Matter of Clark, 82-C-1012-C.
Citation | 32 BR 711 |
Decision Date | 16 June 1983 |
Docket Number | No. 82-C-1012-C.,82-C-1012-C. |
Parties | In the Matter of Hugh R. CLARK and Joanne Clark, Debtors. |
Court | U.S. District Court — Western District of Wisconsin |
John G. Barsness, Barsness Law Offices, Madison, Wis., for debtors.
Peter F. Herrell, Jordan & Herrell, Eau Claire, Wis., for creditor Federal Land Bank of St. Paul.
This is an appeal from a decision of the United States Bankruptcy Court for the Western District of Wisconsin brought by the Federal Land Bank of St. Paul. The bank contends that the bankruptcy court erred in confirming a Chapter 13 plan of reorganization that allows the debtors to cure the arrearages in the installment payments on their mortgage and to reinstate the mortgage despite the fact that a judgment of foreclosure had been obtained by the bank.
At the hearing on confirmation of the plan, the bankruptcy court found as fact that the plan proposed by the debtors would provide monthly payments sufficient to fund the plan, that over a period of 36 months the payments to the Federal Land Bank would cure the prior default in payments while maintaining current payments, so that the mortgage to the bank would be reinstated, and that the payment arrangements proposed under the plan dealt permissibly with the bank and with all of the other creditors.
Not articulated by the bankruptcy judge but implicit in his findings are these additional facts derived from the record:
OPINIONThe sole question on appeal is the validity of the bankruptcy judge's interpretation of 11 U.S.C. § 1322(b)(5) as permitting cure of a default and reinstatement of payments on a residential mortgage even after judgment of foreclosure has been obtained by the mortgagee.
The relevant provisions of 11 U.S.C. § 1322(b) are the following:
In holding that cure and reinstatement were permitted, the bankruptcy judge relied upon the decision of the Court of Appeals for the Second Circuit in In re Taddeo, 685 F.2d 24 (2d Cir.1982). In Taddeo, the mortgagee had accelerated the payment schedule and begun foreclosure proceedings against the debtors who were in default on their residential mortgage. Before the mortgagee could obtain a judgment of foreclosure, the debtors filed a Chapter 13 proceeding which stayed the foreclosure action. The bankruptcy court denied the mortgagee's motion for relief from automatic stay, finding that the mortgagee had sufficient security under the debtors' plan which provided for payment of the arrearages in the installment payments over the three-year life of the plan and for restoration of the mortgage and its original payment schedule. The bankruptcy court read 11 U.S.C. § 1322(b) as analogous to 11 U.S.C. § 1124(2), which the bankruptcy court interpreted as permitting the nullification of acceleration clauses in Chapter 11 corporate reorganizations.1
In affirming the district court's affirmation of the bankruptcy court's decision, the court of appeals concluded that the Taddeos' Chapter 13 plan providing for deacceleration of their mortgage was what Congress had intended when it provided for the curing of defaults in § 1322(b)(2).
The reasoning in Taddeo leaves no doubt that pre-judgment acceleration of residential mortgages can be cured under a viable Chapter 13 plan. But Taddeo does not resolve the question raised on this appeal: whether the curing of defaults that is permitted under subsection (b)(5) of § 1322 is permissible after entry of a court judgment of foreclosure.
On this question, the bankruptcy courts are in disarray. Within the same state and the same district can be found opinions reaching directly conflicting results, with one bankruptcy judge holding that the power to cure a default in a residential mortgage payments in a Chapter 13 plan is co-extensive with the right to redeem property that has been foreclosed upon, and another bankruptcy judge holding that the right to cure under a Chapter 13 plan is extinguished by the entry of a judgment of foreclosure. See, e.g., In re Thompson, 17 B.R. 748 (Bkrtcy.W.D.Mich.1982) ( ) and In re James, 20 B.R. 145 (Bkrtcy.E.D.Mich. 1982) ( ). See also In re Jenkins, 14 B.R. 748 (Bkrtcy.N.D.Ill.1981) ( ); In re Kokkinis, 22 B.R. 353 (Bkrtcy.N.D.Ill.1982) ( ).2
A number of bankruptcy courts have adopted the position that under § 1322(b)(5), a residential mortgage is subject to deacceleration so long as the debtor retains any equity in the mortgaged property. See, e.g., In re Chambers, 27 B.R. 687 (Bkrtcy.S.D.Fla.1983); In re Young, 22 B.R. 620 (Bkrtcy.N.D.Ill.1982); United Companies Financial Corp. v. Brantley, 6 B.R. 178, 179 (Bkrtcy.N.D.Fla.1980); Matter of Breuer, 4 B.R. 499 (Bkrtcy.S.D.N.Y.1980). Indeed, even the apparently disparate results in In re Thompson, 17 B.R. 748 and in In re James, 20 B.R. 145 can be explained as merely a difference of opinion between the two courts as to when the debtor's equity in the mortgaged property was extinguished under Michigan law and not as a difference of opinion as to whether the mortgagor's right to cure lasted beyond the entry of a state court judgment of foreclosure.
A larger number of bankruptcy courts have held that the right to cure and reinstate does not survive the entry of a judgment of foreclosure and have denied confirmation of Chapter 13 plans that did not provide for payment of the full amount of the judgment plus costs within the life time of the plan. See, e.g., In re Mattocks, 15 B.R. 379 (Bkrtcy.E.D.N.Y.1981); In re Maiorino, 15 B.R. 254 (Bkrtcy.D.Conn.1981); In re Jenkins, 14 B.R. 748; In re Land, 14 B.R. 132 (Bkrtcy.N.D.Ohio 1981); In re Pearson, 10 B.R. 189 (Bkrtcy.E.D.N.Y.1981); In re Canady, 9 B.R. 428 (Bkrtcy.D.Conn. 1981); In re Robertson, 4 B.R. 213 (Bkrtcy. D.Colo.1980).
Still other bankruptcy courts have held that after judgment the mortgagor retains only the right to redeem provided under state law and that the automatic stay provisions of 11 U.S.C. § 362 do not operate to stay the running of the period of redemption. See, e.g., In re Martinson, 26 B.R. 648 (Bkrtcy.D.N.Dak.1983). See also First Financial Savings & Loan Assoc. v. Winkler, 29 B.R. 771 (D.C.N.D.Ill., 1983).
Clearly, the bankruptcy judges who have permitted cure and rehabilitation of home mortgages after the entry of foreclosure judgment have done so out of the best of motives: to carry out "one of the primary purposes of Chapter 13 . . . to save homesteads." In re Young, 22 B.R. at 622. Nevertheless, their construction of § 1322 finds no support in either the language or the legislative history of the statute.
Nothing in § 1322(b) suggests that "curing of any default" may be read as including the right to set aside a state court judgment and reinstate prejudgment mortgage obligations and rights. Curing a default is not the same thing as suspending or annulling a state...
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