Glenn, In re

Citation760 F.2d 1428
Decision Date16 April 1985
Docket Number83-1316 and 83-1585,Nos. 82-3821,s. 82-3821
Parties12 Collier Bankr.Cas.2d 1303, 12 Bankr.Ct.Dec. 1385, Bankr. L. Rep. P 70,509 In re Gerald David GLENN and Janice Sue Glenn, Debtors, The FEDERAL LAND BANK OF LOUISVILLE, Creditor-Appellant, v. Gerald David GLENN and Janice Sue Glenn, (82-3821) Debtors-Appellees. In re Edward J. PIGLOSKI and Mary L. Pigloski, Debtors, Edward J. PIGLOSKI and Mary L. Pigloski, Plaintiffs-Appellants, v. Maxine WYNN and Manor Mortgage Company, (83-1316) Defendants-Appellees. In re Ralph MILLER, Debtor, FIRST FEDERAL OF MICHIGAN, Defendant-Appellant, v. Ralph Henry MILLER, (83-1585) Plaintiff-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

Stephen R. Buchenroth (argued), Vorys, Sater, Seymour & Pease, Columbus, Ohio, for creditor-appellant in No. 82-3821.

Robert A. Goering (argued) Wikle & Goering, Cincinnati, Ohio, for debtors-appellees in No. 82-3821.

Mary Ann Zito (argued) UAW Legal Services Plan, Detroit, Mich., for plaintiffs-appellants in No. 83-1316.

Edward R. Barton (argued), Allegan, Mich., amicus curiae.

Ronald T. Barrows, St. Clair Shores, Mich., for defendants-appellees in No. 83-1316.

Robert H. Skilton, III, Patrick E. Mears (argued), John D. Dunn, Grand Rapids, Mich., for amicus curiae (Appellees).

W. Stanley Fambrough (argued), Detroit, Mich., for defendant-appellant in No. 83-1585.

Matthew J. Mason, Detroit, Mich., for plaintiff-appellee in No. 83-1585.

Edward R. Barton (argued), Allegan, Mich., amicus curiae.

Before ENGEL and KRUPANSKY, Circuit Judges, WEICK, Senior Circuit Judge.

ENGEL, Circuit Judge.

These three appeals raise similar questions about the point in the foreclosure process at which a Chapter 13 debtor loses the right to cure a default on a real estate mortgage on his principal residence.

In each case, the debtor gave a mortgage on real estate that was subject to foreclosure proceedings. In In re Gerald David Glenn, No. 82-3821, the debtors filed their Chapter 13 petition after the mortgagee had obtained a foreclosure judgment but before the property was sold. In In re Ralph Miller, No. 83-1585, and In re Edward J. Pigloski, No. 83-1316, the debtors filed their petitions after the properties had been sold at foreclosure sales but before the statutory redemption periods had run. The debtors in all three cases seek to protect their interests in the real estate by paying off any arrearages through their Chapter 13 plans and resuming the regular mortgage payments. The mortgagee in each case has objected that this treatment is contrary to the provisions of 11 U.S.C. Sec. 1322(b).

Each appeal also raises at least one additional issue. In Glenn, the debtors argue that, pursuant to 11 U.S.C. Sec. 1322(b)(2), their Chapter 13 plan may modify the rights of their creditor because the creditor's security interest is in a parcel that includes not only their principal residence, but also fifty acres of adjoining farmland. Should they not be permitted to reinstate the terms of their mortgages, the debtors in Miller and Pigloski seek a ruling that would toll the running of the statutory redemption periods for the duration of their Chapter 13 plans. The Pigloskis also claim that they should be allowed to spread the payment of the redemption amount over the entire length of their Chapter 13 plan while the debtor in Miller argues that the expiration of the redemption period following the foreclosure sale would constitute a preferential transfer that may be avoided under 11 U.S.C. Sec. 547(b).

I.

GERALD DAVID AND JANICE SUE GLENN (82-3821)

In October 1978 the Glenns bought their home and the fifty acres of land on which it is located in Fayetteville, Ohio. They made a $20,000.00 down payment and gave a first mortgage promissory note to the Federal Land Bank of Louisville to finance the balance of the purchase price. The Glenns also delivered a mortgage deed to the bank. The note required the payment of $2850.00 every six months and contained an acceleration clause giving the bank the option to declare the entire debt due and payable immediately should the Glenns fail to make any payments.

The Glenns subsequently failed to make some of the mortgage payments, and the bank accelerated the debt. When the Glenns failed to pay the accelerated amount, the bank commenced foreclosure proceedings. On December 18, 1981, the Court of Common Pleas of Brown County, Ohio entered a foreclosure judgment against the Glenns for $51,991.95. Later that same day, the Glenns filed their Chapter 13 petition with the bankruptcy court.

Under the terms of their Chapter 13 plan, the Glenns proposed to pay the bank the arrearage on the mortgage over a period of twenty-one months while maintaining current payments outside the plan under the original terms of the note. The bank objected to the plan, arguing that the note and mortgage had been merged and reduced to judgment and that the Glenns currently owed not just the amount they were in arrears but the entire judgment amount. The bankruptcy court overruled the bank's objection and confirmed the plan. Relying upon the rationale of the Second Circuit in In re Taddeo, 685 F.2d 24 (2d Cir.1982), the court held that 11 U.S.C. Sec. 1322(b)(5) permitted the Glenns to "deaccelerate" their mortgage and reinstate the original payment schedule.

The parties agreed to a direct appeal to our court pursuant to 28 U.S.C. Sec. 1293(b).

RALPH MILLER (83-1585)

On August 5, 1980, Ralph Miller purchased a house in Detroit, Michigan, subject to an existing first mortgage, dated April 17, 1973, held by First Federal of Michigan. The sale price was $26,500.00, and the balance on the mortgage note was approximately $20,900.00.

Following repeated, lengthy lay-offs from his employment, Miller defaulted on the mortgage in 1981. First Federal commenced a foreclosure by advertisement in March 1982, and a sheriff's sale was held on May 14, 1982. First Federal purchased the property for a bid of the balance owing on the mortgage.

On November 2, 1982, before the statutory redemption period expired, Miller filed a Chapter 13 petition and plan. In his plan Miller proposed to pay the arrearage on the mortgage and to maintain current payments on the note. Miller also moved the bankruptcy court to issue a stay order tolling the redemption period. The bankruptcy court denied the motion, denied confirmation of the plan, and lifted the automatic stay as to First Federal, allowing the mortgagee to pursue eviction.

Miller appealed these decisions to the district court, and the parties entered into a stipulation to stay proceedings pending appeal. Judge Thornton reversed the bankruptcy court, holding that 11 U.S.C. Sec. 1322(b)(5) permits a Chapter 13 debtor to set aside a foreclosure sale, pay any arrearage, and reinstate the terms of the mortgage when the petition is filed before the redemption period expires.

The parties entered into another stipulation to stay proceedings pending First Federal's appeal of Judge Thornton's decision.

EDWARD J. AND MARY L. PIGLOSKI (83-1316)

In May 1981, Edward and Mary Pigloski sought to refinance their house by entering into a loan agreement arranged by Manor Mortgage Company. The house was encumbered by an existing mortgage of $14,500.00, which the mortgagee, Standard Federal Savings & Loan Association, had threatened to foreclose. Following the directions of Manor Mortgage Company, the Pigloskis incorporated themselves and signed a wrap-around mortgage and note to Maxine Wynn. The parties dispute the amount owed on the note, and the Pigloskis claim that it is actually usurious. In any event, the Pigloskis failed to make mortgage payments to Maxine Wynn.

Mrs. Wynn commenced foreclosure by advertisement under Michigan law in October 1981, and a sheriff's sale was held on November 20, 1981.

On April 30, 1982, before the statutory redemption period expired, the Pigloskis filed a Chapter 13 petition and plan. Under their plan, the Pigloskis proposed to pay, over a period of two and one half years, all the amounts they believed were legally due and owing to Mrs. Wynn. The Pigloskis also filed a motion for a stay order tolling the redemption period. The bankruptcy court eventually held that it had no authority to toll the statutory redemption period.

The Pigloskis appealed the decision to the district court. Judge Boyle held that the automatic stay of 11 U.S.C. Sec. 362(a) does not toll the statutory redemption period and that 11 U.S.C. Sec. 105 does not authorize a bankruptcy court to toll the redemption period. Judge Boyle also held that a foreclosure sale extinguishes the mortgage and, as a result, is not subject to cure under section 1322(b)(5).

II.

11 U.S.C. Sec. 1322(b) outlines the permissible contents of a wage earner plan under Chapter 13 of the Bankruptcy Code. The relevant portions of that section provide:

(b) Subject to subsections (a) and (c) of this section, the plan may--

....

(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;

....

(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;

....

The mortgagees do not dispute that subsection (b)(5) permits a Chapter 13 debtor to cure a default on a long-term mortgage on the debtor's principal residence. However, they contend that once the long-term debt has been accelerated, or a foreclosure judgment has been obtained, or a foreclosure sale has occurred, the claim...

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