In re James

• Decision Date: 19 May 1982
• Docket Number: 81-04163-G,Adv. No. 82-0172.,Bankruptcy No. 81-04754-G,81-06484-G and 81-07213-G
• Parties: In re Troy Lee JAMES, Debtor. In re McDavid HATHORN, Debtor. In re Marilyn BLACKSHER, Debtor. In the Matter of Rebecca R. BROWN, Debtor. FEDERAL LAND BANK OF ST. PAUL, Plaintiff, v. Rebecca R. BROWN, Defendant.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

20 B.R. 145 (1982)

In re Troy Lee JAMES, Debtor.

In re McDavid HATHORN, Debtor.

In re Marilyn BLACKSHER, Debtor.

In the Matter of Rebecca R. BROWN, Debtor.

FEDERAL LAND BANK OF ST. PAUL, Plaintiff, v. Rebecca R. BROWN, Defendant.

Bankruptcy Nos. 81-04754-G, 81-04163-G, 81-06484-G and 81-07213-G, Adv. No. 82-0172.

United States Bankruptcy Court, E.D. Michigan, S.D.

May 19, 1982.

W. Stanley Fambrough, Detroit, Mich., for plaintiff First Federal Savings & Loan Association.

David W. Ruskin, Southfield, Mich., for debtors in Nos. 81-04754-G and 81-04163-G.

Hecht & Cheney, Grand Rapids, Mich., for plaintiff Mortgage Associates.

Patrick J. Conway, Detroit, Mich., for debtor in No. 81-06484-G.

Bruce N. Elliott, Conlin, Conlin & McKenney, Ann Arbor, Mich., for plaintiff.

Stuart A. Gold, Southfield, Mich., for defendant.

OPINION

RAY REYNOLDS GRAVES, Bankruptcy Judge.

The question presented by these consolidated cases is simply stated: May a bankruptcy court issue an order pursuant to 11 U.S.C. § 105 which tolls a state statutory period of redemption so as to allow the Chapter 13 debtor to reinstate the terms of the mortgage in default in the plan pursuant to 11 U.S.C. § 1322(b)(5)?

This Court finds that 11 U.S.C. § 105 does not empower a bankruptcy court to toll a state statutory period of redemption so as to enable a Chapter 13 debtor to reinstate the terms of the mortgage in default in the plan pursuant to 11 U.S.C. § 1322(b)(5).

This Opinion discusses four separate cases, submitted on briefs and oral argument, which have been consolidated for purposes of resolution of this common question: In re Troy Lee James, 81-04754; In re McDavid Hathorn, 81-04163; In re Marilyn Blacksher, 81-06484; and In re Rebecca R. Brown, 81-07213. The facts giving rise to this cause are as follows:

TROY LEE JAMES

Ulysses and Annie Black, husband and wife, gave a mortgage on residential property to General Mortgage Corporation. The date of this mortgage is unknown. On July 28, 1970, General Mortgage Corporation assigned the mortgage of Mr. and Mrs. Black to First Federal Savings and Loan Association. Both the assumption and the assignment were properly recorded. Troy Lee James (hereinafter referred to as the Debtor) and his wife assumed a mortgage from Ulysses and Anna Black on November 8, 1976.

The Debtor, Troy Lee James, subsequently defaulted on the mortgage payments, and on January 15, 1981, First Federal commenced foreclosure proceedings pursuant to M.C.L.A. § 600.3101 et seq. Sale at public auction took place on February 20, 1981, and the six month statutory period thus began to run.

On August 18, 1981, two days before the expiration of the statutory redemption period, Debtor filed a Chapter 13 petition. A temporary restraining order issued and First Federal was "restrained from commencing or continuing any further foreclosure proceedings against the security. . . ." However, this Order did not contain any language to the effect that the statutory redemption period was to be tolled.

When Debtor failed to redeem the property by August 20, 1981, First Federal commenced an action to evict the Debtor on August 28, 1981. The writ of eviction was stayed until October 21, 1981 by agreement of counsel. On November 17, 1981, Debtor's counsel moved the Court to toll the statutory period of redemption. This matter was taken under advisement.

McDAVID HATHORN

The Debtor, McDavid Hathorn, and his wife executed a note and mortgage on July 7, 1976, with First Federal as mortgagee. The mortgage secured the Debtor's residence, and was properly recorded on July 13, 1976. The Debtor subsequently defaulted and on April 15, 1981 First Federal commenced foreclosure proceedings pursuant to M.C.L.A. § 600.3101 et seq. Sale at public auction took place on June 9, 1981, at which First Federal was the purchaser. A sheriff's deed was conveyed to First Federal on that same day.

The Debtor's statutory redemption right extended through December 9, 1981. The Debtor did not exercise this right, but instead filed a Chapter 13 petition on July 17, 1981. On that same day, a temporary restraining order issued restraining First Federal "from commencing or continuing any further foreclosure proceeding against the security. . . ." A hearing on Debtor's motion to toll the statutory redemption period was held on November 17, 1981, and was thereupon taken under advisement.

MARILYN BLACKSHER

The Debtor, Marilyn Blacksher, gave a mortgage on her residence to Mortgage Associates, Plaintiff herein, the date of such transaction being unascertainable from the parties' pleadings. Debtor subsequently defaulted on her loan obligation, and the property was sold at a foreclosure sale on November 17, 1981. The statutory redemption period thus extends through May 17, 1982.

On January 28, 1982, Debtor filed a Chapter 13 petition and on February 2, 1982, filed with this Court a petition to toll the period of redemption. This matter was taken under advisement.

REBECCA R. BROWN

On October 16, 1979, the Debtor, Rebecca R. Brown, and her husband gave a note and a mortgage to Federal Land Bank of St. Paul, the Plaintiff creditor herein. Debtor subsequently defaulted on the loan and Plaintiff purchased the property at the August 26, 1981 foreclosure sale. The statutory redemption period thus expired on February 26, 1982.

On December 17, 1981, Debtor filed a Chapter 13 petition. On February 8, 1982, prior to the expiration of the statutory redemption period, Bank filed written objections to the Debtor's plan and commenced this adversary proceeding for relief from the automatic stay of 11 U.S.C. § 362.

Section 1322(b)(5) allows the cure of any default within a certain period of time:

(b) Subject to subsection (a) and (c) of this section, the plan may— . . . (5) notwithstanding paragraph (2) of this subsection, 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. . . .

Section 105(a), on the other hand, allows the Court to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." The Debtors at bar would have this Court believe that Sections 1322(b)(5) and 105(a) support the proposition that a mortgage in default may properly be revived and the original terms reinstated in the plan of reorganization, especially where it is averred that the properties are necessary to an effective reorganization. This proposition, however, finds no basis in law or in equity.

First, Section 1322(b)(5) directly affects state-created property rights:

Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving `a windfall merely by reason of the happenstance of bankruptcy.\'

Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979) quoting Lewis v. Manufacturers National Bank, 364 U.S. 603, 609, 81 S.Ct. 347, 350, 5 L.Ed.2d 323 (1961). Under Michigan law, a purchaser at a foreclosure sale takes the property subject to the mortgagor's right of statutory redemption. Ledyard v. Phillips, 47 Mich. 305, 11 N.W. 170 (1882). The title thus conveyed to the purchaser is all the right, title and interest in the mortgaged premises which the mortgagor possessed when the mortgage was executed. Stolte v. Krentel, 271 Mich. 98, 260 N.W. 127 (1935). This title vests in the purchaser only upon the expiration of the statutory redemption period. Bankers Trust Co. of Detroit v. Rose, 322 Mich. 256, 33 N.W.2d 783 (1948). The mortgagor retains a significant amount of interest in the premises in addition to its statutory right of redemption; specifically, the mortgagor retains the right to possession and the right to rents and profits until the redemption period expires. Heimerdinger v. Heimerdinger, 299 Mich. 149, 299 N.W. 844 (1941). The purchaser at the foreclosure sale also has an interest to be protected. He is entitled to the expectation of full title upon the expiration of the redemption period. A purchaser should not be burdened with the unbargained for uncertainty of an indefinite redemption period which may adversely affect his right to expect the terms and conditions of the sale to be fulfilled.

Section 1322(b)(5), apparently allows a mortgage in default to be cured and the original terms thereof reinstated in the plan when the last payment on the mortgage is due "after the date on which the final payment under the plan is due." 11 U.S.C. § 1322(b)(5). The legislative history unequivocably states that "a claim secured by the debtor's principal residence may be treated with under § 1322(b)(5). . . ." 124 Con.Rec. H 11,106 (Sept. 28, 1978); S 17,423 (Oct. 6, 1978). This section is applicable only where the debtor/mortgagor's equity of redemption has not been foreclosed. Because a foreclosure sale under Michigan law extinguishes the mortgage and transfers legal title to the purchaser, Ledyard v. Phillips, supra, the mortgagor is left with its statutory right to redeem from the sale within six months thereof pursuant to M.C.L.A. § 600.3140 as amended by 1970 P.A. 86 (1971). Therefore, payment can no longer occur in accordance with the due date on the mortgage but, at the most, can only be made within six months from the date of foreclosure as statutorily prescribed. Hence, by its own terms § 1322(b)(5) is inapplicable since that statute requires fulfillment of the terms of the plan prior to the date of the final payment under the mortgage. The...