Roach, Matter of

• Citation: 824 F.2d 1370
• Decision Date: 25 August 1987
• Docket Number: No. 86-5643,86-5643
• Parties: 17 Collier Bankr.Cas.2d 493, Bankr. L. Rep. P 71,902 In the Matter of Benny L. ROACH and Edith Roach, Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 1370

824 F.2d 1370

17 Collier Bankr.Cas.2d 493, Bankr. L. Rep. P 71,902

In the Matter of Benny L. ROACH and Edith Roach, Appellants.

No. 86-5643.

United States Court of Appeals Third Circuit.

Argued April 20, 1987.

Decided July 31, 1987.

Rehearing and Rehearing In Banc Denied Aug. 25, 1987.

Jules L. Rossi (argued), Long Branch, N.J., for appellants.

William M.E. Powers, III (argued), Medford, N.J., for appellees.

Robert M. Wood, Wood & Broedge, Manasquan, N.J., Chapter 13 Standing Trustee.

Before WEIS, STAPLETON and HUNTER, Circuit Judges.

OPINION OF THE COURT

STAPLETON, Circuit Judge:

This appeal presents the issue of whether federal bankruptcy law permits a Chapter 13 debtor to cure a default on, and reinstate, a home mortgage where the bankruptcy petition is filed during a state law redemption period following foreclosure judgment and sale. The district court affirmed the bankruptcy court's order holding that such a cure could not be effected by a Chapter 13 plan. We also affirm.

I.

Benny and Edith Roach owned, subject to a mortgage held by GMAC Mortgage Corporation, real property in New Jersey that was used as their principal residence. The Roaches fell behind on the mortgage payments. GMAC declared them in default and accelerated the mortgage debt pursuant to the terms of the mortgage. GMAC subsequently initiated foreclosure proceedings and obtained a foreclosure judgment. On March 17, 1986, the Roaches' property was sold at a sheriff's sale for $60,000 to Arthur and Geri Lutzker.

The Lutzkers paid the sheriff a deposit of $13,600 on the day of the sale. Pursuant to New Jersey Rule of Court 4:65-5, the sheriff must "deliver a good and sufficient conveyance in pursuance of the sale unless a motion for the hearing of an objection to the sale is served upon him within 10 days after the sale or at any time thereafter before the delivery of the conveyance." On March 24, 1986, before the expiration of the 10-day period following the sale, the Roaches filed a petition under Chapter 13 of the Bankruptcy Code.

The Chapter 13 plan proposed to cure the mortgage default by paying the arrearages over the life of the plan, reinstate the mortgage, and maintain current mortgage payments outside the plan. On May 28, 1986, over 60 days after the order for relief, the Lutzkers moved to lift the automatic stay imposed by 11 U.S.C. Sec. 362(a) to permit the Lutzkers to pay the remainder of the foreclosure sale purchase price to the sheriff and in turn receive a conveyance of the property from the sheriff.

The bankruptcy court granted the Lutzkers' motion and denied confirmation of the Roaches' plan; on initial appeal, the district court affirmed the bankruptcy court's order. Both judges agreed that, after the sheriff's sale, the debtors' only interest in the mortgaged property under state law was a right of redemption. They further agreed that 11 U.S.C. Sec. 108(b) permitted the debtors to exercise that right of redemption within 60 days of the filing of the bankruptcy petition, but that the debtors had failed to do so. Both judges also agreed that availability of 11 U.S.C. Sec. 1322(b)'s right to cure a default was dependent on the debtors' interest in the mortgaged property and that the debtors' right of redemption was not a sufficient property interest to warrant relief under Sec. 1322(b). Finally, the district court stated that this result was necessary to "avoid an irreconcilable conflict between the operation and effect of Sections 108(b) and 1322(b)." App. at 102.

On appeal, the Roaches argue that: under New Jersey law, they retain property rights other than the right of redemption; the right of redemption alone is sufficient to trigger Sec. 1322(b)'s right to cure; Sec. 108 does not apply to a Chapter 13 case; Sec. 362's automatic stay extends the redemption period for the life of the plan; and that Sec. 1322(b)'s right to cure overrides state law that restricts the debtors to a limited right of redemption.

Under our view of the case, the sole relevant issue is whether 11 U.S.C. Sec. 1322(b) evidences a congressional intent to authorize cure of a default on a home mortgage after there has been a contractual acceleration of the full mortgage debt, a foreclosure judgment, and a foreclosure sale, so long as the state law redemption period has not expired. ¹ Because this is an issue of law, our review is plenary. Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir.1981).

II.

A.

In construing a federal statute, our task is to ascertain congressional intent. In so doing, "we look first to the statutory language and then to the legislative history if the statutory language is unclear." Blum v. Stenson, 465 U.S. 886, 896, 104 S.Ct. 1541, 1547, 79 L.Ed.2d 891 (1984). We must also remain "mindful of the statute's object and policy and must read the disputed provision in the context of the entire statute." N.J. Transit Policemen's Benevolent Association Local 304 v. New Jersey Transit Corp., 806 F.2d 451, 453 (3d Cir.1986).

Chapter 13 of the Bankruptcy Code allows an individual bankrupt to reorganize his or her affairs without a liquidation of assets in much the same way as Chapter 11 accords that right to businesses. Its purpose "is to enable an individual, under court supervision and protection, to develop and perform under a plan for the repayment of his debts over an extended period" of from three to five years. H.R.Rep. 595, 95th Cong., 1st Sess. 118 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6079, reprinted in L. King, Collier on Bankruptcy App. 2 (1987) (hereinafter Collier ). Congress believed that Chapter 13 would benefit debtors by permitting a debtor to "retain his property by agreeing to repay his creditors" and to "avoid the stigma attached to straight bankruptcy," and would benefit creditors because "their losses will be significantly less than if their debtors opt for straight bankruptcy." Id. Accord S.Rep. 989, 95th Cong., 2d Sess. 118 (1978), U.S.Code Cong. & Admin.News 1978, p. 6079, reprinted in Collier App. 3.

In relevant part, 11 U.S.C. Sec. 1322(b) provides that a Chapter 13 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 ...;

(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 the date on which the final payment under the plan is due; ...

Since the enactment of Sec. 1322(b) in 1978, courts have frequently been called upon to determine the point at which Congress intended the right to cure a default on a home mortgage in a Chapter 13 plan to terminate: at the time of contractual acceleration; upon entry of a foreclosure judgment; at the time of a foreclosure sale; or upon expiration of the redemption period? See In re Glenn, 760 F.2d 1428, 1432 (6th Cir.) (discussing cases), cert. denied, 474 U.S. 849, 106 S.Ct. 144, 88 L.Ed.2d 119 (1985). Thus far, each court of appeals that has decided whether a home mortgage default may be cured after contractual acceleration of the full mortgage debt has provided an affirmative answer. In re Glenn, 760 F.2d 1428 (6th Cir.), cert. denied, 474 U.S. 849, 106 S.Ct. 144, 88 L.Ed.2d 119 (1985); In re Clark, 738 F.2d 869 (7th Cir.1984); Grubbs v. Houston First American Savings Association, 730 F.2d 236 (5th Cir.1984) (en banc); In re Taddeo, 685 F.2d 24 (2d Cir.1982). Today, we join them. Thus far, no court of appeals has held that a home mortgage default may be cured during a redemption period following a foreclosure sale. Two courts of appeals have declined to adopt that position as, now, do we. In re Glenn, 760 F.2d 1428 (6th Cir.), cert. denied, 474 U.S. 849, 106 S.Ct. 144, 88 L.Ed.2d 119 (1985); In re Tynan, 773 F.2d 177 (7th Cir.1985).

The analysis that supports our holding regarding the curing of defaults during a period of redemption leads to the conclusion that Sec. 1322(b) must be read in the context of state law and that its right to cure a default on a mortgage on a home located in New Jersey terminates upon entry of a foreclosure judgment. This conclusion conflicts with the position of the Court of Appeals for the Sixth Circuit that the right to cure defaults on residential property in every state survives until a foreclosure sale is held. In re Glenn, 760 F.2d 1428 (6th Cir.), cert. denied, 474 U.S. 849, 106 S.Ct. 144, 88 L.Ed.2d 119 (1985).

Our conclusion that the right of cure terminates in New Jersey upon the entry of a foreclosure judgment is informed not only by our analysis of the text of Sec. 1322(b) and its legislative history, but also by our understanding of the relationship between federal bankruptcy law and the state law context in which it operates. For this reason, we include in this initial overview of the issue presented a review of the case law pertaining to federal-state relations in the bankruptcy area.

B.

Pursuant to Article I, Sec. 8 of the United States Constitution, Congress has the power to establish uniform bankruptcy laws throughout the United States. "Where Congress has chosen to exercise its authority, contrary provisions of state law must accordingly give way." Johnson v. First National Bank of Montevideo, 719 F.2d 270, 273 (8th Cir.1983), cert. denied, 465 U.S. 1012, 104 S.Ct. 1015, 79 L.Ed.2d 245 (1984). Nonetheless, "the usual rule is that congressional intent to pre-empt will not be inferred lightly. Pre-emption must either be explicit, or compelled due to an unavoidable conflict between the state law and the federal law." Penn Terra Ltd. v. Department of Environmental Resources, 733 F.2d 267, 272 (3d Cir.1984); accord In re Quanta Resources Corp., 739 F.2d 912, 915 (3d Cir.1984). See also...