563 B.R. 650
Bankr. E.D. Ky.2017Background
- Debtor filed Chapter 13 on Aug. 1, 2016; principal residence at 210 Swigert Ave., Frankfort, KY, valued at $55,000.
- Kentucky Housing Corporation (KHC) holds a mortgage securing $41,750 and obtained a prepetition state-court judgment and order of sale; KHC was the winning bidder at the foreclosure auction.
- The state-court sale price ($51,500) equaled the amount due to KHC; the sale had not yet been confirmed by the state court (Kentucky requires confirmation to finalize a sale).
- Debtor’s proposed Chapter 13 plan sought to cure and pay KHC’s mortgage debt in equal monthly installments over five years.
- KHC objected to confirmation, arguing the prepetition foreclosure sale terminated the Debtor’s statutory right to cure under 11 U.S.C. § 1322(c)(1), making the plan nonconfirmable under § 1325(a)(1).
- Court held a hearing, considered briefs, and sustained KHC’s objection; Debtor was ordered to file an amended plan within 14 days.
Issues
| Issue | Debtor's Argument | KHC's Argument | Held |
|---|---|---|---|
| Whether a debtor may cure a mortgage default under § 1322 after a prepetition foreclosure auction | Debtor: Sale not final until state-court confirmation and debtor retains title/possession/right to redeem, so cure remains available | KHC: § 1322(c)(1) cuts off cure at the foreclosure sale (auction); state-law confirmation/redemption irrelevant to federal right to cure | Held: § 1322(c)(1) unambiguously terminates cure at the foreclosure auction (the gavel fall); state-law confirmation/right of redemption irrelevant |
| Whether § 1322(b)(3) or § 1322(e) allow cure despite § 1322(c)(1) | Debtor: § 1322(b)(3) and § 1322(e) permit curing defaults and calculating cure amounts, respectively, so cure should be allowed | KHC: § 1322(b) is expressly subject to subsection (c); § 1322(e) addresses amount, not timing; § 1322(c)(1) controls timing | Held: § 1322(b)(3) and § 1322(e) are subject to § 1322(c); they do not override the sale cutoff rule |
| Whether § 1322(c)(2) (modification when last scheduled payment is before plan end) permits paying the mortgage over the plan despite (c)(1) | Debtor: Acceleration makes last scheduled payment due before plan end, so § 1322(c)(2) allows modification/payment over plan term | KHC: (c)(1) and (c)(2) are conjunctive; debtor must satisfy both, and (c)(1) bars cure after sale | Held: (c)(1) and (c)(2) must both be satisfied; (c)(2) does not negate the (c)(1) sale cutoff |
| Whether the plan is confirmable under § 1325(a) given above | Debtor: Plan proposes to cure and pay KHC over plan term | KHC: Cure barred by § 1322(c)(1), so plan cannot satisfy § 1325(a)(1); also raised good-faith objections under § 1325(a)(3) and (7) | Held: Plan not confirmable under § 1325(a)(1) because it proposes an impermissible cure; court sustained KHC’s objection and did not address good-faith findings at this time |
Key Cases Cited
- Federal Land Bank of Louisville v. Glenn, 760 F.2d 1428 (6th Cir. 1985) (adopts foreclosure-sale-as-cutoff rule for right to cure under § 1322(b))
- Cain v. Wells Fargo Bank, N.A. (In re Cain), 423 F.3d 617 (6th Cir. 2005) (holds § 1322(c)(1) unambiguously cuts off cure at the foreclosure auction)
- In re Crawford, 232 B.R. 92 (Bankr. N.D. Ohio 1999) (supports view that foreclosure auction is the single event that ends cure right)