In re Sims

• Decision Date: 30 August 1995
• Docket Number: Bankruptcy No. 95-41390.
• Parties: In re Linda SIMS, Debtor.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Alabama

185 B.R. 853 (1995)

In re Linda SIMS, Debtor.

Bankruptcy No. 95-41390.

United States Bankruptcy Court, N.D. Alabama, Eastern Division.

August 30, 1995.

S. Keith Eady, Talladega, AL, for defendant/debtor.

Leon F. Kelly, Jr., Birmingham, AL, for Rural Housing and Community Development Service.

Harry P. Long, for the Standing Trustee Mavis Willingham.

Memorandum Opinion

JAMES S. SLEDGE, Bankruptcy Judge.

This case presents the issue of the extent to which a Chapter 13 debtor may cure a pre-petition default on indebtedness secured by her principal residence — in particular, whether she may set aside a pre-petition foreclosure sale, reinstate the mortgage, decelerate the indebtedness (accelerated under the terms of the indebtedness), and resume payments under the pre-default terms of the contract.

Two bankruptcy courts in Alabama have addressed this issue and have reached different answers. In re McKinney, 174 B.R. 330 (Bankr.S.D.Ala.1994); In re Ragsdale, 155 B.R. 578 (Bankr.N.D.Ala.1993). Both decisions, however, applied relevant sections of the Bankruptcy Code prior to the effective date of the 1994 amendments. This Court must consider the new law.

On July 20, 1995, the Court held a hearing at Talladega, Alabama, on a motion for relief from the automatic stay under 11 U.S.C. § 362(d)(1) and a motion for summary judgment thereon under Fed.R.Bankr.P. 7056 and 9014, both filed by the United States Department of Agriculture, Rural Housing and Community Development Service ("RHCDS"), formerly Farmers Home Administration. RHCDS's attorney, the debtor's attorney, and the standing trustee appeared before the Court. The parties presented oral arguments in support of their respective positions. At the conclusion of the hearing the Court directed the parties to submit written memoranda setting forth the legal authorities for their respective positions. By August 3, 1995, RHCDS, the debtor, and the standing trustee had submitted briefs in support of their respective positions. The Court took the matter under submission on said date.

Findings of Fact

Upon consideration of the motions, the statements of the respective parties at the hearing, the briefs filed by the respective parties, and the case file, the Court finds the facts to be as follows:

1. On April 30, 1980, RHCDS loaned the debtor the amount of $26,500.00, to enable the debtor to buy real property in Talladega County, Alabama. RHCDS held a valid mortgage, executed by the debtor on the same date, on the real property, which constituted the debtor\'s principal residence. The indebtedness was also secured by "the rents, issues, and profits thereof and revenues and income therefrom, all improvements and personal property now or later attached thereto or reasonably necessary to the use thereof, including, but not limited to, ranges, refrigerators, clothes washers, clothes dryers, or carpeting." See Movant\'s Exhibit 2, attached to motion to lift stay.

2. After making the payments for approximately 12 years, the debtor defaulted. On July 14, 1993, the local RHCDS County Supervisor completed a "Report on Real Estate Problem Case" recommending foreclosure of the debtor\'s account, and the report reflected that the debtor was approximately 17 months delinquent at that time.

3. On July 27, 1993, RHCDS accelerated the payments under the note pursuant to its terms. RHCDS notified the debtor of her right to appeal the decision to accelerate; however, the debtor failed to do so.

4. RHCDS conducted a properly noticed foreclosure sale, sold the real property on May 19, 1995, to RHCDS as purchaser, and recorded the foreclosure deed on June 9, 1995.

5. The debtor filed this Chapter 13 proceeding on June 16, 1995. The debtor listed RHCDS on Schedule D as holding a secured claim in the amount of $30,000.00, secured by a house, lot, stove, refrigerator, washer, and dryer. The debtor valued her interest in the collateral on Schedule A at $31,200.00, without subtracting any secured claim or exemption.

6. The plan provides that the debtor is 24 months in arrears to RHCDS and owes RHCDS a total arrearage of $5,424.00. The plan also provides that the trustee will make sixty monthly payments to RHCDS in the amount of $109.98, which will cure the arrearage. The trustee will begin making regular monthly mortgage payments to RHCDS in the amount of $226.00 on July 1, 1995.

7. On June 28, 1995, RHCDS filed a motion for relief from the automatic stay under 11 U.S.C. § 362(d)(1), asserting that, because there was a pre-petition foreclosure sale, the debtor\'s right to cure the default had lapsed pursuant to 11 U.S.C. § 1322(c)(1). On the same date, RHCDS filed a motion for summary judgment on its motion for relief from the stay.

8. On July 3, 1995, the debtor filed an objection to RHCD\'s motion for relief from the stay. Because the debtor filed an objection, the court scheduled the hearing on July 20, 1995.

Discussion and Conclusions of Law

The issue presented is whether the language of 11 U.S.C. § 1322, as amended by Section 301 of the Bankruptcy Reform Act of 1994, P.L. No. 103-394, 108 Stat. 4106 (the "Reform Act"), precludes the debtor, following the foreclosure sale of real property used as her principal residence, from using post-foreclosure chapter 13 proceedings as a vehicle to set aside the foreclosure and sale, reinstate the mortgage, decelerate the indebtedness, and resume payments according to the mortgage contract's pre-default terms.¹ Section 301 of the Reform Act made two changes in Section 1322. The Reform Act moved old subsection (c) to (d) and created a new subsection (c) incorporating the changes. New subsection (c) provides as follows:

(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; and

(2) in a case in which the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor\'s principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5) of this title.

11 U.S.C. § 1322(c)(1994).

Subsection (c)(2) is not applicable to the case at bar. Under Subsection (c)(2), certain mortgages can be modified and provided for in Section 1325(a)(5). As a Chapter 13 plan may not extend beyond five years, this subsection applies only to those cases involving "short-term mortgages, long-term mortgages on which the debtor has nearly completed payment, and mortgages with balloon payments." In re Escue, 184 B.R. 287, 293 (Bankr.M.D.Tenn.1995). See also In re Eason, 181 B.R. 127, 132-134 (Bankr. N.D.Ala.1995) (a pre-Reform Act case). Subsection (c)(2) applies by its own language only to mortgages in which the last payment is due before the date of final of payment of the plan and at least one court has found that it is also "intended for debtors to be able to cure "stub" or "short-term" mortgages which mature or balloon prior to filing of the petition." Escue, 184 B.R. at 292. It does not apply to a case such as this where there has been a pre-petition default, acceleration, foreclosure sale, and recordation of the foreclosure deed. See e.g., In re Ragsdale, 155 B.R. 578, 587 (Bankr.N.D.Ala.1993) (a pre-Reform Act case "approving of the view that the `last payment' language in Section 1322(b)(5) refers to the date of the last payment of the original note rather than the date the accelerated debt is due.") This Court finds that the words "last payment" in the phrase "last payment on the original payment schedule" means exactly the same as the words "last payment" in (b)(5) as they are interpreted by Chief Judge Mitchell. This conclusion is supported by the general rule of statutory construction that where the "same words are used in different parts of an act, and where the meaning in one instance is clear, other uses of the word in the act have the same meaning as that where the definition is clear." In re Chalk Line Manufacturing, Inc., 181 B.R. 605, 609 (Bankr. N.D.Ala.1995) (citing In re Missionary Baptist Foundation of America, Inc., 667 F.2d 1244, 1245 (5th Cir.1982) (citations omitted)). In the case at bar, the last payment of the mortgage was not due before the final payment of the plan and the mortgage did not mature or balloon prior to the filing of the petition. Section 1322(c)(2), therefore, is not applicable.

The Section pertinent to the Court's analysis is Section 1322(c)(1). The issue presented is whether the debtor's treatment, in the plan, of RHCDS's claim is permissible in light of the new subsection. The Court notes at the outset that to date there are no reported cases which have thoroughly analyzed the effect of newly-enacted Subsection (c)(1). This matter is one of first impression for this Court.

In order to analyze the effect of Subsection (c)(1), the Court must consider its interaction with the relevant paragraphs of Section 1322(b) which are unmodified by the Reform Act. The other relevant portions of that section provide:

(b) Subject to subsections (a) and (c) of this section, the plan may —

. . . . .

(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor\'s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims;

(3) provide for the curing or waiving of any default;

. . . . .

(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

...