14 Conn. L. Rptr. 218 | Conn. Super. Ct. | 1995
This foreclosure action, brought by the plaintiff, First Constitution Bank, formerly known as First Federal Bank, on January 16, 1991, followed default under the above note. Judgment of strict foreclosure was first entered by the court, Licari, J., on September 7, 1993. At the plaintiff's request, pursuant to the plaintiff's motion for judgment of strict foreclosure filed July 21, 1993, the first law day was assigned to Washington Associates, and the second to Thomas Flanders with title to vest in the plaintiff on the third day.1 The judgment was subsequently opened and the law days extended on several occasions. The most recent extension set the law days to begin August 1, 1994.
On July 27, 1994, Flanders filed a Chapter 13 petition in bankruptcy. On September 21, 1994 the bankruptcy court dismissed Flanders' case. On October 20, 1994, FCB Properties, Inc.2 (FCB) filed a motion for deficiency judgment, claiming that the value of the subject property is sufficient to satisfy the remaining debt. Flanders filed a memorandum in opposition to the deficiency judgment on January 9, 1994, and the plaintiff filed a memorandum in support of its motion on January 18, 1995. CT Page 2833
"A deficiency judgment provides a means for a mortgagee to recover any balance due on the mortgage note that was not satisfied by the foreclosure judgment. . . . It is the only means of satisfying a mortgage debt when the security is inadequate to make the foreclosing plaintiff whole." People's Bank v. Bilmor BuildingCorp.,
In his memorandum in opposition to the plaintiff's motion, Flanders argues that, pursuant to
In its memorandum in support of its motion, First Constitution Bank argues that because the subject property was owned by Washington Street Associates, not Flanders, the stay imposed pursuant to
The fundamental issue in this case, and apparently one of first impression in this state, concerns whether the stay in bankruptcy tolls the running of a court mandated period of CT Page 2834 redemption in a mortgage foreclosure action when the debtor, a guarantor of a note secured by the mortgage, has no interest in the subject property. If the stay does toll the period for redemption, then, as discussed herein, title would not have vested in FCB, and FCB would be required to open the judgment for the court to assign new law days. In that event, any motion for deficiency judgment would be premature. On the other hand, if the stay does not toll the redemption period, title would have vested in FCB on August 3, 1994, and the motion for deficiency judgment, (itself stayed by § 362(a) until the dismissal of Flanders' chapter 13 case), would be timely.
The effect of the stay in bankruptcy on redemption periods in mortgage foreclosure actions has been a subject of considerable debate at the federal level. Although the majority of courts have concluded that the stay imposed pursuant to § 362(a) does not toll the running of a redemption period; see, e.g., Johnson v. FirstNational Bank of Montevideo, Minn.,
The Bankruptcy Code and Connecticut Foreclosure Law
In In re St. Amant, supra,
In its analysis, the court noted that, with respect to the CT Page 2835 tolling of the expiration of a redemption period in a foreclosure action, the majority of courts "find the appropriate provision to be
To resolve the question of which provision of the Bankruptcy Code applies to the running of law days in Connecticut, the court in In re St. Amant undertook an examination of relevant policy considerations and legislative history. The court concluded that "§ 362(a) and not § 108(b) most appropriately applies to a post-petition period of redemption when a judgment lien is being foreclosed under Connecticut foreclosure law." In re St. Amant,
supra,
In reaching its decision, the court noted in its discussion of policy considerations that "§ 108(b)'s 60-day extension of a redemption period is totally inadequate to accomplish [the purposes of bankruptcy law]". In re St. Amant, supra,
In its discussion of the legislative histories of §§ 362(a) and 108(b) the court stated that "Congress' intent [was] that [§ 362(a)] be construed broadly to further the rehabilitative purposes of the Code." In re St. Amant, supra,
Section 108(b), on the other hand, "is ambiguous as to its application to periods of redemption. Specifically, the payment of a judgment debt is not plainly within the meaning of `cure [of a] default' or `any . . . act' `similar' to it." In re St. Amant,
supra,
In further support of its holding, the St. Amant court observed that the cases it cited that applied § 108(b) and not § 362(a) "arose in every instance in jurisdictions where rights of redemption are established by statute after a foreclosure by sale procedure has been concluded." In re St. Amant, supra,
The St. Amant Rationale Applied to the Present Case
The present case differs from the St. Amant case in two important respects. First, the present case concerns a mortgage foreclosure, not the foreclosure of a judgment lien, and second, Flanders, the bankruptcy debtor in the present case, does not and did not have any rights in the subject property at the time of the default and foreclosure. These factual differences make application of the rule articulated in St. Amant problematic, but not impossible.
Policy Considerations
In St. Amant, that portion of the court's rationale pertaining to policy considerations noted the possible loss of property from CT Page 2837 the estate that would result if § 362(a) were not applied. In the present case, in contrast, the real property at issue is not property of or from the debtor's estate. Rather, the debtor's property consists of his share in the partnership. "[A] partner's interest in [a] partnership is his share of the profits and surplus, and the same is personal property." Fidelity Trust Co. v.BVD Associates,
Nevertheless, allowing the passing of a guarantor's law day prior to the confirmation of a chapter 11 or chapter 13 plan, affects the rights of the debtor to protect himself from a possible deficiency judgment. D. Caron, Connecticut Foreclosures, § 19.05 (2d. ed. 1989) In addition, "[c]onfirmation of a chapter 11 or 13 plan is virtually impossible within a 60-day period" afforded by § 108(b). Hence, staying the passing of a guarantor's law day is in accord with the rehabilitative purposes of bankruptcy law by allowing a debtor or trustee to examine the rights and options available to the debtor with respect to the foreclosure action. Accordingly, the policy considerations outlined in the St. Amant case support the stay of the passing of Flanders' law day pursuant to § 362(a).
Language and Legislative Intent of § 362(a)
In addition, the language and legislative history of §§ 362(a) and 108(b), as construed in the St. Amant case, suggest that the passing of Flanders' law day is appropriately stayed by § 362(a). As discussed above, the St. Amant court determined that the passing of a judgment lienor's law day constituted a violation of the stay imposed pursuant to §§ 362(a)(2), (3) and (4). In the present case, although §§ 362(a)(3) and (4) do not stay the passing of Flanders' law day, the passing of Flanders' law day is "the enforcement against the debtor . . . of a judgment obtained before the commencement" of Flanders' bankruptcy case pursuant to § 362(a)(2). Hence, the passing of Flanders law day was stayed by his chapter 13 bankruptcy petition.
"Under General Statutes §
Section 108(b) might arguably apply in the present case to extend the period for redemption by Flanders for 60 days if the redemption could be deemed a "cure [of] a default" or "similar act" pursuant to § 108(b). Although redemption of a mortgage seems more akin to the cure of a default than the payment of a judgment debt as was the subject of the controversy in In re Amant, supra,
Transfer of Ownership Upon the Passing of a Law Day
Part IV. C. of In re St. Amant does not augment the above CT Page 2839 rationale for the application of § 362(a). The court in St. Amant further noted that because of the nature of Connecticut foreclosure law, the passing of the final law day would have effected a transfer of ownership from the debtor to the foreclosing plaintiff. The court held that such a transfer "is the very thing which § 362(a) was designed to prevent." In the present case, however, that reasoning lends little support for the application of § 362(a), for the transfer of ownership that would have occurred upon the passing of Flanders' law day would not have deprived Flanders or his estate of property because, as previously discussed, Flanders had no interest in the property at any time relevant to these proceedings.
The holding in In re Amant should be expanded to include the application of § 362(a) to stay the passing of a law day assigned to a bankrupt debtor who is a co-signor, obligor, or guarantor. Flanders' bankruptcy petition stayed the foreclosure action and prevented his law day from passing. Therefore, the motion for deficiency judgment is premature pursuant to General Statutes §
Donald W. Celotto State Trial Referee
