MEMORANDUM OPINION AND ORDER
Thе issues on appeal in this bankruptcy case turn on a determination of whether a debtor, pursuant to 11 U.S.C. § 1322(c)(1), has a right to cure a mortgage default subsequent to a foreclosure sale but prior to judicial confirmation of that sale. The bankruptcy court held that the plaintiff, Dorsey Christian, Jr., lacked any right to cure his default following the foreclosure sale. Based in part on this holding, the bankruptcy court further held that the defendant, Citibank F.S.B. (“Citibank”), 1 did not violate the automatic stay provision of the bаnkruptcy code when it moved to confirm the foreclosure sale in state court, and the court granted Citibank’s motion to annul the stay. Mr. Christian appeals from these rulings arguing that they are based on a faulty reading of Section 1322(c)(1). For the following reasons, the decision of the bankruptcy court is reversed and remanded for additional proceedings consistent with this opinion.
Background 2
In April 1994, Citibank initiated foreclosure proceedings on Mr. Christian’s home. In response, Mr. Christian filed for Chapter 13 bankruptcy protection, and he included a plan for bringing his payments to Citibank current. When Mr. Christian subsequently fell behind in his payments, the bankruptcy court dismissed the plan. Citibank then continued its foreclosure proceedings, and Mr. Christian’s home was sold at a foreclosure sаle on January 26,1996.
Following the foreclosure sale of Mr. Christian’s home but prior to confirmation of that sale by the state court, Mr. Christian *354 sought to cure the default of his mortgage by reinstating the bankruptcy plan, pursuant to 11 U.S.C. § 1322(c)(1). The bankruptcy court reinstatеd the plan but only with the understanding that reinstatement would not invalidate Citibank’s foreclosure action. Citibank subsequently moved the state court for confirmation of the foreclosure sale, which was granted on March 13, 1996. Citibank, however, failed to ask the bankruptcy court for relief from the automatic stay prior to its motion for confirmation. As a result, Mr. Christian moved the bankruptcy court for sanctions against Citibank for violating the automatic stay. Citibank, in turn, moved to annul the stay nunc pro tunc to February 7, 1996, a date prior to its motion for confirmation in state court.
The bankruptcy court granted Citibank’s motion to annul the stay and denied Mr. Christian’s motion for sanctions.
Christian,
Construction of Section 1322(c)(1)
A district court reviews factual conclusions of the bankruptcy court under a “clearly erroneous” standard, but legal conclusions are reviewed
de novo. Meyer v. Rigdon,
Section 1322(c)(1), added to the bankruptcy code in 1994, states that “a default with respect tо, or that gave rise to, a hen on the debtor’s principal residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.” (emphasis added). In order to determine when the period for curing a mortgage default ends, I must determine at what point a home is “sold at a foreclosure sale that is conducted” according to relevant nonbankruрtey law. Because of this reference to nonbankruptcy law, I first will examine the statutory and case law concerning mortgage foreclosures in Illinois.
The Illinois Mortgage Foreclosure Law (“IMFL”), 735 ILCS 5/15-1101 to -1706 (1994), governs the process of foreclosure on residential property in Illinois. Under the IMFL, residential property is sold at a judicial sale after entry of judgment of foreclosure and after the period for redemption has expired. 735 ILCS 5/15-1507(b). Once the property has been purchased, thе person who conducted the sale must make a report to the state court overseeing the foreclosure. 735 ILCS 5/15-1508(a). The court then will conduct a hearing to confirm the sale, and confirmation will be granted unless the court finds that the sale did not comply with one or more of the four enumerated grounds in the statute. 735 ILCS 5/15-1508(b).
The sale of foreclosed property is not complete until the court enters an order confirming the sale.
Fleet Mortgage Corp. v. Deale,
the giving of a mortgage is not a separation of title, for the holder of the mortgage takes only a lien thereunder. After foreclosure of a mortgage and until delivery of the master’s deed under the foreclosure sale, purchaser acquirеs no title to the land either legal or equitable.
Kling v. Ghilarducci,
With this understanding of the IMFL in mind, I turn to the language and legislative history of Section 1322(c)(1). Congress enacted this section as part of the Bankruptcy Reform Act of 1994. The House report stated that one of the policy goals behind the nеw law included the “strengthening of a debtor’s right to cure a home mortgage default in a Chapter 13 plan.” H.R.Rep. No. 103-835, at 34 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3342. To achieve that end, the report explains that a debtor may “cure home mortgage defaults at least through completion of a foreclosure sale under applicable nonbankruptcy law.” Id. at 52, 1994 U.S.C.C.A.N. at 3361 (emphasis added).
Based on the legislativе history alone, a residence is not “sold” under Section 1322(e)(1) until the foreclosure sale is completed under relevant state law.
In Re Rambo,
In the instant case, the bankruptcy court examined several cases decided prior to the enactment of Section 1322(c)(1), аnd it found “by ‘foreclosure sale,’ [these courts] meant the event (usually an auction) through which a third party may acquire an ownership interest in the debtor’s property, even though title may not actually pass at that point.”
Christian,
Both the bankruptcy court’s premise and conclusion are flawed. In Illinois, a purchaser at a foreclosure sale receives only a lien on the subject property, and a lien does not constitute an ownership interest in the land.
CSM Ins. Bldg., Ltd. v. Ansvar Am. Ins. Co.,
In addition, contrary to the bankruptcy court’s holding, Section 1322(c)(1) did, in fact, change the cutoff point for curing a mortgage default. Prior to thе enactment of this section, the cutoff period was determined according to Section 1322(b)(5).
See McEwen,
Motion to Annul the Stay
The bankruptcy court based its decision to annul the stay
nunc pro tunc
in part on the belief that Mr. Christian could not cure his mortgage default at that point in time.
Christian,
On remand, the bankruptcy court should reconsider the soundness of its second and third reasons for granting the motion to annul. The court stated that Mr. Christian’s counsel reasonably led Citibank to believe that Mr. Christian would not oppose confirmation of the foreclosure sale because he only sought reinstatement of his bankruptcy case in order to make payments to creditors other than Citibank. Id. at 389. It also reasoned that Mr. Christian had no objection to the confirmation because he made no attempt to oppose it at the hearing, during his eviction or prior to the completion of improvements on his property. Id. An examination of the February 7, 1996 hearing transcript, in which the court and counsel discussed reinstatement, reveals otherwise. Mr. Christian’s attorney asked Judge Wed-off for his position on whether the foreclosure sale could be vacated in light of Mr. Christian’s motion to reinstate his bankruptсy ease. Tr. at 2-3. Judge Wedoff responded in the negative, Tr. at 3-5, and only after that response did Mr. Christian’s counsel then ask for reinstatement for all creditors except Citibank. Tr. at 5. Judge Wedoff granted the motion to reinstate but only with the express understanding that the order would “specify that nothing in this order invalidates the foreclosure sale.” Tr. at 6-7.
In light of this exchange at the hearing, Mr. Christian apparently wanted reinstatement of his bankruptcy case as it pertained to Citibank. However, Judge Wedoffs expliсit statement that Mr. Christian could not undo the foreclosure sale may have led Mr. Christian to believe that to continue to press the point and oppose confirmation was futile. Accordingly, the bankruptcy court on remand should consider the effect of its statements and rulings on Mr. Christian’s actions when balancing the equities at issue.
Notes
. The other defendant in this case, Illinois Real Estate Opportunity Fund I, was dismissed voluntarily by the plaintiff on appeal.
. A more detailed factual summary may be found in the bankruptcy court's opinion.
In Re Christian,
. Some courts have interpreted this section to mean that the sale only must be conduсted in a procedurally correct manner.
See In Re Hric,
. The Illinois legislature also has defined a “nonownership interest” as including a lien on property. 35 ILCS 200/21-285. Although this definition is found in the statutes concerning property taxes, it nonetheless provides additional support for the conclusion that a lien does not amount to an ownership interest in property.