In re Crawford
| Decision Date | 12 April 1999 |
| Docket Number | Bankruptcy No. 98-17777. |
| Citation | 232 BR 92 |
| Parties | In re Francis CRAWFORD, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
Alfred F. Nimrod, Cleveland, OH, for the debtor.
Phyllis A. Ulrich, Carlisle, McNellis & Rini, Cleveland, OH, for KeyBank National Association.
Myron E. Wasserman, Cleveland, OH, Trustee.
KeyBank National Association ("the Bank") filed a motion for relief from stay seeking authority to continue foreclosure proceedings against the residence of the Debtor Francis Crawford on the ground that her house was sold at a foreclosure sale before she filed her Chapter 13 bankruptcy case. (Docket 5). In opposition, the Debtor argues that she has the right to cure the mortgage arrearage because she filed her bankruptcy petition after the foreclosure sale, but before the state court entered an order confirming the sale. (Docket 6). Resolution of this dispute turns on the interpretation of 11 U.S.C. § 1322(c)(1), as enacted in 1994.
Jurisdiction exists under 28 U.S.C. § 1334 and General Order No. 84 entered on July 16, 1984 by the United States District Court for the Northern District of Ohio. This is a core proceeding under 28 U.S.C. § 157(b)(2)(G).
The Bank filed a complaint in foreclosure in the Cuyahoga County Common Pleas Court ("the state court") regarding the Debtor's residence at 14218 Caine Avenue, Cleveland, Ohio ("the Property"). The Debtor and GE Capital Mortgage Services, Inc. ("GE") were named as defendants in that action and did not file answers. On August 3, 1998, the state court entered a judgment: (1) ordering foreclosure of the Bank's mortgage; (2) granting the Bank judgment on its promissory note against the Debtor in the amount of $33,664.76, plus interest and costs; and (3) barring the Debtor and GE from asserting any right, title, or interest in the Property.
The Cuyahoga County Sheriff's Department ("the sheriff") appraised the Property at $45,000 for purposes of the foreclosure sale. The sheriff conducted a public auction of the Property on October 13, 1998 at 10:00 a.m. SEMS Properties, Inc. ("SEMS") bid $35,000, which made it the highest bidder at the auction. The sheriff accepted the SEMS bid at about that time and SEMS paid a percentage of the purchase price as required by the terms of the auction. There are no allegations that the sale was conducted other than as provided by Ohio law.
After these events took place, and at 12:01 p.m. the same day, the Debtor filed her Chapter 13 case and delivered a certified copy of the filing to the sheriff.
On October 22, 1998, the Debtor moved in state court to stay the foreclosure proceedings. The Bank opposed the motion. The state court denied the request in an order entered on December 9, 1998. On December 11, 1998, the state court confirmed the sale and ordered the sheriff to issue a deed to SEMS. The Debtor then moved to stay or vacate the December 9, 1998 Order. On February 22, 1999, the state court entered an agreed order that provides:
All orders and judgments made subsequent to 12:01 p.m. on October 13, 1998, are hereby vacated and set aside; further all actions undertaken by the Sheriff of Cuyahoga County in this case since such time and date are likewise vacated and set aside; and, all proceedings in this case are hereby stayed until or unless the automatic stay under 11 U.S.C. § 362 pertaining to Defendant, Francis Crawford . . . is terminated.
The parties stipulated that the sheriff does not have authority under state law to convey the Property to SEMS until the entire purchase price is paid and an order confirming the sale has been entered. There is no claim that SEMS is unable or unwilling to complete the purchase. The parties also stipulated that the Debtor has a right under Ohio law to redeem the Property after the sheriff's sale and before the sale is confirmed. The Debtor has not made any representation that she wants to redeem the Property or has the funds to do so.
The Debtor's bankruptcy filing schedules the Bank as a secured creditor with respect to the Property. Her amended Chapter 13 plan proposes to pay the pre-petition mortgage arrearage through the plan and maintain the post-petition payments on a current basis. The hearing on plan confirmation is being held in abeyance pending this decision. (Docket 13).
Does the Debtor have the right to cure a mortgage default under 11 U.S.C. § 1322(c)(1) when her bankruptcy petition is filed after the foreclosure sale is held, but before the state court enters an order confirming the sale?
A Chapter 13 debtor has the right to cure a default under a home mortgage loan in the circumstances stated in 11 U.S.C. § 1322(b). See 11 U.S.C. § 1322(b)(3) and (5).2 In general, the debtor may cure the default within a reasonable time and may maintain payments during the case with respect to a claim on which the last payment is due after the date on which the final payment is due under the plan. 11 U.S.C. § 1322(b)(5). Section 1322(c)(1), however, limits the debtor's right to cure:
The parties dispute the meaning of the word "sold" as used in the clause "until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law . . ." The statute does not provide a definition. The Bank argues that "sold" refers to the point in time when the sheriff accepted the SEMS bid at the properly conducted auction; after that event took place, the Bank believes the Debtor lost her right to cure the default. In the absence of a right to cure, the Bank says that cause exists to lift the automatic stay under 11 U.S.C. § 362 to confirm the sale and transfer the Property to SEMS. The Debtor, on the other hand, contends that a residence is not "sold" until the sale is completed under state law. Since the Debtor still has the right to redeem the Property under Ohio law, she argues the Property is not yet "sold" and she has the right to cure the default under her Plan. If there is a right to cure, then the Bank has not established cause for relief from stay.
Section 1322(c)(1) was added to the Bankruptcy Code under the Bankruptcy Reform Act of 1994. Pub.L. No. 103-394 § 301, 108 Stat. 4106 (Oct. 22, 1994). Before this section was enacted, the Bankruptcy Code did not expressly state when in the course of a foreclosure proceeding a debtor lost the right to cure under 11 U.S.C. § 1322(b). The courts were divided on this issue. See generally, Oregon v. Hurt (In re Hurt), 158 B.R. 154 (9th Cir. BAP 1993). Some courts determined that the right to cure ended when the state court entered a foreclosure judgment. See, for example, In re Roach, 824 F.2d 1370 (3d Cir.1987). Most courts, however, held that the right to cure a default extended beyond the entry of the foreclosure judgment and ended only at the time of the foreclosure sale. A few courts found that even the foreclosure sale did not cut off the right to cure. See, for example, Secretary of Veterans Affairs v. Dickerson (In re Dickerson), 130 B.R. 110 (Bankr. S.D.Ala.1991) (). The Sixth Circuit adopted a bright-line test in which the foreclosure sale ended the debtor's right to cure:
All courts agree that at some point in the foreclosure process, the right to cure a default is irretrievably lost; however, the statute itself provides no clear cut-off point except that which the courts see fit to create . . . The event we choose as the cut-off date of the statutory right to cure defaults is the sale of the mortgaged premises. We pick this in preference to other potential points in the progress of events ranging from the date of the first default to the day the redemption period expires following sale.
Fed'l Land Bank of Louisville v. Glenn (In re Glenn), 760 F.2d 1428, 1435 (6th Cir.1985).
Congress reacted to this split in the law by enacting new § 1322(c)(1). Courts interpreting the new legislation have, however, once again divided into two main schools of thought. Generally, one line of cases holds that the new statutory language is unambiguous and cuts off the right to cure at the foreclosure auction. The other line of cases finds the language ambiguous, looks to the legislative history for guidance, and concludes that the debtor's right to cure extends beyond the auction date to the point in time where the sale is completed under state law. See, for example, the cases collected in In re Tomlin, 228 B.R. 916, 918 (E.D.Ark.1999). The Sixth Circuit has not yet addressed this issue.
The starting point for deciding the present dispute is the statute itself. Appleton v. First Nat'l Bank of Ohio, 62 F.3d 791, 801 (6th Cir.1995) "Courts must presume that a legislature says in a statute what it means and means in a statute what it says there." Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-254, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992). A statute is to be read in a straightforward and commonsense manner. Rogers v. Laurain (In re Laurain), 113 F.3d 595 (6th Cir.1997). If the statutory language is clear, the court's obligation is to enforce it without further analysis. "The court must look beyond the language of the statute, however, when the text is ambiguous or when, although the statute is facially clear, a literal interpretation would lead to internal inconsistencies, an absurd result, or an interpretation...
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