Memorandum of Decision
Appellant, Leilani Taylor (“Taylor”), appeals from an order of the United States Bankruptcy Court for the District of Vermont, dated July 25, 2002, rejecting her proposed Chapter 13 plan (the “Plan”). For the reasons set forth below, the ruling of the Bankruptcy Court is vacated, and the case remanded for further proceedings consistent with this opinion.
I. BACKGROUND
The essential facts are not in dispute. In October 1997, Taylor and her then-husband Frederick Daniels executed a $55,000 promissory note to Vermont National Bank, secured by a mortgage deed. The mortgage deed was assigned to Vermont Housing Finance Agency (“VHFA”), which commenced a foreclosure action in state court on September 7, 2001.
On November 21, 2001, the state court issued a Judgment Order and Decree of Foreclosure, setting May 21, 2002 as the date by which Taylor and her ex-husband had to redeem their property. On May 17, 2002, just before the redemption date, *278 Taylor filed for bankruptcy under Chapter 13 of the United States Bankruptcy Code. Taylor submitted a Chapter 13 plan on June 26, 2002 in which she proposed reinstating the VHFA mortgage and resuming her mortgage payments. VHFA objected, and the Bankruptcy Court ruled in favor of VHFA, finding that Taylor’s bankruptcy petition had not stayed the expiration of the redemption period. The Bankruptcy Court reasoned that Taylor’s rights under the mortgage expired upon entry of the foreclosure judgment, notwithstanding her continued right of redemption.
Quoting the Second Circuit’s recent opinion in
Canney v. Merchants Bank,
Taylor retained the equitable right to redeem the property as of the date she filed her bankruptcy case, and that right was extended pursuant to 11 U.S.C. § 108(b). But, according to the Bankruptcy Court, that was Taylor’s only remaining interest in her property. Having failed to redeem the property in a timely fashion, Taylor had nothing to cure.
On appeal to this Court, Taylor argues that
Canney
does not apply, and that 11 U.S.C. § 1322 provides her with a federal right to cure her default on her home mortgage. Accordingly, Taylor’s appeal requires this Court to interpret Section 1322(c)(1) in light of
Canney,
and to address a live controversy that has defied consensus in the federal courts. In so doing, we review the Bankruptcy Court’s rulings of law
de novo. See In re Ionosphere Clubs, Inc.,
II. DISCUSSION
Before discussing the merits of Taylor’s arguments on appeal, she faces a procedural hurdle. According to VHFA, Taylor failed to raise the Section 1322 issue with the Bankruptcy Court and should therefore be precluded from arguing the applicability of the statute here. While Taylor’s arguments have undoubtedly become more refined or this appeal, the legal issue presented was at least broadly before the Bankruptcy Court, namely, whether Canney applies in the context of Chapter 13.
Taylor may be faulted for failing to point the Bankruptcy Court to all of the relevant statutory authority governing this case, but her failure to do so has not waived consideration of the legal issue on appeal.
See In re McLean Indus., Inc.,
*279 A. Canney v. Merchants Bank
In its ruling for VHFA, the Bankruptcy Court relied on the Second Circuit’s recent decision in
Canney.
The Bankruptcy Court is correct that
Canney
presents an analogous factual situation. There, a financial institution sought to foreclose on certain loans, obtaining a foreclosure judgment from a Vermont state court “that specified the amounts due and a deadline for [debtor] to redeem.”
Canney,
The Canney court ruled against the debtor: “Because [debtor] sought bankruptcy protection after the foreclosure judgment had been filed but during the redemption period specified in that judgment, his equity of redemption, a contingent equitable interest in the property subject to extinguishment absent redemption within the allotted time, became ‘property of the estate’ within the meaning of federal bankruptcy laws.” Id. at 370. In other words, the bankruptcy estate contained nothing more than a contingent equitable interest in the property; having failed to redeem the property within the time provided by the State Court judgment of foreclosure, that contingent interest disappeared. As the Canney court concluded: “[W]e hold that the period of equitable redemption was not stayed when [debtor] filed a Chapter 13 bankruptcy petition on September 14, 1998 .... Thus, having failed to redeem during the period of equitable redemption, neither the mortgagor nor the Trustee has a legally cognizable right or interest in the property that justifies encumbrance by federal bankruptcy law.” Id. at 373.
Read broadly, as the Bankruptcy Court did,
Canney
precludes Taylor’s arguments before the Court today. One court has subsequently noted, “an expansive reading of
Canney
would lead one to believe that all debtor-mortgagors who file their bankruptcy petitions after the entry of a judgment of strict foreclosure irretrievably forfeit their mortgaged property interest, absent timely redemption during the bankruptcy case, after the later of (i) the passing of the state law redemption deadline or (ii) 60 days after the bankruptcy order for relief.”
In re Pellegrino,
Canney focused exclusively on Section 108(b), which applies to remedying defaults generally, extending the time to cure or redeem by as much as 60 days. In contrast, this case is governed by Section 1322(c)(1), which contains provisions uniquely tailored to protect homeowners’ primary residences. While the facts in Canney are analogous to the facts presented here, the governing law is substantively different.
B. Section 1322(c)(1)
Section 1322(c)(1) provides, in relevant part, that a Chapter 13 plan shall:
(b)(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, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims;
*280 (c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law — •
(1) a default with respect to, or that gave rise to, a lien on the debtor’s principal residence may be cured ... until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.
The plain language of Section 1322(c)(1) provides “an independent right to cure under the Bankruptcy Code, apart from the debtor’s right to redeem under state law which is itself extended by § 108(b).”
In re Spencer,
Vermont is one of only two states where strict foreclosure, as opposed to a foreclosure sale, is the normal method of foreclosure.
See In re Frazer,
In a strict foreclosure proceeding, the mortgagor retains the right of redemption until the date specified in the judgment of foreclosure.
See, e.g., Mitchell v. Aldrich,
Since Vermont does not require a foreclosure sale to vest ownership in the mortgagee, and Section 1322(c)(1) provides an independent federal right to cure until the date of a foreclosure sale, the issue squarely presented in this case is when the Section 1322(c)(1) right to cure expires in a strict foreclosure regime.
C. Applying Section 1322(c)(1) to Strict Foreclosures
VHFA argues that Section 1322(c)(1) is inapplicable in the context of strict foreclosures and never creates a right to cure. VHFA is correct that “an initial analytical hurdle is encountered in attempting to interpret Section 1322(c)(l)’s foreclosure ‘sale’ concept in the context of a ...
strict
foreclosure.”
In re Pellegrino,
The court in
In re Pellegrino
adopted a more persuasive approach, looking to the substantive state law to define what counts as a “foreclosure sale” in a strict foreclosure state like Connecticut. The
In re Pellegrino
court held that “[t]he more appropriate approach is to attempt to translate into a strict foreclosure context the point of finality represented by Section 1322(c)(l)’s ‘sale’ terminology.”
In re Pellegrino,
This approach also accords most closely with the body of cases addressing the related question of when a foreclosure is deemed to have occurred for purposes of Section 1322(c)(1). While some cases have found that the term “foreclosure sale” unambiguously refers to the date of the foreclosure auction,
see, e.g., McCarn v. WyHy Fed. Credit Union (In re McCarn),
The reasoning in
In re Beeman
is instructive. There, the court identified the definition of “sale” as the “transferring of ownership and title regarding property to a buyer,” and found that Section 1322(c)(1) “envisions a debtor’s rights being terminated upon the completed transfer of title and ownership to a buyer through a foreclosure sale. Title and ownership generally pass through foreclosure upon the completion of a process, and not upon the occurrence of a single event such as a foreclosure auction.”
In re Beeman,
Admittedly, conflicting authority exists.
See id.
at 524 (citing cases holding that Section 1322(c)(1) unambiguously refers to the date on which the gavel falls in a foreclosure auction);
see also In re Crawford,
*282
In Vermont, under its strict foreclosure law, the mortgagee’s ownership of the subject property following a foreclosure judgment remains encumbered until the date of redemption specified in the foreclosure judgment has passed.
See Mitchell,
D. Waiver
VHFA argues in the alternative that Taylor has waived her right to a Section 1322(c)(1) cure by not demanding a foreclosure sale. Vermont foreclosure law affords debtors the right to request a foreclosure sale instead of permitting a mortgagee to proceed by strict foreclosure. See 12 V.S.A. § 4431a. However, VHFA’s proposed rule would have the anomalous effect of forcing a debtor to exercise her option for a foreclosure sale in order to invoke Section 1322(c)(1) to prevent the foreclosure sale from occurring. There is no reason to think that the debtor’s apparent ability to choose the form of the cutoff of her right to cure — i.e., choosing between strict foreclosure and a foreclosure sale — • should have any impact on the range of remedies available before that cutoff event.
This is consistent with the underlying purpose of the statute. Section 1322(c)(1) embodies “a strong Congressional intention ... to aid debtors in their efforts to retain their residences.”
In re Spencer,
Section 1322(c)(1) would hardly bring coherence to the variety of state foreclosure laws if its application turned on each state’s foreclosure procedures. Under VHFA’s proposed interpretation, Section 1322(c)(1) would, for example, be available in most foreclosure actions in Maine, but not in Vermont or Connecticut. Congress sought to create a uniform federal standard for curing default on a home mortgage and this Court will not adopt a statutory interpretation at odds with that intent.
E. Right to Cure versus Right of Redemption
VHFA also argues that Taylor’s arguments improperly confuse the right to cure with the right to redeem property. VHFA *283 is plainly correct that there are important substantive differences between redemption and cure:
A ‘cure,’ as allowed under section 1322(b), leaves most of the terms of the underlying loan agreement in effect, and merely allows the debtor to reverse any acceleration of the loan, caused by default, so that the debtor can ‘catch up’ on the defaulted amounts while maintaining current payments. The right to redeem property, on the other hand, does not allow the debtor to reverse acceleration on the loan and catch up payments, but rather requires the debtor to pay the purchaser of the property the sum that it paid at a foreclosure sale plus interest and costs within a stated period of time.
In re McCarn,
There is also no doubt the debt- or’s rights to cure under state law are extinguished at the date of the foreclosure judgment. But Taylor is not seeking to cure under Vermont’s foreclosure law. Instead, she is seeking bankruptcy protection under federal law, and Section 1322(c)(1) creates an independent federal right to cure. Taylor’s right of redemption is relevant only to the extent that it provides her with substantive state law property rights in the subject property sufficient to guarantee the availability of Section 1322(c)(1) relief.
It is important to note that Section 1322(c)(1) does not automatically provide a right to cure whenever Vermont’s more limited right of redemption is available. First, Section 1322(c)(1) is only available to cure a hen on a debtor’s principal residence. Second, and even more basically, this particular federal right to cure is only available to homeowners who seek the protection of Chapter 13. Therefore, Section 1322(c)(1) does not replace Vermont’s limited rights of redemption with a federal right to cure but instead provides targeted federal relief for homeowners who have sought bankruptcy protection.
III. CONCLUSION
For the reasons set forth above, the order of the Bankruptcy Court is VACATED and the case REMANDED for further proceedings consistent with this opinion.
SO ORDERED.