In re Nepil, Bankruptcy No. 96-22757 (NLW).
| Decision Date | 18 March 1997 |
| Docket Number | Bankruptcy No. 96-22757 (NLW). |
| Parties | In re Ludwig NEPIL, Susan Nepil, Debtors. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Dean G. Sutton by Dean G. Sutton, Sparta, N.J., for Debtor.
Federman & Phelan, P.C. by Danielle Cascarino, Stuard Minion, Westmont, NJ, for Mellon Mortgage Company.
This matter comes before the Court on Mellon Mortgage Company's ("Mellon") motion to vacate the automatic stay as to real property owned by Ludwig and Susan Nepil (collectively, "Debtors") pursuant to 11 U.S.C. § 362(d). The primary issue presented is whether, under §§ 1322(c)(2) and 1325(a)(5) of the Bankruptcy Code, the debtors may pay off a foreclosure judgment over the life of their plan.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference by the United States District Court of New Jersey dated July 23, 1984. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A) & (I).
Debtors purchased real property located at 55 Lake Stockholm Terrace, Hardyston, New Jersey on April 29, 1988. Mellon financed the purchase and duly recorded a purchase money mortgage.
Debtors filed their first petition for relief under Chapter 13 of the Bankruptcy Code on December 3, 1990. The plan was completed and this Court granted discharge on December 12, 1994. Apparently, Debtors again defaulted on the mortgage and in January, 1996, Mellon obtained a final judgment of foreclosure in New Jersey Superior Court. Subsequently, Debtors filed the instant Chapter 13 petition on April 3, 1996, staying enforcement of the judgment.
Mellon claims that it is owed the amount of $179,083.06. That figure consists of a principal balance of $120,398.94, plus interest in the amount of $40,744.40 and escrow advances totalling $17,939.72. Of the amount due it, Mellon claims $9223.30 in post-petition arrearages, calculated at $1451.00 per month plus a monthly late charge of $52.55.
Debtors submitted a Chapter 13 plan that proposes to pay the foreclosure judgment with applicable interest over a sixty month plan. Under their plan, Debtors propose to pay $1355.00 per month to the Standing Chapter 13 Trustee. As of the date of this opinion, Debtors are current in their payments to the Trustee.
Mellon has moved to vacate the automatic stay on the ground that since they filed for Chapter 13 relief the Debtors have failed to make post-petition mortgage payments. Debtors respond that, because their plan proposes to pay the foreclosure judgment with interest over the life of the plan, Mellon is not entitled to any post-petition mortgage payments.
Notwithstanding the plan proposed by the Debtors, Mellon seeks relief from the automatic stay on the ground that it has not received any post-petition monthly mortgage payments from the Debtors. Though not explicitly stated in its motion papers, in essence Mellon contends that the only remedy available to the Debtors is to reinstate the terms of the mortgage, and cure the pre-petition arrears through the Chapter 13 plan, while they pay the regular monthly mortgage payments outside of the plan. The Debtors submit that 11 U.S.C. § 1322(c)(2) provides them with the alternative relief of satisfying the foreclosure judgment by paying it in full through the plan.
Determination of the matter before the Court requires it to construe § 1322(c)(2). In construing any federal statute the court's "task is to ascertain congressional intent." In re Roach, 824 F.2d 1370, 1372 (3d Cir.1987). In furtherance of that goal, the first step must be analysis of the statutory language. Heverly v. Commissioner of Internal Revenue, 621 F.2d 1227, 1232 (3d Cir.1980). Section 1322(c)(2) provides in relevant part as follows:
Bearing in mind that the terms "claim" and "security interest" are broadly defined in §§ 101(5) and (51), Mellon's foreclosure judgment can be understood to constitute "a claim secured only by a security interest in real property that is the debtor's principal residence." It is less clear whether the foreclosure judgment can also be understood to constitute "the last payment on the original payment schedule," which is "due before the date on which the final payment under the plan is due."
The key phrase "original payment schedule" is not defined in the Bankruptcy Code and the phrase encompasses substantially different meanings depending on whether it is read broadly or narrowly. On the one hand, the phrase can be understood merely to refer to the amortization schedule under which the note is satisfied. On the other hand, the phrase can be read to reach the entirety of the mortgagee's right to payment, including the fully accelerated payment reflected in the foreclosure judgment.
Since the language of the statute is not clear and plain the Court must look elsewhere to determine congressional intent and the best construction of § 1322(c)(2). Indeed, it is readily accepted that to determine the meaning of a statute, the court must look not only to express statutory language but also "to the design of the statute as a whole and its object and policy." United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1155 (3rd Cir.1991) (quoting Crandon v. United States, 494 U.S. 152, 158, 110 S.Ct. 997, 1001-02, 108 L.Ed.2d 132 (1990)); see also, F.T.C. v. University Health, Inc., 938 F.2d 1206, 1216 (11th Cir.1991) (). Thus, the Court will look to the statutory framework, the policies underlying the statute, and the legislative history.
The appropriate stepping-off point in statutory construction is the specific legislative history to the statute being construed. However, in reaching its decision the Court has placed little weight upon the legislative history because like the court in In re Jones, this Court finds the legislative history for § 1322(c)(2) to be puzzling. 188 B.R. 281, 282 (Bankr.D.Ore.1995). In particular, the portion of the House Report which purports to explain the subsection confuses rather than clarifies the statutory purpose by its reference to the Perry case. The House Report states: "The changes made by this section, in conjunction with those made by section 305 of this bill, would also overrule the result in First National Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir.1991) with respect to mortgages on which the last payment on the original payment schedule is due before the date on which the final payment under the plan is due."
The reference to Perry is puzzling because the issue in that case was whether the debtor could force a residential lender with a foreclosure judgment to accept payment of that judgment over the life of a three to five year Chapter 13 plan. The circuit had concluded in its earlier Roach decision that, pursuant to the merger doctrine, under New Jersey law a mortgage merged into the foreclosure judgment so that no mortgage contract existed which could be decelerated in Chapter 13. Roach, 824 F.2d at 1377-78. Therefore, the question of mortgage terms was moot.
It is possible to reconcile the House Report's reference to Perry to the statutory language if we bear in mind the divergent case authority on the matter of the debtor's right to propose a plan that provided for payment of a matured or maturing mortgage debt. The leading case which concluded that such a plan could not be confirmed was In re Seidel, 752 F.2d 1382 (9th Cir.1985). In Seidel, the court held that by postponing payment of his home mortgage debt beyond the time originally provided in the mortgage note, the debtor had proposed a modification of the claim which was not permitted by § 1322(b)(2). 752 F.2d 1382, 1384. The court in Perry cited Seidel with approval in reaching its decision that a foreclosure judgment could not be paid through a Chapter 13 plan. 945 F.2d 61, 65. The thrust of both cases is that deferral of a home lender's right to immediate payment is a modification in violation of § 1322(b)(2).
Section 1322(c)(2) plainly overrules that result. See In re Chang, 185 B.R. 50, 53 (Bankr.N.D.Ill.1995). Given the haste with which the 1994 Amendments were passed it is likely that the reference to Perry is simply incomplete, and the intent was to address both Perry and Seidel. However, the Court is well aware of the speculative and conjectural nature of its reasoning. It is one thing to use legislative history as a tool to interpret statutory language. It is quite another to indulge in the risky business of interpreting legislative history itself. The Court chooses to refrain from an attempt to read the mind of the drafter of the House Report. Thus, the Court rests its construction of § 1322(b)(2) upon the policies of Chapter 13 and § 1322(c), and the cases interpreting the section.
In general, Chapter 13 of the Bankruptcy Code was intended to give consumer debtors greater relief and flexibility in fashioning payment plans than was previously afforded to them under Chapter XIII of the Bankruptcy Act. H.R. Report No. 595, 95th Cong. 1st Sess. 118 (1977). The greater utility and flexibility of Chapter 13 was specifically intended to encourage debtors to attempt repayment of creditors under Chapter 13 rather than to seek liquidation under Chapter 7. Id. at 117-18. Further, ...
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