In re Jenkins

• Decision Date: 20 August 1981
• Docket Number: Bankruptcy No. 81 K 1812.
• Citation: 13 BR 721
• Parties: In re Jack Warren JENKINS and Eleanor Ann Jenkins, Debtors. Jack Warren JENKINS and Eleanor Ann Jenkins, Plaintiffs, v. Trudi PEET, et al., Defendants.
• Court: U.S. Bankruptcy Court — District of Colorado

13 B.R. 721 (1981)

In re Jack Warren JENKINS and Eleanor Ann Jenkins, Debtors.

Jack Warren JENKINS and Eleanor Ann Jenkins, Plaintiffs, v. Trudi PEET, et al., Defendants.

Bankruptcy No. 81 K 1812.

United States Bankruptcy Court, D. Colorado.

August 20, 1981.

John A. Meininger, Sterling & Simon, P.C., Denver, Colo., for plaintiffs.

Carl A. Eklund, DiManna, Eklund, Ciancio, & Jackson, Denver, Colo., for defendants Trudi Peet and Bank of Roaring Fork.

Marcia S. Krieger, Mason, Reuler & Peek, Denver, Colo., and Ronald D. Austin, Austin, McGrath & Jordan, Aspen, Colo., for defendant Aspen Chateaux Mortgage Co.

MEMORANDUM AND ORDER DISMISSING PROCEEDING

GLEN E. KELLER, Jr., Bankruptcy Judge.

Plaintiffs, Chapter 11 Debtors in Possession, by their complaint seek injunctive relief restraining the appearing Defendants from applying to the Public Trustees in Pitkin and Garfield Counties for the issuance of deeds upon the expiration of the statutory redemption period following foreclosure sale. The complaint further seeks to restrain the Public Trustees from issuing such deeds. It appears from the complaint that redemption periods from the Public Trustees' sales as provided by Colorado statute, § 38-39-102, C.R.S.1973, expired on April 26, May 25, July 6, and August 10, 1981. The Chapter 11 petition was filed on July 6, 1981, the same day as the redemption period was to expire on the third parcel. The provisions of 11 U.S.C. § 108 are generally conceded to have extended the period within which redemption might occur by the trustee or, in this case, by the Debtors in Possession on Parcels A and B in the complaint to September 4, 1981. The complaint in this proceeding was filed August 6, 1981. These Defendants moved to dismiss the complaint for failure to state a claim upon which relief could be granted. The motion was heard at the time set for hearing upon the application for temporary restraining order. The issues raised by the motion are of first impression in this District.

The Defendants contend that upon the expiration of the extended redemption period on September 4, 1981, they will be entitled pursuant to Colorado statute, § 38-39-110, C.R.S.1973, to apply for and receive a deed upon surrender of their certificate of purchase issued at the time of sale by the Public Trustees. They further argue that nothing in the Bankruptcy Code stays the running of the redemption period, save for the limited provisions of § 108, and that the application for deed and issuance of deed by the Public Trustees are not acts "to create, perfect or enforce any lien against property of the estate" as are stayed by the provisions of 11 U.S.C. § 362(a)(4). Plaintiffs respond that this Court has full jurisdiction to extend the time within which they may redeem under the foreclosure sale beyond that time provided in § 108 and, in any event, contend that the application for deed is an act to enforce a lien upon the property of the estate, which act is automatically stayed and should be protected by the injunctive powers of this Court.

The analysis required of the Court upon this motion is to determine the jurisdiction of this Court to extend the period of redemption, which in turn must rest upon a determination of the nature of the interests of the respective parties in the property. It is a fundamental principle of bankruptcy law that the property rights which form the estate under 11 U.S.C. § 541 are defined by state law. Thus, one must resort to the state law of property to determine what property of the estate is protected by the Bankruptcy Code. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979); In re Wheeler, 5 B.R. 600 (Bkrtcy.B. D.Ga.1980). In the Butner case, the Court said at Page 918:

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." Lewis v. Manufacturers National Bank, 364 U.S. 603, 609, 81 S.Ct. 347, 350, 5 L.Ed.2d 323. The justifications for application of state law are not limited to ownership interests; they apply with equal force to security interests, including the interest of a mortgagee in rents earned by mortgaged property.

The minority of courts which have rejected state law have not done so because of any congressional command, or because their approach serves any identifiable federal interest. Rather, they have adopted a uniform federal approach to the question of the mortgagee\'s interest in rents and profits because of their perception of the demands of equity. The equity powers of the bankruptcy court play an important part in the administration of bankrupt estates in countless situations in which the judge is required to deal with particular, individualized problems. But undefined considerations of equity provide no basis for adoption of a uniform federal rule affording mortgagees an automatic interest in the rents as soon as the mortgagor is declared bankrupt.

There is nothing in the legislative history which suggests that state rights existing on the date of the entry of the order for relief should be expanded. Matter of Morse, 8 B.R. 990 (Bkrtcy.B.D.N.J.1981); H.Rep. 95-595, 95th Cong., 1st Sess. (1977) 367-68, U.S.Code Cong. & Admin.News 1978, 5787. It has long been recognized as well that state property rights which have terminated prior to the entry of an order for relief do not become property of the estate. 4 Collier on Bankruptcy ¶ 541.06 (15th ed. 1980). It has likewise been held that where property rights have terminated automatically after the petition in bankruptcy has been filed, such rights cannot be revived by the Court. If no act of the creditor is required or involved, there is nothing stayed by the automatic stay provisions of § 362. In re Trigg, 630 F.2d 1370 (10th Cir. 1980); Good Hope Refineries v. Benavides, 602 F.2d 998 (1st Cir.), cert. denied 444 U.S. 992, 100 S.Ct. 523, 62 L.Ed.2d 421 (1979); Schokbeton Industries, Inc., v. Schokbeton Products, 466 F.2d 171 (5th Cir. 1972). Clearly, these cases apply to Parcels C and D as scheduled in the Plaintiffs' complaint as the period of redemption had run prior to the filing of the petition in bankruptcy.

The periods of redemption in Parcels A and B expired by state law on July 6, 1981, and August 10, 1981, bringing into operation the provisions of § 108, which extends the period to 60 days after the petition for the performing of any act by either the trustee or, in this case, the Debtor in Possession. It must be concluded that, in fact, the period of redemption is not extended by § 108, but, rather, the fiduciary in the bankruptcy proceeding is accorded an additional time to perform the act of redemption. The rights of other parties continue to be fixed by state law. In re Hellenschmidt, 5 B.R. 758 (Bkrtcy.B.D.Colo. 1980).

One bankruptcy court has held that a period of redemption is tolled by the filing of a bankruptcy petition. In re Johnson, 8 B.R. 369 (Bkrtcy.B.D.Minn.1980). This Court can find no support in the Bankruptcy Code for the proposition that the bankruptcy court can further stay the running of a statutory period of redemption. Congress has seen fit in § 108 to protect the fiduciary and, thus, the rights of the creditors by asserting the requisite federal interest and modifying the period in which the fiduciary may act. It has not accorded the bankruptcy court with the general jurisdiction to further modify that time. The only appeal is to the general equitable power of the Court to prevent the impairment of its jurisdiction, which was the subject of the Butner, supra, case. Clearly, the effect of such further stay would be to enlarge property rights in what appears to this Court to be an impermissible manner.

A substantial distinction must be drawn between the tolling of the statutory period of redemption and the stay of termination of a contract as in Queens Boulevard Wine and Liquor Corp. v. Blum, 503 F.2d 202 (2nd Cir. 1974). The termination of a right to redeem is an automatic feature of state law to afford finality to the foreclosure process. The foreclosure sale and the issuance of a certificate of purchase are operative acts which fix rights of parties in property, and it is only the right to redeem which becomes the property right of the estate. In re Hellenschmidt, supra. In 4 Collier on Bankruptcy ¶ 541.07 (15th ed. 1981), the following discussion of ...