In re Peralta

• Decision Date: 07 September 2022
• Docket Number: 20-3496
• Citation: 48 F.4th 178
• Parties: IN RE: Belarminio PERALTA, d/b/a Peralta Groceries, Appellant
• Court: U.S. Court of Appeals — Third Circuit

48 F.4th 178

IN RE: Belarminio PERALTA, d/b/a Peralta Groceries, Appellant

No. 20-3496

United States Court of Appeals, Third Circuit.

Argued: June 21, 2022
Filed: September 7, 2022

Ronald G. McNeil [ARGUED], McNeil Legal Services, 1333 Race Street, Philadelphia, PA 19107, Counsel for Appellant

Joseph P. Kerrigan [ARGUED], Kerrigan Law, 461 North 3rd Street, Suite 2B, Philadelphia, PA 19123, Counsel for Appellee

Before: McKEE, RESTREPO, and BIBAS, Circuit Judges

OPINION OF THE COURT

BIBAS, Circuit Judge.

Rather than taking out a mortgage, homebuyers can pay the seller in installments. In Pennsylvania, these installment contracts are treated like mortgages. So if homeowners default on them, they can cure that default in bankruptcy—but only until the seller gets a judgment for possession to evict them. Yet Belarminio Peralta tried to cure the default after the seller got a judgment for possession. Because his home was not part of his bankruptcy estate, he had no right to cure his default. We will thus affirm.

I. BACKGROUND

When Peralta wanted to buy a house, he did not take out a mortgage. Instead, he promised to pay the seller, Recon International, in installments. For years, he followed through. But he eventually stopped making payments.

Recon sued Peralta for breaching his installment contract. But it relented, giving him a second chance. It proposed new terms: Peralta could keep his house if he made payments. But if he breached again, Recon could get a judgment for possession and immediately kick him out of the house. Plus, that second breach would "extinguish[ ] any and all rights, liens, and/or interest" that Peralta had in the house. Supp. App. 39. Peralta agreed.

Once again, Peralta fell short and stopped paying. Recon went to court and got a judgment for possession. But Peralta did not keep his side of the bargain. Rather than leave, he stayed in the house and filed for a Chapter 13 bankruptcy, hoping to revive his installment contract, finish paying, and keep his house.

Normally, Peralta's house would not be part of his bankruptcy estate. That bundle includes only his "legal or equitable interests ... in property" when he filed. 11 U.S.C. § 541(a)(1). And when he breached his contract that second time, he lost any interest in his home.

Even so, Peralta thought he could show an equitable interest. Chapter 13 lets a bankrupt homebuyer "cure[ ]" a "default" on a mortgage during the bankruptcy process until the home "is sold at a foreclosure sale." 11 U.S.C. § 1322(c)(1). Though Peralta had breached an installment contract, not a mortgage, he thought that § 1322 could also cure his "default." JA 24–25. And because Pennsylvania treats foreclosed installment contracts like mortgages, Peralta added, that cure gave him an interest in his property.

Though plausible, Peralta's position is tricky: § 1322 does not fit installment contracts well. An installment contract never has a "foreclosure sale." The seller need never take title back from the defaulting homebuyer because it stays with the seller until the contract is paid off. See

48 F.4th 180

Anderson Contracting Co. v. Daugherty , 274 Pa.Super. 13, 417 A.2d 1227, 1231 (1979), appeal dism'd , 492 Pa. 630, 425 A.2d 329 (1980).

Still, the bankruptcy court agreed with Peralta's theory. Though a judgment for possession had been entered against him...