In re Simmons

• Decision Date: 01 November 1996
• Docket Number: Bankruptcy No. 96-20102 (NLW).
• Citation: 202 BR 198
• Parties: In re Shirley SIMMONS, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

202 B.R. 198 (1996)

In re Shirley SIMMONS, Debtor.

Bankruptcy No. 96-20102 (NLW).

United States Bankruptcy Court, D. New Jersey.

November 1, 1996.

Brian R. Quentzel, Englewood, NJ, for Debtor Shirley Simmons.

Michael S. Ackerman, Zucker, Goldberg, Becker & Ackerman, Mountainside, NJ, for The Dime Savings Bank of New York.

OPINION

NOVALYN L. WINFIELD, Bankruptcy Judge.

In the matter before the court the debtor filed for Chapter 13 relief after a foreclosure sale was conducted, but before the expiration of her right of redemption and before delivery of the deed. The debtor desires to cure payment defaults and to reinstate her mortgage. The secured creditor has moved for relief from the automatic stay on the basis that under 11 U.S.C. § 1322(c)(1) the right to cure expired on the date that the property was sold to the highest bidder at the foreclosure sale. As explained below, the court finds that when a sheriff sells property to the highest bidder at a sale conducted in accordance with applicable New Jersey statutes and court rules, a foreclosure sale has been conducted within the meaning of § 1322(c)(1), and the debtor may not thereafter cure defaults and reinstate the mortgage pursuant to provisions of Chapter 13 of the Bankruptcy Code.

The court has jurisdiction pursuant to 11 U.S.C. § 1334 and the Standing Order of Reference entered by the United States District Court for the District of New Jersey on July 23, 1984. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G).

FACTS

In December, 1988, the debtor Shirley Simmons ("Simmons" or "debtor") executed a note in favor of The Dime Real Estate Services-New Jersey, Inc. ("The Dime") for the sum of $211,500. To secure that obligation the debtor also executed a mortgage in favor of The Dime. After Simmons defaulted in payment on the note The Dime commenced a foreclosure action in May, 1994. A final judgment of foreclosure in the amount $215,988.84 and a writ of execution was issued on November 1, 1994. The Sheriff of Bergen County conducted a foreclosure sale on December 27, 1995, at which the Debtor's residence was sold to The Dime for the sum of $100.00. On January 5, 1996, during the ten day period in which the debtor could exercise her right of redemption, Simmons commenced the instant Chapter 13 case.

The debtor interprets § 1322(c)(1) to permit her to cure her payment delinquencies and reinstate her mortgage under other provisions of § 1322. She contends that the foreclosure sale was not complete at the point that she commenced her case because her right to redeem had not expired, and the Sheriff had not delivered the deed to the purchaser.

The Dime rejects the debtor's reasoning. It asserts that the plain language of Code § 1322(c)(1) makes it clear that a debtor's right to cure terminates on the date that the property is sold at a foreclosure sale auction. Like the debtors, it also asserts that the legislative history supports their application of the statute. Finally, The Dime contends that under New Jersey law, when the gavel falls at a sheriff's sale, all of a mortgagor's rights in the property are terminated. In its view of New Jersey law, after the foreclosure auction sale, the mortgagor can only defeat the sale either (i) by exercising the right of redemption within ten days after the sale, or (ii) by succeeding on an objection to the sale made pursuant to N.J. Ct. Rule 4:65-5. The Dime agrees that the debtor's right of redemption continues in the bankruptcy case and may be extended for an additional 60 days by operation of 11 U.S.C. § 108(b) if a bankruptcy is filed before expiration of the redemption period. However, it asserts that the right of redemption does not provide the debtor with a basis to exercise any cure rights under § 1322(b)(3) or (5).

DISCUSSION

The precise issue before the court is the one framed by the opposing arguments of the parties: whether under section 1322(c)(1) a debtor's right to cure defaults and reinstate a mortgage terminates on the date that the debtor's residence is sold at the foreclosure sale, or when the sheriff finally delivers the deed to the purchaser at the foreclosure sale.

I. The best construction of the statute results in termination of the debtor's cure rights on the date of foreclosure sale

Determination of this question requires that the court first examine the language of § 1322(c)(1). Heverly v. Commissioner of Internal Revenue, 621 F.2d 1227, 1232 (3d Cir.1980) (construction of a statute must begin with the language of that statute). Section 1322(c)(1) was added to the Bankruptcy Code by the Bankruptcy Reform Act of 1994. Pub.L. No. 103-394, § 301, 108 Stat. 4106, 4131 (1994) ("Reform Act"). The Reform Act provides in pertinent part:

(c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law —

(1) a default with respect to, or that gave rise to, a lien on the debtor\'s principal residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.

11 U.S.C. § 1322(c)(1).

Since passage of the Reform Act a handful of reported decisions have addressed the construction of § 1322(c)(1). The court in In re Sims, 185 B.R. 853, 864-65 (Bankr.N.D.Ala. 1995) found the statutory language clear and unambiguous in its direction to look to state law for a determination as to when a residence "is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law." The court in In re McEwen, 194 B.R. 594 (N.D.Ill.1996) apparently also found the statute unambiguous. Without any discussion of the statutory language, it found that application of § 1322(c)(1) required the court to focus upon what it means to conduct a foreclosure sale in accordance with Illinois law. 194 B.R. at 596. On the other hand, the courts in In re Ross, 191 B.R. 615, 618 (Bankr.D.N.J.1996), and In re Jaar, 186 B.R. 148, 151 (Bankr.M.D.Fla. 1995), find that the statutory language is ambiguous, and they resort to an examination of legislative history as well as state law in order to construe § 1322(c)(1). The court in In re Barham, 193 B.R. 229, 231 (Bankr. E.D.N.C.1996), implicitly finds ambiguity in the statute, inasmuch as it looks to legislative history as well as North Carolina foreclosure law to determine when the debtor's ability to cure terminates. 193 B.R. at 232.

The court agrees with Ross and Jaar that the meaning of the statute is not readily discerned from the language of the statute. The modification of the term "foreclosure sale" by the phrase "conducted in accordance with applicable nonbankruptcy law" arguably creates ambiguity in that it is not readily apparent whether Congress intended the phrase to apply only to the event of sale, or to the entirety of the sale process, including the giving of a deed. See U.S. v. Gibbens, 25 F.3d 28, 34 (1st Cir.1994) (a statute is ambiguous if it reasonably can be read in more than one way).

If Congress intended that the auction sale be the decisive event, then section 1322(c)(1) merely requires that the scheduling of the sale and bidding at the foreclosure sale be done in accordance with the applicable state foreclosure law. On the other hand, if Congress intended that a debtor's cure right continues until all steps are completed in the foreclosure sale process, then applicable state foreclosure law must be examined to determine when the sale is complete.¹

In light of the apparent ambiguity created by the statutory language, the court may consider both the available legislative history and case authority that existed at the time of enactment of the statute. Both Simmons and The Dime claim that the legislative history favors their interpretation.

In support of her position, the debtor points to the following:

Section 1322(b)(3) and (5) of the Bankruptcy Code permit a debtor to cure defaults in connection with a Chapter 13 plan, including defaults on a home mortgage loan. Until the Third Circuit\'s decision in Matter of Roach, 824 F.2d 1370 (3d Cir.1987), all of the Federal Circuit Courts of Appeal had held that such right continues at least up until the time of the foreclosure sale. See In re Glenn, 760 F.2d 1428 (6th Cir.1985), cert. denied, 474 U.S. 849 106 S.Ct. 144, 88 L.Ed.2d 119 (1985); Matter of Clark, 738 F.2d 869 (7th Cir. 1984), cert. denied, 474 U.S. 849 106 S.Ct. 144, 88 L.Ed.2d 119 (1985). The Roach case, however, held that the debtor\'s right to cure was extinguished at the time of the foreclosure judgment, which occurs in advance of the foreclosure sale. This decision is in conflict with the fundamental bankruptcy principle allowing the debtor a fresh start through bankruptcy.

This section of the bill safeguards a debtor\'s rights in a Chapter 13 case by allowing the debtor to cure home mortgage defaults at least through completion of a foreclosure sale under applicable nonbankruptcy law. However, if the State provides the debtor more extensive "cure" rights (through, for example, some later redemption period), the debtor would continue to enjoy such rights in bankruptcy. The changes made by this section, in conjunction with those made in 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. In that case, the Third Circuit held that subsequent to foreclosure judgment, a Chapter 13 debtor cannot provide for a mortgage debt by paying the full amount of the allowed secured claim in accordance with Bankruptcy Code section 1325(a)(5), because doing so would constitute an impermissible modification of the mortgage holder\'s right to immediate payment under section 1322(b)(2) of the Bankruptcy Code.

H.R.Rep. No. 835, 103rd Cong., 2d Sess. 52 (Oct. 4, 1994) (...