In re Beeman
| Decision Date | 21 June 1999 |
| Docket Number | Bankruptcy No. 99-10346-JMD. |
| Citation | 235 BR 519 |
| Parties | In re Darwin R. BEEMAN and Terry M. Beeman, Debtors. |
| Court | U.S. Bankruptcy Court — District of New Hampshire |
Bruce R. Jasper, Elliott & Jasper, LLP, Newport, NH, for debtors.
Mark G. May, Mark G. May, P.C., Manchester, NH, for movant.
Lawrence P. Sumski, Amherst, NH, Chapter 13 Trustee.
Before the Court is a motion by the Bank of New York ("Bank") for relief from the automatic stay for the purpose of allowing the Bank to record a foreclosure deed and to evict Darwin and Terry Beeman (the "Debtors") from their residence. The basic facts in this case are undisputed and facially simple. On November 20, 1996, the Debtors granted a mortgage on their principal residence to the Bank for the purpose of securing a note. The Debtors thereafter defaulted, causing the Bank to foreclose upon their mortgage. The Bank was the successful bidder at the foreclosure auction, held on December 10, 1998. The Debtors filed a Chapter 13 petition on February 8, 1999, the sixtieth day following the date of the foreclosure auction. The Bank did not record the foreclosure deed before the Debtors filed their bankruptcy petition.
On May 26, 1999, this Court held a hearing on the Bank's motion for relief. At the hearing the Debtors testified that they had numerous telephone conversations with a representative of the Bank1 during the three months prior to the foreclosure auction and that the parties had orally reached a tentative workout agreement that was intended to prevent foreclosure. More specifically, the Debtors testified that the Bank's representative had stated on numerous occasions that the parties could reach a payment agreement that would avoid foreclosure. The Debtors testified that they had first come to such an agreement with the Bank's representative over the telephone during October of 1998. However, the Debtors testified that they were told not to send any money until they had received and signed a written agreement. Despite several promises from the Bank, the Debtors never received a written agreement. The Debtors eventually received a notice of foreclosure. The Debtors immediately contacted the Bank's representative, who told them not to worry about the notice since it was a form letter and not applicable to the Debtors in light of the oral workout agreement between the parties. According to the Debtors, the Bank's representative stated that she had not yet completed a written agreement and then agreed to a second agreement over the telephone. Again, according to the Debtors, they were to send no money until they received a written agreement, which the Bank's representative failed to send them. The Debtors testified that it was their understanding that the foreclosure would not occur due to the agreement they thought they had with the Bank.
No written agreement was ever sent to the Debtors and the foreclosure auction took place as originally scheduled on December 10, 1998. The Bank was the high bidder. After contacting the Bank immediately after the foreclosure auction, the Debtors were told by a second Bank representative that a denial of the workout agreement had been mailed to the Debtors on December 9, 1998, one day before the foreclosure. The Debtors subsequently spoke with the Bank's first representative, who, according to the Debtors, told them that the foreclosure should never have taken place and occurred due to her neglect. She advised the Debtors that they could refinance the property with a new mortgage at no more than they had been paying, and referred them to a third representative to discuss refinancing. After four to six weeks of discussions, the Debtors were advised that the Bank would not approve refinancing. The Debtors then filed this Chapter 13 proceeding. Since the filing of their Chapter 13 petition, the Debtors, with the agreement of counsel for the Debtors and the Bank, have paid the amount of the monthly mortgage payments to the Debtors' counsel to be held in escrow pending a resolution of the status of the foreclosure.
The Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the "Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire," dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).
The Bank relies largely on In re Hazleton, 137 B.R. 560 (Bankr.D.N.H.1992) and Barrows v. Boles, 141 N.H. 382, 687 A.2d 979 (1996) to support its argument that, as of the petition date, the Debtors had no property interest in their residence that could have become property of the estate. The Bank argues that both of these cases hold, as a matter of federal and state law respectively, that a mortgagor does not possess either a legal or an equitable interest in the mortgaged property after the foreclosure auction. Consequently, the Bank argues that there was no estate property as of the petition date, and thus cause exists to lift the stay to allow recording of the foreclosure deed2 and to seek eviction.
The Debtors argue that the Hazleton decision should not control this case because the analysis in Hazleton only considered the property rights of debtors under state and federal law, but not the rights of a trustee as a hypothetical bona fide purchaser of real property ("BFP") under 11 U.S.C. § 544(a)(3).3 The Debtors point to the decision in In re Burns, 183 B.R. 670 (Bankr.D.R.I.1995). In Burns, the Chapter 13 debtors filed their petition after the foreclosure auction, but before the foreclosure deed was recorded. The court in Burns held that, pursuant to the trustee's strong-arm powers under § 544(a)(3), the filing of the bankruptcy petition before the recording of the foreclosure deed subordinated the rights of the purchaser at the foreclosure auction to the trustee. See id. at 671. The Burns court based its decision on the fact that Rhode Island is a race-notice jurisdiction. See id. The Debtors note that New Hampshire is also a race-notice jurisdiction. See Amoskeag Bank v. Chagnon, 133 N.H. 11, 14, 572 A.2d 1153 (1990). Thus, they argue that, under New Hampshire law, a BFP without notice has priority over a previous purchaser if the BFP records first. See Moore v. Kidder, 55 N.H. 488 (1875); Brown v. Manter, 22 N.H. 468 (1851). The Debtors contend that the Hazleton decision considered only the rights of a debtor, but not the rights of the trustee as a hypothetical BFP under § 544(a)(3). The Bank counters by arguing that the rationale of Burns does not apply because under New Hampshire law, a BFP would have notice of the Bank's properly recorded mortgage and would have a duty to investigate the status of the mortgage. Accordingly, the Bank contends that the Debtors' reliance on the Burns decision is misplaced and that the Hazleton decision is determinative of its right to relief from the automatic stay.
The Hazleton decision plays a central role in the parties' arguments and therefore warrants separate discussion. In In re Hazleton, Judge Yacos faced a situation similar to the instant matter. The case involved a mortgagee who conducted a foreclosure auction pre-petition but did not record the foreclosure deed before the mortgagor filed for bankruptcy under Chapter 7. The mortgagee sought relief from the stay. Judge Yacos first determined that the mortgagor-debtor had no state property rights as of the petition date because under New Hampshire law, a mortgagor loses his or her right of redemption once the foreclosure auction takes place. See RSA 479:18. Judge Yacos then concluded that the mortgagor-debtor held no federal interests as of the petition date and thus the property was not property of the estate. See Hazleton, 137 B.R. at 563 ( ). Because the relevant property was not property of the estate, Judge Yacos logically concluded that relief from the stay was not necessary. See id.
The Bank also relies upon a New Hampshire Supreme Court decision to support its argument that the Debtors' residence is not property of the estate. In Barrows v. Boles, the New Hampshire Supreme Court cited Hazleton for the proposition that a mortgagor does not retain legal or equitable interest in property once a foreclosure auction is held. See Barrows, 141 N.H. at 393, 687 A.2d 979. This observation was made in the context of deciding whether a party tortiously interfered with a mortgagor's contractual rights to rent from tenants when, after the foreclosure auction but before the sale was completed, the party told the tenants to pay rent to him rather than to the mortgagor. The Court decided that no such interference occurred because the mortgagor was not entitled to rent payments after the foreclosure auction.
At first blush, it appears that both the Hazleton and Barrows decisions support the Bank's argument that the Debtors' property is not property of the estate. However, legislative amendments to § 1322 of the Bankruptcy Code, made subsequent to the Hazleton decision, modify the result in Hazleton for Chapter 13 debtors by creating federal interests in certain circumstances.4 The Court finds that § 1322, as amended, resolves the instant issue before it without the need to consider the Debtors' argument under Burns and § 544(a)(3).
Section 1322 provides for, inter alia, the mandatory and permissive terms of a debtor's Chapter 13 plan. Sections 1322(b) and (c) provide, in pertinent part:
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