In re Connors, 06-3321.

• Decision Date: 03 August 2007
• Docket Number: No. 06-3321.,06-3321.
• Citation: 497 F.3d 314
• Parties: In re: Vincent J. CONNORS, Debtor. Vincent J. Connors, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

497 F.3d 314

In re: Vincent J. CONNORS, Debtor.

Vincent J. Connors, Appellant.

No. 06-3321.

United States Court of Appeals, Third Circuit.

Argued: June 27, 2007.

Opinion Filed: August 3, 2007.

Scott D. Sherman, Esq. (Argued), Minion & Sherman, West Caldwell, NJ, Herbert

B. Raymond, Esq., Raymond & Raymond, East Orange, NJ, for Appellant.

Neil J. Fogerty, Esq. (Argued), Hudson County Legal Services Corp., Jersey City, NJ, Scott F. Waterman, Esq., Black, Stranick & Waterman, Media, PA, for Amicus National Association of Consumer Bankruptcy Attorneys.

Warren S. Wolf, Esq. (Argued), Cureton Caplan, Mount Laurel, NJ, for Appellee Deutsche Bank National Trust Co.

Matthew M. Fredericks, Esq. (Argued), David Kessler & Associates, Clifton, NJ, for Appellee 41 Lakeridge LLC.

Richard P. Haber, Esq. (Argued), Joel A. Ackerman, Esq., Zucker, Goldberg & Ackerman, LLC, Mountainside, NJ, for Amicus New Jersey League of Community Bankers.

Before: BARRY, FUENTES, and JORDAN, Circuit Judges.

OPINION OF THE COURT

BARRY, Circuit Judge.

This bankruptcy appeal presents a question on which New Jersey federal bankruptcy and district courts have been divided for more than ten years: whether, under 11 U.S.C. § 1322(c)(1), a Chapter 13 debtor has the right to cure a default on a mortgage secured by the debtor's principal residence between the time the residence is sold at a foreclosure sale and the time the deed is delivered. Having finally been given the opportunity to break what is a virtual tie between the New Jersey federal courts, we hold that § 1322(c)(1) does not afford the debtor that right.

I.

On August 21, 2002, Appellant Vincent J. Connors executed a $252,000 note and mortgage on his residence at 41 Lakeridge Drive, Matawan, New Jersey, in favor of the predecessor in interest of Appellee Deutsche Bank National Trust Co. ("Deutsche Bank"). Connors subsequently defaulted on the note, causing Deutsche Bank to foreclose on March 4, 2004. At a foreclosure sale on November 10, 2004, the property was sold to Appellee 41 Lakeridge LLC ("Lakeridge") for $330,000; Lakeridge tendered the required 20% deposit.

On November 14, 2004, Connors filed a voluntary petition under Chapter 13 of the Bankruptcy Code. The filing triggered an automatic stay of proceedings under 11 U.S.C. § 362. Two weeks later, on November 30, 2004, Connors filed a Chapter 13 Plan, which proposed to cure his pre-petition arrears on the mortgage. He did not, however, exercise his statutory right to object to the foreclosure sale or redeem within 60 days of the filing of his Chapter 13 petition, as is permitted under N.J. Ct. R. 4:65-5 and 11 U.S.C. § 108(b), respectively.

On January 19, 2005, the 60-day period having expired, Lakeridge filed a motion to lift the automatic stay to permit it to tender the balance of the purchase price and receive the deed. Connors opposed the motion. The Bankruptcy Court held a hearing and granted the motion, explaining, in its March 9, 2005 letter opinion, that Connors no longer had the right to cure the default on his mortgage under 11 U.S.C. § 1322(c)(1), and that his right to redeem under state law had expired. Before Lakeridge could tender the balance and receive the deed, however, the Court granted a stay pending Connors's appeal.

The District Court affirmed. Noting a "schism" among New Jersey courts regarding whether § 1322(c)(1) creates a right to cure a default that expires upon delivery of the deed, the Court held that the right to cure expires at the foreclosure sale, and that § 1322(c)(1) "allows the debtor to exercise only what additional remedy applicable state law provides." (App. at 7.) Because Connors's state-law rights had expired, the Court held, the Bankruptcy Court appropriately granted Lakeridge's motion to lift the automatic stay. This appeal followed.

II.

The Bankruptcy Court had jurisdiction, pursuant to 28 U.S.C. §§ 157(b) and 1334(b), over Connors's Chapter 13 petition. The District Court had jurisdiction, pursuant to 28 U.S.C. § 158(a), over Connors's appeal from the Bankruptcy Court's order lifting the automatic stay. See United States v. Pelullo, 178 F.3d 196, 200 (3d Cir.1999) (holding that order lifting automatic stay in bankruptcy proceeding is appealable); In re Comer, 716 F.2d 168, 172 (3d Cir.1983) (holding that bankruptcy court's order lifting automatic stay "is final in the sense that it completes litigation on the question and subjects the property to a foreclosure action in state court"). We have jurisdiction, pursuant to 28 U.S.C. §§ 158(d) and 1291 and Federal Rule of Appellate Procedure 6(b), over Connors's appeal from the District Court's final order affirming the order of the Bankruptcy Court.

Our review of the District Court's order is plenary. In re Brannon, 476 F.3d 170, 173 (3d Cir.2007). We apply the same standards as the District Court, examining the Bankruptcy Court's legal conclusions de novo and reviewing its factual findings for clear error. In re United Healthcare Sys., Inc., 396 F.3d 247, 249 (3d Cir.2005).

III.

The sole question we must decide is whether, under 11 U.S.C. § 1322(c)(1), a Chapter 13 debtor has the right to cure a default on a mortgage secured by the debtor's principal residence between the time the residence is sold at a foreclosure sale and the time the deed is delivered.

A. The Unambiguous Language of § 1322(c)(1) Supports the "Gavel Rule"

Section 1322 of the Bankruptcy Code sets forth the minimum requirements for a mandatory Chapter 13 Plan. 11 U.S.C. § 1322; S. Rep. 95-989, at 141 (1978), 1978 U.S.S.C.A.N. 5787. Subsection (b)(3) broadly permits the plan to "provide for the curing or waiving of any default," and subsection (b)(5) permits the plan to "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." 11 U.S.C. § 1322(b)(3), (5). Subsection (c)(1) limits the broad sweep of subsections (b)(3) and (b)(5) by providing, in relevant part, as follows:

[A] default with respect to, or that gave rise to, a lien on the debtor's principal residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law. . . .

11 U.S.C. § 1322(c)(1).

Since the enactment of subsection (c)(1) as part of the Bankruptcy Reform Act of 1994, New Jersey bankruptcy and district courts have disagreed over whether (c)(1) gives a Chapter 13 debtor the right to cure a default on a home mortgage between the time the residence is sold at a foreclosure sale and the time the deed is delivered. One line of cases holds that § 1322(c)(1) guarantees the right to cure a default on a home mortgage only until the gavel falls at a foreclosure sale.¹ Courts frequently refer to this view as the "gavel rule." The other line of cases maintains that a residence is not "sold" within the meaning of § 1322(c)(1), and the debtor has the right to cure a default, until the deed is delivered to the winning bidder.² This view is commonly known as the "deed-delivery rule."

We start with the language of the statute. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989); Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 202 (3d Cir.1998). Some courts have found ambiguity in the phrase, "that is conducted in accordance with applicable nonbankruptcy law." In Simmons, for instance, the Court found the phrase ambiguous because "it is not readily apparent whether Congress intended the phrase to apply only to the event of sale, or to the entirety of the sale process, including the giving of a deed." 202 B.R. at 201. We are unpersuaded that the phrase is ambiguous; indeed, to find ambiguity would be to deny the words their plain meaning. The word "that" is a relative pronoun that restricts and, therefore, modifies, the preceding noun, "foreclosure sale." Thus, when the statute refers to "a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law," it clearly refers to a foreclosure sale that complies with state-law procedures. See New Castle County v. Hartford Acc. & Indem. Co., 970 F.2d 1267, 1270 (3d Cir.1992) ("[T]he question is not whether there is an ambiguity in the metaphysical sense, but whether the language has only one reasonable meaning when construed, not in a hypertechnical fashion, but in an ordinary, common sense manner."). We agree with those decisions that have reached this conclusion without resorting to legislative history. See, e.g., Cain, 423 F.3d at 620; Hric, 208 B.R. at 25; see also Simmons, 202 B.R. at 203 (finding that canons of statutory construction, as well as "common sense," mandated the same reading, but also considering legislative history).³

We must also determine what it means for a residence to be "sold at a foreclosure sale." Deconstructing this phrase further, we must determine the meaning of "foreclosure sale" — a term that Appellees contend is synonymous with the foreclosure auction, but that Connors insists refers to the entire foreclosure process, terminating with the delivery of a deed. The Bankruptcy Code does not define "foreclosure sale," so we must give it its ordinary meaning. Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 171 F.3d 818, 822 (3d Cir.1999).

Outside of cases applying the deed-delivery rule, the term "foreclosure sale" is broadly understood to mean the foreclosure auction. First, the preposition "at" in "sold at a foreclosure sale" signifies a discrete event, rather than an ongoing process. See Chisholm, 2005 WL 1522232, at *3. Second, at least one New Jersey bankruptcy court has taken judicial notice of the fact that New Jersey foreclosure practitioners refer to the foreclosure auction as the "sale." Hric, 208 B.R. at 25. Third, the New Jersey statut...