In re Vertullo

• Decision Date: 01 October 2018
• Docket Number: Bk. No. 18-10552-BAH
• Citation: 593 B.R. 92
• Parties: IN RE: Darlene Marie VERTULLO, Debtor
• Court: U.S. Bankruptcy Court — District of New Hampshire

593 B.R. 92

IN RE: Darlene Marie VERTULLO, Debtor

Bk. No. 18-10552-BAH

United States Bankruptcy Court, D. New Hampshire.

Signed October 1, 2018

Darlene Marie Vertullo, Pro Se.

Leonard G. Deming, II, Esq., Attorney for Deming Law Office.

Joshua Ryan-Polczinski, Esq., Harmon Law Office, P.C., Attorney for U.S. Bank National Association, as Trustee for Credit Suisse First Boston Mortgage Securities Corp., CSFB Mortgage Pass-Through Certificates, Series 2005-8.

MEMORANDUM OPINION

Bruce A. Harwood, Chief Bankruptcy Judge

I. INTRODUCTION

Currently before the Court are the Debtor's amended chapter 13 plan dated May 31, 2018 (Doc. No. 68) (the "Chapter 13 Plan") and a motion for relief from stay filed by U.S. Bank National Association, as Trustee for Credit Suisse First Boston Mortgage Securities Corp., CSFB Mortgage Pass-Through Certificates, Series 2005-8 ("U.S. Bank") (Doc. No. 30) (the "Motion for Relief"). Both the Chapter 13 Plan and the Motion for Relief raise the same legal issue: whether the Debtor has a sufficient property interest in real property, located at 2 Grace Drive, Nashua, New Hampshire (the "Property"), that she may cure defaults under a mortgage that encumbers the Property and which U.S. Bank holds. For the reasons set forth below, the Court finds that the Debtor does have a sufficient interest in the Property and so will deny the Motion for Relief and schedule a continued confirmation hearing on the Chapter 13 Plan.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and Local Rule 77.4(a) of the United States District Court for the District of New Hampshire. This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. FACTS

A. Practical and Procedural Background

The facts are straightforward and wholly undisputed. U.S. Bank is the holder of a mortgage, originally given by the Debtor and James E. Underwood to SLM Financial Corp. U.S. Bank, after notice, completed a foreclosure auction of the Property to a third-party buyer on January 11, 2017. To date, no deed has been recorded to evidence this transaction in the public record. The Debtor filed a chapter 13 petition on May 9, 2017 (the "Prior Chapter 13 Case"). The Court dismissed the Prior Chapter 13 Case on March 29, 2018, after the Debtor failed to make plan payments.¹

The Debtor filed the current chapter 13 case on April 26, 2018 (the "Current Chapter 13 Case"). At the time of the filing of the Current Chapter 13 Case, U.S. Bank had still yet to record the foreclosure deed. U.S. Bank promptly sought relief from the automatic stay of 11 U.S.C. § 362(a), seeking relief to evict the Debtor from the Property, arguing that the Debtor had nothing more than a bare possessory interest in the Property.² Thereafter, the Debtor filed the Chapter 13 Plan, which seeks to cure prepetition defaults in the mortgage to U.S. Bank and maintain payments during the Current Chapter 13 Case.

The Court held a joint hearing on the Chapter 13 Plan and the Motion for Relief on August 3, 2018. In addition to the Debtor (who is not represented by an attorney), counsel for U.S. Bank, the chapter 13 trustee, and Attorney Leonard Deming, who had been the Debtor's bankruptcy counsel in the Prior Chapter 13 Case and is apparently a creditor in the Current Chapter 13 Case ("Creditor Deming"), appeared at the hearing. Creditor Deming argued in opposition to the Motion for Relief and in favor of the confirmation of the Chapter 13 Plan.

The Court noted, with the agreement of the parties, that it would take judicial notice of the relevant filings in the Prior Chapter 13 Case to the extent that it found them helpful in coming to a decision in this matter. The Court afforded U.S. Bank an opportunity to respond to Creditor Deming's last-minute brief, which it did, and then took the matter under advisement.

B. Arguments of the Parties

The parties' arguments are straightforward. The Debtor argues that because U.S. Bank has failed to complete the foreclosure sale by recording a deed, she may still cure defaults under the mortgage and maintain payments to U.S. Bank in the Chapter 13 Plan. U.S. Bank argues that because it concluded the auction of the Property prepetition, the Debtor was divested of all legal and equitable interest, and the Property did not become property of the bankruptcy estate, making it impossible to effect a cure of the mortgage in the Chapter 13 Plan.

Finally, Creditor Deming argues that, by virtue of § 544(a)(3), which he asserts places the chapter 13 trustee in the position of a bona fide purchaser for value, the chapter 13 trustee has an interest in the Property that is senior to any interest that the third-party purchaser at the foreclosure would obtain by U.S. Bank's recording of the foreclosure deed postpetition.

III. DISCUSSION

A. Legal Context

The Court recently summarized the legal scaffolding necessary to decide this issue in Cornell v. Envoy Mortg., Ltd. (In re Hosch), 551 B.R. 696, 698-700 (Bankr. D.N.H. 2016), aff'd sub nom. Gordon v. Envoy Mortg., Ltd., 569 B.R. 1 (D.N.H. 2017) :

Under New Hampshire law, a mortgagee foreclosing under a power of sale provision in a mortgage "shall within 60 days of the sale" record in the appropriate registry of deeds "the foreclosure deed, a copy of the notice of the sale, and his affidavit setting forth fully and particularly his acts in the premises." N.H. RSA § 479:26, I. The statute further provides that:

If such recording is prevented by order or stay of any court or law or any provision of the United States Bankruptcy Code, the time for such recording shall be extended until 10 days after the expiration or removal of such order or stay.

Id. Upon recording, "title to the premises shall pass to the purchaser free and clear of all interests and encumbrances which do not have priority over such mortgage." N.H. RSA § 479:26, III. If, however, the mortgagee fails to record the foreclosure deed and affidavit within 60 days of the foreclosure sale, the sale is rendered "void and of no effect only as to liens or other encumbrances of record with the register of deeds for said county intervening between the day of the sale and the time of recording of said deed and affidavit." N.H. RSA § 479:26, II. Thus, the 60 day period and any extension thereof operates as a safe harbor for the mortgagee against intervening liens.

In In re Hazleton, 137 B.R. 560 (Bankr. D.N.H. 1992), Judge Yacos held that it was unnecessary to obtain relief from stay to record a foreclosure deed after a prepetition foreclosure sale. He reasoned that because a mortgagor-debtor's statutory right of redemption expires once the foreclosure auction is concluded, see N.H. RSA § 479:18, the debtor lacks any state or federal interest in the real property on the petition date, and therefore, the foreclosed property is not property of the estate protected by the automatic stay. In re Hazleton, 137 B.R. at 562. The New Hampshire Supreme Court has since cited Hazelton [Hazleton ] for the proposition that a mortgagor does not retain any legal or equitable interest in property once a foreclosure auction is held. Barrows v. Boles, 141 N.H. 382, 393, 687 A.2d 979 (1996).

In In re Beeman, 235 B.R. 519, 526 (Bankr. D.N.H. 1999), however, Judge Deasy held the subsequent enactment of 11 U.S.C. § 1322(c)(1) abrogated Hazelton [Hazleton ] as it applied to Chapter 13 cases. That section provides in relevant part:

Notwithstanding subsection (b)(2) and applicable nonbankruptcy law ... a default with respect to, or that gave rise to, a lien on the debtor's principal residence may be cured ... 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). Judge Deasy concluded that the plain language of 11 U.S.C. § 1322(b) and (c) provide an independent federal right to cure which preempts state law "with respect to when a Chapter 13 debtor's rights to cure and reinstate a principal residence mortgage are cut off." In re Beeman, 235 B.R. at 524. Focusing on the word "sold," he determined that this federal interest under 11 U.S.C. § 1322(c)(1) exists until the completion of the foreclosure process, including the recording of the foreclosure deed:

By stating that a debtor's rights are cut off when a residence is sold at a foreclosure sale, the language envisions the completion of something; namely, the completion of a "sale" of property through foreclosure. The word "sale" is generally defined as the transferring of ownership and title regarding property to a buyer. Thus, the statutory language envisions a debtor's rights being terminated upon the completed transfer of title and ownership to a buyer through a foreclosure sale. Title and ownership generally pass through foreclosure upon the completion of a process , and not upon the occurrence of a single event such as a foreclosure auction. For example, under New Hampshire's power of sale regime, there are numerous steps that must be taken before a foreclosure sale is deemed complete and final.

Id. at 525 (emphasis in original, internal citations omitted). Accordingly, Beeman stands for the proposition that a mortgagee must obtain relief from stay in a Chapter 13 case to record a foreclosure deed despite the conclusion of a prepetition foreclosure auction. Id. at 526-27. Outside the Chapter 13 context, the applicability of Hazelton [Hazleton ] is unquestioned. Id. at 526 n.7 ; see alsoIn re Lakes Region Donuts, LLC, No. BR 13-11823-BAH, 2014 WL 1281507, at *10 (Bankr. D.N.H. Mar. 27, 2014) (refusing to extend the rationale of Beeman to a Chapter 11 case).

In TD Bank, N.A. v. LaPointe (In re LaPointe), 505 B.R. 589 (1st Cir. BAP 2014), the United States Bankruptcy Appellate Panel for the First Circuit criticized Beeman while reversing a decision of this court that followed Beeman's rationale. The Panel rejected Beeman's interpretation of 11 U.S.C. § 1322(c)(1), concluding:

"The phrase ‘sold at a

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