In re Ivory, Bankruptcy No. 383-00891.
| Decision Date | 19 August 1983 |
| Docket Number | Bankruptcy No. 383-00891. |
| Citation | 32 BR 788 |
| Parties | In re Larry Eugene IVORY, Gail Elizabeth Ivory (aka Gail Elizabeth Thompson), Debtor(s). |
| Court | U.S. Bankruptcy Court — District of Oregon |
Donald Howe, Salem, Or., for Dept. of Veteran's Affairs.
Magar E. Magar, Portland, Or., for debtors.
This matter comes before the court on the objection of the Department of Veterans' Affairs ("DVA") to confirmation of the debtors' chapter 13 plan. The court considered the objection at the hearing on confirmation held on June 9, 1983.
The debtors' plan proposes to cure a pre-petition default on a residential mortgage held by the DVA by making a lump sum payment of $15,000 upon confirmation of the plan and by paying the balance owed in monthly installments of $315.00 over the lifetime of the plan. The amount of the proposed installments approximates the regular monthly payments which were required under the terms of the original note except that the payoff date would be 15-20 years earlier under the plan than it would have been under the original note.
The bulk of the $15,000 lump sum payment will come from two insurance drafts, totalling $12,580, which are made payable to the debtors, the DVA, and the debtors' attorney. These insurance proceeds were paid pursuant to an insurance agreement between the debtors and Allstate Insurance Co. covering the debtors' residence. A fire occurred in the debtors' residence on August 18, 1982, and two weeks later the residence was vandalized. Subsequent to these events, on September 22, 1982, the residence was sold at a foreclosure sale to the DVA. At about the same time, the debtors hired Mr. Magar to represent them in their attempts to recover against the insurance company after their claim had been denied. The agreement between the debtors and Mr. Magar provided that the debtors would pay to Mr. Magar 10% of any recovery or $3,000.00, whichever was less. On March 18, 1983, the debtors filed their chapter 13 petition. Soon thereafter, the debtors' attorney asserted a possessory lien on the insurance drafts and tendered them to the trustee. The plan proposes that Mr. Magar be paid upon his possessory lien from the insurance proceeds when the plan is confirmed.
The DVA contends that the debtors' proposed cure and payment in full over the life of the plan is not permitted where, as here, a mortgage default has triggered a foreclosure judgment and sale of the property prior to the filing of a chapter 13 petition. The DVA further contends that it is entitled to the insurance proceeds under the terms of the insurance agreement.
The issues before the court are as follows: (1) whether a chapter 13 debtor can cure a default on a residential mortgage after a final decree of foreclosure has been entered and a sale has been made; (2) if a post sale cure is permissible, whether it can be effected by paying the arrearages which triggered the default and the mortgage debt in full within the life of the plan; and (3) who is entitled to the insurance proceeds, the DVA or the debtors and the debtors' attorney.
11 U.S.C. § 1322(b) provides that a chapter 13 plan may:
The case law under 11 U.S.C. § 1322(b) indicates that the courts are not in agreement over whether and under what circumstances a cure can be allowed once a default on a mortgage debt has triggered acceleration of the debt, a judgment or a sale. The differences in viewpoint may be generally categorized as follows:
(1) Courts that hold that a debtor may not cure a default once a mortgage debt has been accelerated: In re Wilson, 11 B.R. 986 (Bkrtcy.S.D.N.Y.1981); Matter of LaPaglia, 8 B.R. 937 (Bkrtcy.E.D.N.Y.1981); In re Allen, 17 B.R. 119, 8 BCD 945 (Bkrtcy.N.D. Ohio 1981).
(2) Courts that hold that a debtor may cure a default where the mortgage debt has been accelerated provided that no foreclosure judgment has been entered: Percy Wilson Mortgage & Finance Corp. v. McCurdy, 21 B.R. 535 (Bkrtcy.S.D.Ohio W.D.1982); In re Maiorino, 15 B.R. 254 (Bkrtcy.D.Conn.1981); In re Pearson, 10 B.R. 189 (Bkrtcy.E.D.N.Y.1981).
(3) Courts hold that a debtor may cure a default where a state court judgment of foreclosure has been entered provided that no sale has taken place: In re Acevedo, 26 B.R. 994 (D.E.D.N.Y.1982); In re James, 20 B.R. 145, 9 BCD 208 (Bkrtcy.E.D.Mich. 1982); In re Brantley, 6 B.R. 178 (Bkrtcy.N. D.Fla.1980).
(4) Courts that place no express limitation on the debtor's right to cure a default after acceleration: In re Taddeo, 685 F.2d 24 (2nd Cir.1982); In re Sapp, 11 B.R. 188 (Bkrtcy.S.D.Ohio E.D.1981); In re Davis, 16 B.R. 473 (D.Kan.1981). Or after a judgment has been entered: In re Young, 22 B.R. 620 (Bkrtcy.N.D.Ill.E.D.1982); In re Breuer, 4 B.R. 499, 6 BCD 136 (Bkrtcy.S.D. N.Y.1980).
(5) Courts that hold that a debtor may cure a default where a foreclosure sale has been held provided that the debtor's right of redemption under state law has not expired: In re Johnson, 29 B.R. 104 (Bkrtcy.S. D.Fla.1983); In re Chambers, 27 B.R. 687 (Bkrtcy.S.D.Fla.1983); In re Taylor, 21 B.R. 179 (Bkrtcy.W.D.Mo.1982); In re Thompson, 17 B.R. 748 (Bkrtcy.W.D.Mich.1982).
Most courts agree that the debtor may use § 1322(b)(5) to cure a default where the mortgagee has not yet accelerated his debt. See e.g. In re Pearson, 10 B.R. 189, 193 (Bkrtcy.E.D.N.Y.1981); In re Hartford, 7 B.R. 914 (Bkrtcy.D.Me.1981).
This court has considered the question of post default cure in two cases. In In re Stone, 27 B.R. 8 (Bkrtcy.D.Or.1982) the court held that a chapter 13 debtor could cure a default and reinstate the periodic payment provision of a land sale contract where the creditor had declared the debt accelerated prior to the chapter 13 filing. In In re Seidel/In re Girgis, 31 B.R. 262 (Bkrtcy.D.Or.1983), the court held that a debtor could not cure a default by extending the final maturity date provided in an agreement. In these latter cases, the debtors had failed to make the final balloon payments which had become due under their contracts prior to their filing under chapter 13.
Neither of these cases addresses an attempt by a debtor to cure a default on a mortgage where the mortgaged property has already been sold. However, consonant with the court's earlier decisions is the court's view that a debtor may cure a default after a foreclosure sale has been held provided that at the time of filing, the debtor still retains an interest in the sold property.
Under Oregon law, the purchaser at a foreclosure sale receives a certificate of sale containing a description of the property sold, the price paid, and a provision regarding redemption. ORS 23.510. The certificate of sale evidences the purchaser's right to possession of the premises. ORS 23.590. Upon expiration of the one year redemption period, ORS 23.560, and delivery of the sheriff's deed, ORS 23.600, the purchaser will secure legal title to the property. Kaston v. Storey, 47 Or. 150, 152, 80 P. 217 (1905).
Thus, it is clear that a debtor retains an interest in the property until the statutory redemption period has run and legal title has passed. Upon the filing of a petition under the Bankruptcy Code, all legal and equitable interests of the debtor in property as of the commencement of the case become property of the estate. 11 U.S.C. § 541. In the present case, the one year statutory redemption period, which began to run from the date of the sale on September 22, 1982, had not yet expired when the debtors filed their chapter 13 petition on March 18, 1983. Thus, the debtor's right of redemption became property of the estate at the time of the debtors' filing. The fact that the debtors still retain an interest in the sold property gives them the right to effect a cure under 11 U.S.C. § 1322(b)(5).
It has been argued in other cases that it would be inappropriate to allow deacceleration and cure after the entry of a foreclosure judgment where state law provides that a trust deed or mortgage merges into a foreclosure judgment. Several courts have accepted this argument and have held that the ability to cure a default depends upon whether the applicable state law follows the title theory or a lien theory of mortgages. See e.g. In re Maiorino, 15 B.R. 254 (Bkrtcy. D.Conn.1981); In re Brantley, 6 B.R. 178 (Bkrtcy.N.D.Fla.1980). Under the reasoning of these cases, the fact that a decree of foreclosure and sale under Oregon law extinguishes the lien of the mortgage as of the date the decree is entered and redemption does not effect a revival of the mortgage lien, Call v. Jeremiah, 246 Or. 568, 425 P.2d 502 (1967), abrogates any right the debtor may have to cure and reinstate payments under § 1322(b)(5) since there is no mortgage left to cure or reinstate. According to this view, to effect a post judgment or post sale in a title theory jurisdiction, the debtor must pay the entire redemption amount during the life of the plan rather than merely pay arrearages and reinstate the payment plan under the mortgage. In re Kokkinis, 22 B.R. 353 (Bkrtcy.N.D.Ill. 1982).
However, this court agrees with those courts that have interpreted the right to cure under § 1322(b)(5) as unaffected by certain state laws limiting cure. In re Anderson, 29 B.R. 563 (Bkrtcy.E.D.Va.1983); ...
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