Matter of Skelly, Civ. A. No. 83-435 MMS.
| Decision Date | 03 April 1984 |
| Docket Number | Civ. A. No. 83-435 MMS. |
| Citation | 38 BR 1000 |
| Parties | In the Matter of Dean SKELLY, Jr. Lucy E. Skelly, Debtors/Appellants. |
| Court | U.S. District Court — District of Delaware |
Eric M. Doroshow, Wilmington, Del., for debtors/appellants.
Robert V. Huber, Wilmington, Del., for Ninth Ward Sav. and Loan Ass'n.
This Bankruptcy appeal presents the issue of whether, after entry of default judgment by a Delaware state court on a writ of scire facias (or "sci fa") sur mortgage, a court may confirm a Chapter 13 plan which envisions paying the mortgagee less than the amount of his judgment.
The pertinent facts are simple and undisputed. Debtors for some time in 1982 failed to make payments on a 30-year mortgage covering their private residence. On August 10, 1982, Ninth Ward Savings and Loan Association ("Ninth Ward" or "mortgagee") accelerated the mortgage. On October 4, 1982, the mortgagee filed a complaint sci fa sur mortgage against debtors and took default judgment (the "judgment" or "judgment of foreclosure") against them on November 23. Thereafter Ninth Ward commenced execution by writ of levari facias (or "lev fa"), publicly advertising a sheriff's sale for February 8, 1983. On the day before the scheduled sale debtors filed a Chapter 13 petition, thereby obtaining an automatic stay of the sheriff's sale under 11 U.S.C. § 362(a).
The debtors' proposed Chapter 13 plan provided for payment to the trustee of arrearages on the mortgage during the life of the plan and for payment of current mortgage installments directly to the mortgagee. The plan did not provide for payment of the judgment of foreclosure or, for that matter, for payment of the accelerated mortgage balance. Ninth Ward objected to confirmation of the plan because of this perceived deficiency. The Bankruptcy Court, relying on its prior decision in In re White, 22 B.R. 542 (Bkrtcy.D.Del.1982), denied confirmation of the plan from the bench, stating that "there can be no cure and reinstatement of a mortgage after a judgment of foreclosure has been entered because under Delaware law the mortgage is merged in that judgment." (Doc. 17 at 8). The denial of confirmation was appealed to this Court.1 Debtors argue on appeal that their default on the mortgage may be cured, and the mortgage reinstated, under the rehabilitative provisions of Chapter 13. For the reasons which follow the Bankruptcy Court's denial of confirmation will be affirmed.
I. Discussion
The nature of a creditor's property rights in bankruptcy is defined by state law, not federal law. Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 917, 59 L.Ed.2d 136 (1979). Thus, although the federal bankruptcy laws may alter a creditor's state law power to enforce his property claims, the dimension of his claims are initially a question of state law. Before discussing the cure provisions of Chapter 13 it is therefore useful to have an understanding of the law of mortgages and mortgage foreclosure under Delaware law.
Delaware is a lien state, not a title state. See Fox v. Wharton, 5 Del.Ch. 200 (1878). As a consequence, a mortgage in Delaware serves merely as security for a debt; it does not itself represent a debt. In addition, unlike many states, in Delaware the equity of redemption in a mortgagor is nothing more than "the title to the mortgaged land, with the right to redeem it from the encumbrance of the mortgage." 2 Woolley on Delaware Practice § 1353, at 915 (1906) (hereinafter cited as "Woolley").2 Thus, after an execution sale a mortgagor may not redeem his property because the sale discharges the land from all equity of redemption. 2 Woolley § 1375, at 928.
This particular foreclosure action was begun in the Superior Court by a writ of scire facias sur mortgage3 pursuant to 10 Del. C. § 5061.4 A judgment of sci fa sur mortgage, "being based upon the record of the mortgage, assumes the character of the lien of the mortgage, being specific in its operation, and in effect is a judgment of condemnation." 2 Woolley § 1373, at 927. Once a judgment sci fa sur mortgage is obtained, a mortgagee may execute his judgment by writ of levari facias. 10 Del.C. § 5063 provides that a "definitive judgment . . . as well as all other judgments . . . be given upon such scire facias . . . and that plaintiff have execution by levari facias directed to the proper official." As explained by Woolley, "the judgment of the sci. fa. on the mortgage is a judgment of condemnation of the mortgaged premises, and the sale under a lev. fac. is the execution of that judgment of condemnation. . . ." 2 Woolley § 1382, at 930.
The Bankruptcy Court held that under Delaware law the debtor's foreclosure action "merged" the mortgage into the judgment. Although the Bankruptcy Court's holding is not necessarily inconsistent with the above discussion of Delaware law, this Court has found no case law or commentary directly supporting the "merger" concept.5 This question of merger need not, however, be decided. Even were there no merger, it is incontrovertible that under Delaware law the judgment on the sci fa sur mortgage created a lien on the mortgaged premises for the accelerated amount of the mortgage in the amount of the default judgment. Thus, even if a mortgage still exists under Delaware law, an independent lien and judgment also exist. For purposes of this opinion, the Court will accept debtors' position and assume that under Delaware law there was no merger of the mortgage into the judgment.
Against this background of Delaware law the Court turns its attention to Chapter 13 of the Bankruptcy Code. The relevant provisions of Chapter 13 are found in sections 1322(b)(2), (3) and (5) which state:
11 U.S.C. § 1322(b).
The case law interpreting these sections is in hopeless disarray. A recent survey states well this confusion in the existing case law. The bankruptcy court in In re Gwinn, 34 B.R. 936 (Bkrtcy.S.D.Ohio 1983), explained:
To continue reading
Request your trial