In re Hric
| Decision Date | 22 April 1997 |
| Docket Number | Bankruptcy No. 96-39717. |
| Citation | 208 BR 21 |
| Parties | In re Jonathan HRIC and Caren Hric, Debtors. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Joan S. Lavery, Hackettstown, New Jersey, for Debtors.
Susan P. Anderson, Budd, Larner, Gross, Rosenbaum, Greenberg and Sade, P.C., Cherry Hill, New Jersey, for Federal National Mortgage Association.
This is the court's decision on a motion by Federal National Mortgage Association ("FNMA") to vacate the automatic stay and for prospective relief to prevent future abusive bankruptcy filings. The debtors, Jonathan and Caren Hric (hereinafter the "debtors"), oppose the motion. The primary issue is whether a foreclosure sale in New Jersey occurs for the purposes of 11 U.S.C. § 1322(c)(1) when the sale is conducted or when the sheriff's deed is delivered. The court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 151, and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(G). The following shall constitute the court's findings of fact and conclusions of law.
On November 6, 1996 (hereinafter the "petition date"), the debtors filed a petition for relief under chapter 13 of title 11, United States Code (hereinafter the "Bankruptcy Code" or "Code"). The following series of events preceded the debtors' bankruptcy filing and gave rise to the instant dispute.
On July 30, 1990 the debtors executed and delivered to the Huntington Mortgage Company a note in the principal sum of $95,000 which was secured by a mortgage on the debtors' residence (hereinafter the "property"). On August 31, 1990, by written assignment, the Huntington Mortgage Company assigned the note and mortgage to FNMA. On December 1, 1994 the debtors defaulted on the note and on June 27, 1995 FNMA commenced a foreclosure action in the Superior Court of New Jersey (hereinafter the "Superior Court"). On September 7, 1995 the Superior Court entered a judgment of foreclosure and the property was subsequently advertised for sale scheduled for November 27, 1995. On November 22, 1995 the debtors filed their first petition for relief under chapter 13 of the Bankruptcy Code.
On June 4, 1996, after the debtors failed to make payments to FNMA pursuant to a consent order between the parties, the court entered an order vacating the stay. The foreclosure sale originally scheduled for November 1995 was rescheduled and then further adjourned to October 28, 1996, on which date FNMA purchased the debtors' property for $100. On October 31, 1996 the debtor's initial bankruptcy case was dismissed. Then, on November 6, 1996 the debtors filed their second chapter 13 petition commencing the instant bankruptcy case. No sheriff's deed was delivered to FNMA before the petition date. As of January 6, 1997, which is 60 days after the petition date, the debtors had not exercised their state law right to redeem the property. The debtors have attempted to make postpetition payments on the note and propose to cure their default through their chapter 13 plan. FNMA has returned the debtors' payments. On February 5, 1997, FNMA filed the instant motion seeking relief from the automatic stay for the debtors' failure to redeem the property within the statutorily prescribed time and to prevent future abusive bankruptcy filings by the debtor.
FNMA argues that the court should grant relief from the stay because the debtors have no interest in the property due to their failure to cure their mortgage default or to redeem the property within the statutorily prescribed time. Initially, FNMA argues that pursuant to Bankruptcy Code § 1322, a debtor's right to cure a mortgage default terminates when the property is sold at a foreclosure sale. FNMA contends that the phrase "sold at a foreclosure sale" as used in Code § 1322(c)(1) refers to the time during the actual foreclosure auction when the sheriff declares that the property is sold to the highest bidder, and not to the date when the sheriff's deed is delivered to the purchaser. FNMA argues that this interpretation is consistent with the legislative history of § 1322 which reveals Congress' intent to fix a bright line rule with regard to a debtor's right to cure a mortgage default. FNMA reasons that the actual sale at auction provides this bright line because at the time of sale, equitable title and the rights and liabilities of ownership pass to the purchaser. Further, FNMA argues, the sale date is definitive and a matter of public notice. FNMA further argues that fixing the time of sale at the moment the auctioneer's gavel is struck balances a debtor's right to cure with a mortgagee's right to collect on the debt. FNMA argues that if "sold at a foreclosure sale" were interpreted to mean the date on which the sheriff's deed is delivered, a debtor's rights with regard to the mortgaged premises would vary from month to month and vicinage to vicinage depending on the administrative concerns of each sheriff's office. FNMA therefore argues that the debtors' right to cure their mortgage default was terminated on October 28, 1996 by the foreclosure sale of the property.
FNMA also argues that the time in which the debtors may redeem the property has expired. FNMA argues that pursuant to state law, a debtor may redeem a mortgaged property within ten days of sale by paying in full the mortgage indebtedness plus foreclosure and sale costs. FNMA argues that where a debtor files a bankruptcy petition within the ten day redemption period provided by state law, Bankruptcy Code § 108(b) extends the debtor's redemption period an additional 60 days. FNMA argues, however, that a debtor's bankruptcy filing does not renew the right to cure the mortgage default, which was terminated upon sale of the property pursuant to Code § 1322. FNMA argues that a debtor who fails to redeem a mortgaged property within the time prescribed by state law or the extended time provided by Code § 108(b) loses the right of redemption. FNMA argues that because the debtors failed to redeem the property within the time prescribed by state law and extended by Code § 108(b), the debtors no longer have an interest in the property. FNMA therefore argues that because the debtors have no right to cure their default or redeem the property the court should vacate the automatic stay.
The debtors argue that they attempted to cure the mortgage arrears during the pendency of their first bankruptcy case by an execution on Caren Hric's wages and by making payments which FNMA returned. The debtors contend, however, that they were prevented from curing the default due to FNMA's failure to provide a current statement of the amount needed to cure. The debtors argue that during the time in which they sought a statement of the amount needed to reinstate the mortgage, FNMA sold the property at foreclosure and the debtors' bankruptcy case was subsequently closed.
The debtors argue that a property is "sold at a foreclosure sale" within the meaning of Code § 1322(c)(1) when the sheriff's deed is delivered to the purchaser. The debtors also argue that since filing the petition commencing the instant case, the debtors have made substantial payments to the trustee on account of the mortgage arrears and have proposed to cure their mortgage arrearage through their chapter 13 plan. The debtors argue that it would be unfair if they were forced to lose their home because of FNMA's failure to provide the proper cure total, especially given their current ability to meet the mortgage obligations.
In deciding whether FNMA is entitled to relief from the automatic stay, the court will address two issues: (1) whether, under Bankruptcy Code § 1322(c)(1), a debtor's right to cure a mortgage default terminates on the date the sheriff's sale of the residence is conducted or on the date the sheriff delivers the deed to the purchaser and (2) whether, under Bankruptcy Code § 108(b), a chapter 13 debtor who files a bankruptcy petition before expiration of the state law redemption period must redeem the foreclosed property within 60 days of the petition date. FNMA argues that a debtor's right to cure a mortgage default is extinguished at the sheriff's sale when the highest bid is accepted. Further, FNMA argues that where a debtor fails to cure a mortgage default before the sheriff's sale and fails to redeem the property within the redemption period, the debtor loses all right, title and interest in the subject property. The debtors argue that the right to cure does not terminate until delivery of the deed to the successful purchaser. The debtors do not address the right of redemption.
Bankruptcy Code § 1322 governs a debtor's right to cure mortgage arrears under a chapter 13 plan. See 11 U.S.C. § 1322(b)(2), (b)(5), (c) (1994). Code § 1322 provides in pertinent part:
Id. § 1322(c)(1). Pursuant to subsection (c)(1), a debtor-mortgagor may cure a mortgage default until the residence is "sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law." Id. The parties in the instant case do not dispute that New Jersey state law provides the "applicable nonbankruptcy law." Bankruptcy courts in this district disagree as to whether a property is "sold at a foreclosure sale" under state law upon sale to the highest bidder at the foreclosure auction or upon delivery of the deed to the purchaser. Compare In re Simmons, 202 B.R. 198, 204 (Bankr.D.N.J.1996) (...
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