TD Bank, N.A. v. LaPointeTD Bank, N.A. v. LaPointe
TD Bank, N.A. (the “Bank”) appeals the bankruptcy court’s order denying its motion for relief from the automatic stay to enforce its state law rights with respect to the debtor’s residence. The Bank argues that the bankruptcy court erred in denying its motion because it had conducted a pre-petition foreclosure sale of the debtor’s residence, thereby divesting the debtor of any interest in the residence which would be property of the estate protected by the automatic stay. We agree and, therefore, we REVERSE the bankruptcy court’s order denying the Bank’s motion for relief from the automatic stay, and REMAND to the bankruptcy court for entry of an order granting the Bank’s motion for relief from the automatic stay.
BACKGROUND
The material facts of this case are undisputed. In May 2009, Robert LaPointe (the “Debtor”) granted a mortgage on his residence to the Bank to secure a promissory note. Thereafter, the Debtor defaulted, and the Bank conducted a foreclosure auction on March 20, 2013. The Bank was the successful bidder at the auction and signed a memorandum of sale on that date. The next day, the Debtor filed a chapter 13 petition. The Bank did not record the foreclosure deed before the Debtor filed his bankruptcy petition.
In his chapter 13 plan, the Debtor proposed to make payments to the trustee of $278.00 for 60 months, for a total of $16,680.00.
5. SECURED CLAIMS (PRIMARY RESIDENCE)
Residence located at: 75 Ñutes Road, Milton, NH 03851
Debtor estimates the fair market value of such primary residence to be: $ 130,700.00
Since the debtor seeks to retain the collateral, and for the lien to remain in full force and effect, the claim will be treated in one of the following two manners:
() Outside the plan. The mortgage is current and will continue to be directly payable by the debtor.
OR
(x) The mortgage is not current. Regular postpetition payments will be made directly by the debtor and the prepetition arrearage only is to be paid through the plan, as follows:
Estimated Total
Mortgagee Prepetition Arrearage
1st TD Bank $14,500.00
2nd TD Bank $ 500.00
3rd_ _
One month later, the Bank filed a motion for relief from the automatic stay so
The bankruptcy court held a hearing on May 22, 2013. After hearing arguments from the parties, the court concluded:
... [T]he language in [§ ] 1322(b) and (c) that refers to the sale being completed really means the entire transaction and not just the — whatever transaction exists as between the mortgagee and the debtor because otherwise no mortgagee would ever have to complete a sale by conveying title to the foreclosure sale purchaser because the sale, quote unquote, would already have been complete, except it isn’t complete because the mortgagee is still in title — or is at least in theory, if not in fact. But the only person who isn’t in title yet is the purchaser who bid at the auction.
So, for that reason, I would find that the debtor does have a sufficient interest in the property to be able to proceed with a Chapter 13 plan, and that would be cause to deny your motion for leave with respect to property of the estate issues.
The bankruptcy court entered an order denying the Bank’s motion for relief from stay “without prejudice for the reasons set forth on the record this date.” This appeal followed.
JURISDICTION
Before addressing the merits of an appeal, the Panel must determine that it has jurisdiction, even if the litigants do not raise the issue. See Boylan v. George E. Bumpus, Jr. Constr. Co. (In re George E. Bumpus, Jr. Constr. Co.),
While orders granting relief from the automatic stay are generally final and appealable, an order denying relief from stay is not final and appealable unless it completely resolves all issues between the
The Bank moved for leave to appeal, arguing that this case involves a controlling question of law because if the Debtor had an interest in the property as of the bankruptcy filing, he can cure the default and reinstate the note and the mortgage pursuant to §§ 1322 and 1325. It also argued that the question of whether the Debtor had an interest in the property as of the bankruptcy filing turns on the application of the New Hampshire foreclosure statute, and courts differ on the proper interpretation and application of that statute. Determining that the matter met the pertinent standards for interlocutory review, the Panel granted leave to appeal.
STANDARD OF REVIEW
Appellate courts apply the clearly erroneous standard to findings of fact and de novo review to conclusions of law. See Lessard v. Wilton-Lyndeborough Coop. Sch. Dist.,
DISCUSSION
I. Applicable Law
Section 362(a)(1) provides that the filing of a bankruptcy petition automatically stays all acts against a debtor and property of the bankruptcy estate, subject to limited exceptions. 11 U.S.C. § 362(a)(1). For property to be protected by the automatic stay, it must be property of the bankruptcy estate. See 11 U.S.C. § 362(c)(1); Donarumo v. Furlong (In re Furlong),
We start with an analysis of the applicable state law — in this case, the New Hampshire foreclosure statute — and the redemption provisions set forth in the Bankruptcy Code.
A. New Hampshire Foreclosure Law
N.H.Rev.Stat. Ann. §§ 479:25 and 26 set forth the requirements and procedures for
With respect to the right of redemption, the New Hampshire Supreme Court has held:
The mortgagor does not have a right of redemption after foreclosure. RSA 479:18, :19 (1992). Even though legal title does not pass until the deed has been recorded, see RSA 479:26, II (1992), this rule does not change the fact that [the debtor] possessed neither a legal nor an equitable interest in the property once the auctioneer’s hammer fell and the memorandum of sale was signed.
Barrows v. Boles,
B. The Bankruptcy Code’s Cure Provision-Section 1322
Section 1322 sets forth the mandatory and optional provisions for the treatment of creditors in a chapter 13 plan. Subsection 1322(b)(3) broadly permits the plan to “provide for the curing or waiving of any default” and subsection (b)(5) permits the plan to “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.” 11 U.S.C. § 1322(b)(3) and (5). Section 1322(c)(1) allows a debtor to cure his or her default under a mortgage, providing:
Notwithstanding subsection (b)(2) and applicable nonbankruptcy law ... 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; ...
11 U.S.C. § 1322(c)(1) (emphasis added).
In In re Beeman, Judge Deasy explained § 1322(c)(l)’s history and purpose:
Section 1322(c)(1) was added to the Bankruptcy Code in 1994.... Before 1994, there was some confusion as to when Chapter 13 debtors lost their right to cure and reinstate a home mortgage. Some courts had held that such a right was lost when a foreclosure auction was held. See, e.g., Fed. Land Bank of Louisville v. Glenn (In re Glenn),760 F.2d 1428 (6th Cir.1985), 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), cert. denied,474 U.S. 849 ,106 S.Ct. 144 ,88 L.Ed.2d 119 (1985). However, in 1987, the Court of Appeals for the Third Circuit held that a Chapter 13 debtor’s right to cure and reinstate ahome mortgage was lost, pursuant to state law, upon entry of a foreclosure judgment, which occurred before the actual foreclosure auction. See In re Roach, 824 F.2d 1370 (3d Cir.1987). It is generally understood that Congress enacted § 1322(c)(1) in an effort to resolve this confusion and create a uniform standard. See In re Crawford,232 B.R. 92 , 95 (Bankr.N.D.Ohio 1999); In re Tomlin,228 B.R. 916 , 918 (Bankr.E.D.Ark.1999).
Since the enactment of § 1322(c)(1), courts have disagreed over the meaning of the phrase “sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law,” and several different approaches have emerged. One line of cases follows the “gavel rule,” holding that the debtor’s right to cure is cut off once the gavel falls at the foreclosure auction.
Courts adopting a second approach consider the statutory language to be ambiguous and turn to the legislative history to determine the legislature’s intent. Courts following this approach focus on the word “sold” in § 1322(c)(1) and hold that the statutory language is intended to cut off the debtor’s right to cure only when the entire sale transaction is complete under state law.
C. In re Beeman
In Beeman, the bankruptcy court considered whether, under § 1322(c)(1), a chapter 13 debtor could cure a default on a mortgage note through his plan when the foreclosure auction occurred prior to the petition date, but the buyer had not yet recorded the foreclosure deed. The bankruptcy court acknowledged the New Hampshire Supreme Court’s decision in Barrows, supra, which ruled that a mortgagor does not retain legal or equitable interest in property once a foreclosure auction is held. Notwithstanding New Hampshire state law, the court determined the amendments to § 1322, made subsequent to Barrows, created federal cure rights. Analyzing what it considered to be the plain language of § 1322, the Beeman court determined that § 1322(b) and (c) provide an independent right to cure under the Bankruptcy Code, apart from the debtor’s right to redeem under state law. The court found that: (1) § 1322(c) preempts state redemption law with respect to when a chapter 13 debtor’s rights to cure and reinstate a mortgage are cut off; (2) such cure and reinstatement rights end when a foreclosure sale process is complete; and (3) state foreclosure law determines when the foreclosure sale process ends.
Although the bankruptcy court in the present case did not specifically mention In re Beeman when rendering its decision, it applied the same approach, concluding that § 1322(c) provides debtors with a federal right of redemption until the time that a foreclosure sale is “complete,” and that, under New Hampshire law, a foreclosure sale is not “complete” until the buyer records the deed and receives legal title. Thus, it ruled, because the Bank did not record the deed before the petition date, the Debtor retained an interest in the property, i.e. the right of redemption under § 1322(c). We conclude that the bankruptcy court’s decision was legal error, as discussed below.
II. Analysis
As Judge Haines pointed out in McKinney:
[T]he major fork in § 1322(c)(1) interpretation is the ambiguous/ unambiguous determination. If a court determines the provision unambiguous, it must then consider whether the content of state foreclosure law comes into play at all in achieving the statutory aim. Compare, e.g., In re Bobo, 246 B.R. 453 , 457 (Bankr.D.C.2000) (§ 1322(c)(1) is unambiguous; state foreclosure processes not to be considered in determining when property is “sold”), with Crichlow,322 B.R. at 234 (§ 1322(c)(1) is unambiguous, but state foreclosure law is relevant to whether, and when, there has been a foreclosure sale). Courts concluding that § 1322(c)(1) is ambiguous are doubly challenged. They must first determine the provision’s meaning in the face of contradictory legislative history, see McCarn v. WyHy Fed. Credit Union (In re McCarn),218 B.R. 154 , 160-61 & n. 5 (10th Cir. BAP 1998), and then confront the extent to which state law must be taken into account, Colon,319 F.3d at 917-19 .
McKinney,
We conclude that the language of § 1322(c)(1) is clear, unambiguous and needs no interpretation. “The phrase ‘sold at a foreclosure sale’ refers to a sale that occurs at a foreclosure auction.” Id. at 5-6. The additional phrase “conducted in accordance with applicable nonbankruptcy law” is a requirement that the foreclosure was noticed, convened and held in compliance with applicable state laws. Id. (citations omitted); see also Crichlow,
Even if we were to conclude that § 1322(c)(1) is ambiguous and that we must look to state law to ascertain when a foreclosure sale “occurs” or is “final,” it is clear that, under New Hampshire law, the foreclosure process is complete as to the mortgagor at the time the gavel falls at the foreclosure auction. See Barrows,
In this case, because the foreclosure auction took place prior to the petition date, the Debtor no longer had any right of redemption and no legal or equitable interest in the property under New Hampshire law. As the Debtor was divested of all equitable interests in the property as of the petition date, the property was not property of the estate, and he had no ability to cure his defaults under § 1322(c)(1). To interpret the law differently would give the Debtor substantially more legal or equitable rights than he has under state law.
Consequently, we conclude that the bankruptcy court erred in its interpretation of § 1322(c)(1), and abused its discretion in denying the Bank’s motion for relief from the automatic stay.
For the reasons set forth above, we REVERSE the bankruptcy court’s order denying the Bank’s motion for relief from the automatic stay, and REMAND to the bankruptcy court for entry of an order granting the Bank’s motion for relief from the automatic stay.
Notes
. Although the Debtor did not designate the plan as part of the record on appeal, we may take judicial notice of the bankruptcy court’s docket and imaged papers when the parties do not supply a comprehensive record on appeal. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),
. Unless expressly stated otherwise, all references to "Bankruptcy Code" or to specific statutory sections shall be to the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. § 101, et seq.
. As discussed later, In re Beeman involved the question of whether, under § 1322(c)(1), a chapter 13 debtor could cure a default on a mortgage note through his plan when the foreclosure auction occurred prior to the bankruptcy filing, but the seller had not yet recorded the foreclosure deed.
. See, e.g., In re Connors,
. See, e.g., In re Wescott,