ... include provisions dealing with claims secured by personal property severally, on any terms, and ... provide for the curing of defaults within a reasonable time and otherwise alter or modify the rights of the holders of such claims;

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