In re Chitwood
| Citation | 54 BR 396 |
| Decision Date | 22 October 1985 |
| Docket Number | Bankruptcy No. 7-85-00571-R. |
| Parties | In re John T. CHITWOOD, Debtor. McCLUNG LUMBER COMPANY, INC., J. Albert Ellett, Trustee, and David S. McClung, II, Movants, v. John T. CHITWOOD, Respondent. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Virginia |
Leon P. Ferrance, Roanoke, Va., for debtor/respondent.
John B. Weld, Roanoke, Va., for movants.
J. Glenwood Strickler, Roanoke, Va., Chapter 13 Trustee.
McClung Lumber Company, Inc. ("McClung"), a subordinate Deed of Trust noteholder, filed this motion for relief from the stay of 11 U.S.C. § 362 to enable J. Albert Ellett, Indenture Trustee, to finalize a foreclosure. The Debtor resists the motion and seeks leave pursuant to the Chapter 13 Plan to cure default in accordance with 11 U.S.C. § 1322(b)(5).
The facts are stipulated as follows:
"(1) John T. Chitwood filed a petition for relief in this court under Chapter 13 on May 20, 1985.
(2) On December 23, 1983, John T. Chitwood, Jr., executed a deed of trust dated December 22, 1983, wherein he conveyed certain property located in the County of Roanoke, Town of Vinton, State of Virginia, to John B. Weld and J. Albert Ellett, Trustees, in trust to secure to McClung Lumber Company, Inc., a certain note dated December 22, 1983, in the amount of $5,000.00, with interest thereon at the rate of 12% per annum, payable on demand. This deed of trust was recorded on December 28, 1983, in the Clerk's Office of the Circuit (sic) for the County of Roanoke in Deed Book 1201, Page 135.
(3) Upon recordation of the Deed of Trust described in paragraph 2 above, McClung Lumber Company, Inc. held the second lien against the herein described property, Colonial American National Bank having previously recorded a Deed of Trust against the same property, which Deed of Trust was admitted to record in "the Clerk's Office of the Circuit Court of the County of Roanoke in Deed Book 1199, Page 602. On November 5, 1984, J. Albert Ellett, on behalf of McClung Lumber Company, Inc., made demand upon Mr. Chitwood for payment in full on the note.
(4) McClung Lumber Company, Inc., caused to be advertised in The Roanoke Times & World News, a notice of Trustee's Sale scheduling a sale of the property pledged in the deed of trust on January 30, 1985. This foreclosure sale was postponed by agreement between the parties.
(5) McClung Lumber Company, Inc., caused to be advertised a notice of Trustee's Sale for property pledged to them by Mr. Chitwood, which sale was advertised for public auction on May 15, 1985, which ad appeared in The Roanoke Times & World News on May 6, 1985 and May 13, 1985. Notice of the proposed foreclosure sale was sent to Mr. Chitwood at the property address on May 1, 1985. On May 15, 1985, J. Albert Ellett, Sole Acting Trustee, sold the property at public auction to David S. McClung, II, who purchased the property for the sum of $875.00, subject to the first deed of trust in favor of Colonial American National Bank, in the approximate amount of $42,568.65.
(6) Immediately following the sale, J. Albert Ellett, Sole Acting Trustee, prepared a Contract of Sale setting forth the price and terms of the sale, which "Contract was executed by himself and David S. McClung, II.
(7) Immediately following the foreclosure sale on May 15, 1985, J. Albert Ellett accepted a check in the amount of $100.00 from David S. McClung, II, with the balance due in ten days thereafter. Prior to conveying the property pursuant to the foreclosure sale, J. Albert Ellett received notice that John T. Chitwood, Jr. had filed a Petition in this Court.
(8) The real estate, which is the subject of this Motion, has been appraised by the Roanoke County Commissioner of Revenue's Office at a value of $52,100.00, and the parties stipulate that the value of the property is no less than that amount."
The petition recites a value of $58,000.00. The Stipulation reflects the Roanoke County tax appraisal of $52,100.00. The first Deed of Trust balance of $42,568.00 and the McClung note of $5,000.00, plus interest and expenses, clearly shows equity in the property.
McClung's motion relies exclusively upon this Court's decision in In re Rolen, 39 B.R. 260 (Bankr.W.D.VA 1983). However, reliance upon Rolen is misplaced.
The facts herein are substantially different from the facts in Rolen. There, the Indenture Trustee had advertised and auctioned the property to the highest bidder, executed and delivered the Deed to the purchaser, and the Deed was recorded, thus completing the foreclosure process and excluding the property from the Debtor's estate prior to the petition being filed in this Court. Here, the Indenture Trustee advertised, held auction, prepared a memorandum of sale to the purchaser, and the petition was thereupon filed. No Deed was prepared, delivered, or recorded.
The movant relies upon the language in Rolen to the effect that, under Virginia law relating to foreclosure of trust deeds, upon the auction being held and memorandum of sale made, the sale is complete for purposes of enforcing specific performance as between the Trustee and the successful bidder and, as between Trustee and bidder, it is complete. It does not necessarily follow that the foreclosure is sufficiently complete to prevent a debtor from curing default. It does not foreclose the supremacy provisions enacted by Congress under 11 U.S.C. § 1322(b)(2), (3), which permit a distressed debtor to effect cure of default. The fact that Virginia statutory and case law may hold, for purposes of specific performance, that a foreclosure sale is complete does not prohibit the application of § 1322 where the sale is not sufficiently complete to remove the property from the status of property of the estate where the preparation, delivery, and recordation of a Deed to the purchaser is not finalized.
Recent cases in Virginia and elsewhere support this view. The Court must seek to ascertain the Congressional intent and apply same when making determinations under Chapter 13. In the recent case of In re Kokkinis, 22 B.R. 353 (Bankr.N.D.IL 1982), the court, interpreting § 1322, stated that "the attempt to save homesteads is one of the primary purposes and ends of Chapter 13 rehabilitation." Citing First Investment v. Custer, 18 B.R. 842, 846 (Bankr.S.D.OH 1982).
The recent case of In re Ivory, 32 B.R. 788, C.C.H. 69, 363 (Bankr.D.OR 1983), properly stated the principle that the right to cure default and reinstate an accelerated note is granted by federal Bankruptcy law and cannot be frustrated by the law of any state. See also In re Taddeo, 685 F.2d 24, 28 (2nd Cir.1982); In re Anderson, 29 B.R. 563, 565 (Bankr.E.D.VA 1983); In re Young, 22 B.R. 620 (Bankr.N.D.IL 1982); In re Thompson, 17 B.R. 748 (Bankr.W.D.MI 1982); In re Davis, 16 B.R. 473, 8 B.C.D. 635 (Bankr.D.KS 1981). According to the views of the foregoing courts, the Bankruptcy Code establishes its own redemption design in lieu of state laws. See 2 Collier on Bankruptcy (15th ed.) 1322.013E.
The court in Ivory, supra, stated:
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