First Fin. Sav. and Loan Ass'n v. Winkler
| Decision Date | 15 April 1983 |
| Docket Number | No. 82 C 7132.,82 C 7132. |
| Citation | 29 BR 771 |
| Parties | FIRST FINANCIAL SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. David L. WINKLER, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Edward F. Streit, Jr., Aurora, Ill., for plaintiff.
Ronald B. Lorsch, Mathias & Schmarak, Chicago, Ill., for defendant.
David Winkler ("Winkler") appeals from an order entered by Bankruptcy Judge Lawrence Fisher in No. 82 B 3795 (Bankr.N. D.Ill. July 28, 1982) (the "Order"). For the reasons stated in this memorandum opinion and order, the Order is affirmed.
Winkler and his wife executed a mortgage in favor of International Mortgage Co. in May 1975, and the mortgage was thereafter assigned to First Financial Savings & Loan Association ("First Financial"). In March 1981 First Financial filed a complaint to foreclose the mortgage in the Circuit Court of Cook County, Illinois. Judgment for foreclosure and sale (the "judgment") was entered by the Circuit Court June 4, 1981.
At the July 22, 1981 sheriff's sale conducted pursuant to the judgment, First Financial was the sole and successful bidder. On August 19, 1981 the Circuit Court entered an order approving the sale, and the same day First Financial received its Certificate of Sale (the "Certificate"). Under the Certificate and judgment Winkler's statutory period of redemption was to expire March 26, 1982.
On March 22, 1982 Winkler filed a petition under Chapter 13 of the Bankruptcy Code (). On April 15 First Financial filed in the Bankruptcy Court a Complaint To Vacate Automatic Stay and for Leave To Foreclose Mortgage Lien, which Winkler answered and moved to dismiss May 10, 1982. At a May 12 hearing Winkler's motion was denied, and First Financial was granted leave (1) to amend its Complaint to include the Chapter 13 Trustee (the "Trustee") as a party defendant and (2) to request issuance of an alias summons. On June 11 the Trustee was served. First Financial's Complaint was heard July 28, and by the Order Judge Fisher (1) modified the automatic stay and restraining order as to First Financial and (2) granted First Financial leave "to continue the foreclosure proceedings pending in the circuit Court of Cook County, Illinois."
In challenging the Order Winkler asserts (Mem. 2-5; R.Mem. 1-3):
First Financial responds (Ans.Mem. 4-7):
First Financial cites no authority for that "rule."2
Under Illinois law the right of redemption is a purely statutory privilege but is generally to be construed liberally in favor of a foreclosed mortgagor. Skach v. Sykora, 6 Ill.2d 215, 219, 224, 127 N.E.2d 453, 455, 457 (1955); Mutual Life Ins. Co. of New York v. Chambers, 88 Ill.App.3d 952, 955, 43 Ill.Dec. 829, 832, 410 N.E.2d 962, 965 (1st Dist.1980). Nevertheless the right is determinate. After a creditor-mortgagee obtains entry of a judgment of foreclosure and sale, the mortgagor's only substantive legal or equitable right is his right to redeem the property by paying the judgment (and related charges) in full within the specified time period. In re Jenkins, 14 B.R. 748, 750 (Bkrtcy.N.D.Ill.1981); In re Crawford, 2 B.R. 589, 595 (Bkrtcy.N.D.Ill. 1980). See also 27 I.L.P. Mortgages § 543.
Moreover after entry of the judgment the mortgage foreclosed upon is merged into the judgment, so there is no longer a "mortgage" under which a Chapter 13 debtor can cure arrearages. Id. at § 419; In re Young, 22 B.R. 620, 622 (Bkrtcy.N.D.Ill.1982); In re Kokkinis, 22 B.R. 353, 354 (Bkrtcy.N.D.Ill.1982); In re Jenkins, 14 B.R. at 749-50. Thus as of the date of his filing his Chapter 13 petition Winkler had only his redemption right, and First Financial had purchased the property subject to that right. Chambers, 88 Ill. App.3d at 955, 43 Ill.Dec. at 832, 410 N.E.2d at 965.3
Several courts have flatly said Code § 362 stays the running of the redemption period. In re Simmons, 23 B.R. 364, 366 (Bkrtcy.N.D.Ill.1982); In re Jenkins, 14 B.R. at 750 n. 2; see also Bank of Ravenswood v. Patzold, 27 B.R. 542, 542-43 (N.D.Ill. 1982). That reading cannot readily be squared with (1) the language of Code § 362 in light of Illinois mortgage law, (2) the relevant legislative history of Code § 362 or (3) the Code as a whole.
In general Code § 362 stays commencement or continuation of "proceedings" or "acts" against the debtor or the property of the bankruptcy estate as defined in Code § 541. It certainly stretches the language to regard the automatic ripening of the Certificate of Sale into a sheriff's deed4 as a proceeding or act against the debtor or his "property" (which, once the Certificate had issued, was really only the right of redemption). After all the judgment and foreclosure sale are really the final "proceedings" in the foreclosure action itself. See In re Jenkins, 14 B.R. at 750. During the redemption period Winkler was the potentially active party who could "proceed" to redeem his property, and First Financial could not "proceed" or "act" at all.
That there is more than a semantic difficulty here can be seen by advancing the analysis to the time at which the redemption period would have lapsed. At that point First Financial arguably would have to "proceed" anew to obtain a deed to the property. See Chambers, 88 Ill.App.3d at 955, 43 Ill.Dec. at 832, 410 N.E.2d at 965. Yet by definition the right of redemption would already have lapsed before First Federal could have had any right to proceed, so First Financial would not then be proceeding against the property of the debtor or of the estate:
Accordingly, after a judgment of foreclosure and sale under Illinois law, there are no "proceedings" against a debtor's or an estate's property to which Code § 362 might apply.5
Illinois mortgage law thus makes the situation in this action comparable to what obtains when property is transferred subject to a judgment lien before a Chapter 13 petition is filed. Explaining the provision for stays of "issuance or employment of process" in Code § 362(a)(1), the House Judiciary Committee said (H.R.Rep. No. 595, 95th Cong., 2d Sess. 341, reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6297):
The provision in this first paragraph prohibiting the issuance of process is designed to prevent the issuance of a writ of execution by a judgment creditor of the debtor to obtain property that was property of the debtor before the case, but that was transferred, subject to the judgment lien, before the case. Because the other paragraphs of this subsection refer only to property of the estate or property of the debtor, neither of which apply to this kind of transferred property, they would not prohibit pursuit of the transferred property by issuance of process. Thus, the prohibition in this paragraph is included and the judgment creditor is allowed to proceed by way of foreclosure against the property, but not by a general writ of execution (in the State court, or wherever the creditor obtained the judgment) against the debtor and all of the debtor\'s property.
By analogy that analysis clearly implies a mortgagee may finally foreclose property purchased at a foreclosure sale at the end of a redemption period without running afoul of Code § 362.
But if that were not enough (and in this Court's view it is), the clinching argument is suggested by Judge Fisher's remarks at the hearing of First Financial's Complaint (July 28, 1982 Tr. 7-9). Code § 108(b) provides an entirely separate mechanism for dealing with the kind of right a Chapter 13 petitioner has under Illinois redemption law:
Under Code § 108(b) the Trustee thus had 60 days from the order for relief (or until May 22, 19826) to exercise Winkler's redemption right. Because the Trustee did not do so, the right lapsed. See July 28, 1982 Tr. 9-11.7
This Court therefore finds the automatic stay under Code § 362 was conceptually inapplicable to First Financial.8 See In re Construction Leasing and Investment Corp., 20 B.R. 546, 547 (Bkrtcy.M.D.Fla. 1982) and Bank of Commonwealth v. Bevan, 13 B.R. 989, 994 (D.C.E.D.Mich.1981) (...
To continue reading
Request your trial