Interpretation of Bankruptcy Code § 1322(C)(1)
Arguing for a Bright–Line Approach to the Debtor's Statutory Right to Cure a Residential Mortgage Default
Vol. 7
November 2007
Page
Introduction
Federal law provides individuals who file for Chapter 13 bankruptcy a statutory right[1] to cure a prior default on the mortgage on their homes. Some courts interpret this cure right as terminating when the gavel falls at the foreclosure sale; others hold the right extends beyond that point until the sale is deemed final under state law. This Note argues for a bright-line approach that the relevant bankruptcy statute[2] terminates the right of the debtor at the time of the foreclosure sale. In essence, federal law supplies the when for the expiration of the right to cure and adopts the state law how for conducting the foreclosure sale event.
The controversy arises when a debtor files a bankruptcy petition under Chapter 13 of the Bankruptcy Code after the foreclosure sale of the debtor's residence has occurred, but before state law would deem the sale complete. At stake to the parties is ownership of the property. This controversy can be better understood by considering two hypothetical couples. The Smiths are debtors seeking to save their home through Chapter 13 bankruptcy; the Joneses, on the other hand, are foreclosure buyers of the same home.
Mr. and Mrs. Smith bought their four-bedroom home with a yard and two-car garage in suburbia. After a few years, they encountered a series of unexpected financial setbacks that made it difficult for them to make their mortgage payment.[3] They quickly fell behind, and some months later, the bank held a foreclosure sale of their home.[4] The second couple, the Joneses, found the perfect opportunity to purchase a first home by hunting through the foreclosure sale listings. Their goal was to buy a four-bedroom home with a yard and two-car garage in suburbia. They were prepared and presented their certified cashier's check as the required deposit before their final bid at the foreclosure sale was accepted.
After the foreclosure sale, and for the first time, the Smiths sought outside help with their debts. The Smiths met with a bankruptcy attorney, who advised them to file for bankruptcy as soon as possible because they might still be able to save their home.[5] To accomplish this, they would need to avail themselves, amidst significant controversy in the federal courts, of their state's favorable laws concerning foreclosure sales. Unlike some jurisdictions,[6] their state does not consider a foreclosure sale complete when the sale event occurs, but rather when the new deed is delivered to the Joneses. To save their home, the Smiths must file for bankruptcy before the deed is delivered to the new buyers. Then they must then convince the bankruptcy court to adopt one of two interpretations of a federal law that would allow them to invoke their right to cure their mortgage default even after the date of the foreclosure sale. If the Smiths prevail in this legal controversy, they could possibly save their home.[7]
This Note argues that the Joneses (the foreclosure buyers) should prevail. Part I of this Note provides a brief history of bankruptcy and its underlying public policies. Part II provides an overview of the modern residential foreclosure process. Part III presents the history of mortgage debt cure under federal bankruptcy law, 11 U.S.C. § 1332(c)(1), and the interpretative controversy that section has created. Part IV applies four traditional, generally accepted canons of statutory interpretation applicable to the language of § 1322(c)(1), and analyzes its legislative history. Part IV also considers equity under bankruptcy principles and compares the competing positions' effects on state autonomy. It then concludes that all considerations support a bright-line interpretation: the debtor's right to cure expires when the gavel falls at the foreclosure sale event.
I. History, Underlying Policy, and the Modern Chapter 13 Bankruptcy
A. The Roots and Underlying Policies of Bankruptcy
The concept of debt forgiveness dates back well over 3000 years.[8] English law laid the foundations for initial bankruptcy principles in the United States.[9] The first English bankruptcy law,[10] placed jurisdiction over the debtor[11] in the King's Council, and the equitable nature of the claim has endured ever since.[12] This law did not include the forgiving of debts; rather, the law kept debts alive indefinitely.[13] Even after all of the debtor's goods were seized and sold to satisfy the debts and the proceeds provided to his creditors, the remaining balance continued in full force, with all new acquisitions of the debtor immediately vesting in his creditors.[14]
A new law was implemented after England's transition from an agrarian economy to one built on commerce and trade.[15] The old law providing for actions only between two parties and was not amenable to the new industrial economy that produced individuals with multiple creditors.[16] "The Common Law maxim, 'the law favors the diligent creditor'" was no longer helpful, as it created a race among creditors to be the first to file their grievance and thereby obtain priority for repayment.[17] The new law placed the power of all creditors in one collector, who distributed what he seized between all creditors equally.[18] Consequently, a new bankruptcy maxim, "[e]quality is equity," replaced the old.[19] As an incentive for the debtor's cooperation, in 1705, Parliament[20] enacted laws that released debt over and above the amount that the debtor surrendered in good faith and upon full disclosure of assets.[21]
All of America's early colonies adopted bankruptcy laws.[22] At the time of the Revolutionary War, bankruptcy was available only to merchants, brokers, and traders and was an involuntary procedure initiated by the creditors.[23] After the war, the Constitution provided Congress with the power "[t]o establish . . . uniform Laws on the subject of Bankruptcies throughout the United States."[24] As in England, bankruptcy rested in the equity power, as it continues to today.[25] The primary purpose of the first American bankruptcy acts, like the first English law, was to secure assets for the just payment of creditors and prevent the inequities of priority-based collections.[26] Congress, over time, gradually made greater use of the bankruptcy power conferred by the Bankruptcy Clause.[27] The purpose of bankruptcy to forgive the debtor's obligations gained importance.[28] Bankruptcy now strikes a balance between ensuring uniform distribution of assets to creditors of the same class and allowing the "honest but unfortunate debtor" a fresh start.[29]
B. Modern Bankruptcy and Chapter 13
Bankruptcy today is largely a voluntary procedure.[30] Traditional bankruptcy, represented today under Chapter 7 of the Bankruptcy Code,[31] provides debt relief upon the debtor's surrender of assets.[32] Generally, the debtor may retain future earnings.[33] In contrast, modern Chapter 13 bankruptcy, called the "wage earners plan," is a creation of twentieth century bankruptcy law.[34] Generally, it allows the debtor to retain assets but requires the submission of a portion of future wages for three to five years as well to be distributed to pre-petition creditors according to the debtor's plan approved by the court.[35]
Early bankruptcy laws restricted eligibility to Chapter 13 to certain salaried employees.[36] The 1978 Bankruptcy Act[37] expanded the class of eligible Chapter 13 debtors from only salaried employees to most income recipients.[38] The law's purpose was to provide all regular wage earners, unable to support their debts, with an avenue for making affordable payments during the arrangement and emerge debt-free at its conclusion.[39]
In a Chapter 13 bankruptcy, a debtor must propose a payment plan, have it approved by the bankruptcy court, and make payments to a court-appointed trustee.[40] The Chapter 13 repayment plan must provide the creditor at least what it would have realized under traditional bankruptcy liquidation in Chapter 7.[41] Once the petition is filed, an automatic stay on the enforcement of any included debts is ordered.[42] The duration of the payment plan, almost exclusively between three to five years, depends on the debtor's income.[43] Generally, a debtor is allowed to retain his property under Chapter 13.[44] A debtor is even given the flexibility of choosing to include some debts in the plan and exclude others.[45] Some debts, such as domestic support obligations, are statutorily deemed to have priority and are paid first in the plan.[46] At the end of the payment plan, the remainder of most unsecured debt is forgiven.[47]
However, under Chapter 13, creditors with a secured interest in the debtor's primary residence are accorded special treatment.[48] Such creditors are ensured payment of their full balance by avoiding post-plan discharge.[49] For debtors, the benefit of Chapter 13 bankruptcy is the ability to retain ownership of their home and avoid the liquidation sale that could occur under Chapter 7.[50] The Chapter 13 bankruptcy plan is designed to permit cure of the mortgage default and put the debtor back on financial track by paying down the arrearages over the life of the payment plan.[51] Thus, bankruptcy law on the right to cure a mortgage default on the debtor's primary residence results in a compromise between competing interests of the lender and the debtor.[52] However, Congress's failure to state exactly when the debtor's right to cure such a default expires has led to the controversy that this Note addresses.
II. The Foreclosure Process, Mortgage Default Cure in Bankruptcy, and State Statutory Redemption
Strict foreclosure,[53] the process employed in English history that resulted in the lender taking possession of the premises upon default without a public sale, is not the norm today in the United States.[54] Instead, there are two common types of foreclosure actions that both involve a public sale of the premises:[55] the judicial foreclosure and the power-of-sale foreclosure.[56] Judicial foreclosure is complete only after full judicial proceedings in which all interested persons have been made parties.[57] Power-of-sale foreclosure requires only limited judicial involvement, if any, because the power to sell is placed in a third party who acts as a trustee.[58] Although the degree of judicial involvement varies, the ultimate result is the same-a public sale of the property.[59]
There are two operative agreements between the borrower and the lender: the promissory note that creates the debt and the mortgage that creates the creditor's security interest in the real property.[60] The foreclosure process begins when the mortgagor (the homeowner/debtor) either falls behind in making payments or violates some other term of the agreement, causing mortgage default.[61] Almost universally, the mortgage contract contains an acceleration clause, which entitles the mortgagee (the lender) to demand payment of the entire principal amount upon default.[62] However, the actual state of being in default, which can be triggered by just one late payment, does not necessarily lead to acceleration. Most note agreements make acceleration optional, at the discretion of the lender.[63] The lender must determine that the loan is in default and must actively invoke the acceleration clause. This is often done by means of a formal written notice to the borrower that the loan is in default, a demand of the entire amount due, or both.[64] Prior to the formal acceleration notice, homeowners may receive several notices regarding their default.[65]
The next stages of the foreclosure process follow one of two similar paths: judicial foreclosure or power-of-sale.[66] The process followed depends mainly upon the jurisdiction and the specific agreement entered into by the mortgage parties.[67] After acceleration under judicial foreclosure, the creditor must file suit.[68] This typically leads to a foreclosure judgment in favor of the lender.[69] The effect of the judgment on the title to the property varies according to state law.[70] Once the foreclosure judgment is obtained, the foreclosure sale is scheduled.[71] In contrast, under the terms of a power-of-sale mortgage agreement, the foreclosure suit is not necessary.[72] Usually either the mortgagee itself, a trustee acting on its behalf, or some other third party, often the sheriff, sells the property without judicial intervention.[73] Under either system, the property is sold at a foreclosure sale.
Chapter 13 Bankruptcy enters the picture when the mortgagor files a bankruptcy petition to stop the foreclosure process and imposes his right, under federal bankruptcy law, to cure the default. Once a bankruptcy petition is filed, a statutorily required automatic stay is imposed by order of the bankruptcy court and the foreclosure process stops.[74] This mechanism allows the debtor to retain possession of his home with the goal of curing the mortgage default.[75]
A separate and distinct avenue available to the mortgagor in most states is the state statutory right of redemption.[76] Statutory redemption is only available after a foreclosure sale.[77] The mortgagor retains the right of statutory redemption after the foreclosure buyer has purchased the property for a statutorily defined time period that ranges from six months to two years, depending on the jurisdiction.[78] Redemption requires the difficult task of paying the lender a lump sum, usually equal to the foreclosure sale price.[79] In contrast to the federal bankruptcy cure that only resolves the mortgage default, redemption requires a complete payment, which is a complete solution to the mortgage debt.[80] Thus, the state statutory redemption right and the federal bankruptcy right to cure are separate and distinct methods a mortgagor may use to retain or regain possession of their home.
III. Evolution of Section 1322(c)(1) and the Present Controversy
A. Section 1322(b) and the Original Problem: When Courts Were Left to Fill in the Blank of a Mortgage Debt Cure Termination Date
1. History and Policy of the Right to Cure
In 1970, Congress created a Commission on the Bankruptcy Laws of the United States to recommend revisions to the Bankruptcy Code.[81] Drawing from the Commission's findings, the Bankruptcy Reform Act of 1978[82] greatly expanded eligibility for Chapter 13 bankruptcy from certain categories of wage earners to anyone earning income on a regular basis.[83] The Reform Act aimed to change existing law to permit modification of the contract rights of secured creditors under a Chapter 13 payment plan and to give an incentive to debtors to opt for rehabilitation over liquidation.[84] Congress intended the Act to be a win-win solution for both creditors and debtors.[85] Debtors had a chance to retain their assets and enjoy bankruptcy protection without the stigma of the traditional Chapter 7 liquidation.[86] Creditors had the benefit of recouping more of their investments.[87]
The original versions of both the Senate and the House bills had provisions allowing for the modification of secured debts. The banking industry raised concerns of a reduced flow of capital into the national residential housing market if debts made to mortgagors could be reduced through bankruptcy.[88] In response to these concerns, the Senate amended its version to exclude debts secured by an interest in real property from modification; yet, it still allowed other secured debts to be modified.[89] A deal was struck between the Senate and the House, with the final bill allowing for a limited modification of debts secured by only the debtor's residence.[90]
The result was 11 U.S.C. § 1322(b)(2),[91] which generally prohibits a Chapter 13 plan from modifying the terms in the mortgage, a special protection given exclusively to residential mortgage lenders.[92] Debtors are not forgiven any portion of their mortgage balance and usually cannot extend the date when final payment is due.[93] Generally, the debtor must be up to date by the end of the bankruptcy plan by making up for the total amount past due during the life of the plan.[94] Section 1322(b)(2) does not allow forgiveness of the remaining mortgage balance after the debtors' payment plan has been completed, which occurs with most other debts in a Chapter 13 bankruptcy.[95] Instead, the original terms of the mortgage are reinstated at the end of the plan.[96] By balancing the interests of the mortgage creditor and debtor with Section 1322(b)(2), Congress provided stability and encouraged capital investment into the home mortgage market while allowing the debtor a chance to save his home.[97]
2. Cure Termination Dates Applied in the Name of Section 1322(b)
While it was clear what the cure right was, it was not clear when the debtor had the right to apply it.[98] The statute did not provide a timeframe for when the debtor's right to cure his mortgage default expired, which was left to the courts to determine.[99] General agreement existed among the bankruptcy courts that the debtor had the right to cure the debt before acceleration had occurred[100] and that it was too late once the state statutory right to redeem had expired.[101] But between these two events at the extreme ends of the foreclosure process, the stage that courts held the debtor's right to cure expired varied greatly.[102]
Three United States Courts of Appeal rendered opinions on the issue.[103] The first two decisions were In re Glenn from the Sixth Circuit and In re Clark from the Seventh Circuit. Both cases recognized that the debtor's right to cure terminated at the time of the foreclosure sale.[104] In re Glenn based much of its holding on policy considerations and expounded on many of the benefits and equities to all parties of a foreclosure event termination.[105] In re Clark reached the same result, but relied on the applicable state mortgage theory for its reasoning,[106] leaving open the possibility of different results in different jurisdictions. Even with two differently reasoned circuit-level decisions and varied results in the lower courts, the issue of when the cure right should terminate did not attract congressional attention until after the Third Circuit decision of In re Roach.[107]
3. The Third Circuit Straw that Broke the Camel's Back: In re Roach[108]
The Third Circuit's decision of In re Roach stimulated legislative change.[109] Like the hypothetical Smiths, the Roaches filed a Chapter 13 bankruptcy petition after the foreclosure sale of their home had occurred.[110] Both the bankruptcy court and United States district court found that the Roaches no longer had enough of a property interest in their home to permit a right to cure the default.[111] On appeal, the Third Circuit followed the fundamental bankruptcy principle against the preemption of state law unless it was "explicit, or compelled due to an unavoidable conflict."[112] The court noted that property rights have traditionally and generally been defined according to state law. Consequently, the court looked to New Jersey law to define the Roaches' interest in the property.[113] The court recognized that under New Jersey law the mortgage merged with the foreclosure judgment and extinguished the mortgage contract the moment the foreclosure judgment was entered.[114] As such, the Roaches "no longer [had] a mortgage to . . . cure," and they reinstated bankruptcy once the foreclosure judgment had been entered.[115] The Third Circuit held that the Roaches also lost their right to cure.,[116] and postulated that the Roaches would have lost their home even if they had filed for bankruptcy before the foreclosure sale.[117]
In re Roach had the harsh effect of prohibiting a debtor from curing his mortgage default after a foreclosure judgment but well before the foreclosure sale.[118] Legislators believed that the holding in In re Roach contradicted the spirit of bankruptcy law, which aims to provide debtors with a fresh start.[119] In re Roach became one of the express reasons for Congress's bankruptcy legislation of 1994.[120]
B. The Legislative Solution to the Past Problem, and Creation of the Present Problem: Arrival of the 1994 Bankruptcy Code § 1322(c)(1)
1. The Bankruptcy Reform Act of 1994
The Bankruptcy Reform Act of 1994 added § 1322(c)(1) to the Bankruptcy Code.[121] To solve the timing controversy, this section of the Bankruptcy Code provided a legislative answer to the question of when the right to cure a mortgage default terminates.[122] Section 1322(c) reads in pertinent part that, notwithstanding the federal prohibition on modifying a security interest, "a default with respect 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."[123] Thus, there is no longer any question that the statute extends the debtor's ability to cure beyond the time of the foreclosure judgment.[124] The cure right also exists at least until the occurrence of the foreclosure sale event.[125] But, paradoxically, while the new law closed one controversy, it simultaneously opened another.[126]
2. The New Controversy
The controversy surrounding 11 U.S.C. § 1322(c)(1), once again, is about when the debtor's right to cure a mortgage default in his primary residence expires.[127] It is a question of how to interpret "until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law."[128] The case law is divided on the meaning of this text.[129] While some courts follow the bright-line approach, other courts abide by the completed-transfer approach.
a. The Bright-Line Approach[130]
Courts adhering to the bright-line approach interpret the statute as imposing a termination of the right to cure at the time of the actual event of the foreclosure sale.[131] These courts read the language to mean that when the last bid is accepted at the foreclosure sale, the debtor's right to cure is terminated.[132] They interpret the word "sold" in conjunction with "at" to conclude that Congress determined the time the debtor's right to cure terminates when the last bid is accepted from the "foreclosure sale" auction.[133] Under this view, the statutory language's reference to nonbankruptcy (i.e., state) law only indicates the means by which the foreclosure sale is to be conducted.[134] A few bankruptcy courts have even explicitly ruled that the debtor's right to cure terminates "when the gavel comes down."[135]
b. The Completed-Transfer Approach[136]
Completed-transfer courts interpret the statute to mean that a debtor has a right to cure until "a foreclosure sale" is legally complete under the applicable state law.[137] They do not find the reference to state law to be limited in its application only to the manner in which the foreclosure sale is conducted.[138] Rather, they find that the text of the statute or its legislative history, directs courts to follow state law to determine when the property is technically "sold," that is, when the entire sale transaction is complete and all the mortgagor's property interests have been transferred.[139] This signals the expiration of the debtor's right to cure his default.[140]
Among the courts adhering to this approach, some find the statute unambiguous.[141] They read the word "sold" as indicating the entire sale transaction must be completed according to state law before the debtor's right to cure expires.[142] Some courts in this group rely on the phrase "that is conducted in accordance with [state] law."[143] They conclude that this successive phrase indicates that federal law mandates that the cure right ends when state law deems the entire foreclosure transaction complete, and the property is thus "sold."[144] Other courts applying the completed-transfer approach find the statute ambiguous; yet, they consider the legislative history and decide that Congress intended state law to control the issue.[145] Both of the completed-transfer approaches reach the same conclusion: under § 1322(c)(1) the debtor's right to cure a mortgage default under Chapter 13 terminates when state law deems the entire foreclosure sale transaction to be complete.
When courts follow the completed-transfer approach, the results vary, because state law varies on the question of when a foreclosure sale is deemed complete. In some cases, the result will mirror that of the bright-line approach, albeit with different reasoning. The court holds the debtor's right to cure ends at the time of the foreclosure sale auction.[146] In such cases, the debtor fares no better or worse under the completed-transfer approach than under the bright-line approach. In other cases, state law sets the completion of the sale at some event that occurs after the foreclosure sale. Some states deem the sale complete when the sheriff delivers the deed,[147] others, when the court approves the foreclosure sale.[148] Still other states observe various other events that signify the legal completion of the foreclosure sale transaction.[149] All of these events naturally occur after the foreclosure auction. Thus, taking the completed-transfer position usually has the practical effect of allowing the debtor more time to institute the cure to save their home.
c. The Lack of Analysis, Consensus, and Binding Precedent
Courts on both sides of the controversy tend to arrive at their conclusions with scant analyses.[150] This contributes to the unpredictability and uncertainty created by disagreement over how to interpret the statute's eighteen words. For example, a random sample of fifteen cases[151] interpreting the statute[152] reveals that nine cases applied the bright-line approach[153] and six cases applied the completed-transfer interpretation.[154] On the question of the statute's ambiguity, eleven cases found it unambiguous,[155] and the other four cases found it ambiguous.[156] From these eleven cases finding the statute unambiguous, eight cases found the language to require the bright-line rule,[157] and three cases found the completed-transfer interpretation.[158] Of the four cases finding the language ambiguous, three held that the legislative history dictates the completed-transfer position,[159] and one the bright-line view.[160] Six of the eleven courts found the statute unambiguous; nonetheless they provided their opinion on the legislative history in dicta.[161] Four courts found that the legislative history supported their position,[162] and two found it was internally contradictory and unhelpful in ascertaining intent.[163] Although two courts found the legislative history inconclusive, none of the courts found it at odds with the statute's language. One court answered the ambiguity question with an unembellished conclusion in favor of the completed-transfer position, with no analysis.[164] As this random sampling illustrates this controversy has defied consensus and thus begs for a more complete analysis.[165]
Despite the abundance of court decisions taking a position on this issue, there is much less legal certainty than may appear. As shown herein, many of the decisions in this controversy are rendered by the bankruptcy court.[166] Some decisions have been issued by a court at the first appellate level.[167] However, in bankruptcy, only decisions rendered by the United States Courts of Appeal, the third stop for a bankruptcy litigant, are recognized as binding.[168] There are only two such decisions on this controversy.[169] The Sixth Circuit held for the bright-line;[170] the Seventh Circuit, on the other hand, took the completed-transfer position.[171] The rest of the population stands without certainty after twelve years of judicial effort and one major legislative overhaul to the Bankruptcy Code.[172] Thus, the lack of existing binding precedent combined with the lower courts' inability to provide it, exacerbates the effect of the disagreement and heightens the need for a solution.[173]
Each of these cases involved real Smiths and Joneses. The Smiths live on the edge of eviction. The delay could cause the Joneses to seek to cancel the transaction to pursue other, less uncertain opportunities. Yet, the deposit they put down could not be easily replaced and that could prevent them from pursuing those other opportunities. While the ownership of the property remains uncertain, neither party has an incentive to care for it. In addition, family, friends, employers, and utility companies may be uncertain about who owns the foreclosed property. A systematic analysis of the statute's text in light of traditional, generally accepted canons of statutory interpretation should be the first step in the analysis towards considerably narrowing the area of disagreement, if not providing a solution.
IV. Why the Bright-Line Interpretation Should Prevail
A. Applying Canons of Statutory Interpretation the Bright-Line Interpretation Prevails
Four traditional, generally accepted canons of statutory interpretation are applicable to the text of the statute.[174] First, reddendo singula singulis,[175] a generally accepted cardinal rule of statutory interpretation, is the principle of giving effect to all the words used in a given statute.[176] Second, noscitur a sociis[177] is the principle of ascertaining the meaning of a word that is susceptible to more than one interpretation by reading it in conjunction with associated words.[178] Third is the fundamental canon that requires giving words their natural and everyday meaning, unless the word is used to express a technical meaning.[179] Last is the canon that a successive phrase is properly interpreted as only modifying its immediate antecedent phrase.[180] The application of these four canons shows that § 1322(c)(1) requires a bright-line interpretation terminating the debtor's right to cure at the time of the foreclosure sale event. Thus, the statute dictates that federal law supplies the when for the expiration of the right to cure and adopts the state law how for conducting the foreclosure sale event.
Section 1322(c)(1) reads, in pertinent part, that notwithstanding the Bankruptcy Code's prohibition of the modification of a security interest, "a default with respect 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."[181] Applying the first canon to give all words their effect, the word "default" and the phrase "may be cured" indicate that the subject matter of this paragraph is the cure of a mortgage default. The word "until," the first word of the disputed phrase, indicates that the statute is providing the timeframe that relates to the subject matter - the actual moment that the debtor's right to cure comes to an end.
The word "sold" is susceptible to more than one meaning.[182] It can refer either to the time when the initial binding agreement to sell is formed, or alternatively, to the time when all steps in the sale are completed and the transaction is finished.[183] In a real estate context, one meaning refers to the stage at which the buyer's offer is accepted, such as in a foreclosure sale that has been accepted by the bank. This property is considered "sold" when it is off the market. The other meaning of the word "sold" refers to the time at which the buyer has taken all the steps necessary for full ownership, and the seller has relinquished his ownership interest. This typically occurs at the real estate closing[184] when all steps of the sales transaction are completed.
To discern the correct meaning for "sold" in § 1322(c)(1), it must be read with its associated words, as required by noscitur a sociis. As one of the associated words, "at" appears between "sold" and "a foreclosure sale." Its purpose is to connect the two concepts.[185] If "sold" is to occur "at" the foreclosure sale then it can have only one of its two plausible meanings: that a buyer has agreed to purchase and the seller has agreed to sell to the exclusion of other potential buyers.[186] In other words, an agreement has been formed that if remains intact, will later result in a complete transfer. This is what occurs at a foreclosure sale when the auctioneer's gavel drops.[187] This conclusion is consistent with the canon that general words should be given their natural and everyday meaning.[188] Thus, the first phrase "until such residence is sold at a foreclosure sale" refers to the time when the seller has agreed to sell to the buyer who is first in line to the exclusion of others and prior to any steps required for the completion of the transaction.[189]
Buttressing this conclusion is the fourth canon: a successive phrase is generally interpreted as modifying only its immediate antecedent phrase. Adhering to this canon, the successive phrase, "that is conducted in accordance with applicable [state] law,"[190] is interpreted as modifying only its immediate antecedent phrase, "at a foreclosure sale."[191] It is the foreclosure sale that must be "conducted in accordance with applicable [state] law," not that state law determines when the debtor's right to cure terminates.[192] It cannot be claimed that this successive phrase should be applied to more than just its immediate antecedent phrase. The indicia that would take this successive phrase out of the general rule of statutory interpretation, such as preceding multiple successive phrase or punctuation, are absent.[193] Therefore, the general rule applies.[194] This phrase requires that there be a lawfully conducted foreclosure sale.[195]
The phrase's purpose is also to supply the needed foreclosure sale procedure. There are no procedures provided by the bankruptcy code for a foreclosure sale of real property taxable by and located within the boundaries of a state.[196] This is for good reason. States have an important sovereignty interest in their land.[197] Dictating a federal foreclosure process for such a remote federal interest has not been, and should not be, done lightly.[198] Further, a federally mandated foreclosure process would run contrary to bankruptcy's fundamental principle of avoiding the displacement of state law except when necessary.[199] Therefore, the successive phrase's effect is to provide a foreclosure process that is absent from federal bankruptcy law.[200]
B. Why the Completed-Transfer Interpretation Fails and a Response to Critics of the Bright-Line Approach
The completed-transfer position is that the text of the statute directs courts to follow state law to determine when the property is technically "sold," that is, when the sale is complete.[201] This position does not suffer from a faulty premise or an absurd result, but fails to use the applicable canons that would lead to the correct interpretation. The completed-transfer courts typically interpret this inherently ambiguous word "sold" in isolation.[202] This allows for only one of its two possible meanings.[203] In failing to consider any other definition for "sold" other than full completion of the transaction, these courts naturally take the position that this full completion of the transaction is directed by the statute.[204]
A second mistake made is when attempting to interpret "sold" in context. It is to skip over the immediate following phrase, "at a foreclosure sale," and to associate "sold" with the later phrase "conducted in accordance with applicable [state] law."[205] Making either mistake, the effect is to give no meaning to the entire phrase, "at a foreclosure sale," which violates the canon that requires giving meaning to all the words used in the text.[206]
Critics may point to the fact that Congress used the term "foreclosure sale"[207] instead of "auction sale" or a similar term that more clearly signifies that the actual foreclosure sale event and argue this indicates that the bright-line interpretation fails.[208] These critics are answered with the understanding that the less precise term was necessary to widen this statute's application[209] to allow for the possibility of a foreclosure sale not conducted strictly as an "auction."[210] An imprecise term is necessary because the fifty states of the Union and the various U.S. territories have varying local procedures for conducting the "sale" of the premises upon foreclosure.
C. Legislative History Supports the Bright-Line Interpretation
When statutory language is ambiguous, the accepted method of statutory interpretation requires reference "to the legislative history [of the statute] and the atmosphere in which the statute was enacted in an attempt to determine the congressional purpose."[211] It is recognized by both camps that a review of legislative history clearly reveals a congressional intent to allow the debtor the right to cure before the date the foreclosure sale occurs and preempt any state law to the contrary.[212] The debate is over whether the legislative history reveals an intent that the right to cure expires at the event of the foreclosure sale or when the state law deems the entire transaction complete. The courts have drawn from the only two sources of legislative history on the subject to determine the legislative intent: The House of Representatives' report and Senator Grassley's statement from the Senate floor in support of the bill.
1. The House Report
The Committee on the Judiciary of the House of Representatives submitted a report to the full House to explain the purpose of the Bankruptcy Reform Act of 1994.[213] The applicable portion reads:
Section 1322(b)(3) and (5) of the Bankruptcy Code permit a debtor to cure defaults in connection with a chapter 13 plan, including defaults on a home mortgage loan. Until the Third Circuit's decision in In re Roach, 824 F.2d 1370 (3rd Cir. 1987), all of the Federal Circuit Courts of Appeal had held that such a right continues at least up until the time of the foreclosure sale. See In re Glenn, 760 F.2d 1428 (6th Cir. 1985), cert denied, . . . Matter of Clark, 738 F.2d 869 (7th Cir. 1984), cert denied, . . . . The Roach case, however, held that the debtor's right to cure was extinguished at the time of the foreclosure judgment, which occurs in advance of the foreclosure sale. This decision is in conflict with the fundamental bankruptcy principle allowing the debtor a fresh start through bankruptcy. This section of the bill safeguards a debtor's rights in a chapter 13 case by allowing the debtor to cure home mortgage defaults at least through the completion of a foreclosure sale under applicable nonbankruptcy law. However, if the State provides the debtor more extensive "cure" rights (through for example, some later redemption period), the debtor would continue to enjoy such rights in bankruptcy.[214]
Some point to the latter portion of the House Report as evincing a legislative intent to allow the possibility of post-foreclosure-sale termination.[215] It is argued that the report's use of the words "at least" in the last sentence shows that the intent of the statute is to make the foreclosure sale event a minimum timeframe as opposed to a maximum.[216] Further, the word "completion" indicates a process, which one could certainly interpret as an intent for state law to determine when that completion occurs because the sale is to be governed "under applicable [state] law."[217] These words taken alone indicate a completed-transfer cure termination date. However, examination of the entire report, especially the last quoted sentence, puts the words in proper context.
In rejecting In re Roach, Congress implicitly approved of the In re Glenn and In re Clark decisions.[218] In re Glenn and In re Clark reached their bright-line result through different avenues of reasoning. The Sixth Circuit's decision in In re Glenn expressed policy reasons for the bright-line determination and did not rely on any state property law theory.[219] In contrast, the In re Clark decision rested on state mortgage theory, specifically, on lien theory.[220] If the reasoning in In re Clark was followed, the end results would vary in states observing a different mortgage theory, such as title theory[221] or the intermediate theory[222] in In re Roach.[223] Thus, Congress must not have been endorsing the rationale of In re Clark, one that could lead to the result they rejected, but only the result it shared with In re Glenn: the bright-line. Further, the In re Roach court based its decision on its evaluation of the debtor's real property interest defined by the state. It seems inconsistent for Congress then to choose a cure termination date that coincides with the debtor's real property interest as the In re Roach court did, albeit earlier in the foreclosure process. Additionally, Congress expressed that the bright-line results that the In re Glenn and In re Clark decisions shared aligned with bankruptcy principles. In contrast to In re Roach, these results were not targets for change.[224] Arguably, if Congress did not intend to implement the bright-line by enacting Section 1322(c)(1), then it would not have signified its approval of these two bright-line decisions.[225] This supports a bright-line legislative intent.[226]
The House Report is written from the debtor's perspective. The last two sentences of the report state that the debtor's right to cure continues "at least through completion of the foreclosure sale." It then references a "cure" as provided by the state.[227] The report's authors put the word cure in quotation marks[228] to distinguish its meaning from the bankruptcy cure provided in a Chapter 13 payment plan. They are indicating a general-sense usage of the word with the debtor's interests in mind.[229] State statutory rights of redemption are very different from a Chapter 13 cure.[230] State statutory redemption rights are typically personal rights that do not maintain any federal or bankruptcy character.[231] They require payment in full; consequently, exercising these rights is not a 'cure' under bankruptcy but, rather, a complete solution to the debt.[232] A third party purchaser takes at a foreclosure sale subject to the original mortgagor's statutory right of redemption under state law, and the foreclosure process is otherwise left undisturbed.[233] The last sentences of the report make clear that the proposed legislative change under consideration would not affect any state solution that the debtor may also have available to regain ownership of his residence.[234] Thus, the meaning conveyed is that the debtor will have a right to cure "at least through completion of a foreclosure sale" by federal law, and may have an extended right after the sale to "cure" as provided by state law.
2. Senator Grassley's Floor Statement
The floor statement of Senator Grassley also favors the bright-line approach.[235] It states:
Mr. President, I am pleased to support H.R. 5116. . . . As an original cosponsor of the Senate-passed bill, S. 540, I would have its enactment. . . . Title III of the bill will assist homeowners. Some homeowners attempt to prevent their homes from being foreclosed upon, even though a bankruptcy court has ordered a foreclosure sale. There may be several months between the court order and the foreclosure sale. [Section 1322(c)(1)] will preempt conflicting State laws, and permit homeowners to present a plan to pay off their mortgage debt until the foreclosure sale actually occurs.[236]
One argument is that this language supports the completed-transfer position.[237] Another argument is that Senator Grassley's statement only indicates an intent that the cure is allowed until the date of the foreclosure sale, and does not shed much, if any, light on the question of post-foreclosure cure.[238] The Senator's words "the foreclosure sale"[239] are not helpful in ascertaining a time when the cure right terminates, unlike the words "at a foreclosure sale" that appear in the statute.[240] However, when associated with the words "actually occurs"[241] the Senator's reference to the foreclosure sale concept more plausibly refers to an event, such as the conducting of a foreclosure auction, and not to the entire sale process.[242] A majority of courts considering the statement, from both sides of the controversy, acknowledge to varying degree that Senator Grassley's statement, at least taken alone, supports the bright-line approach.[243]
Floor statements have traditionally been regarded as the least helpful part of legislative history[244] and are not conducive to providing detail.[245] Concededly, Senator Grassley's floor statements should not outweigh a better indication of legislative intent, such as a committee report.[246] However, its consideration along with that of additional sources should tip the scale in favor of the bright-line for those still undecided.
D. The Balance of Equity Favors the Bright-Line Result[247]
Equity is at the heart of every bankruptcy order.[248] The effect of a grant of equity on all parties should be considered before such equity is granted.[249] A balance of the equities after the time of the foreclosure sale results in a shift of equity away from the Smiths and in favor of the Joneses. Congress has extended equity to the Smiths through the right to cure their mortgage default to allow them to keep their home with a fresh start after acceleration, foreclosure judgment, and up until the time of sale. Ample notice and opportunity for the fresh start has been provided.[250] As time progressed through these foreclosure stages, equity receded away from the Smiths as the cost of the fresh start upon society continued to rise. It is both a fundamental legal principle and common sense that for one to deserve equity, one must show equity.[251] The Smiths' delay in reaching for the equitable fresh start Congress provided until after other third parties have substantial interests at stake does not show equity to others. Equity then must turn to consider these others' interests.[252]
The Joneses' may be prohibited from pursuing another purchase because their deposit is now tied up in the property, taking them out of the real estate market. Neighbors to the distressed property live near a property without a clear owner with an incentive to care for it. Doubts over the certainty of ownership may have an effect on the lender's efforts to transfer the property swiftly.[253] A delay in the transfer of ownership risks a chill in the foreclosure market.[254] Once the gavel dropped at the foreclosure sale, the pendulum of equity swung away from the Smiths and towards society's need for certainty of ownership.[255] For these reasons, equity supports the bright-line result of terminating the debtor's right to cure at the time of the foreclosure sale event.
E. The Bright-Line Approach Strengthens and is the Least Intrusive to State Law
In evaluating this controversy, the debtor's property interest must be distinguished from the time their right to cure under Section 1322(c)(1) ends.[256] Exemplified by the preemption of In re Roach,[257] state law can terminate all real property interests of the debtor at some point in the foreclosure process prior to the foreclosure sale event.[258] In that case, Section 1322(c)(1) serves as the only basis upon which the debtor's cure right stands.[259] This runs contrary to bankruptcy's usual practice of determining the confines of the bankruptcy estate by the debtor's property rights as established by state law.[260] Thus, both the bright-line and completed-transfer positions implicitly acknowledge federal preemption when looking to the language of Section 1322(c)(1) for the cure's expiration.
Nonetheless, it is still important for bankruptcy to be the least intrusive to state law.[261] Bankruptcy seeks to operate like a well-skilled surgeon aiming to implement its purpose with causing the least intrusion and harm to its state patient.[262] Some completed-transfer courts seem to suggest that their approach is more harmonious with state law because it places the expiration of the cure right at the same time that state law deems the foreclosure sale transaction complete.[263] It is true that the completed-transfer position works in harmony with state law in this fashion. However, that conceded, harmony with state law is equally true for the bright-line position because it places cure right expiration at the same time that state law holds the foreclosure auction. Additionally, it further requires that the foreclosure sale procedure be "conducted in accordance with [state] law" or the debtor's cure right will survive.[264] It supplies an independent reason to scrutinize the foreclosure auction, thereby heightening the importance of adhering to this significant event in the foreclosure process and state law.
Moreover, comparatively, the bright-line position guarantees the cure will be available for the least amount of time, only until the foreclosure auction. The shorter the amount of time the cure is available, the less federal intrusion that results. This is especially less disruptive to a state statutory scheme when the state provides no real property interest to the debtor.[265] It is true that the result of some completed-transfer decisions will also limit the availability of the cure only up until the foreclosure sale event. However, this is only one of many possible results of the completed-transfer position.[266] On this point, the best result the completed-transfer position can offer is a tie. Thus, the bright-line position coincides with state law, provides a reason to scrutinize the state law governing the foreclosure auction, and guarantees the shortest time the cure is available when state law does not provide an ownership interest in the property.
Conclusion
Utilizing four traditional, generally accepted canons of statutory interpretation, the text of 11 U.S.C. § 1322(c)(1) is unambiguous. The language commands a bright-line interpretation extending the debtor's right to cure only until the gavel drops at the foreclosure sale event, but not beyond. The result is equitable to all parties concerned because it allows sufficient notice of the threat of foreclosure to the debtor and gives third parties, especially foreclosure buyers, certainty of ownership. If considered, the legislative history supports the bright-line interpretation. In addition, the bright-line approach strengthens and is the least intrusive to state law. In our hypothetical story, the Joneses prevail through the plain meaning of the statute and the equities that weigh in their favor. Therefore, for any real life Smiths desirous to save their home, they must invoke their right to cure their mortgage default before the gavel falls at the foreclosure sale.
George Bourguignon graduated from the Western New England School of Law in 2007, where he served as the Assistant Articles Editor of the Western New England Review. During law school, he earned the Computer Aided Learning Institute's Excellence for the Future Award in Advanced Legal Research & Writing, Business Organizations, and Torts. He also previously served on the Student Council from 2003-2006, received the Joanne Grummel Memorial and Rodney E. & Gail M. Blakesley scholarships, and was placed on the Dean's list for academic achievement. After graduation, Mr. Bourguignon started work at Hendel & Collins, P.C., a boutique insolvency firm in Massachusetts.
[3] Although legally the note is the debt obligation and the mortgage secures the note to the property, common parlance refers to both as the "mortgage." See infra Part II. This Note will follow the common usage.
[5] Previously, individual debtors, such as the Smiths, were able to file for bankruptcy immediately. However, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005) [hereinafter BAPCPA] (codified in scattered sections of 11 U.S.C.), with most provisions made effective on October 17, 2005, now requires debtors to obtain pre-filing budget and credit counseling from an approved counseling agency, subject to only very limited exceptions. 11 U.S.C.A. § 109(h) (West Supp. 2006); Karen Gross & Susan Block-Lieb, Empty Mandate or Opportunity for Innovation: Pre-Petition Credit Counseling and Post-Petition Financial Management Education, 13 Am. Bankr. Inst. L. Rev. 549, 550-51 (2005).
[6] Ark. Code Ann. § 18-50-101(8) (2003); Mass. Gen. Laws ch. 244, §§ 14, 18 (2004); In re Starks, 2005 Bankr. LEXIS 2508, at *5-6 (E.D. Ark. Dec. 13, 2005) (recognizing change in Arkansas law to provide foreclosure sale complete when highest bid accepted by person conducting sale); In re Crichlow, 322 B.R. 229, 235 (Bankr. D. Mass. 2004) (finding Massachusetts law determines that mortgagor's interest extinguishes upon foreclosure sale).
[7] In other jurisdictions in which post-foreclosure-sale events mark the completion of the sale, events other than delivery of the deed are required. Some require that the court approve the sale, some require the foreclosure buyer's full tender, and still others require events in the foreclosure process unique to that jurisdiction. See In re Bobo 246 B.R. 453, 455-56 (Bankr. D. D.C. 2000) (noting various determinations of when foreclosure sale is deemed complete according to different jurisdictions' laws). See discussion of completed-transfer approach, infra Part III.B.2b. and notes 137-40.
[8] 1 Harold Remington, Remington on Bankruptcy 1 (Lawyers Cooperative Publishing, 4th ed. 1933) (1908); Richard P. Cole, Liberation and Empowerment: A Jubilean Alternative for State v. Oakley, 26 W. New Eng. L. Rev. 27, 42 (2004). The Lord, the ultimate equity power, through Moses, instituted a sabbatical year of release providing for the forgiving of all debts every seventh year. Deuteronomy 15:1-5 (King James); see 1 Remington, supra, at 2. This seventh year is known as the year of sabbatical. Hebrew-Greek Study Bible 174, n.25:1-55 (Spiros Zodhiates, ed.); see 1 Remington, supra, at 2. After seven cycles of the year of sabbatical, the fiftieth year was commanded as the year of jubilee, which was identical to the year of sabbatical except, in addition, all real estate outside the walled cities reverted back to the family to which it was originally assigned. Leviticus 25:1-55 (King James); Cole, supra, at 42.
[9] 1 Remington, supra note 8, at 12-13; see Douglas G. Baird, The Elements of Bankruptcy 4 (4th ed. 2006).
[11] During this early English law's implementation the debtor was referred to as "the offender." 1 Remington, supra note 8, at 3.
[22] Sexton v. Dreyfus, 219 U.S. 339, 344 (1911) (recognizing that the United States adopted the fundamental principles of English bankruptcy law); 1 Remington, supra note 8, at 11.
[25] Baird, supra note 9, at 6-7; 11 U.S.C. § 105 (2000) (allowing "any order, process, or judgment that is necessary or appropriate to carry out the [bankruptcy code] provisions").
[26] Wilson v. City Bank, 84 U.S. 473, 480 (1873) (noting that, "in both [voluntary and involuntary bankruptcy] undoubtedly the primary object is to secure a just distribution of the bankrupt's property among his creditors"); Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 578 (1935); 1 Remington, supra note 8, at 18-19.
[28] Louisville Joint Stock Land Bank, 295 U.S. at 587-88; Wilson, 84 U.S. at 480-81 (expressing that in both voluntary and involuntary bankruptcy "the primary object is to secure a just distribution of the bankrupt's property among his creditors, and in both the secondary object is the release of the bankrupt from the obligation to pay the debts of those creditors").
[29] Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934); In re Ward, 194 B.R. 703, 715 (Bankr. D. Mass. 1996); 1 Remington, supra note 8, at 1-2, 18-19; Baird, supra note 9, at 34-36, 40.
[30] Baird, supra note 9, at 41-42; Craig Peyton Gaumer, Out of the Ordinary: The Payment of Criminal Defense Fees from an Involuntary Bankruptcy Estate, Am. Bankr. Inst. J., Nov. 2005, at 8.
[35] 11 U.S.C. § 1306(b) (2000); David A. Gill, Personal Bankruptcy and Wage Earner Plans § 1.11 (Carol S. Brosnahan ed., 1971).
[37] Bankruptcy Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549 (codified as amended in scattered sections of 11 U.S.C.).
[38] The Report of the Commission on the Bankruptcy Laws of the United States declares that Chapter 13 shall "be made available to any debtor who can propose and expect reasonably to comply with an undertaking to pay a predescribed amount periodically out of an anticipated regular income." H.R. Doc. No. 93-137, pt. 1, at 165 (1973), microformed on CIS No. 73-H520-9 (Cong. Info. Serv.).
[40] 11 U.S.C. § 1322(a) (2000). While creditors may initiate Chapters 7 or 11 bankruptcies, Chapter 13 bankruptcy is strictly a voluntary procedure. Compare 11 U.S.C. § 301 (2000) (detailing procedure for commencing voluntary filing), with § 11 U.S.C. § 303(a) (2000)(limiting involuntary cases to chapters 7 and 11).
[42] 11 U.S.C. § 362(a) (2000); see Victor L. Prial, Note, Impact of the Automatic Stay on Redemption Periods, 54 Syracuse L. Rev. 193, 197-200 (2004) (discussing the history and purpose of the automatic stay). A creditor in some circumstances can have the automatic stay lifted by the bankruptcy court and resume the foreclosure process. 11 U.S.C. § 362(d); Baird, supra note 9, at 217.
[43] 11 U.S.C.A. § 1322(d) (West Supp. 2006). Debtors with an income less than the median for their state "are generally limited to three years . . . but may be extended upon a showing of cause." Baird, supra note 9, at 58 (citing 11 U.S.C. § 1325(b)(1) (2000)). Since the passage of the BAPCPA, payment plans may exceed five years if the debtor's income exceeds certain statutory defined limits. 11 U.S.C.A. § 1322(d)(1)(C).
[50] 11 U.S.C. §§ 506(a), 1322(b)(2)(2000); Baird, supra note 9, at 62; Ryan W. Johnson, Post-Closing Demands for Mortgage-Related Fees Assessed During a Chapter 13 Plan (pt.1), Am. Bankr. Inst. J., May 2006, at 24 ("Saving a principal residence from foreclosure and curing a mortgage arrearage are key reasons why many debtors file for Chapter 13.").
[51] 11 U.S.C. §§ 506(a), 1322(b)(2); Baird, supra note 9, at 62, 63; Johnson, supra note 50, at 24.
[52] Bankruptcy Reform Act of 1978, Pub L. No. 95-598, 92 Stat. 2549; In re Roach, 824 F.2d 1370, 1376 (3d Cir. 1987) (holding debtor's right to cure mortgage default expired upon foreclosure judgment), superseded by statute, Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106, 4131, as recognized in Colon v. Option One Mortgage Corp., 319 F.3d 912, 920 (2003); 140 Cong. Rec. 27,696 (1994).
[53] In strict foreclosure the mortgagee takes ownership and no foreclosure sale occurs. 1 Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 7.9 (4th ed. 2002). The mortgagee, after obtaining ownership, can then sell the house independently without the obligation to provide the mortgagor with any surplus realized from the foreclosure sale. Id. §§ 7.10, 7.31. Any profit for the mortgagee comes at the expense of the mortgagor who experiences the harsh result of a complete loss of any remaining equity in their home. Id.
[54] Id. § 7.10. Connecticut, Illinois, and Vermont allow strict foreclosure. Id. Massachusetts, New Hampshire, and Rhode Island allow the processes known as "Entry Without Process" and "Actions at Law for a Writ of Entry of Possession," both of which result in strict foreclosure. Maine has two unique processes that result in strict foreclosure. Id. There is a separate controversy, not addressed here, over whether § 1322(c)(1) applies to strict foreclosure where no foreclosure sale occurs. Compare Schinck v. Stephens (In re Stephens), 221 B.R. 290, 297 (Bankr. D. Me. 1998) ("Because the rights and interests of mortgagees and mortgagors under Maine's strict foreclosure procedures are determined without a 'foreclosure sale,' the federal law extension of cure rights embodied in § 1322(c)(1) has no application" to whether Section 1322(c)(1) provides a mortgagor/debtor a right to cure a mortgage default under Chapter 13.), with In re Taylor, 286 B.R. 275, 281 (Bankr. D. Vt. 2002) (holding § 1322(c)(1) applies to strict foreclosure processes in Vermont until "unencumbered title to the property passes to the mortgagee"), and In re Pellegrino, 284 B.R. 326, 330-31 (Bankr. D. Conn. 2002) (applying § 1322(c)(1) to strict foreclosure processes in Connecticut).
[60] Acceleration requires an amount due over and above the arrearage of regular payments and usually is for the entire balance of the debt. Id. § 7.6, at 615-18.
[61] 1 Nelson & Whitman, supra note 53, § 7.6. Lenders prefer to be in communication with borrowers in default, in the hopes of avoiding foreclosure. Lenders are regulated by both state and federal governments. Mortgage defaults affect their standing in the federal mortgage insurance program. HUD Mortgage and Insurance Programs Eligibility Rule, 24 C.F.R. §§ 203.3-.4 (2006); 2 Nelson & Whitman, supra note 53, § 11.2.
[66] 1 Nelson & Whitman, supra note 53, § 7.11. "Judicial foreclosure" is defined as: "A costly and time-consuming foreclosure method by which the mortgaged property is sold through a court proceeding requiring many standard legal steps such as filing of a complaint, service of process, notice, and a hearing." Black's Law Dictionary 658 (7th ed. 1999).
[70] See In re Clark, 738 F.2d 869, 871 (1984) (holding that Wisconsin law only determines the amount of lien on property in contrast to other states that deem the mortgage merged with the judgment and extinguishes all of the mortgagor's property interests); see 1 Nelson & Whitman, supra note 53, § 6.16 (stating the mortgagee can obtain complete title of mortgaged property through the property concept of merger at foreclosure judgment).
[71] The interval between foreclosure judgment and sale varies from approximately three to nine months. See Colon v. Option One Mortgage Corp., 319 F.3d 912, 914 (7th Cir. 2003) (discussing facts of case revealing seven months between foreclosure judgment and foreclosure sale for Illinois residential property); Randall v. Equicredit Fin. Serv. Corp. (In re Randall), 263 B.R. 200, 201 (D.N.J. 2001) (discussing facts of case revealing three months between foreclosure judgment and foreclosure sale for New Jersey residential property). It may take less time before the foreclosure sale under power-of-sale agreements. See In re Flowers, 94 B.R. 3, 6 (Bankr. D.D.C. 1988) (discussing facts revealing only six months from default to foreclosure sale executing power-of-sale agreement).
[72] Power-of-sale foreclosure is allowed in about thirty states and is one of the two most popular types of foreclosure used in the United States. 1 Nelson & Whitman, supra note 53, § 7.19.
[73] Id. § 7.19. Some states require judicial approval of compliance with the Soldiers' and Sailors' Civil Relief Act of 1940 to ensure that the mortgagor is not in active service when the foreclosure occurs. Soldiers' and Sailors' Civil Relief Act of 1940, § 888, 50 U.S.C. §§ 510, 520-24 (2000); 1 Nelson & Whitman, supra note 53, § 8.9.
[74] 11 U.S.C. § 362(a) (2000); Johnson, supra note 50, at 59. A creditor in some circumstances can have the automatic stay lifted by the bankruptcy court. 11 U.S.C. § 362(d); Baird, supra note 9, at 217.
[76] Prial, supra note 42, at 199-200; 1 Nelson & Whitman, supra note 53, § 8.4. These rights are not to be confused with the mortgagor's right of equitable redemption. Prial, supra note 42, at 199-200; 1 Nelson & Whitman, supra note 53, § 8.4. State statutory rights of redemption are unaffected by and survive a bankruptcy. Commercial Fed. Mortgage Corp. v. Smith (In re Smith), 85 F.3d 1555, 1560 (11th Cir. 1996); Fed. Land Bank v. Glenn (In re Glenn), 760 F.2d 1428, 1442 (6th Cir. 1985); In re Menasche, 301 B.R. 757, 760 (S.D. Fla. 2003).
[77] 1 Nelson & Whitman, supra note 53, § 7.1. At this stage, in property terms, the mortgagor's equitable right of redemption ends. Id. § 8.4.
[78] Id. § 8.4. The mortgagor retains the right of possession during the statutory period in the vast majority of states. Id.
[80] In re Clark, 738 F.2d 869, 872 (7th Cir. 1984) ("[T]he plain meaning of 'cure,' as used in § 1322(b)(2) and (5), is to remedy or rectify the default and restore matters to the status quo ante."); Daniel J. Bussel et al., Bankruptcy 628 (5th ed. 1999).
[81] S.J. Res. 88, 91st Cong. (1970); In re Roach, 824 F. 2d 1370, 1375 (3rd Cir. 1987), superseded by statute, Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106, 4131 (codified as amended at 11 U.S.C. § 1322(c) (2000)), as recognized in Colon v. Option One Mortgage Corp., 319 F.3d 912, 920 (7th Cir. 2003).
[82] Bankruptcy Reform Act of 1978, Pub L. No. 95-598, 92 Stat. 2549 (applying to all bankruptcy petitions subsequent to September 30, 1979).
[83] H.R. Rep. No. 95-595, at 118 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6079. The House of Representatives Report states:
The purpose of chapter 13 is to enable an individual, under court supervision and protection, to develop and perform under a plan for the repayment of his debts over an extended period. In some cases, the plan will call for full repayment. In others, it may offer creditors a percentage of their claims in full settlement. During the repayment period, creditors may not harass the debtor or seek to collect their debts. They must receive payments only under the plan. This protection relieves the debtor from indirect and direct pressures from creditors, and enables him to support himself and his dependents while repaying his creditors at the same time. The benefit to the debtor of developing a plan of repayment under chapter 13, rather than opting for liquidation under chapter 7, is that it permits the debtor to protect his assets. In a liquidation case, the debtor must surrender his nonexempt assets for liquidation and sale by the trustee. Under chapter 13, the debtor may retain his property by agreeing to pay his creditors. Chapter 13 also protects a debtor's credit standing far better than a straight bankruptcy, because he is viewed by the credit industry as a better risk. In addition, it satisfies many debtors' desire to avoid the stigma attached to straight bankruptcy and to retain the pride attendant on being able to meet one's obligations. The benefit to creditors is self-evident; their losses will be significantly less than if their debtors opt for straight bankruptcy.
Id. (emphasis added).
[88] Hearings Before the Subcomm. on Improvements in Judicial Machinery of the S. Comm. on the Judiciary, United States Senate, on S. 2226 and H.R. 8200, 95th Cong. 714-15 (1978) (statement of Edward J. Kulik, Senior Vice President, Mass Mutual Life Insurance Company, representing five real estate lending associations).
[90] Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549, 2648 (1978); 11 U.S.C. §§ 101-1328 (1978); In re Roach, 824 F. 2d 1370, 1376 (3d Cir. 1987) ("The House and Senate then agreed on the present version of § 1322(b)(2), protecting only home mortgagees and protecting them only from modification of their rights."), superseded by statute 11 U.S.C. 1322(c)(1) as recognized in Colon v. Option One Mortgage Corp., 319 F.3d 912, 920 (7th Cir. 2003).
[91] 11 U.S.C. § 1322(b)(2) (2000). The statute reads in pertinent part:
Subject to subsections (a) and (c) of this section, the plan may . . .
(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; (3) provide for the curing or waiving of any default; . . .
(5) notwithstanding paragraph (2) of this subsection, 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.
Id. (emphasis added).
[92] Rake v. Wade, 508 U.S. 464, 468-69 (1993); In re DeMaggio, 175 B.R. 144, 147 (Bankr. D.N.H. 1994) ("It is well settled that the legislative intent behind § 1322(b)(2) was specifically to provide special protection to home lenders and establish stability and encourage the making of home loans in the residential housing lending market."); In re Wetherbee, 164 B.R. 212, 215 (Bankr. D.N.H. 1994).
[93] The final mortgage payment date can only be extended when the remaining term of a debtor's mortgage is shorter than the length of his plan. 11 U.S.C. § 1322(c)(2).
[94] Rake, 508 U.S. at 469; In re McKinney, No. 05-21651, 2006 WL 1627267, at *1, *3 (Bankr. D. Me. 2006).
[96] This is so even if the mortgage provides recourse in an amount over the value of the property. Nobleman v. Am. Sav. Bank, 508 U.S. 324, 329 (1993).
[97] Fed. Land Bank v. Glenn (In re Glenn), 760 F.2d 1428, 1433-34 (6th Cir. 1985); see also supra note 83.
[98] In re Glenn, 760 F.2d at 1432 (noting decisions holding the right to cure ended upon acceleration, foreclosure judgment, foreclosure sale, and the expiration of the debtor's state right of redemption); In re Ivory, 32 B.R. 788, 790 (Bankr. D. Or. 1983) (outlining and categorizing the various holdings of different stages in the foreclosure process the debtor's right to cure would terminate); see also In re Young, 22 B.R. 620, 622 (Bankr. N.D. Ill. 1982) (noting decisions that consider the mortgage theory influential on determination of when debtor's right to cure terminates under § 1322(b)(2) and others considering bankruptcy policy under Chapter 13).
[100] In re Metz, 820 F.2d 1495, 1497 (9th Cir. 1987); In re Glenn, 760 F.2d at 1432; see also In re Pearson, 10 B.R. 189 (Bankr. E.D.N.Y. 1981); In re Hartford, 7 B.R. 914 (Bankr. D. Me. 1981); In re Johnson, 6 B.R. 34 (Bankr. N.D. Ill. 1980).
[101] In re Glenn, 760 F.2d at 1432; In re Ivory, 32 B.R. at 790; In re Thompson, 17 B.R. 748, 750-51 (Bankr W.D. Mich. 1982).
[102] In re Bardell, No. 05-06808, 2007 WL 430416, at * 2 (Bankr. N.D. W. Va. Feb. 8, 2007) (describing that "there was great inconsistency in the approaches the courts took in determining when a debtor's right to cure the [mortgage] default terminated."); see supra note 98.
[103] In re Clark, 738 F.2d 869 (7th Cir. 1984); In re Glenn, 760 F.2d at 1432; In re Roach, 824 F.2d 1370 (3d Cir. 1987), superseded by statute, Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106, 4131 (codified as amended at 11 U.S.C. § 1322(c) (2000)), as recognized in Colon v. Option One Mortgage Corp., 319 F.3d 912, 920 (7th Cir. 2003).
[106] In re Clark, 738 F.2d at 874 (holding that debtor had the right to cure his default after foreclosure judgment due to debtor's continued interest in property according to Wisconsin's lien mortgage theory). Mortgage theory dictates the type of ownership interests the mortgagor and mortgagee have in the particular mortgaged property. See discussion infra notes 220-22.
[107] In re Roach, 824 F.2d 1370 (finding the debtor's right to cure a mortgage default under Chapter 13 expires at the time of the foreclosure judgment); H.R. Rep. No. 103-835 at 52, microformed on CIS No. 94-H523-38 (Cong. Info. Serv.); 140 Cong. Rec. 27,696 (1994). Congress later decided that the decision in In re Roach "was in conflict with the fundamental bankruptcy principle of allowing the debtor a fresh start through bankruptcy." 140 Cong. Rec. 27,696.
[109] In re Bobo, 246 B.R. 453, 455 (Bankr. D.D.C. 2000) ("Section 1322(c)(1) was enacted in order to overturn the Roach decision which Congress viewed as antithetical to the debtor's right to a fresh start through bankruptcy."); In re Beeman, 235 B.R. 519, 524 (Bankr. D. N.H. 1999); In re Tomlin, 228 B.R. 916, 918 (Bankr. E.D. Ark. 1999) ("In response to the decision in In re Roach, Congress enacted, . . . Section 1322(c)(1)); 140 Cong. Rec. 27,696 (1994) (Congress's House Report states In re Roach "is in conflict with the fundamental bankruptcy principle allowing the debtor a fresh start through bankruptcy."); see also Schinck v. Stephens (In re Stephens), 221 B.R. 290, 294 (Bankr. D. Me. 1998).
[112] Id. at 1373 (quoting Penn Terra Ltd. v. Dep't of Envtl. Res., 733 F. 2d 267, 272 (3d Cir. 1984)).
[117] First Nat'l Fidelity Corp. v. Perry (In re Perry), 945 F.2d 61, 61 (3rd Cir. 1991) ("Our analysis in Roach led to the conclusion that . . . a [New Jersey residential] mortgage cannot be reinstated at any time after a foreclosure judgment." citing In re Roach, 824 F.2d at 1371).
[119] 140 Cong. Rec. 27,696 (1994) (stating that In re Roach "is in conflict with the fundamental bankruptcy principle allowing the debtor a fresh start through bankruptcy"); see Local Loan Co. v. Hunt, 292 U.S. 234 (1934); McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 161 n.5 (B.A.P. 10th Cir. 1998). The Roach decision had other critics as well. See Lori B. Riga, Note, The Best Laid Plans of Corporations and Consumers: The Third Circuit, §§ 1123 and 1322(b)(2) of the Bankruptcy Code, and New Jersey's Merger Doctrine, 19 Seton Hall Legis. L.J. 231, 269-70 (1994) (criticizing In re Roach and supporting the enactment of 11 U.S.C. § 1322(c)(1)).
[120] 140 Cong. Rec. 27,696; see Colon v. Option One Mortgage Corp., 319 F.3d 912, 917 (7th Cir. 2003); In re McCarn, 218 B.R. at 161 n.5; In re Bobo, 246 B.R. 453, 455 (Bankr. D.D.C. 2000); In re Tomlin, 228 B.R. 916, 918 (Bankr. E.D. Ark. 1999).
[121] Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106, 4131 (codified at 11 U.S.C. § 1322(c)(1) (2000)).
[122] In re Bardell, No. 05-06808, 2007 WL 430416, at * 2 (Bankr. N.D. W. Va. Feb. 8, 2007); In re Bobo, 246 B.R. at 455; 140 Cong. Rec. 27,696; 1 Nelson & Whitman, supra note 53, § 8.15, at 831.
[124] Colon, 319 F.3d at 920 (questioning only post-foreclosure-sale cure termination); In re Downing, 212 B.R. 459, 463 n.4 (D. N.J. 1997). The application of § 1322(c)(1) in title or intermediate-theory jurisdictions may raise constitutional tension between the federal bankruptcy power and the Takings Clause of the Fifth Amendment or state sovereign power under the Tenth Amendment; however, these subjects are beyond the scope of this Note.
[126] Id. at 5 (recognizing "[t]he resolution § 1322(c)(1)'s enactment effected . . . has not been crystalline to the courts"); In re Bobo, 246 B.R. at 455 (noting that despite Congress's "attempt [to] clarify, section 1322(c)(1) introduced new uncertainties").
[127] In re Downing, 212 B.R. at 461 (noting the failure of Congress's attempt to provide clarity to the question of when the debtor's cure rights under §1322 expire).
[128] 11 U.S.C. § 1322(c)(1) (emphasis added). The Code specifically refers to "nonbankruptcy law" but this term usually results in a state law application. Id.. Therefore, for simplicity, in this Note the term "state" will be used instead of "nonbankruptcy."
[129] See, e.g., In re Bardell, No. 05-06808, 2007 WL 430416, at * 2 (Bankr. N.D. W. Va. Feb. 8, 2007); In re McKinney, 344 B.R. at 5 (noting "[t]here are generally two schools of thought with respect to § 1322(c)(1)"); Taylor v. Vt. Hous. Fin. Agency (In re Taylor), 286 B.R. 275, 278 (D. Vt. 2002) (referring to interpretation of § 1322(c)(1) as "live controversy that has defied consensus in the federal courts"); In re Beeman, 235 B.R. 519, 524 (Bankr. D.N.H. 1999) ("There are generally two schools of thought with respect to § 1322(c)(1).").
[130] The term "bright-line" has been used to describe the interpretation of the Bankruptcy Code that fixes the timing of the termination of the debtor's right to cure a mortgage default under Chapter 13 as corresponding with time the transfer of interests occurs at the foreclosure sale because of its uniform results imposed by federal law. Commercial Fed. Mortgage Corp. v. Smith (In re Smith), 85 F.3d 1555, 1560 (11th Cir. 1996) (using term "bright-line" to describe position that debtor's right to cure terminates at foreclosure sale in applying pre-1994 Bankruptcy Code); Chisholm v. Cendant Mortgage Corp., No. 04-6398, 2005 U.S. Dist. LEXIS 32266, at *11 (D.N.J. June 27, 2005) ("This court does not lend itself to the creation of the bright line rule."); In re Woodford, No. 06-50418, 2006 WL 2959522, at *3 (Bankr. W.D. Ky. Oct. 15, 2006); In re Agee, 330 B.R. 561, 566 (Bankr. E.D. Mich. 2005) ("Such a bright-line rule requires a certain amount of 'independence' from state law."). This Note uses the same terminology.
[131] In re Woodford, 2006 WL 2959522, at *3; In re McKinney, 344 B.R. at *5-6; Homeside Lending, Inc. v. Denny (In re Denny), 242 B.R. 593, 597 (Bankr. D. Md. 1999).
[132] In re Crawford, 232 B.R. 92, 96 (Bankr. N.D. Ohio 1999); Cain v. Wells Fargo Bank (In re Cain), 423 F.3d 617, 621 (6th Cir. 2005) (quoting In re Crawford, 232 B.R. at 96); see also In re Crichlow, 322 B.R. 229, 234 (Bankr. D. Mass. 2004); In re Watts, 273 B.R. 471, 476-77 (Bankr. D.S.C. 2000); In re Bobo, 246 B.R. 453, 455 (Bankr. D.D.C. 2000); In re Denny, 242 B.R. at 596-97.
[134] In re McKinney, 344 B.R. at *5-6 ("The additional phrase 'conducted in accordance with applicable bankruptcy law' requires that state law be consulted to assure the sale was noticed, convened, and held (i.e., 'conducted') in compliance with state law.").
[135] In re Crawford, 232 B.R. at 96; In re Cain, 423 F.3d at 621 (quoting In re Crawford, 232 B.R. at 96).
[136] The author has adopted the descriptive phrase "completed-transfer" to describe the position that the Bankruptcy Code directs that the time the debtor's right to cure a mortgage default is determined by the time when state law deems that all of the mortgagor's equitable interests in the property have ended and the foreclosure sale is complete.
[137] In re Wescott, 309 B.R. 308, 314 (Bankr. E.D. Wis. 2004) (allowing cure when petition filed after judicial foreclosure sale but before judicial confirmation of the sale); Randall v. Equicredit Fin. Serv. Corp. (In re Randall), 263 B.R. 200, 202 (D.N.J. 2001); In re Spencer, 263 B.R. 227, 230-31 (Bankr. N.D. Ill. 2001); In re Beeman, 235 B.R. 519, 526 (Bankr. D.N.H. 1999) (holding that the federal statute requires state law to determine when the property is "sold" and therefore debtor still has the right to cure before the deed from the foreclosure sale is recorded as state law requires to complete the sale); In re Barham, 193 B.R. 229, 232 (Bankr. E.D.N.C. 1996) (determining that property is "sold" only when a foreclosure sale has been completed under state law); 8 Collier On Bankruptcy § 1322.15 (Alan N. Reskick & Henry J. Sommer eds. 15th ed. Rev. 2005); see also Andrew Bernstein, Note, Tennessee Homeowners' Post Foreclosure Auction Right to Cure Under 11 U.S.C. §§ 1322(b) and (c), 27 U. Mem. L. Rev. 453, 514-15 (arguing overarching bankruptcy policy and proper interpretation of § 1322(c)(1) requires bankruptcy courts to follow when state law finds foreclosure sale complete).
[138] In re Wescott, 309 B.R. at 312-13; In re Randall, 263 B.R. at 202-03; In re Spencer, 263 B.R. at 231; In re Beeman, 235 B.R. at 526; In re Barham, 193 B.R. at 232.
[140] In re Wescott, 309 B.R. at 314; In re Randall, 263 B.R. at 203; In re Spencer, 263 B.R. at 231; In re Beeman, 235 B.R. at 524; In re Barham, 193 B.R. at 232.
[141] In re Beeman, 235 B.R. at 524-25 (quoting § 1322(c)(1) and finding the statute unambiguous in requiring the use of state law to determine when the sale is complete).
[143] In re Beeman, 235 B.R. at 524-25; In re Rambo, 199 B.R. at 751. See also Chisholm v. Cendant Mortgage Corp., No. 04-6398, 2005 U.S. Dist. LEXIS 32266, at *8-9 (D.N.J. June 27, 2005) (finding the suggested meaning of "that is conducted in accordance with nonbankruptcy law" counters "sold at a foreclosure sale" to create an ambiguity).
[145] Colon v. Option One Mortgage Corp., 319 F.3d 912, 918 (7th Cir. 2003); Christian v. Citibank, 214 B.R. 352, 355 (N.D. Ill. 1997); In re Tomlin, 228 B.R. 916, 919 (Bankr. E.D. Ark. 1999); In re Downing, 212 B.R. 459, 463-64 (D.N.J. 1997). This group points to legislative history evincing a legislative intent. Specifically, these courts rely, at least in part, on the following portion of a House Report: "this section of the bill safeguards a debtor's rights in a chapter 13 case by allowing the debtor to cure home mortgage defaults at least through the completion of a foreclosures sale under applicable nonbankruptcy law. However, if the State provides the debtor more extensive "cure" rights (through for example, some later redemption period), the debtor would continue to enjoy such rights in bankruptcy." H.R. Rep. No. 103-835, at 52 (1994) as reprinted in 1994 U.S.C.C.A.N. 3340, 3361; 140 Cong. Rec. 27,696 (1994); Colon, 319 F.3d at 918; Citibank, 214 B.R. at 355; In re Tomlin, 228 B.R. at 919; In re Downing, 212 B.R. 459, 463-64 (D. N.J. 1997).
[146] In re Townsville, 268 B.R. 95, 118-20 (Bankr. E.D. Pa. 2001) (holding that Pennsylvania law recognizes the mortgagor's right to redeem until fall of the gavel at sheriff's sale); see also In re Bardell, No. 05-06808, 2007 WL 430416, at * 3 (Bankr. N.D. W. Va. Feb. 8, 2007) (holding that debtor's right to cure terminates at foreclosure sale event pursuant to West Virginia law if completed-transfer approach were followed making analysis of the language of § 1322(c)(1) unnecessary); In re Crichlow, 322 B.R. 229, 235 (Bankr. D. Mass. 2004) (holding that federal statute requires bright-line approach and that debtor's right to cure terminates at the foreclosure sale but that if state law were considered, similar result would ensue); Homeside Lending, Inc. v. Denny (In re Denny), 242 B.R. 593, 597 (Bankr. D. Md. 1999) (finding the debtor had no interest in property after foreclosure sale under Maryland law); McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 161-62 (B.A.P. 10th Cir. 1998) (finding the property was "sold" on the date of the foreclosure sale under Wyoming law). Sometimes the state law changes. Ark. Code Ann. § 18-50-101(8) (2003); In re Starks, 2005 Bankr. LEXIS 2508, at *5-6 (E.D. Ark. Dec. 13, 2005) (recognizing Arkansas law changed to provide foreclosure sale complete when highest bid accepted by person conducting sale and overruled In re Tomlin, 228 B.R. 916, 919 (Bankr. E.D. Ark. 1999)).
[147] Rodriguez v. Naihomy (In re Rodriguez), 334 B.R. 754, 758 (B.A.P. 1st Cir. 2005) (determining that real property in Puerto Rico does not pass hands until the marshal delivers the deed, without addressing § 1322(c)(1) implications for parties' failure to raise the same); In re Downing, 212 B.R. at 464-65 (holding that the right to cure terminates when the sheriff delivers the deed to complete the sale per New Jersey law); In re Ross, 191 B.R. 615, 621 (Bankr. D.N.J. 1996) (same).
[148] In re Wescott, 309 B.R. 308, 314 (Bankr. E.D. Wis. 2004); In re Brown, 282 B.R. 880, 882 (Bankr. E.D. Ark. 2002); In re Faulkner, 240 B.R. 67, 69 (Bankr. W.D. Okla. 1999); Citibank, 214 B.R. at 355; In re Rambo, 199 B.R. at 751.
[149] In re Beeman, 235 B.R. at 526 (holding that New Hampshire law requires recording of the deed for valid transfer of property interest and that mortgagee holds option to void sale if new purchaser does not comply with terms of sale); In re Barham, 193 B.R. 229, 232 (Bankr. E.D.N.C. 1996) (holding debtor's right to cure terminates when North Carolina law that provides ten day period to outbid foreclosure sale price by 10 percent expires); In re Jaar, 186 B.R. 148, 154 (Bankr. M.D. Fla. 1995) (discussing the completed-transfer position and finding foreclosure sale under Florida law not complete until certificate of sale was filed with clerk of state court).
[150] See, e.g., Randall v. Equicredit Fin. Serv. Corp. (In re Randall), 263 B.R. 200, 202 (D.N.J. 2001) (providing no analysis of language or legislative history before applying state law to determine when property sold at foreclosure sale taking completed-transfer position); In re Benson, 293 B.R. 234, 238-39 (Bankr. D. Ariz. 2003) (relying primarily on existence of controversy itself to determine language is ambiguous before scant legislative history analysis to conclude completed-transfer position is correct); In re Townsville, 268 B.R. at 111-14 (surveying the reasoning of other courts' decisions on the issue but providing no independent analysis of language before looking to legislative history to find in favor of bright-line interpretation); Schinck v. Stephens (In re Stephens), 221 B.R. 290, 294 (Bankr. D. Me. 1998) (providing no analysis of language or legislative history before taking completed-transfer position); In re Barham, 193 B.R. at 231 (providing no analysis of the language of the statute and no reasoning for its conclusion that the legislative history favors the completed-transfer position). But see In re Simmons, 202 B.R. 198, 203 (Bankr. D.N.J. 1996) (applying two canons of statutory construction to language in analysis to conclude bright-line approach is correct).
[151] With a few dozen printouts of court decisions that opine on this controversy spread out on a table in no particular order or arrangement, the author indiscriminately chose fifteen to perform these tallies. The court decisions were: Cain v. Wells Fargo Bank (In re Cain), 423 F.3d 617 (6th Cir. 2005); Colon v. Option One Mortgage Corp., 319 F. 3d 912 (7th Cir. 2003); In re McCarn, 218 B.R. 154; In re Crichlow, 322 B.R. 229; In re Townsville, 268 B.R. 95; In re Randall, 263 B.R. 200; In re Bobo, 246 B.R. 453 (Bankr. D. D.C. 2000); In re Watts, 273 B.R. 471 (Bankr. D. S.C. 2000); In re Danaskos, 254 B.R. 416 (Bankr. N.D. Ill. 2000); Homeside Lending, Inc. v. Denny (In re Denny), 242 B.R. 593 (Bankr. D. Md. 1999); In re Crawford, 232 B.R. 92 (Bankr. N.D. Ohio 1999); In re Beeman, 235 B.R. 519; In re Tomlin, 228 B.R. 916 (Bankr. E.D. Ark. 1999); In re Downing, 212 B.R. 459; In re Rambo, 199 B.R. 747.
[153] In re Cain, 423 F.3d at 619; In re McCarn, 218 B.R. at 160-61; In re Townsville, 268 B.R. at 118-20; In re Crichlow, 322 B.R. at 234; In re Bobo, 246 B.R. at 456; In re Watts, 273 B.R. at 476-78; In re Danaskos, 254 B.R. at 420-21; In re Denny, 242 B.R. at 596-97; In re Crawford, 232 B.R. at 96. .
[154] Colon, 319 F.3d at 918-19; In re Randall, 263 B.R. at 202; In re Tomlin, 228 B.R. at 919; In re Beeman, 235 B.R. at 525-26; In re Downing, 212 B.R. at 461; In re Rambo, 199 B.R. at 751.
[155] In re Cain, 423 F.3d at 619-20; In re McCarn, 218 B.R. at 160; In re Crichlow, 322 B.R. at 234; In re Randall, 263 B.R. at 202; In re Bobo, 246 B.R. at 455-56; In re Watts, 273 B.R. at 476-78; In re Danaskos, 254 B.R. at 420; In re Beeman, 235 B.R. at 526; In re Denny, 242 B.R. at 596; In re Crawford, 232 B.R. at 96; In re Rambo, 199 B.R. at 750.
[156] Colon, 319 F.3d at 918; In re Townsville, 268 B.R. at 118-20; In re Tomlin, 228 B.R. at 919; In re Downing, 212 B.R. at 461.
[157] In re Cain, 423 F.3d at 619; In re McCarn, 218 B.R. at 160-61; In re Crichlow, 322 B.R. at 231; In re Bobo, 246 B.R. at 455; In re Watts, 273 B.R. at 476-78; In re Danaskos, 254 B.R. at 422; In re Denny, 242 B.R. at 596; In re Crawford, 232 B.R. at 96.
[161] In re Cain, 423 F.3d at 620-21; In re McCarn, 218 B.R. at 161-62; In re Bobo, 246 B.R. at 458-59; In re Beeman, 235 B.R. at 525-26; In re Rambo, 199 B.R. at 750-51; In re Crawford, 232 B.R. at 96-97.
[162] In re Cain, 423 F.3d at 620-21; In re Bobo, 246 B.R. at 458-59; In re Beeman, 235 B.R. at 525-26; In re Rambo, 199 B.R. at 750-51.
[165] There are additional considerations than just the apparent disagreement over interpretation. As shown herein, many of the decisions in this controversy are rendered by bankruptcy courts. See supra note 151. However well reasoned, these decisions are not afforded the weight of stare decisis in our legal system. See, e.g., In re Downing, 212 B.R. at 464 (discussing disagreement shown by bankruptcy courts located in New Jersey); In re Ziyambe, 200 B.R. 790, 793-94 (Bankr. D.N. J. 1996) (declining to follow other bankruptcy courts from same state). Thus, there is much less controlling law than may appear. Additionally, like our hypothetical couple the Smiths, arguably for most debtors the life events leading to bankruptcy create the environment for a lack of planning, and missing deadlines, like seeking legal help before the foreclosure sale of their home. Further, with the recent requirement for pre-filing budget and credit counseling, incidence of this dilemma may increase. See supra note 5.
[167] See e.g. supra note 151.These decisions are either rendered by the respective United States District court or, if established and the debtor so chooses, the Bankruptcy Appellate Panel. Id. The judicial counsel of each circuit is required to establish a Bankruptcy Appellate Panel unless they found certain conditions apply. 28 U.S.C. § 158(b)(1) (2000). Bankruptcy Appellate Panel is composed of bankruptcy judges from districts within the respective circuit and presides in three member panels. 28 U.S.C. § 158(b)(1),(5). Bankruptcy Appellate Panels are presently established in the First, Sixth, Eighth, Ninth, and Tenth circuits. United States Bankruptcy Appellate Panel of the Tenth Circuit, Introduction to the Bankruptcy Appellate Panel (Nov. 19, 2004), http://www.bap10.uscourts.gov/guide/historyBAP.pdf
[168] Henry Jack Boroff, The Precedential Effect of Bankruptcy Appellate Panel Decisions, 103 Com. L. J. 212, 218-19 (1998) (explaining that with the possible exception of the Ninth Circuit, the weight of authority holds that Bankruptcy Appellate Panel and United States District court decisions in multi-judge districts are without precedential value); Judith A. McKenna & Elizabeth C. Wiggens, Alternative Structures for Bankruptcy Appeals, 76 Am. Bankr. L. J. 625, 627 (2002) (recognizing that most Bankruptcy Appellate Panels and United States District Courts do not create binding bankruptcy law precedent).
[169] Cain v. Wells Fargo Bank (In re Cain), 423 F.3d 617 (6th Cir. 2005); Colon v. Option One Mortgage Corp., 319 F. 3d 912 (7th Cir. 2003). Although it has not had the opportunity to interpret Section 1322(c)(1), the United States Court of Appeals for the Eleventh Circuit has indicated a bright-line intent is "most likely" in dicta. Commercial Fed. Mortgage Corp. v. Smith (In re Smith), 85 F.3d 1555, 1558 n.3 (11th Cir. 1996) (taking bright-line position on policy and equitable grounds before addition of Section 1322(c)(1) to the Bankruptcy Code and noted if the section were applicable a bright-line intent is "most likely").
[172] Jeffery A. Deller & Nicholas E. Meriwether, Putting Order to The Madness: BAPCPA and the Contours of the New Prebankruptcy Credit Counseling Requirements, 16 J. Bankr. L. & Prac. 1 Art. 5 (Noting that Congress's passage of the BAPCPA created the most sweeping change to bankruptcy law since the passage of the Bankruptcy Act in 1978); see In re Ott, 343 B.R. 264, 268 (Bankr. D. Col. 2006) (describing the BAPCPA as complex and extensive). Most provisions of the BAPCPA became effective on October 17, 2005. See discussion supra, note 5.
[173] See Judith A. McKenna & Elizabeth C. Wiggens, Alternative Structures for Bankruptcy Appeals, 76 Am. Bankr. L. J. 625, 627 (2002) (recognizing "the inability of most appellate reviewers to create binding precedent diminishes the value of appellate review and is asserted to hinder lawyers' and others' ability to structure transactions and predict litigation outcomes."); see also Henry Jack Boroff, The Precedential Effect of Bankruptcy Appellate Panel Decisions, 103 Com L. J. 212, 221 (1998) (highlighting the various proposals to solve the dilemma created by the lack of precedent granted bankruptcy appellate decisions and concluding that "if no solution is found, the goal of developing a uniform and consistent body of bankruptcy case law will be difficult to attain.")
[174] See In re Simmons, 202 B.R. 198, 203 (Bankr. D.N.J. 1996) (applying the canons reddendo singula singulis and that a successive phrase should only modify its immediate antecedent phrase to language and concludes bright-line approach is correct). These four canons are referred to as traditional and generally accepted for their longevity, frequency of use, and the concomitant precedent established by the height of the authority that has adopted them. See infra note 176, 178-180. The author finds them the simple expression of common sense. The author chose to apply these four canons from among those he regards as traditional and generally accepted because of their applicability to the conditions presented in the language of Section 1322(c)(1) and their demonstrated usefullness to extract legislative intent from statutes. Some believe the value of a canon's utility will inevitably be frustrated by the application of another equally valid canon. Edwin W. Patterson, The Interpretation and Construction of Contracts, 64 Colum. L. Rev. 833, 852-53 (1964) (doubting relevance of canons to interpret contracts); Karl N. Llewellyn, Remarks on the Theory of Appellate Decision and the Rules or Canons about How Statutes Are to Be Construed, 3 Vand. L. Rev. 395 (1950). Upon closer inspection, this proposition breaks down. Antonin Scalia, Common-law Courts in a Civil-Law System: The Role of United States Federal Courts in Interpreting the Constitution and Laws, in A Matter of Interpretation 3, 27-28 (Amy Gutmann ed. 1997) (explaining the utility of generally accepted canons and revealing Karl N. Llewellyn's use of "faux canons"); Michael Sinclair, "Only a Sith Thinks Like That: Llewellyn's "Dueling Canons," One to Seven, 50 N.Y.L. Sch. L. Rev. 919, 992 (2005) (scrutinizing in depth the first seven pairs of Carl Llewellyn's opposing canons and finding "[g]enuine contrariety . . . is not evident."); Jonathan R. Macey & Geoffrey P. Miller, The Canons of Statutory Construction and Judicial Preferences, 45 Vand. L. Rev. 647 (1992) (arguing that Carl Llewellyn's claims were overstated and even if correct were irrelevant because the use of canons is unnecessary to employ judicial willfulness). The author concedes that canons are not independent absolute rules but rather useful common-sense aids to provide one indication of meaning. Scalia, supra at 28; see Sinclair, supra at 992. The author uses them as building blocks to reach his ultimate conclusion. The opposing camp's sparse use of canon principles does not include any canons not utilized herein to arrive at their contrary view of the text's meaning. See Colon, 319 F.3d at 918-19; Chisholm v. Cendant Mortgage Corp., No. 04-6398, 2005 U.S. Dist. LEXIS 32266, at *11 (D. N.J June 27, 2005); Randall v. Equicredit Fin. Serv. Corp. (In re Randall), 263 B.R. 200, 202 (D.N.J. 2001); In re Wescott, 309 B.R. 308, 311 (2004); In re Spencer, 263 B.R. 227, 230 (2001); In re Tomlin, 228 B.R. 916, 919 (Bankr. E.D. Ark. 1999); In re Beeman, 235 B.R. 519, 525-26 (Bankr. D. N.H. 1999); In re Downing, 212 B.R. 459, 461 (Bankr. D. N.J. 1997); In re Rambo, 199 B.R. 747, 751 (Bankr. W.D. Okla. 1996); In re Barham, 193 B.R. 229, 231 (1996). Therefore, this analysis provides a complete picture of the canonical sources of reasoning utilized by the courts in the controversy over the meaning of the statutory language in Section 1322(c)(1).
[175] Reddendo singula singulis means "by rendering each to each." Black's Law Dictionary 1281 (7th ed. 1999).
[176] Hibbs v. Winn, 542 U.S. 88, 101 (2004); Duncan v. Walker, 533 U.S. 167, 174 (2001) ("It is our duty 'to give effect, if possible, to every clause and word of a statute.'" (quoting United States v. Menasche, 348 U.S. 528, 538-39 (1955) (quoting Montclair v. Ramsdell, 107 U.S. 147, 152 (1883)))); see also Williams v. Taylor, 529 U.S. 362, 404 (2000) (applying this "cardinal principle of statutory construction"); Earl T. Crawford, Construction of Statutes §§ 194, 204 (1940); 2 John Lewis, Sutherland Statutory Construction § 380 (John Lewis ed., 2nd ed. 1904) (1896) (collecting cases).
[177] Noscitur a sociis means "it is known by its associates." Black's Law Dictionary 1084 (7th ed. 1999).
[178] Gen. Dynamics Land Sys., Inc. v. Cline, 540 U.S. 581, 596 (2004) (stating the "cardinal rule that '[s]tatutory language must be read in context [since] a phrase 'gathers meaning from the words around it'" (quoting Jones v. United States, 527 U.S. 373, 389 (1999))).
[179] Smith v. United States, 508 U.S. 223, 228 (1993); Chapman v. United States, 500 U.S. 453, 462 (1991); Perrin v. United States, 444 U.S. 37, 42 (1979) (stating text not defined by statute should be given its ordinary and common meaning); Minor v. Mech. Bank of Alexandria, 1 Pet. 48, 64 (1828). See Scalia, supra note 174, at 3, 23-24.
[180] Nat'l Coal. for Students with Disabilities Edu. & Legal Def. Fund. v. Allen, 152 F.3d 283, 288 n.6 (4th Cir. 1998) ("Absent an expression of contrary congressional intent, the failure to apply this canon 'flies in the face of common sense in grammar hardened into law.'" (quoting United States ex rel. Santarelli v. Hughes, 116 F.2d 613, 616 (3d Cir. 1940))); United States v. Montejo, 353 F. Supp. 2d 643, 648 (E.D. Va. 2005); 2A Norman J. Singer, Sutherland Statutory Construction § 47.33 (6th ed., rev. 2002).
[181] 11 U.S.C. § 1322(c)(1) (2000). The entire subsection reads: "(1) a default with respect to, or that gave rise to, a lien on the debtors 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." Id.
[182] JPMorgan Chase Bank v. McKinney (In re McKinney), 344 B.R. 1, 5 (Bankr. D. Me. 2006) (noting the disagreement between courts over the meaning of "sold" in § 1322(c)(1)); In re Beeman, 235 B.R. 519, 525 (Bankr. D.N.H. 1999) (referencing two dictionaries for meaning of "sale" and adopting the completed-transfer interpretation). Black's Law Dictionary contains the following definitions for "sale:"
1. The transfer of property or title for a price. 2. The agreement by which such a transfer takes place. · The four elements are (1) parties competent to contract, (2) mutual assent, (3) a thing capable of being transferred, and (4) a price in money paid or promised.
Black's Law Dictionary 1337 (7th ed. 1999).
[183] In re Bobo, 246 B.R. 453, 456 (Bankr. D.D.C. 2000) ("Common parlance draws a distinction between the property being 'sold at a foreclosure sale' and the later consummation of that sale and satisfaction of all contingencies required to prevent defeasance of the sale"); see also In re Tomlin, 228 B.R. 919, 919 (Bankr. E.D. Ark. 1999) (proposing words "foreclosure sale" in statute to have these two possible meanings); see also Colon v. Option One Mortgage Corp., 319 F.3d 912, 917 (7th Cir. 2003).
[184] In real property transfers, there are different promises concerning the type of title actually transferred. However, these varied real property concerns do not affect the meaning of the word "sold."
[185] In re McKinney, 344 B.R. at 5-6 (Bankr. D. Me. 2006) (finding word "at" connects "sold" with "foreclosure sale"); In re Crichlow, 322 B.R. 229, 234 (Bankr. D. Mass. 2004) (finding phrase "sold at a foreclosure sale" to refer to the actual sale event); In re Bobo, 246 B.R. at 456 (finding word "at" requires what is "sold" to occur at time of foreclosure sale event); Homeside Lending, Inc. v. Denny (In re Denny), 242 B.R. 593, 597 (Bankr. D. Md. 1999) (finding that the "preposition 'at' clearly indicates the specific event of the foreclosure sale").
[186] In re Bobo, 246 B.R. at 456 ("The statute refers to the property being sold at, not after or pursuant to, a foreclosure sale.").
[187] In re Watts, 273 B.R. 471, 476-78 (Bankr. D.S.C. 2000); In re Bobo, 246 B.R. at 455; In re Denny, 242 B.R. at 599.
[191] In re Crawford, 232 B.R. 92, 96 (Bankr. N.D. Ohio 1999); In re Simmons, 202 B.R. 198, 203 (Bankr. D.N.J. 1996).
[192] In re Crawford, 232 B.R. at 96; In re Simmons, 202 B.R. at 203; see In re Crichlow, 322 B.R. 229, 234 (Bankr. D. Mass. 2004).
[195] The failure to follow the state-law foreclosure proceeding has substantive federal bankruptcy ramifications. If a debtor could show that the sale was not "conducted in accordance with [state] law," then the bankruptcy court could void the transaction and find the debtor's right to cure continuous and intact. Colon v. Option One Mortgage Corp., 319 F.3d 912, 921 (7th Cir. 2003) (holding that if the sale was not confirmed correctly then there continues a right to cure under § 1322(c)(1)). In the event that a new occupant took possession, the debtor could be entitled to a fair rental price for the time the buyer occupied the premises. Cf. JPMorgan Chase Bank v. McKinney (In re McKinney), 344 B.R. 1, 6-7 (Bankr. D. Me. 2006) (where the debtors' claim foreclosure sale was not conducted according to state law); see also In re Crichlow, 322 B.R. 321, 322-23 (Bankr. D. Mass. 2005) (acknowledging assessment of "monthly use and occupancy payments" upon a debtor continuing to occupy premises after foreclosure buyer successfully lifted debtor's automatic stay). Thus, the successive phrase also gives federal teeth to the state law but only to the extent of how the foreclosure sale event is to be conducted.
[196] In re Downing, 212 B.R. 459, 461 n.2 (Bankr. D.N.J. 1997) ("Federal foreclosure law does not exist.").
[197] See, e.g., Swift v. Tyson, 41 U.S. 1, 18-19 (1848) (describing real property issues as truly local and beyond federal law-making process); McCulloch v. Maryland, 17 U.S. 316, 375 (1819) (prohibiting state taxation of the business conduct of federal banks but permitting state taxation of the state property the bank is located upon).
[198] BFP v. Resolution Trust Corp., 511 U.S. 531, 544-45 (1994) (recognizing state foreclosure sale processes as a traditional and important state interest requiring a clear and manifest intent to be displaced by federal statute).
[199] This has been referred to as "the Butner principle," as expressed in Butner v. United States. Baird, supra note 9, at 4-6 (citing Butner v. United States, 440 U.S. 48, 55 (1979)). Section 1322(c)(1) does preempt state law that would terminate the debtor's cure right before the foreclosure sale. Colon, 319 F.3d at 920 (questioning only post-foreclosure-sale cure termination); In re Downing, 212 B.R. at 463 n.4. However, it does not offend the Butner principle because it has been deemed necessary to serve the "fundamental bankruptcy principle allowing the debtor a fresh start through bankruptcy." 140 Cong. Rec. 27,696 (1994); see Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934); Baird, supra note 9, at 34.
[200] In re McKinney, 344 B.R. at 6. There is some disagreement by courts adopting the bright-line approach over whether the state foreclosure process needs to meet a federal standard. Compare In re Crichlow, 322 B.R. 229, 234 (Bankr. D. Mass. 2004) (holding that state law controls the question of whether the foreclosure sale process was legally proper and stating its disagreement with In re Bobo (citing In re Bobo, 246 B.R. 453 (Bankr. D.D.C. 2000))), with In re Bobo, 246 B.R. at 457-58 (reasoning that federal law controls whether a foreclosure sale has occurred and finding that federal courts should look past state law labels to determine whether the state law process is adequate for federal standards). The author agrees that the statute does not dictate that federal standards are to be placed upon state foreclosure sale processes.
[201] Randall v. Equicredit Fin. Serv. Corp. (In re Randall), 263 B.R. 200, 202 (D.N.J. 2001); In re Barham, 193 B.R. 229, 232 (Bankr. E.D. N.C. 1996).
[202] See, e.g., In re Beeman, 235 B.R. 519, 524-25 (Bankr. D.N.H. 1999) (referencing only one definition of "sale" in both Black's Law Dictionary and Merriam Webster's Collegiate Dictionary to ascertain the meaning of "sold" but failing to consider other definitions or associated words in the statute); Schinck v. Stephens (In re Stephens), 221 B.R. 290, 294 (Bankr. D. Me. 1998) (considering the meaning for "sold" could only be the completion of the foreclosure sale defined by state law; Cf. In re Bobo, 246 B.R. at 456 ("Common parlance draws a distinction between the property being 'sold at a foreclosure sale' and the later consummation of that sale and satisfaction of all contingencies required to prevent defeasance of the sale."); see discussion supra note 171, 172.
[203] The court in In re Beeman and In re Stephens make this mistake. In re Beeman, 235 B.R. at 525; In re Stephens, 221 B.R. at 294. In re Beeman not only isolates the word "sold" but also selectively chooses a portion of only one of the available definitions for the word "sale" that avoids revealing an alternative meaning. In re Beeman, 235 B.R. at 525. The In re Beeman court quotes the fifth edition of Black's Law Dictionary as defining "sold" as: "by which [the seller], in consideration of the payment or promise of payment of a certain price in money, transfers to [the buyer] the title and the possession of property." Id. (alterations in original). The court omits the proceeding words of the definition, which are: "A contract between two parties, called, respectively, the "seller" (or vender) and the "buyer" (or purchaser)." Black's Law Dictionary 1200 (5th ed. 1979) (emphasis added). This entry in Black's Law Dictionary spans over two pages and contains many sub-definitions. Id. at 1200-02. A cursory review of the definition of "sale" in this fifth edition of Black's Law Dictionary encompasses either possible definition described herein. Id.; see supra Part IV.A.
[205] 11 U.S.C. § 1322(c)(1) (2000). Colon v. Option One Mortgage Corp., 319 F.3d 912, 917 (7th Cir. 2003); In re Rambo, 199 B.R. 747, 751 (Bankr. W.D. Okla. 1996).
[207] The term "foreclosure sale" is not defined in the Bankruptcy code. In re Beeman, 235 B.R. at 525.
[208] See In re Beeman, 235 B.R. at 525; In re Tomlin, 228 B.R. 916, 919 (Bankr. E.D. Ark. 1999); In re Crawford, 217 B.R. 558, 560 (N.D. Ill. 1998) (finding the fact that Congress did not use "auction" to indicate its intent to terminate the debtor's right to cure according to when state law deems the sale complete); 8 Collier On Bankruptcy, supra note 134, § 1322.15.
[209] For example, the term "applicable nonbankruptcy law" has also been used to widen a statute's application. Patterson v. Shumate, 504 U.S. 753, 758 (1992) (holding the meaning of statutory language, "applicable nonbankrutpcy law," is not limited to only state law and noting Congress's use of contrary term "state law" when only state law is intended).
[210] In re Bobo, 246 B.R. 453, 456 (Bankr. D.D.C. 2000) (stating that the term "foreclosure sale" was used to encompass sales that did not occur at an auction style sale and noting the lack of definition of "foreclosure sale" in Bankruptcy Code). Section 1322(c)(1) has been applied in strict foreclosure situations where no public sale occurs. See, e.g., In re Pellegrino, 284 B.R. 326, 330-31 (Bankr. D. Conn. 2002) (applying § 1322(c)(1) to strict foreclosure absent actual foreclosure sale); In re Taylor, 286 B.R. 275, 281 (D. Vt. 2002) (same). But see Schinck v. Stephens (In re Stephens), 221 B.R. 290, 290 (Bankr. D. Me. 1998) (holding that § 1322(c)(1) only applied when state law foreclosure process included actual foreclosure sale event). The statute's language demands that the right to cure expires where the property is "sold at a foreclosure sale." Therefore, it cannot apply when no foreclosure sale occurs and thus, the In re Stephens court is correct. Further, in title-theory jurisdictions, the mortgagee always holds legal title to the property and is simply foreclosing on the mortgagor's right of possession and equity of redemption interest, which usually occurs at the foreclosure judgment.
[212] Colon v. Option One Mortgage Corp., 319 F. 3d 912, 918 (7th Cir. 2003); In re Townsville, 268 B.R. 95 (Bankr. E.D. Pa. 2001); H.R. Rep. No. 103-835; 140 Cong. Rec. 27,690 (1994).
[213] H.R. Rep. No. 103-835, at 52 (1994) as reprinted in 1994 U.S.C.C.A.N. 3340, 3361. The report was formally submitted to the House by Representative Brooks of the Judiciary Committee and was entered into the congressional record in its entirety as part of his statement during debate over the bill. 140 Cong. Rec. 27,696 (1994). A legislative report is regarded as more reliable than most other forms of legislative history, but is not infallible. See Reed Dickerson, The Interpretation and Application of Statutes 158-59 (Little Brown 1975).
[214] H.R. Rep. No. 103-835, at 52 (1994) as reprinted in 1994 U.S.C.C.A.N. 3340, 3361 (emphasis added); 140 Cong. Rec. 27,696 (1994).
[218] See McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 161 (B.A.P. 10th Cir. 1998) (recognizing "Congress cited with approval Glenn, the principle case espousing the bright-line test"); In re Townsville, 268 B.R. 95, 117 (Bankr. E.D. Pa. 2001); see also In re Glenn, 760 F.2d 1428, 1435 (6th Cir. 1985) ("The event we choose as the cut-off date of the statutory right to cure defaults is the sale of the mortgaged premises.").
[219] In re Glenn, 760 F.2d at 1435-36 (expressing seven policy reasons for its bright-line position and stating "In so ruling we avoid any effort to analyze the transaction in terms of state property law.").
[220] In re Clark, 738 F.2d 869, 871 (7th Cir. 1984). The majority of jurisdictions follow the lien theory. 1 Nelson & Whitman, supra note 53, § 4.2, at 156-57. Under the lien theory, the mortgagee's interest is merely as a lien holder and the mortgagor retains a fee simple comprising legal and equitable title. Id.
[221] Presently at least eight states, and arguably a few more, follow the title theory. All are located in the eastern United States. 1 Nelson & Whitman, supra note 53, § 4.1 at 155. Under title theory, the mortgagee retains legal title to the property and the mortgagor obtains equitable title. Id. at § 4.1.
[222] This is the least popular mortgage theory in the United States. 1 Nelson & Whitman, supra note 53, § 4.3. This follows lien theory until default where it changes to follow the title theory. Id.
[223] In re Clark, 738 F.2d at 874 ("[W]e do not reach the question whether the same result [would be] obtain[ed] in a state in which the effect of a judgment of foreclosure is different"); see Douglas A. Winthrop, Note, The Chapter 13 Cure Provisions: A Doctrine in Need of a Cure, 74 Minn. L. Rev. 921, 932-34 (1990) (observing that the In re Clark decision approved of pre-foreclosure sale cure termination in title jurisdictions by negative implication).
[224] See McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 162-63 (B.A.P. 10th Cir. 1998); In re Bobo, 246 B.R. 453, 459 (Bankr. D.D.C. 2000) (finding House Report's discussion of In re Glenn demonstrative of Congress' bright-line intent).
[225] H.R. Rep. No. 103-835, at 52 (1994), as reprinted in 1994 U.S.C.C.A.N. 3340, 3361; 140 Cong. Rec. 27,696 (1994).
[227] H.R. Rep. No. 103-835, at 52 (1994), as reprinted in 1994 U.S.C.C.A.N. 3340, 3361; 140 Cong. Rec. 27,696.
[228] H.R. Rep. No. 103-835, at 52 (1994), as reprinted in 1994 U.S.C.C.A.N. 3340, 3361; 140 Cong. Rec. 27,696.
[229] See Cain v. Wells Fargo Bank (In re Cain), 423 F.3d 617, 619 (6th Cir. 2005); In re Crawford, 232 B.R. 92, 98 n.3 (Bankr. N.D. Ohio 1999) (noting that if House Report were not using the word "cure" in the technical sense then the plausible interpretation of it could be that state statutory redemption rights were to be left intact); In re Downing, 212 B.R. 459, 461 n.1 (Bankr. D.N.J. 1997). The house report is not the only authority which confusingly uses the word "cure" to describe the debtor's nonbankruptcy legal rights (that could solve his mortgage default) that are left undisturbed by the Bankruptcy Code. See, e.g., In re Woodford, No. 06-50418, 2006 WL 2959522, at *3 n.4 (Bankr. W.D. Ky. Oct. 15, 2006) ("We emphasize that under any interpretation of 11 U.S.C. § 1322(c), a Chapter 13 debtor always retains any right to cure provided by state law outside the Chapter 13 plan." (emphasis added)). The word and legal concept of "redemption" has also been used incorrectly to refer to a bankruptcy cure under §1322(c)(1); see e.g., Colon v. Option One Mortgage Corp., 319 F.3d 912, 918 (2003) (stating "there is significantly scholarly support for the view that the states have the last word in determining the scope of redemption" and then quoting Collier on Bankruptcy commentary that describes cure rights under § 1322(c)(1)).
[230] McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 162-63 (B.A.P. 10th Cir. 1998); In re Downing, 212 B.R. at 461 n.1; see In re Clark, 738 F.2d 869, 872 (7th Cir. 1984) ("[T]he plain meaning of 'cure,' as used in § 1322(b)(2) and (5), is to remedy or rectify the default and restore matters to the status quo ante.").
[231] In re McCarn, 218 B.R. at 162-63; In re Downing, 212 B.R. at 461 n.1; see 1 Nelson & Whitman, supra note 53, § 8.4; see also 1 Nelson & Whitman, supra note 53, § 7.6 at 617.
[232] See supra Part II and notes 76-80. The same general equitable arguments made in Part IV.C. could be made against state redemption rights, a subject not addressed here.
[234] The lack of effect bankruptcy has of the state statutory right of redemption is expressed in bankruptcy decisions. In re Cain, 423 F.3d at 619; In re Woodford, 2006 WL 2959522, at *3; In re Crawford, 232 B.R. at 98 n.3; In re Scheldt, 220 B.R. 362, 364-65 (Bankr. C.D. Ill. 1998); see also Wright v. Union Cent. Life Ins. Co., 304 U.S. 502, 514-15 (1938) (drawing a distinction between foreclosure sale and later state law right of redemption).
[238] See In re Barham, 193 B.R. 229, 231 n.1 (Bankr. E.D. N.C. 1996) (holding debtor's cure right terminates after the foreclosure sale event and in accordance with the completed-transfer position but finding Senator Grassley's statement "might favor [the bright-line interpretation] although the context makes his intent unclear.").
[243] McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 161 (B.A.P. 10th Cir. 1998) (finding Senator Grassley's statements indicative of bright-line intent when finding legislative history on whole unhelpful); In re Townsville, 268 B.R. 95, 117-18 (Bankr. E.D. Pa. 2001) (finding Senator Grassley's statement supportive of its bright-line holding based on legislative history); In re Bobo, 246 B.R. 453, 459 (Bankr. D.D.C. 2000) (finding Senator Grassley's floor statement supports the court's bright-line holding); In re Beeman, 235 B.R. 519, 526 (Bankr. D.N.H. 1999) (weighting Senator Grassley's statement in favor of bright-line intent in analysis but finding legislative history overall not contrary to its holding for completed-transfer reading of unambiguous text); In re Tomlin, 228 B.R. 916, 919 n.2 (Bankr. E.D. Ark. 1999) (considering Senator Grassley's statement seemed to indicate bright-line intent but legislative history overall consistent with completed-transfer interpretation); In re Simmons, 202 B.R. 198, 202 (D. N.J. 1996); In re Ziyambe, 200 B.R. 790, 798-99 (Bankr. D.N.J. 1996); In re Barham, 193 B.R. at 231 n.1 (holding debtor's cure right under the statute is completed-transfer but finding Senator Grassley's statement "might favor [the bright-line interpretation] although the context makes his intent unclear"). But see Colon v. Option One Mortgage Corp., 319 F. 3d 912, 918 (7th Cir. 2003); In re Downing, 212 B.R. 459, 463-64 (Bankr. D.N.J. 1997) (finding Senator Grassley's statement, when read in conjunction with House Report, indicates completed-transfer intent).
[244] In re Barham, 193 B.R. at 231 n.1; Dickerson, supra note 213, at 156 ("Least reliable are floor debates concerning what a bill means."); Crawford, supra note 176, § 213.
[245] Dickerson, supra note 213, at 156 (Little Brown 1975) (describing floor statements as made "in circumstances that call for gross oversimplification").
[246] Crawford, supra note 176, § 215 (noting when legislative history has been considered, committee reports have been given more weight than floor statements).
[247] 11 U.S.C. § 105 (2000) allows "any order, process or judgment that is necessary or appropriate to carry out the [Bankruptcy Code] provisions." Baird, supra note 9, at 6.
[249] In re Chrichlow, 334 B.R. 321, 324 (Bankr. D. Mass. 2005) (considering harm to foreclosure buyer greater than to debtor who continued to live on premises after the bankruptcy court ruled debtor's right to cure terminated when the gavel dropped at the foreclosure sale).
[250] Fed. Land Bank v. Glenn (In re Glenn), 760 F.2d 1428, 1436 (6th Cir. 1985); McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 160 (B.A.P. 10th Cir. 1998).
[252] In re Chrichlow, 334 B.R. at 324 (considering harm to foreclosure buyer to weight against debtor who continued to live on premises after the bankruptcy court ruled debtor's right to cure terminated when the gavel dropped at the foreclosure sale).
[253] Lenders are governed by both state and federal regulators. Mortgage defaults affect their standing to obtain acceptance into the federal mortgage insurance program. HUD Mortgage & Insurance Programs Eligibility Rule, 24 C.F.R. §§ 203.3-.4 (2006); 2 Nelson & Whitman, supra note 53, § 11.2, at 61-62.
[254] See In re Glenn, 760 F.2d at 1436 (holding one of seven policy reasons in support for termination of debtor's right to cure at the foreclosure sale is the very serious danger of a chill to the foreclosure market).
[255] In re Chrichlow, 334 B.R. at 324 (considering harm to foreclosure buyer greater than to debtor who continued to live on premises after the bankruptcy court ruled debtor's right to cure terminated when the gavel dropped at the foreclosure sale).
[256] In re Downing, 212 B.R. 459, 463 n.4 (Bankr. D.N.J. 1997) (noting the holding of In re Roach that distinguished property interests from federal cure rights survives despite its being superseded by statute); In re Sims, 185 B.R. 853, 866 (Bankr. E.D. Ala. 1995) ("Section 1322(c)(1) abrogates the need of courts to analyze the state property rights of the debtor in the property to determine when a cure is available."); see also 11 U.S.C. § 541(a) (2000).
[258] JPMorgan Chase Bank v. McKinney (In re McKinney), 344 B.R. 1, 5-6 (Bankr. D. Me. 2006) (recognizing that Section 1322(c)(1) provides substantive rights to debtors well after their property interests in the residence are terminated according to Maine law).
[260] Travelers Cas. and Sur. Co. of America v. Pacific Gas and Elec. Co., No. 05-1429, 2007 U.S. LEXIS 3566, at *15-16 (U.S. March 20, 2007); In re Downing, 212 B.R. at 463 n.4; In re Sims, 185 B.R. at 866 ("Section 1322(c)(1) abrogates the need of courts to analyze the state property rights of the debtor in the property to determine when a cure is available."); see also 11 U.S.C. § 541(a).
[261] Butner v. United States, 440 U.S. 48, 55 (1979); Stellwagon v. Clum, 245 U.S. 605, 613 (1918) ("state laws are . . . suspended only to the extent of actual conflict with the system provided by the Bankruptcy [Code]"); Baird, supra note 9, at 4-6.
[263] In re Tomlin, 228 B.R.916, 919, 921 (Bankr. W.D. Ark. 1999); In re Sims, 185 B.R. at 866 (holding the clear and unambiguous language of § 1322(c)(1) requires bright-line termination of debtor's right to cure but expressing it is not consistent with bankruptcy principles for lack of harmony with state law).
Citation
7 U.C. Davis Bus. L.J. 461 (2007)
Arguing for a Bright–Line Approach to the Debtor's Statutory Right to Cure a Residential Mortgage Default
Vol. 7
November 2007
Page
Introduction
Federal law provides individuals who file for Chapter 13 bankruptcy a statutory right[1] to cure a prior default on the mortgage on their homes. Some courts interpret this cure right as terminating when the gavel falls at the foreclosure sale; others hold the right extends beyond that point until the sale is deemed final under state law. This Note argues for a bright-line approach that the relevant bankruptcy statute[2] terminates the right of the debtor at the time of the foreclosure sale. In essence, federal law supplies the when for the expiration of the right to cure and adopts the state law how for conducting the foreclosure sale event.
The controversy arises when a debtor files a bankruptcy petition under Chapter 13 of the Bankruptcy Code after the foreclosure sale of the debtor's residence has occurred, but before state law would deem the sale complete. At stake to the parties is ownership of the property. This controversy can be better understood by considering two hypothetical couples. The Smiths are debtors seeking to save their home through Chapter 13 bankruptcy; the Joneses, on the other hand, are foreclosure buyers of the same home.
Mr. and Mrs. Smith bought their four-bedroom home with a yard and two-car garage in suburbia. After a few years, they encountered a series of unexpected financial setbacks that made it difficult for them to make their mortgage payment.[3] They quickly fell behind, and some months later, the bank held a foreclosure sale of their home.[4] The second couple, the Joneses, found the perfect opportunity to purchase a first home by hunting through the foreclosure sale listings. Their goal was to buy a four-bedroom home with a yard and two-car garage in suburbia. They were prepared and presented their certified cashier's check as the required deposit before their final bid at the foreclosure sale was accepted.
After the foreclosure sale, and for the first time, the Smiths sought outside help with their debts. The Smiths met with a bankruptcy attorney, who advised them to file for bankruptcy as soon as possible because they might still be able to save their home.[5] To accomplish this, they would need to avail themselves, amidst significant controversy in the federal courts, of their state's favorable laws concerning foreclosure sales. Unlike some jurisdictions,[6] their state does not consider a foreclosure sale complete when the sale event occurs, but rather when the new deed is delivered to the Joneses. To save their home, the Smiths must file for bankruptcy before the deed is delivered to the new buyers. Then they must then convince the bankruptcy court to adopt one of two interpretations of a federal law that would allow them to invoke their right to cure their mortgage default even after the date of the foreclosure sale. If the Smiths prevail in this legal controversy, they could possibly save their home.[7]
This Note argues that the Joneses (the foreclosure buyers) should prevail. Part I of this Note provides a brief history of bankruptcy and its underlying public policies. Part II provides an overview of the modern residential foreclosure process. Part III presents the history of mortgage debt cure under federal bankruptcy law, 11 U.S.C. § 1332(c)(1), and the interpretative controversy that section has created. Part IV applies four traditional, generally accepted canons of statutory interpretation applicable to the language of § 1322(c)(1), and analyzes its legislative history. Part IV also considers equity under bankruptcy principles and compares the competing positions' effects on state autonomy. It then concludes that all considerations support a bright-line interpretation: the debtor's right to cure expires when the gavel falls at the foreclosure sale event.
I. History, Underlying Policy, and the Modern Chapter 13 Bankruptcy
A. The Roots and Underlying Policies of Bankruptcy
The concept of debt forgiveness dates back well over 3000 years.[8] English law laid the foundations for initial bankruptcy principles in the United States.[9] The first English bankruptcy law,[10] placed jurisdiction over the debtor[11] in the King's Council, and the equitable nature of the claim has endured ever since.[12] This law did not include the forgiving of debts; rather, the law kept debts alive indefinitely.[13] Even after all of the debtor's goods were seized and sold to satisfy the debts and the proceeds provided to his creditors, the remaining balance continued in full force, with all new acquisitions of the debtor immediately vesting in his creditors.[14]
A new law was implemented after England's transition from an agrarian economy to one built on commerce and trade.[15] The old law providing for actions only between two parties and was not amenable to the new industrial economy that produced individuals with multiple creditors.[16] "The Common Law maxim, 'the law favors the diligent creditor'" was no longer helpful, as it created a race among creditors to be the first to file their grievance and thereby obtain priority for repayment.[17] The new law placed the power of all creditors in one collector, who distributed what he seized between all creditors equally.[18] Consequently, a new bankruptcy maxim, "[e]quality is equity," replaced the old.[19] As an incentive for the debtor's cooperation, in 1705, Parliament[20] enacted laws that released debt over and above the amount that the debtor surrendered in good faith and upon full disclosure of assets.[21]
All of America's early colonies adopted bankruptcy laws.[22] At the time of the Revolutionary War, bankruptcy was available only to merchants, brokers, and traders and was an involuntary procedure initiated by the creditors.[23] After the war, the Constitution provided Congress with the power "[t]o establish . . . uniform Laws on the subject of Bankruptcies throughout the United States."[24] As in England, bankruptcy rested in the equity power, as it continues to today.[25] The primary purpose of the first American bankruptcy acts, like the first English law, was to secure assets for the just payment of creditors and prevent the inequities of priority-based collections.[26] Congress, over time, gradually made greater use of the bankruptcy power conferred by the Bankruptcy Clause.[27] The purpose of bankruptcy to forgive the debtor's obligations gained importance.[28] Bankruptcy now strikes a balance between ensuring uniform distribution of assets to creditors of the same class and allowing the "honest but unfortunate debtor" a fresh start.[29]
B. Modern Bankruptcy and Chapter 13
Bankruptcy today is largely a voluntary procedure.[30] Traditional bankruptcy, represented today under Chapter 7 of the Bankruptcy Code,[31] provides debt relief upon the debtor's surrender of assets.[32] Generally, the debtor may retain future earnings.[33] In contrast, modern Chapter 13 bankruptcy, called the "wage earners plan," is a creation of twentieth century bankruptcy law.[34] Generally, it allows the debtor to retain assets but requires the submission of a portion of future wages for three to five years as well to be distributed to pre-petition creditors according to the debtor's plan approved by the court.[35]
Early bankruptcy laws restricted eligibility to Chapter 13 to certain salaried employees.[36] The 1978 Bankruptcy Act[37] expanded the class of eligible Chapter 13 debtors from only salaried employees to most income recipients.[38] The law's purpose was to provide all regular wage earners, unable to support their debts, with an avenue for making affordable payments during the arrangement and emerge debt-free at its conclusion.[39]
In a Chapter 13 bankruptcy, a debtor must propose a payment plan, have it approved by the bankruptcy court, and make payments to a court-appointed trustee.[40] The Chapter 13 repayment plan must provide the creditor at least what it would have realized under traditional bankruptcy liquidation in Chapter 7.[41] Once the petition is filed, an automatic stay on the enforcement of any included debts is ordered.[42] The duration of the payment plan, almost exclusively between three to five years, depends on the debtor's income.[43] Generally, a debtor is allowed to retain his property under Chapter 13.[44] A debtor is even given the flexibility of choosing to include some debts in the plan and exclude others.[45] Some debts, such as domestic support obligations, are statutorily deemed to have priority and are paid first in the plan.[46] At the end of the payment plan, the remainder of most unsecured debt is forgiven.[47]
However, under Chapter 13, creditors with a secured interest in the debtor's primary residence are accorded special treatment.[48] Such creditors are ensured payment of their full balance by avoiding post-plan discharge.[49] For debtors, the benefit of Chapter 13 bankruptcy is the ability to retain ownership of their home and avoid the liquidation sale that could occur under Chapter 7.[50] The Chapter 13 bankruptcy plan is designed to permit cure of the mortgage default and put the debtor back on financial track by paying down the arrearages over the life of the payment plan.[51] Thus, bankruptcy law on the right to cure a mortgage default on the debtor's primary residence results in a compromise between competing interests of the lender and the debtor.[52] However, Congress's failure to state exactly when the debtor's right to cure such a default expires has led to the controversy that this Note addresses.
II. The Foreclosure Process, Mortgage Default Cure in Bankruptcy, and State Statutory Redemption
Strict foreclosure,[53] the process employed in English history that resulted in the lender taking possession of the premises upon default without a public sale, is not the norm today in the United States.[54] Instead, there are two common types of foreclosure actions that both involve a public sale of the premises:[55] the judicial foreclosure and the power-of-sale foreclosure.[56] Judicial foreclosure is complete only after full judicial proceedings in which all interested persons have been made parties.[57] Power-of-sale foreclosure requires only limited judicial involvement, if any, because the power to sell is placed in a third party who acts as a trustee.[58] Although the degree of judicial involvement varies, the ultimate result is the same-a public sale of the property.[59]
There are two operative agreements between the borrower and the lender: the promissory note that creates the debt and the mortgage that creates the creditor's security interest in the real property.[60] The foreclosure process begins when the mortgagor (the homeowner/debtor) either falls behind in making payments or violates some other term of the agreement, causing mortgage default.[61] Almost universally, the mortgage contract contains an acceleration clause, which entitles the mortgagee (the lender) to demand payment of the entire principal amount upon default.[62] However, the actual state of being in default, which can be triggered by just one late payment, does not necessarily lead to acceleration. Most note agreements make acceleration optional, at the discretion of the lender.[63] The lender must determine that the loan is in default and must actively invoke the acceleration clause. This is often done by means of a formal written notice to the borrower that the loan is in default, a demand of the entire amount due, or both.[64] Prior to the formal acceleration notice, homeowners may receive several notices regarding their default.[65]
The next stages of the foreclosure process follow one of two similar paths: judicial foreclosure or power-of-sale.[66] The process followed depends mainly upon the jurisdiction and the specific agreement entered into by the mortgage parties.[67] After acceleration under judicial foreclosure, the creditor must file suit.[68] This typically leads to a foreclosure judgment in favor of the lender.[69] The effect of the judgment on the title to the property varies according to state law.[70] Once the foreclosure judgment is obtained, the foreclosure sale is scheduled.[71] In contrast, under the terms of a power-of-sale mortgage agreement, the foreclosure suit is not necessary.[72] Usually either the mortgagee itself, a trustee acting on its behalf, or some other third party, often the sheriff, sells the property without judicial intervention.[73] Under either system, the property is sold at a foreclosure sale.
Chapter 13 Bankruptcy enters the picture when the mortgagor files a bankruptcy petition to stop the foreclosure process and imposes his right, under federal bankruptcy law, to cure the default. Once a bankruptcy petition is filed, a statutorily required automatic stay is imposed by order of the bankruptcy court and the foreclosure process stops.[74] This mechanism allows the debtor to retain possession of his home with the goal of curing the mortgage default.[75]
A separate and distinct avenue available to the mortgagor in most states is the state statutory right of redemption.[76] Statutory redemption is only available after a foreclosure sale.[77] The mortgagor retains the right of statutory redemption after the foreclosure buyer has purchased the property for a statutorily defined time period that ranges from six months to two years, depending on the jurisdiction.[78] Redemption requires the difficult task of paying the lender a lump sum, usually equal to the foreclosure sale price.[79] In contrast to the federal bankruptcy cure that only resolves the mortgage default, redemption requires a complete payment, which is a complete solution to the mortgage debt.[80] Thus, the state statutory redemption right and the federal bankruptcy right to cure are separate and distinct methods a mortgagor may use to retain or regain possession of their home.
III. Evolution of Section 1322(c)(1) and the Present Controversy
A. Section 1322(b) and the Original Problem: When Courts Were Left to Fill in the Blank of a Mortgage Debt Cure Termination Date
1. History and Policy of the Right to Cure
In 1970, Congress created a Commission on the Bankruptcy Laws of the United States to recommend revisions to the Bankruptcy Code.[81] Drawing from the Commission's findings, the Bankruptcy Reform Act of 1978[82] greatly expanded eligibility for Chapter 13 bankruptcy from certain categories of wage earners to anyone earning income on a regular basis.[83] The Reform Act aimed to change existing law to permit modification of the contract rights of secured creditors under a Chapter 13 payment plan and to give an incentive to debtors to opt for rehabilitation over liquidation.[84] Congress intended the Act to be a win-win solution for both creditors and debtors.[85] Debtors had a chance to retain their assets and enjoy bankruptcy protection without the stigma of the traditional Chapter 7 liquidation.[86] Creditors had the benefit of recouping more of their investments.[87]
The original versions of both the Senate and the House bills had provisions allowing for the modification of secured debts. The banking industry raised concerns of a reduced flow of capital into the national residential housing market if debts made to mortgagors could be reduced through bankruptcy.[88] In response to these concerns, the Senate amended its version to exclude debts secured by an interest in real property from modification; yet, it still allowed other secured debts to be modified.[89] A deal was struck between the Senate and the House, with the final bill allowing for a limited modification of debts secured by only the debtor's residence.[90]
The result was 11 U.S.C. § 1322(b)(2),[91] which generally prohibits a Chapter 13 plan from modifying the terms in the mortgage, a special protection given exclusively to residential mortgage lenders.[92] Debtors are not forgiven any portion of their mortgage balance and usually cannot extend the date when final payment is due.[93] Generally, the debtor must be up to date by the end of the bankruptcy plan by making up for the total amount past due during the life of the plan.[94] Section 1322(b)(2) does not allow forgiveness of the remaining mortgage balance after the debtors' payment plan has been completed, which occurs with most other debts in a Chapter 13 bankruptcy.[95] Instead, the original terms of the mortgage are reinstated at the end of the plan.[96] By balancing the interests of the mortgage creditor and debtor with Section 1322(b)(2), Congress provided stability and encouraged capital investment into the home mortgage market while allowing the debtor a chance to save his home.[97]
2. Cure Termination Dates Applied in the Name of Section 1322(b)
While it was clear what the cure right was, it was not clear when the debtor had the right to apply it.[98] The statute did not provide a timeframe for when the debtor's right to cure his mortgage default expired, which was left to the courts to determine.[99] General agreement existed among the bankruptcy courts that the debtor had the right to cure the debt before acceleration had occurred[100] and that it was too late once the state statutory right to redeem had expired.[101] But between these two events at the extreme ends of the foreclosure process, the stage that courts held the debtor's right to cure expired varied greatly.[102]
Three United States Courts of Appeal rendered opinions on the issue.[103] The first two decisions were In re Glenn from the Sixth Circuit and In re Clark from the Seventh Circuit. Both cases recognized that the debtor's right to cure terminated at the time of the foreclosure sale.[104] In re Glenn based much of its holding on policy considerations and expounded on many of the benefits and equities to all parties of a foreclosure event termination.[105] In re Clark reached the same result, but relied on the applicable state mortgage theory for its reasoning,[106] leaving open the possibility of different results in different jurisdictions. Even with two differently reasoned circuit-level decisions and varied results in the lower courts, the issue of when the cure right should terminate did not attract congressional attention until after the Third Circuit decision of In re Roach.[107]
3. The Third Circuit Straw that Broke the Camel's Back: In re Roach[108]
The Third Circuit's decision of In re Roach stimulated legislative change.[109] Like the hypothetical Smiths, the Roaches filed a Chapter 13 bankruptcy petition after the foreclosure sale of their home had occurred.[110] Both the bankruptcy court and United States district court found that the Roaches no longer had enough of a property interest in their home to permit a right to cure the default.[111] On appeal, the Third Circuit followed the fundamental bankruptcy principle against the preemption of state law unless it was "explicit, or compelled due to an unavoidable conflict."[112] The court noted that property rights have traditionally and generally been defined according to state law. Consequently, the court looked to New Jersey law to define the Roaches' interest in the property.[113] The court recognized that under New Jersey law the mortgage merged with the foreclosure judgment and extinguished the mortgage contract the moment the foreclosure judgment was entered.[114] As such, the Roaches "no longer [had] a mortgage to . . . cure," and they reinstated bankruptcy once the foreclosure judgment had been entered.[115] The Third Circuit held that the Roaches also lost their right to cure.,[116] and postulated that the Roaches would have lost their home even if they had filed for bankruptcy before the foreclosure sale.[117]
In re Roach had the harsh effect of prohibiting a debtor from curing his mortgage default after a foreclosure judgment but well before the foreclosure sale.[118] Legislators believed that the holding in In re Roach contradicted the spirit of bankruptcy law, which aims to provide debtors with a fresh start.[119] In re Roach became one of the express reasons for Congress's bankruptcy legislation of 1994.[120]
B. The Legislative Solution to the Past Problem, and Creation of the Present Problem: Arrival of the 1994 Bankruptcy Code § 1322(c)(1)
1. The Bankruptcy Reform Act of 1994
The Bankruptcy Reform Act of 1994 added § 1322(c)(1) to the Bankruptcy Code.[121] To solve the timing controversy, this section of the Bankruptcy Code provided a legislative answer to the question of when the right to cure a mortgage default terminates.[122] Section 1322(c) reads in pertinent part that, notwithstanding the federal prohibition on modifying a security interest, "a default with respect 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."[123] Thus, there is no longer any question that the statute extends the debtor's ability to cure beyond the time of the foreclosure judgment.[124] The cure right also exists at least until the occurrence of the foreclosure sale event.[125] But, paradoxically, while the new law closed one controversy, it simultaneously opened another.[126]
2. The New Controversy
The controversy surrounding 11 U.S.C. § 1322(c)(1), once again, is about when the debtor's right to cure a mortgage default in his primary residence expires.[127] It is a question of how to interpret "until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law."[128] The case law is divided on the meaning of this text.[129] While some courts follow the bright-line approach, other courts abide by the completed-transfer approach.
a. The Bright-Line Approach[130]
Courts adhering to the bright-line approach interpret the statute as imposing a termination of the right to cure at the time of the actual event of the foreclosure sale.[131] These courts read the language to mean that when the last bid is accepted at the foreclosure sale, the debtor's right to cure is terminated.[132] They interpret the word "sold" in conjunction with "at" to conclude that Congress determined the time the debtor's right to cure terminates when the last bid is accepted from the "foreclosure sale" auction.[133] Under this view, the statutory language's reference to nonbankruptcy (i.e., state) law only indicates the means by which the foreclosure sale is to be conducted.[134] A few bankruptcy courts have even explicitly ruled that the debtor's right to cure terminates "when the gavel comes down."[135]
b. The Completed-Transfer Approach[136]
Completed-transfer courts interpret the statute to mean that a debtor has a right to cure until "a foreclosure sale" is legally complete under the applicable state law.[137] They do not find the reference to state law to be limited in its application only to the manner in which the foreclosure sale is conducted.[138] Rather, they find that the text of the statute or its legislative history, directs courts to follow state law to determine when the property is technically "sold," that is, when the entire sale transaction is complete and all the mortgagor's property interests have been transferred.[139] This signals the expiration of the debtor's right to cure his default.[140]
Among the courts adhering to this approach, some find the statute unambiguous.[141] They read the word "sold" as indicating the entire sale transaction must be completed according to state law before the debtor's right to cure expires.[142] Some courts in this group rely on the phrase "that is conducted in accordance with [state] law."[143] They conclude that this successive phrase indicates that federal law mandates that the cure right ends when state law deems the entire foreclosure transaction complete, and the property is thus "sold."[144] Other courts applying the completed-transfer approach find the statute ambiguous; yet, they consider the legislative history and decide that Congress intended state law to control the issue.[145] Both of the completed-transfer approaches reach the same conclusion: under § 1322(c)(1) the debtor's right to cure a mortgage default under Chapter 13 terminates when state law deems the entire foreclosure sale transaction to be complete.
When courts follow the completed-transfer approach, the results vary, because state law varies on the question of when a foreclosure sale is deemed complete. In some cases, the result will mirror that of the bright-line approach, albeit with different reasoning. The court holds the debtor's right to cure ends at the time of the foreclosure sale auction.[146] In such cases, the debtor fares no better or worse under the completed-transfer approach than under the bright-line approach. In other cases, state law sets the completion of the sale at some event that occurs after the foreclosure sale. Some states deem the sale complete when the sheriff delivers the deed,[147] others, when the court approves the foreclosure sale.[148] Still other states observe various other events that signify the legal completion of the foreclosure sale transaction.[149] All of these events naturally occur after the foreclosure auction. Thus, taking the completed-transfer position usually has the practical effect of allowing the debtor more time to institute the cure to save their home.
c. The Lack of Analysis, Consensus, and Binding Precedent
Courts on both sides of the controversy tend to arrive at their conclusions with scant analyses.[150] This contributes to the unpredictability and uncertainty created by disagreement over how to interpret the statute's eighteen words. For example, a random sample of fifteen cases[151] interpreting the statute[152] reveals that nine cases applied the bright-line approach[153] and six cases applied the completed-transfer interpretation.[154] On the question of the statute's ambiguity, eleven cases found it unambiguous,[155] and the other four cases found it ambiguous.[156] From these eleven cases finding the statute unambiguous, eight cases found the language to require the bright-line rule,[157] and three cases found the completed-transfer interpretation.[158] Of the four cases finding the language ambiguous, three held that the legislative history dictates the completed-transfer position,[159] and one the bright-line view.[160] Six of the eleven courts found the statute unambiguous; nonetheless they provided their opinion on the legislative history in dicta.[161] Four courts found that the legislative history supported their position,[162] and two found it was internally contradictory and unhelpful in ascertaining intent.[163] Although two courts found the legislative history inconclusive, none of the courts found it at odds with the statute's language. One court answered the ambiguity question with an unembellished conclusion in favor of the completed-transfer position, with no analysis.[164] As this random sampling illustrates this controversy has defied consensus and thus begs for a more complete analysis.[165]
Despite the abundance of court decisions taking a position on this issue, there is much less legal certainty than may appear. As shown herein, many of the decisions in this controversy are rendered by the bankruptcy court.[166] Some decisions have been issued by a court at the first appellate level.[167] However, in bankruptcy, only decisions rendered by the United States Courts of Appeal, the third stop for a bankruptcy litigant, are recognized as binding.[168] There are only two such decisions on this controversy.[169] The Sixth Circuit held for the bright-line;[170] the Seventh Circuit, on the other hand, took the completed-transfer position.[171] The rest of the population stands without certainty after twelve years of judicial effort and one major legislative overhaul to the Bankruptcy Code.[172] Thus, the lack of existing binding precedent combined with the lower courts' inability to provide it, exacerbates the effect of the disagreement and heightens the need for a solution.[173]
Each of these cases involved real Smiths and Joneses. The Smiths live on the edge of eviction. The delay could cause the Joneses to seek to cancel the transaction to pursue other, less uncertain opportunities. Yet, the deposit they put down could not be easily replaced and that could prevent them from pursuing those other opportunities. While the ownership of the property remains uncertain, neither party has an incentive to care for it. In addition, family, friends, employers, and utility companies may be uncertain about who owns the foreclosed property. A systematic analysis of the statute's text in light of traditional, generally accepted canons of statutory interpretation should be the first step in the analysis towards considerably narrowing the area of disagreement, if not providing a solution.
IV. Why the Bright-Line Interpretation Should Prevail
A. Applying Canons of Statutory Interpretation the Bright-Line Interpretation Prevails
Four traditional, generally accepted canons of statutory interpretation are applicable to the text of the statute.[174] First, reddendo singula singulis,[175] a generally accepted cardinal rule of statutory interpretation, is the principle of giving effect to all the words used in a given statute.[176] Second, noscitur a sociis[177] is the principle of ascertaining the meaning of a word that is susceptible to more than one interpretation by reading it in conjunction with associated words.[178] Third is the fundamental canon that requires giving words their natural and everyday meaning, unless the word is used to express a technical meaning.[179] Last is the canon that a successive phrase is properly interpreted as only modifying its immediate antecedent phrase.[180] The application of these four canons shows that § 1322(c)(1) requires a bright-line interpretation terminating the debtor's right to cure at the time of the foreclosure sale event. Thus, the statute dictates that federal law supplies the when for the expiration of the right to cure and adopts the state law how for conducting the foreclosure sale event.
Section 1322(c)(1) reads, in pertinent part, that notwithstanding the Bankruptcy Code's prohibition of the modification of a security interest, "a default with respect 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."[181] Applying the first canon to give all words their effect, the word "default" and the phrase "may be cured" indicate that the subject matter of this paragraph is the cure of a mortgage default. The word "until," the first word of the disputed phrase, indicates that the statute is providing the timeframe that relates to the subject matter - the actual moment that the debtor's right to cure comes to an end.
The word "sold" is susceptible to more than one meaning.[182] It can refer either to the time when the initial binding agreement to sell is formed, or alternatively, to the time when all steps in the sale are completed and the transaction is finished.[183] In a real estate context, one meaning refers to the stage at which the buyer's offer is accepted, such as in a foreclosure sale that has been accepted by the bank. This property is considered "sold" when it is off the market. The other meaning of the word "sold" refers to the time at which the buyer has taken all the steps necessary for full ownership, and the seller has relinquished his ownership interest. This typically occurs at the real estate closing[184] when all steps of the sales transaction are completed.
To discern the correct meaning for "sold" in § 1322(c)(1), it must be read with its associated words, as required by noscitur a sociis. As one of the associated words, "at" appears between "sold" and "a foreclosure sale." Its purpose is to connect the two concepts.[185] If "sold" is to occur "at" the foreclosure sale then it can have only one of its two plausible meanings: that a buyer has agreed to purchase and the seller has agreed to sell to the exclusion of other potential buyers.[186] In other words, an agreement has been formed that if remains intact, will later result in a complete transfer. This is what occurs at a foreclosure sale when the auctioneer's gavel drops.[187] This conclusion is consistent with the canon that general words should be given their natural and everyday meaning.[188] Thus, the first phrase "until such residence is sold at a foreclosure sale" refers to the time when the seller has agreed to sell to the buyer who is first in line to the exclusion of others and prior to any steps required for the completion of the transaction.[189]
Buttressing this conclusion is the fourth canon: a successive phrase is generally interpreted as modifying only its immediate antecedent phrase. Adhering to this canon, the successive phrase, "that is conducted in accordance with applicable [state] law,"[190] is interpreted as modifying only its immediate antecedent phrase, "at a foreclosure sale."[191] It is the foreclosure sale that must be "conducted in accordance with applicable [state] law," not that state law determines when the debtor's right to cure terminates.[192] It cannot be claimed that this successive phrase should be applied to more than just its immediate antecedent phrase. The indicia that would take this successive phrase out of the general rule of statutory interpretation, such as preceding multiple successive phrase or punctuation, are absent.[193] Therefore, the general rule applies.[194] This phrase requires that there be a lawfully conducted foreclosure sale.[195]
The phrase's purpose is also to supply the needed foreclosure sale procedure. There are no procedures provided by the bankruptcy code for a foreclosure sale of real property taxable by and located within the boundaries of a state.[196] This is for good reason. States have an important sovereignty interest in their land.[197] Dictating a federal foreclosure process for such a remote federal interest has not been, and should not be, done lightly.[198] Further, a federally mandated foreclosure process would run contrary to bankruptcy's fundamental principle of avoiding the displacement of state law except when necessary.[199] Therefore, the successive phrase's effect is to provide a foreclosure process that is absent from federal bankruptcy law.[200]
B. Why the Completed-Transfer Interpretation Fails and a Response to Critics of the Bright-Line Approach
The completed-transfer position is that the text of the statute directs courts to follow state law to determine when the property is technically "sold," that is, when the sale is complete.[201] This position does not suffer from a faulty premise or an absurd result, but fails to use the applicable canons that would lead to the correct interpretation. The completed-transfer courts typically interpret this inherently ambiguous word "sold" in isolation.[202] This allows for only one of its two possible meanings.[203] In failing to consider any other definition for "sold" other than full completion of the transaction, these courts naturally take the position that this full completion of the transaction is directed by the statute.[204]
A second mistake made is when attempting to interpret "sold" in context. It is to skip over the immediate following phrase, "at a foreclosure sale," and to associate "sold" with the later phrase "conducted in accordance with applicable [state] law."[205] Making either mistake, the effect is to give no meaning to the entire phrase, "at a foreclosure sale," which violates the canon that requires giving meaning to all the words used in the text.[206]
Critics may point to the fact that Congress used the term "foreclosure sale"[207] instead of "auction sale" or a similar term that more clearly signifies that the actual foreclosure sale event and argue this indicates that the bright-line interpretation fails.[208] These critics are answered with the understanding that the less precise term was necessary to widen this statute's application[209] to allow for the possibility of a foreclosure sale not conducted strictly as an "auction."[210] An imprecise term is necessary because the fifty states of the Union and the various U.S. territories have varying local procedures for conducting the "sale" of the premises upon foreclosure.
C. Legislative History Supports the Bright-Line Interpretation
When statutory language is ambiguous, the accepted method of statutory interpretation requires reference "to the legislative history [of the statute] and the atmosphere in which the statute was enacted in an attempt to determine the congressional purpose."[211] It is recognized by both camps that a review of legislative history clearly reveals a congressional intent to allow the debtor the right to cure before the date the foreclosure sale occurs and preempt any state law to the contrary.[212] The debate is over whether the legislative history reveals an intent that the right to cure expires at the event of the foreclosure sale or when the state law deems the entire transaction complete. The courts have drawn from the only two sources of legislative history on the subject to determine the legislative intent: The House of Representatives' report and Senator Grassley's statement from the Senate floor in support of the bill.
1. The House Report
The Committee on the Judiciary of the House of Representatives submitted a report to the full House to explain the purpose of the Bankruptcy Reform Act of 1994.[213] The applicable portion reads:
Section 1322(b)(3) and (5) of the Bankruptcy Code permit a debtor to cure defaults in connection with a chapter 13 plan, including defaults on a home mortgage loan. Until the Third Circuit's decision in In re Roach, 824 F.2d 1370 (3rd Cir. 1987), all of the Federal Circuit Courts of Appeal had held that such a right continues at least up until the time of the foreclosure sale. See In re Glenn, 760 F.2d 1428 (6th Cir. 1985), cert denied, . . . Matter of Clark, 738 F.2d 869 (7th Cir. 1984), cert denied, . . . . The Roach case, however, held that the debtor's right to cure was extinguished at the time of the foreclosure judgment, which occurs in advance of the foreclosure sale. This decision is in conflict with the fundamental bankruptcy principle allowing the debtor a fresh start through bankruptcy. This section of the bill safeguards a debtor's rights in a chapter 13 case by allowing the debtor to cure home mortgage defaults at least through the completion of a foreclosure sale under applicable nonbankruptcy law. However, if the State provides the debtor more extensive "cure" rights (through for example, some later redemption period), the debtor would continue to enjoy such rights in bankruptcy.[214]
Some point to the latter portion of the House Report as evincing a legislative intent to allow the possibility of post-foreclosure-sale termination.[215] It is argued that the report's use of the words "at least" in the last sentence shows that the intent of the statute is to make the foreclosure sale event a minimum timeframe as opposed to a maximum.[216] Further, the word "completion" indicates a process, which one could certainly interpret as an intent for state law to determine when that completion occurs because the sale is to be governed "under applicable [state] law."[217] These words taken alone indicate a completed-transfer cure termination date. However, examination of the entire report, especially the last quoted sentence, puts the words in proper context.
In rejecting In re Roach, Congress implicitly approved of the In re Glenn and In re Clark decisions.[218] In re Glenn and In re Clark reached their bright-line result through different avenues of reasoning. The Sixth Circuit's decision in In re Glenn expressed policy reasons for the bright-line determination and did not rely on any state property law theory.[219] In contrast, the In re Clark decision rested on state mortgage theory, specifically, on lien theory.[220] If the reasoning in In re Clark was followed, the end results would vary in states observing a different mortgage theory, such as title theory[221] or the intermediate theory[222] in In re Roach.[223] Thus, Congress must not have been endorsing the rationale of In re Clark, one that could lead to the result they rejected, but only the result it shared with In re Glenn: the bright-line. Further, the In re Roach court based its decision on its evaluation of the debtor's real property interest defined by the state. It seems inconsistent for Congress then to choose a cure termination date that coincides with the debtor's real property interest as the In re Roach court did, albeit earlier in the foreclosure process. Additionally, Congress expressed that the bright-line results that the In re Glenn and In re Clark decisions shared aligned with bankruptcy principles. In contrast to In re Roach, these results were not targets for change.[224] Arguably, if Congress did not intend to implement the bright-line by enacting Section 1322(c)(1), then it would not have signified its approval of these two bright-line decisions.[225] This supports a bright-line legislative intent.[226]
The House Report is written from the debtor's perspective. The last two sentences of the report state that the debtor's right to cure continues "at least through completion of the foreclosure sale." It then references a "cure" as provided by the state.[227] The report's authors put the word cure in quotation marks[228] to distinguish its meaning from the bankruptcy cure provided in a Chapter 13 payment plan. They are indicating a general-sense usage of the word with the debtor's interests in mind.[229] State statutory rights of redemption are very different from a Chapter 13 cure.[230] State statutory redemption rights are typically personal rights that do not maintain any federal or bankruptcy character.[231] They require payment in full; consequently, exercising these rights is not a 'cure' under bankruptcy but, rather, a complete solution to the debt.[232] A third party purchaser takes at a foreclosure sale subject to the original mortgagor's statutory right of redemption under state law, and the foreclosure process is otherwise left undisturbed.[233] The last sentences of the report make clear that the proposed legislative change under consideration would not affect any state solution that the debtor may also have available to regain ownership of his residence.[234] Thus, the meaning conveyed is that the debtor will have a right to cure "at least through completion of a foreclosure sale" by federal law, and may have an extended right after the sale to "cure" as provided by state law.
2. Senator Grassley's Floor Statement
The floor statement of Senator Grassley also favors the bright-line approach.[235] It states:
Mr. President, I am pleased to support H.R. 5116. . . . As an original cosponsor of the Senate-passed bill, S. 540, I would have its enactment. . . . Title III of the bill will assist homeowners. Some homeowners attempt to prevent their homes from being foreclosed upon, even though a bankruptcy court has ordered a foreclosure sale. There may be several months between the court order and the foreclosure sale. [Section 1322(c)(1)] will preempt conflicting State laws, and permit homeowners to present a plan to pay off their mortgage debt until the foreclosure sale actually occurs.[236]
One argument is that this language supports the completed-transfer position.[237] Another argument is that Senator Grassley's statement only indicates an intent that the cure is allowed until the date of the foreclosure sale, and does not shed much, if any, light on the question of post-foreclosure cure.[238] The Senator's words "the foreclosure sale"[239] are not helpful in ascertaining a time when the cure right terminates, unlike the words "at a foreclosure sale" that appear in the statute.[240] However, when associated with the words "actually occurs"[241] the Senator's reference to the foreclosure sale concept more plausibly refers to an event, such as the conducting of a foreclosure auction, and not to the entire sale process.[242] A majority of courts considering the statement, from both sides of the controversy, acknowledge to varying degree that Senator Grassley's statement, at least taken alone, supports the bright-line approach.[243]
Floor statements have traditionally been regarded as the least helpful part of legislative history[244] and are not conducive to providing detail.[245] Concededly, Senator Grassley's floor statements should not outweigh a better indication of legislative intent, such as a committee report.[246] However, its consideration along with that of additional sources should tip the scale in favor of the bright-line for those still undecided.
D. The Balance of Equity Favors the Bright-Line Result[247]
Equity is at the heart of every bankruptcy order.[248] The effect of a grant of equity on all parties should be considered before such equity is granted.[249] A balance of the equities after the time of the foreclosure sale results in a shift of equity away from the Smiths and in favor of the Joneses. Congress has extended equity to the Smiths through the right to cure their mortgage default to allow them to keep their home with a fresh start after acceleration, foreclosure judgment, and up until the time of sale. Ample notice and opportunity for the fresh start has been provided.[250] As time progressed through these foreclosure stages, equity receded away from the Smiths as the cost of the fresh start upon society continued to rise. It is both a fundamental legal principle and common sense that for one to deserve equity, one must show equity.[251] The Smiths' delay in reaching for the equitable fresh start Congress provided until after other third parties have substantial interests at stake does not show equity to others. Equity then must turn to consider these others' interests.[252]
The Joneses' may be prohibited from pursuing another purchase because their deposit is now tied up in the property, taking them out of the real estate market. Neighbors to the distressed property live near a property without a clear owner with an incentive to care for it. Doubts over the certainty of ownership may have an effect on the lender's efforts to transfer the property swiftly.[253] A delay in the transfer of ownership risks a chill in the foreclosure market.[254] Once the gavel dropped at the foreclosure sale, the pendulum of equity swung away from the Smiths and towards society's need for certainty of ownership.[255] For these reasons, equity supports the bright-line result of terminating the debtor's right to cure at the time of the foreclosure sale event.
E. The Bright-Line Approach Strengthens and is the Least Intrusive to State Law
In evaluating this controversy, the debtor's property interest must be distinguished from the time their right to cure under Section 1322(c)(1) ends.[256] Exemplified by the preemption of In re Roach,[257] state law can terminate all real property interests of the debtor at some point in the foreclosure process prior to the foreclosure sale event.[258] In that case, Section 1322(c)(1) serves as the only basis upon which the debtor's cure right stands.[259] This runs contrary to bankruptcy's usual practice of determining the confines of the bankruptcy estate by the debtor's property rights as established by state law.[260] Thus, both the bright-line and completed-transfer positions implicitly acknowledge federal preemption when looking to the language of Section 1322(c)(1) for the cure's expiration.
Nonetheless, it is still important for bankruptcy to be the least intrusive to state law.[261] Bankruptcy seeks to operate like a well-skilled surgeon aiming to implement its purpose with causing the least intrusion and harm to its state patient.[262] Some completed-transfer courts seem to suggest that their approach is more harmonious with state law because it places the expiration of the cure right at the same time that state law deems the foreclosure sale transaction complete.[263] It is true that the completed-transfer position works in harmony with state law in this fashion. However, that conceded, harmony with state law is equally true for the bright-line position because it places cure right expiration at the same time that state law holds the foreclosure auction. Additionally, it further requires that the foreclosure sale procedure be "conducted in accordance with [state] law" or the debtor's cure right will survive.[264] It supplies an independent reason to scrutinize the foreclosure auction, thereby heightening the importance of adhering to this significant event in the foreclosure process and state law.
Moreover, comparatively, the bright-line position guarantees the cure will be available for the least amount of time, only until the foreclosure auction. The shorter the amount of time the cure is available, the less federal intrusion that results. This is especially less disruptive to a state statutory scheme when the state provides no real property interest to the debtor.[265] It is true that the result of some completed-transfer decisions will also limit the availability of the cure only up until the foreclosure sale event. However, this is only one of many possible results of the completed-transfer position.[266] On this point, the best result the completed-transfer position can offer is a tie. Thus, the bright-line position coincides with state law, provides a reason to scrutinize the state law governing the foreclosure auction, and guarantees the shortest time the cure is available when state law does not provide an ownership interest in the property.
Conclusion
Utilizing four traditional, generally accepted canons of statutory interpretation, the text of 11 U.S.C. § 1322(c)(1) is unambiguous. The language commands a bright-line interpretation extending the debtor's right to cure only until the gavel drops at the foreclosure sale event, but not beyond. The result is equitable to all parties concerned because it allows sufficient notice of the threat of foreclosure to the debtor and gives third parties, especially foreclosure buyers, certainty of ownership. If considered, the legislative history supports the bright-line interpretation. In addition, the bright-line approach strengthens and is the least intrusive to state law. In our hypothetical story, the Joneses prevail through the plain meaning of the statute and the equities that weigh in their favor. Therefore, for any real life Smiths desirous to save their home, they must invoke their right to cure their mortgage default before the gavel falls at the foreclosure sale.
George Bourguignon graduated from the Western New England School of Law in 2007, where he served as the Assistant Articles Editor of the Western New England Review. During law school, he earned the Computer Aided Learning Institute's Excellence for the Future Award in Advanced Legal Research & Writing, Business Organizations, and Torts. He also previously served on the Student Council from 2003-2006, received the Joanne Grummel Memorial and Rodney E. & Gail M. Blakesley scholarships, and was placed on the Dean's list for academic achievement. After graduation, Mr. Bourguignon started work at Hendel & Collins, P.C., a boutique insolvency firm in Massachusetts.
[3] Although legally the note is the debt obligation and the mortgage secures the note to the property, common parlance refers to both as the "mortgage." See infra Part II. This Note will follow the common usage.
[5] Previously, individual debtors, such as the Smiths, were able to file for bankruptcy immediately. However, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005) [hereinafter BAPCPA] (codified in scattered sections of 11 U.S.C.), with most provisions made effective on October 17, 2005, now requires debtors to obtain pre-filing budget and credit counseling from an approved counseling agency, subject to only very limited exceptions. 11 U.S.C.A. § 109(h) (West Supp. 2006); Karen Gross & Susan Block-Lieb, Empty Mandate or Opportunity for Innovation: Pre-Petition Credit Counseling and Post-Petition Financial Management Education, 13 Am. Bankr. Inst. L. Rev. 549, 550-51 (2005).
[6] Ark. Code Ann. § 18-50-101(8) (2003); Mass. Gen. Laws ch. 244, §§ 14, 18 (2004); In re Starks, 2005 Bankr. LEXIS 2508, at *5-6 (E.D. Ark. Dec. 13, 2005) (recognizing change in Arkansas law to provide foreclosure sale complete when highest bid accepted by person conducting sale); In re Crichlow, 322 B.R. 229, 235 (Bankr. D. Mass. 2004) (finding Massachusetts law determines that mortgagor's interest extinguishes upon foreclosure sale).
[7] In other jurisdictions in which post-foreclosure-sale events mark the completion of the sale, events other than delivery of the deed are required. Some require that the court approve the sale, some require the foreclosure buyer's full tender, and still others require events in the foreclosure process unique to that jurisdiction. See In re Bobo 246 B.R. 453, 455-56 (Bankr. D. D.C. 2000) (noting various determinations of when foreclosure sale is deemed complete according to different jurisdictions' laws). See discussion of completed-transfer approach, infra Part III.B.2b. and notes 137-40.
[8] 1 Harold Remington, Remington on Bankruptcy 1 (Lawyers Cooperative Publishing, 4th ed. 1933) (1908); Richard P. Cole, Liberation and Empowerment: A Jubilean Alternative for State v. Oakley, 26 W. New Eng. L. Rev. 27, 42 (2004). The Lord, the ultimate equity power, through Moses, instituted a sabbatical year of release providing for the forgiving of all debts every seventh year. Deuteronomy 15:1-5 (King James); see 1 Remington, supra, at 2. This seventh year is known as the year of sabbatical. Hebrew-Greek Study Bible 174, n.25:1-55 (Spiros Zodhiates, ed.); see 1 Remington, supra, at 2. After seven cycles of the year of sabbatical, the fiftieth year was commanded as the year of jubilee, which was identical to the year of sabbatical except, in addition, all real estate outside the walled cities reverted back to the family to which it was originally assigned. Leviticus 25:1-55 (King James); Cole, supra, at 42.
[9] 1 Remington, supra note 8, at 12-13; see Douglas G. Baird, The Elements of Bankruptcy 4 (4th ed. 2006).
[11] During this early English law's implementation the debtor was referred to as "the offender." 1 Remington, supra note 8, at 3.
[22] Sexton v. Dreyfus, 219 U.S. 339, 344 (1911) (recognizing that the United States adopted the fundamental principles of English bankruptcy law); 1 Remington, supra note 8, at 11.
[25] Baird, supra note 9, at 6-7; 11 U.S.C. § 105 (2000) (allowing "any order, process, or judgment that is necessary or appropriate to carry out the [bankruptcy code] provisions").
[26] Wilson v. City Bank, 84 U.S. 473, 480 (1873) (noting that, "in both [voluntary and involuntary bankruptcy] undoubtedly the primary object is to secure a just distribution of the bankrupt's property among his creditors"); Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 578 (1935); 1 Remington, supra note 8, at 18-19.
[28] Louisville Joint Stock Land Bank, 295 U.S. at 587-88; Wilson, 84 U.S. at 480-81 (expressing that in both voluntary and involuntary bankruptcy "the primary object is to secure a just distribution of the bankrupt's property among his creditors, and in both the secondary object is the release of the bankrupt from the obligation to pay the debts of those creditors").
[29] Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934); In re Ward, 194 B.R. 703, 715 (Bankr. D. Mass. 1996); 1 Remington, supra note 8, at 1-2, 18-19; Baird, supra note 9, at 34-36, 40.
[30] Baird, supra note 9, at 41-42; Craig Peyton Gaumer, Out of the Ordinary: The Payment of Criminal Defense Fees from an Involuntary Bankruptcy Estate, Am. Bankr. Inst. J., Nov. 2005, at 8.
[35] 11 U.S.C. § 1306(b) (2000); David A. Gill, Personal Bankruptcy and Wage Earner Plans § 1.11 (Carol S. Brosnahan ed., 1971).
[37] Bankruptcy Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549 (codified as amended in scattered sections of 11 U.S.C.).
[38] The Report of the Commission on the Bankruptcy Laws of the United States declares that Chapter 13 shall "be made available to any debtor who can propose and expect reasonably to comply with an undertaking to pay a predescribed amount periodically out of an anticipated regular income." H.R. Doc. No. 93-137, pt. 1, at 165 (1973), microformed on CIS No. 73-H520-9 (Cong. Info. Serv.).
[40] 11 U.S.C. § 1322(a) (2000). While creditors may initiate Chapters 7 or 11 bankruptcies, Chapter 13 bankruptcy is strictly a voluntary procedure. Compare 11 U.S.C. § 301 (2000) (detailing procedure for commencing voluntary filing), with § 11 U.S.C. § 303(a) (2000)(limiting involuntary cases to chapters 7 and 11).
[42] 11 U.S.C. § 362(a) (2000); see Victor L. Prial, Note, Impact of the Automatic Stay on Redemption Periods, 54 Syracuse L. Rev. 193, 197-200 (2004) (discussing the history and purpose of the automatic stay). A creditor in some circumstances can have the automatic stay lifted by the bankruptcy court and resume the foreclosure process. 11 U.S.C. § 362(d); Baird, supra note 9, at 217.
[43] 11 U.S.C.A. § 1322(d) (West Supp. 2006). Debtors with an income less than the median for their state "are generally limited to three years . . . but may be extended upon a showing of cause." Baird, supra note 9, at 58 (citing 11 U.S.C. § 1325(b)(1) (2000)). Since the passage of the BAPCPA, payment plans may exceed five years if the debtor's income exceeds certain statutory defined limits. 11 U.S.C.A. § 1322(d)(1)(C).
[50] 11 U.S.C. §§ 506(a), 1322(b)(2)(2000); Baird, supra note 9, at 62; Ryan W. Johnson, Post-Closing Demands for Mortgage-Related Fees Assessed During a Chapter 13 Plan (pt.1), Am. Bankr. Inst. J., May 2006, at 24 ("Saving a principal residence from foreclosure and curing a mortgage arrearage are key reasons why many debtors file for Chapter 13.").
[51] 11 U.S.C. §§ 506(a), 1322(b)(2); Baird, supra note 9, at 62, 63; Johnson, supra note 50, at 24.
[52] Bankruptcy Reform Act of 1978, Pub L. No. 95-598, 92 Stat. 2549; In re Roach, 824 F.2d 1370, 1376 (3d Cir. 1987) (holding debtor's right to cure mortgage default expired upon foreclosure judgment), superseded by statute, Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106, 4131, as recognized in Colon v. Option One Mortgage Corp., 319 F.3d 912, 920 (2003); 140 Cong. Rec. 27,696 (1994).
[53] In strict foreclosure the mortgagee takes ownership and no foreclosure sale occurs. 1 Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 7.9 (4th ed. 2002). The mortgagee, after obtaining ownership, can then sell the house independently without the obligation to provide the mortgagor with any surplus realized from the foreclosure sale. Id. §§ 7.10, 7.31. Any profit for the mortgagee comes at the expense of the mortgagor who experiences the harsh result of a complete loss of any remaining equity in their home. Id.
[54] Id. § 7.10. Connecticut, Illinois, and Vermont allow strict foreclosure. Id. Massachusetts, New Hampshire, and Rhode Island allow the processes known as "Entry Without Process" and "Actions at Law for a Writ of Entry of Possession," both of which result in strict foreclosure. Maine has two unique processes that result in strict foreclosure. Id. There is a separate controversy, not addressed here, over whether § 1322(c)(1) applies to strict foreclosure where no foreclosure sale occurs. Compare Schinck v. Stephens (In re Stephens), 221 B.R. 290, 297 (Bankr. D. Me. 1998) ("Because the rights and interests of mortgagees and mortgagors under Maine's strict foreclosure procedures are determined without a 'foreclosure sale,' the federal law extension of cure rights embodied in § 1322(c)(1) has no application" to whether Section 1322(c)(1) provides a mortgagor/debtor a right to cure a mortgage default under Chapter 13.), with In re Taylor, 286 B.R. 275, 281 (Bankr. D. Vt. 2002) (holding § 1322(c)(1) applies to strict foreclosure processes in Vermont until "unencumbered title to the property passes to the mortgagee"), and In re Pellegrino, 284 B.R. 326, 330-31 (Bankr. D. Conn. 2002) (applying § 1322(c)(1) to strict foreclosure processes in Connecticut).
[60] Acceleration requires an amount due over and above the arrearage of regular payments and usually is for the entire balance of the debt. Id. § 7.6, at 615-18.
[61] 1 Nelson & Whitman, supra note 53, § 7.6. Lenders prefer to be in communication with borrowers in default, in the hopes of avoiding foreclosure. Lenders are regulated by both state and federal governments. Mortgage defaults affect their standing in the federal mortgage insurance program. HUD Mortgage and Insurance Programs Eligibility Rule, 24 C.F.R. §§ 203.3-.4 (2006); 2 Nelson & Whitman, supra note 53, § 11.2.
[66] 1 Nelson & Whitman, supra note 53, § 7.11. "Judicial foreclosure" is defined as: "A costly and time-consuming foreclosure method by which the mortgaged property is sold through a court proceeding requiring many standard legal steps such as filing of a complaint, service of process, notice, and a hearing." Black's Law Dictionary 658 (7th ed. 1999).
[70] See In re Clark, 738 F.2d 869, 871 (1984) (holding that Wisconsin law only determines the amount of lien on property in contrast to other states that deem the mortgage merged with the judgment and extinguishes all of the mortgagor's property interests); see 1 Nelson & Whitman, supra note 53, § 6.16 (stating the mortgagee can obtain complete title of mortgaged property through the property concept of merger at foreclosure judgment).
[71] The interval between foreclosure judgment and sale varies from approximately three to nine months. See Colon v. Option One Mortgage Corp., 319 F.3d 912, 914 (7th Cir. 2003) (discussing facts of case revealing seven months between foreclosure judgment and foreclosure sale for Illinois residential property); Randall v. Equicredit Fin. Serv. Corp. (In re Randall), 263 B.R. 200, 201 (D.N.J. 2001) (discussing facts of case revealing three months between foreclosure judgment and foreclosure sale for New Jersey residential property). It may take less time before the foreclosure sale under power-of-sale agreements. See In re Flowers, 94 B.R. 3, 6 (Bankr. D.D.C. 1988) (discussing facts revealing only six months from default to foreclosure sale executing power-of-sale agreement).
[72] Power-of-sale foreclosure is allowed in about thirty states and is one of the two most popular types of foreclosure used in the United States. 1 Nelson & Whitman, supra note 53, § 7.19.
[73] Id. § 7.19. Some states require judicial approval of compliance with the Soldiers' and Sailors' Civil Relief Act of 1940 to ensure that the mortgagor is not in active service when the foreclosure occurs. Soldiers' and Sailors' Civil Relief Act of 1940, § 888, 50 U.S.C. §§ 510, 520-24 (2000); 1 Nelson & Whitman, supra note 53, § 8.9.
[74] 11 U.S.C. § 362(a) (2000); Johnson, supra note 50, at 59. A creditor in some circumstances can have the automatic stay lifted by the bankruptcy court. 11 U.S.C. § 362(d); Baird, supra note 9, at 217.
[76] Prial, supra note 42, at 199-200; 1 Nelson & Whitman, supra note 53, § 8.4. These rights are not to be confused with the mortgagor's right of equitable redemption. Prial, supra note 42, at 199-200; 1 Nelson & Whitman, supra note 53, § 8.4. State statutory rights of redemption are unaffected by and survive a bankruptcy. Commercial Fed. Mortgage Corp. v. Smith (In re Smith), 85 F.3d 1555, 1560 (11th Cir. 1996); Fed. Land Bank v. Glenn (In re Glenn), 760 F.2d 1428, 1442 (6th Cir. 1985); In re Menasche, 301 B.R. 757, 760 (S.D. Fla. 2003).
[77] 1 Nelson & Whitman, supra note 53, § 7.1. At this stage, in property terms, the mortgagor's equitable right of redemption ends. Id. § 8.4.
[78] Id. § 8.4. The mortgagor retains the right of possession during the statutory period in the vast majority of states. Id.
[80] In re Clark, 738 F.2d 869, 872 (7th Cir. 1984) ("[T]he plain meaning of 'cure,' as used in § 1322(b)(2) and (5), is to remedy or rectify the default and restore matters to the status quo ante."); Daniel J. Bussel et al., Bankruptcy 628 (5th ed. 1999).
[81] S.J. Res. 88, 91st Cong. (1970); In re Roach, 824 F. 2d 1370, 1375 (3rd Cir. 1987), superseded by statute, Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106, 4131 (codified as amended at 11 U.S.C. § 1322(c) (2000)), as recognized in Colon v. Option One Mortgage Corp., 319 F.3d 912, 920 (7th Cir. 2003).
[82] Bankruptcy Reform Act of 1978, Pub L. No. 95-598, 92 Stat. 2549 (applying to all bankruptcy petitions subsequent to September 30, 1979).
[83] H.R. Rep. No. 95-595, at 118 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6079. The House of Representatives Report states:
The purpose of chapter 13 is to enable an individual, under court supervision and protection, to develop and perform under a plan for the repayment of his debts over an extended period. In some cases, the plan will call for full repayment. In others, it may offer creditors a percentage of their claims in full settlement. During the repayment period, creditors may not harass the debtor or seek to collect their debts. They must receive payments only under the plan. This protection relieves the debtor from indirect and direct pressures from creditors, and enables him to support himself and his dependents while repaying his creditors at the same time. The benefit to the debtor of developing a plan of repayment under chapter 13, rather than opting for liquidation under chapter 7, is that it permits the debtor to protect his assets. In a liquidation case, the debtor must surrender his nonexempt assets for liquidation and sale by the trustee. Under chapter 13, the debtor may retain his property by agreeing to pay his creditors. Chapter 13 also protects a debtor's credit standing far better than a straight bankruptcy, because he is viewed by the credit industry as a better risk. In addition, it satisfies many debtors' desire to avoid the stigma attached to straight bankruptcy and to retain the pride attendant on being able to meet one's obligations. The benefit to creditors is self-evident; their losses will be significantly less than if their debtors opt for straight bankruptcy.
Id. (emphasis added).
[88] Hearings Before the Subcomm. on Improvements in Judicial Machinery of the S. Comm. on the Judiciary, United States Senate, on S. 2226 and H.R. 8200, 95th Cong. 714-15 (1978) (statement of Edward J. Kulik, Senior Vice President, Mass Mutual Life Insurance Company, representing five real estate lending associations).
[90] Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549, 2648 (1978); 11 U.S.C. §§ 101-1328 (1978); In re Roach, 824 F. 2d 1370, 1376 (3d Cir. 1987) ("The House and Senate then agreed on the present version of § 1322(b)(2), protecting only home mortgagees and protecting them only from modification of their rights."), superseded by statute 11 U.S.C. 1322(c)(1) as recognized in Colon v. Option One Mortgage Corp., 319 F.3d 912, 920 (7th Cir. 2003).
[91] 11 U.S.C. § 1322(b)(2) (2000). The statute reads in pertinent part:
Subject to subsections (a) and (c) of this section, the plan may . . .
(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; (3) provide for the curing or waiving of any default; . . .
(5) notwithstanding paragraph (2) of this subsection, 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.
Id. (emphasis added).
[92] Rake v. Wade, 508 U.S. 464, 468-69 (1993); In re DeMaggio, 175 B.R. 144, 147 (Bankr. D.N.H. 1994) ("It is well settled that the legislative intent behind § 1322(b)(2) was specifically to provide special protection to home lenders and establish stability and encourage the making of home loans in the residential housing lending market."); In re Wetherbee, 164 B.R. 212, 215 (Bankr. D.N.H. 1994).
[93] The final mortgage payment date can only be extended when the remaining term of a debtor's mortgage is shorter than the length of his plan. 11 U.S.C. § 1322(c)(2).
[94] Rake, 508 U.S. at 469; In re McKinney, No. 05-21651, 2006 WL 1627267, at *1, *3 (Bankr. D. Me. 2006).
[96] This is so even if the mortgage provides recourse in an amount over the value of the property. Nobleman v. Am. Sav. Bank, 508 U.S. 324, 329 (1993).
[97] Fed. Land Bank v. Glenn (In re Glenn), 760 F.2d 1428, 1433-34 (6th Cir. 1985); see also supra note 83.
[98] In re Glenn, 760 F.2d at 1432 (noting decisions holding the right to cure ended upon acceleration, foreclosure judgment, foreclosure sale, and the expiration of the debtor's state right of redemption); In re Ivory, 32 B.R. 788, 790 (Bankr. D. Or. 1983) (outlining and categorizing the various holdings of different stages in the foreclosure process the debtor's right to cure would terminate); see also In re Young, 22 B.R. 620, 622 (Bankr. N.D. Ill. 1982) (noting decisions that consider the mortgage theory influential on determination of when debtor's right to cure terminates under § 1322(b)(2) and others considering bankruptcy policy under Chapter 13).
[100] In re Metz, 820 F.2d 1495, 1497 (9th Cir. 1987); In re Glenn, 760 F.2d at 1432; see also In re Pearson, 10 B.R. 189 (Bankr. E.D.N.Y. 1981); In re Hartford, 7 B.R. 914 (Bankr. D. Me. 1981); In re Johnson, 6 B.R. 34 (Bankr. N.D. Ill. 1980).
[101] In re Glenn, 760 F.2d at 1432; In re Ivory, 32 B.R. at 790; In re Thompson, 17 B.R. 748, 750-51 (Bankr W.D. Mich. 1982).
[102] In re Bardell, No. 05-06808, 2007 WL 430416, at * 2 (Bankr. N.D. W. Va. Feb. 8, 2007) (describing that "there was great inconsistency in the approaches the courts took in determining when a debtor's right to cure the [mortgage] default terminated."); see supra note 98.
[103] In re Clark, 738 F.2d 869 (7th Cir. 1984); In re Glenn, 760 F.2d at 1432; In re Roach, 824 F.2d 1370 (3d Cir. 1987), superseded by statute, Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106, 4131 (codified as amended at 11 U.S.C. § 1322(c) (2000)), as recognized in Colon v. Option One Mortgage Corp., 319 F.3d 912, 920 (7th Cir. 2003).
[106] In re Clark, 738 F.2d at 874 (holding that debtor had the right to cure his default after foreclosure judgment due to debtor's continued interest in property according to Wisconsin's lien mortgage theory). Mortgage theory dictates the type of ownership interests the mortgagor and mortgagee have in the particular mortgaged property. See discussion infra notes 220-22.
[107] In re Roach, 824 F.2d 1370 (finding the debtor's right to cure a mortgage default under Chapter 13 expires at the time of the foreclosure judgment); H.R. Rep. No. 103-835 at 52, microformed on CIS No. 94-H523-38 (Cong. Info. Serv.); 140 Cong. Rec. 27,696 (1994). Congress later decided that the decision in In re Roach "was in conflict with the fundamental bankruptcy principle of allowing the debtor a fresh start through bankruptcy." 140 Cong. Rec. 27,696.
[109] In re Bobo, 246 B.R. 453, 455 (Bankr. D.D.C. 2000) ("Section 1322(c)(1) was enacted in order to overturn the Roach decision which Congress viewed as antithetical to the debtor's right to a fresh start through bankruptcy."); In re Beeman, 235 B.R. 519, 524 (Bankr. D. N.H. 1999); In re Tomlin, 228 B.R. 916, 918 (Bankr. E.D. Ark. 1999) ("In response to the decision in In re Roach, Congress enacted, . . . Section 1322(c)(1)); 140 Cong. Rec. 27,696 (1994) (Congress's House Report states In re Roach "is in conflict with the fundamental bankruptcy principle allowing the debtor a fresh start through bankruptcy."); see also Schinck v. Stephens (In re Stephens), 221 B.R. 290, 294 (Bankr. D. Me. 1998).
[112] Id. at 1373 (quoting Penn Terra Ltd. v. Dep't of Envtl. Res., 733 F. 2d 267, 272 (3d Cir. 1984)).
[117] First Nat'l Fidelity Corp. v. Perry (In re Perry), 945 F.2d 61, 61 (3rd Cir. 1991) ("Our analysis in Roach led to the conclusion that . . . a [New Jersey residential] mortgage cannot be reinstated at any time after a foreclosure judgment." citing In re Roach, 824 F.2d at 1371).
[119] 140 Cong. Rec. 27,696 (1994) (stating that In re Roach "is in conflict with the fundamental bankruptcy principle allowing the debtor a fresh start through bankruptcy"); see Local Loan Co. v. Hunt, 292 U.S. 234 (1934); McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 161 n.5 (B.A.P. 10th Cir. 1998). The Roach decision had other critics as well. See Lori B. Riga, Note, The Best Laid Plans of Corporations and Consumers: The Third Circuit, §§ 1123 and 1322(b)(2) of the Bankruptcy Code, and New Jersey's Merger Doctrine, 19 Seton Hall Legis. L.J. 231, 269-70 (1994) (criticizing In re Roach and supporting the enactment of 11 U.S.C. § 1322(c)(1)).
[120] 140 Cong. Rec. 27,696; see Colon v. Option One Mortgage Corp., 319 F.3d 912, 917 (7th Cir. 2003); In re McCarn, 218 B.R. at 161 n.5; In re Bobo, 246 B.R. 453, 455 (Bankr. D.D.C. 2000); In re Tomlin, 228 B.R. 916, 918 (Bankr. E.D. Ark. 1999).
[121] Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106, 4131 (codified at 11 U.S.C. § 1322(c)(1) (2000)).
[122] In re Bardell, No. 05-06808, 2007 WL 430416, at * 2 (Bankr. N.D. W. Va. Feb. 8, 2007); In re Bobo, 246 B.R. at 455; 140 Cong. Rec. 27,696; 1 Nelson & Whitman, supra note 53, § 8.15, at 831.
[124] Colon, 319 F.3d at 920 (questioning only post-foreclosure-sale cure termination); In re Downing, 212 B.R. 459, 463 n.4 (D. N.J. 1997). The application of § 1322(c)(1) in title or intermediate-theory jurisdictions may raise constitutional tension between the federal bankruptcy power and the Takings Clause of the Fifth Amendment or state sovereign power under the Tenth Amendment; however, these subjects are beyond the scope of this Note.
[126] Id. at 5 (recognizing "[t]he resolution § 1322(c)(1)'s enactment effected . . . has not been crystalline to the courts"); In re Bobo, 246 B.R. at 455 (noting that despite Congress's "attempt [to] clarify, section 1322(c)(1) introduced new uncertainties").
[127] In re Downing, 212 B.R. at 461 (noting the failure of Congress's attempt to provide clarity to the question of when the debtor's cure rights under §1322 expire).
[128] 11 U.S.C. § 1322(c)(1) (emphasis added). The Code specifically refers to "nonbankruptcy law" but this term usually results in a state law application. Id.. Therefore, for simplicity, in this Note the term "state" will be used instead of "nonbankruptcy."
[129] See, e.g., In re Bardell, No. 05-06808, 2007 WL 430416, at * 2 (Bankr. N.D. W. Va. Feb. 8, 2007); In re McKinney, 344 B.R. at 5 (noting "[t]here are generally two schools of thought with respect to § 1322(c)(1)"); Taylor v. Vt. Hous. Fin. Agency (In re Taylor), 286 B.R. 275, 278 (D. Vt. 2002) (referring to interpretation of § 1322(c)(1) as "live controversy that has defied consensus in the federal courts"); In re Beeman, 235 B.R. 519, 524 (Bankr. D.N.H. 1999) ("There are generally two schools of thought with respect to § 1322(c)(1).").
[130] The term "bright-line" has been used to describe the interpretation of the Bankruptcy Code that fixes the timing of the termination of the debtor's right to cure a mortgage default under Chapter 13 as corresponding with time the transfer of interests occurs at the foreclosure sale because of its uniform results imposed by federal law. Commercial Fed. Mortgage Corp. v. Smith (In re Smith), 85 F.3d 1555, 1560 (11th Cir. 1996) (using term "bright-line" to describe position that debtor's right to cure terminates at foreclosure sale in applying pre-1994 Bankruptcy Code); Chisholm v. Cendant Mortgage Corp., No. 04-6398, 2005 U.S. Dist. LEXIS 32266, at *11 (D.N.J. June 27, 2005) ("This court does not lend itself to the creation of the bright line rule."); In re Woodford, No. 06-50418, 2006 WL 2959522, at *3 (Bankr. W.D. Ky. Oct. 15, 2006); In re Agee, 330 B.R. 561, 566 (Bankr. E.D. Mich. 2005) ("Such a bright-line rule requires a certain amount of 'independence' from state law."). This Note uses the same terminology.
[131] In re Woodford, 2006 WL 2959522, at *3; In re McKinney, 344 B.R. at *5-6; Homeside Lending, Inc. v. Denny (In re Denny), 242 B.R. 593, 597 (Bankr. D. Md. 1999).
[132] In re Crawford, 232 B.R. 92, 96 (Bankr. N.D. Ohio 1999); Cain v. Wells Fargo Bank (In re Cain), 423 F.3d 617, 621 (6th Cir. 2005) (quoting In re Crawford, 232 B.R. at 96); see also In re Crichlow, 322 B.R. 229, 234 (Bankr. D. Mass. 2004); In re Watts, 273 B.R. 471, 476-77 (Bankr. D.S.C. 2000); In re Bobo, 246 B.R. 453, 455 (Bankr. D.D.C. 2000); In re Denny, 242 B.R. at 596-97.
[134] In re McKinney, 344 B.R. at *5-6 ("The additional phrase 'conducted in accordance with applicable bankruptcy law' requires that state law be consulted to assure the sale was noticed, convened, and held (i.e., 'conducted') in compliance with state law.").
[135] In re Crawford, 232 B.R. at 96; In re Cain, 423 F.3d at 621 (quoting In re Crawford, 232 B.R. at 96).
[136] The author has adopted the descriptive phrase "completed-transfer" to describe the position that the Bankruptcy Code directs that the time the debtor's right to cure a mortgage default is determined by the time when state law deems that all of the mortgagor's equitable interests in the property have ended and the foreclosure sale is complete.
[137] In re Wescott, 309 B.R. 308, 314 (Bankr. E.D. Wis. 2004) (allowing cure when petition filed after judicial foreclosure sale but before judicial confirmation of the sale); Randall v. Equicredit Fin. Serv. Corp. (In re Randall), 263 B.R. 200, 202 (D.N.J. 2001); In re Spencer, 263 B.R. 227, 230-31 (Bankr. N.D. Ill. 2001); In re Beeman, 235 B.R. 519, 526 (Bankr. D.N.H. 1999) (holding that the federal statute requires state law to determine when the property is "sold" and therefore debtor still has the right to cure before the deed from the foreclosure sale is recorded as state law requires to complete the sale); In re Barham, 193 B.R. 229, 232 (Bankr. E.D.N.C. 1996) (determining that property is "sold" only when a foreclosure sale has been completed under state law); 8 Collier On Bankruptcy § 1322.15 (Alan N. Reskick & Henry J. Sommer eds. 15th ed. Rev. 2005); see also Andrew Bernstein, Note, Tennessee Homeowners' Post Foreclosure Auction Right to Cure Under 11 U.S.C. §§ 1322(b) and (c), 27 U. Mem. L. Rev. 453, 514-15 (arguing overarching bankruptcy policy and proper interpretation of § 1322(c)(1) requires bankruptcy courts to follow when state law finds foreclosure sale complete).
[138] In re Wescott, 309 B.R. at 312-13; In re Randall, 263 B.R. at 202-03; In re Spencer, 263 B.R. at 231; In re Beeman, 235 B.R. at 526; In re Barham, 193 B.R. at 232.
[140] In re Wescott, 309 B.R. at 314; In re Randall, 263 B.R. at 203; In re Spencer, 263 B.R. at 231; In re Beeman, 235 B.R. at 524; In re Barham, 193 B.R. at 232.
[141] In re Beeman, 235 B.R. at 524-25 (quoting § 1322(c)(1) and finding the statute unambiguous in requiring the use of state law to determine when the sale is complete).
[143] In re Beeman, 235 B.R. at 524-25; In re Rambo, 199 B.R. at 751. See also Chisholm v. Cendant Mortgage Corp., No. 04-6398, 2005 U.S. Dist. LEXIS 32266, at *8-9 (D.N.J. June 27, 2005) (finding the suggested meaning of "that is conducted in accordance with nonbankruptcy law" counters "sold at a foreclosure sale" to create an ambiguity).
[145] Colon v. Option One Mortgage Corp., 319 F.3d 912, 918 (7th Cir. 2003); Christian v. Citibank, 214 B.R. 352, 355 (N.D. Ill. 1997); In re Tomlin, 228 B.R. 916, 919 (Bankr. E.D. Ark. 1999); In re Downing, 212 B.R. 459, 463-64 (D.N.J. 1997). This group points to legislative history evincing a legislative intent. Specifically, these courts rely, at least in part, on the following portion of a House Report: "this section of the bill safeguards a debtor's rights in a chapter 13 case by allowing the debtor to cure home mortgage defaults at least through the completion of a foreclosures sale under applicable nonbankruptcy law. However, if the State provides the debtor more extensive "cure" rights (through for example, some later redemption period), the debtor would continue to enjoy such rights in bankruptcy." H.R. Rep. No. 103-835, at 52 (1994) as reprinted in 1994 U.S.C.C.A.N. 3340, 3361; 140 Cong. Rec. 27,696 (1994); Colon, 319 F.3d at 918; Citibank, 214 B.R. at 355; In re Tomlin, 228 B.R. at 919; In re Downing, 212 B.R. 459, 463-64 (D. N.J. 1997).
[146] In re Townsville, 268 B.R. 95, 118-20 (Bankr. E.D. Pa. 2001) (holding that Pennsylvania law recognizes the mortgagor's right to redeem until fall of the gavel at sheriff's sale); see also In re Bardell, No. 05-06808, 2007 WL 430416, at * 3 (Bankr. N.D. W. Va. Feb. 8, 2007) (holding that debtor's right to cure terminates at foreclosure sale event pursuant to West Virginia law if completed-transfer approach were followed making analysis of the language of § 1322(c)(1) unnecessary); In re Crichlow, 322 B.R. 229, 235 (Bankr. D. Mass. 2004) (holding that federal statute requires bright-line approach and that debtor's right to cure terminates at the foreclosure sale but that if state law were considered, similar result would ensue); Homeside Lending, Inc. v. Denny (In re Denny), 242 B.R. 593, 597 (Bankr. D. Md. 1999) (finding the debtor had no interest in property after foreclosure sale under Maryland law); McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 161-62 (B.A.P. 10th Cir. 1998) (finding the property was "sold" on the date of the foreclosure sale under Wyoming law). Sometimes the state law changes. Ark. Code Ann. § 18-50-101(8) (2003); In re Starks, 2005 Bankr. LEXIS 2508, at *5-6 (E.D. Ark. Dec. 13, 2005) (recognizing Arkansas law changed to provide foreclosure sale complete when highest bid accepted by person conducting sale and overruled In re Tomlin, 228 B.R. 916, 919 (Bankr. E.D. Ark. 1999)).
[147] Rodriguez v. Naihomy (In re Rodriguez), 334 B.R. 754, 758 (B.A.P. 1st Cir. 2005) (determining that real property in Puerto Rico does not pass hands until the marshal delivers the deed, without addressing § 1322(c)(1) implications for parties' failure to raise the same); In re Downing, 212 B.R. at 464-65 (holding that the right to cure terminates when the sheriff delivers the deed to complete the sale per New Jersey law); In re Ross, 191 B.R. 615, 621 (Bankr. D.N.J. 1996) (same).
[148] In re Wescott, 309 B.R. 308, 314 (Bankr. E.D. Wis. 2004); In re Brown, 282 B.R. 880, 882 (Bankr. E.D. Ark. 2002); In re Faulkner, 240 B.R. 67, 69 (Bankr. W.D. Okla. 1999); Citibank, 214 B.R. at 355; In re Rambo, 199 B.R. at 751.
[149] In re Beeman, 235 B.R. at 526 (holding that New Hampshire law requires recording of the deed for valid transfer of property interest and that mortgagee holds option to void sale if new purchaser does not comply with terms of sale); In re Barham, 193 B.R. 229, 232 (Bankr. E.D.N.C. 1996) (holding debtor's right to cure terminates when North Carolina law that provides ten day period to outbid foreclosure sale price by 10 percent expires); In re Jaar, 186 B.R. 148, 154 (Bankr. M.D. Fla. 1995) (discussing the completed-transfer position and finding foreclosure sale under Florida law not complete until certificate of sale was filed with clerk of state court).
[150] See, e.g., Randall v. Equicredit Fin. Serv. Corp. (In re Randall), 263 B.R. 200, 202 (D.N.J. 2001) (providing no analysis of language or legislative history before applying state law to determine when property sold at foreclosure sale taking completed-transfer position); In re Benson, 293 B.R. 234, 238-39 (Bankr. D. Ariz. 2003) (relying primarily on existence of controversy itself to determine language is ambiguous before scant legislative history analysis to conclude completed-transfer position is correct); In re Townsville, 268 B.R. at 111-14 (surveying the reasoning of other courts' decisions on the issue but providing no independent analysis of language before looking to legislative history to find in favor of bright-line interpretation); Schinck v. Stephens (In re Stephens), 221 B.R. 290, 294 (Bankr. D. Me. 1998) (providing no analysis of language or legislative history before taking completed-transfer position); In re Barham, 193 B.R. at 231 (providing no analysis of the language of the statute and no reasoning for its conclusion that the legislative history favors the completed-transfer position). But see In re Simmons, 202 B.R. 198, 203 (Bankr. D.N.J. 1996) (applying two canons of statutory construction to language in analysis to conclude bright-line approach is correct).
[151] With a few dozen printouts of court decisions that opine on this controversy spread out on a table in no particular order or arrangement, the author indiscriminately chose fifteen to perform these tallies. The court decisions were: Cain v. Wells Fargo Bank (In re Cain), 423 F.3d 617 (6th Cir. 2005); Colon v. Option One Mortgage Corp., 319 F. 3d 912 (7th Cir. 2003); In re McCarn, 218 B.R. 154; In re Crichlow, 322 B.R. 229; In re Townsville, 268 B.R. 95; In re Randall, 263 B.R. 200; In re Bobo, 246 B.R. 453 (Bankr. D. D.C. 2000); In re Watts, 273 B.R. 471 (Bankr. D. S.C. 2000); In re Danaskos, 254 B.R. 416 (Bankr. N.D. Ill. 2000); Homeside Lending, Inc. v. Denny (In re Denny), 242 B.R. 593 (Bankr. D. Md. 1999); In re Crawford, 232 B.R. 92 (Bankr. N.D. Ohio 1999); In re Beeman, 235 B.R. 519; In re Tomlin, 228 B.R. 916 (Bankr. E.D. Ark. 1999); In re Downing, 212 B.R. 459; In re Rambo, 199 B.R. 747.
[153] In re Cain, 423 F.3d at 619; In re McCarn, 218 B.R. at 160-61; In re Townsville, 268 B.R. at 118-20; In re Crichlow, 322 B.R. at 234; In re Bobo, 246 B.R. at 456; In re Watts, 273 B.R. at 476-78; In re Danaskos, 254 B.R. at 420-21; In re Denny, 242 B.R. at 596-97; In re Crawford, 232 B.R. at 96. .
[154] Colon, 319 F.3d at 918-19; In re Randall, 263 B.R. at 202; In re Tomlin, 228 B.R. at 919; In re Beeman, 235 B.R. at 525-26; In re Downing, 212 B.R. at 461; In re Rambo, 199 B.R. at 751.
[155] In re Cain, 423 F.3d at 619-20; In re McCarn, 218 B.R. at 160; In re Crichlow, 322 B.R. at 234; In re Randall, 263 B.R. at 202; In re Bobo, 246 B.R. at 455-56; In re Watts, 273 B.R. at 476-78; In re Danaskos, 254 B.R. at 420; In re Beeman, 235 B.R. at 526; In re Denny, 242 B.R. at 596; In re Crawford, 232 B.R. at 96; In re Rambo, 199 B.R. at 750.
[156] Colon, 319 F.3d at 918; In re Townsville, 268 B.R. at 118-20; In re Tomlin, 228 B.R. at 919; In re Downing, 212 B.R. at 461.
[157] In re Cain, 423 F.3d at 619; In re McCarn, 218 B.R. at 160-61; In re Crichlow, 322 B.R. at 231; In re Bobo, 246 B.R. at 455; In re Watts, 273 B.R. at 476-78; In re Danaskos, 254 B.R. at 422; In re Denny, 242 B.R. at 596; In re Crawford, 232 B.R. at 96.
[161] In re Cain, 423 F.3d at 620-21; In re McCarn, 218 B.R. at 161-62; In re Bobo, 246 B.R. at 458-59; In re Beeman, 235 B.R. at 525-26; In re Rambo, 199 B.R. at 750-51; In re Crawford, 232 B.R. at 96-97.
[162] In re Cain, 423 F.3d at 620-21; In re Bobo, 246 B.R. at 458-59; In re Beeman, 235 B.R. at 525-26; In re Rambo, 199 B.R. at 750-51.
[165] There are additional considerations than just the apparent disagreement over interpretation. As shown herein, many of the decisions in this controversy are rendered by bankruptcy courts. See supra note 151. However well reasoned, these decisions are not afforded the weight of stare decisis in our legal system. See, e.g., In re Downing, 212 B.R. at 464 (discussing disagreement shown by bankruptcy courts located in New Jersey); In re Ziyambe, 200 B.R. 790, 793-94 (Bankr. D.N. J. 1996) (declining to follow other bankruptcy courts from same state). Thus, there is much less controlling law than may appear. Additionally, like our hypothetical couple the Smiths, arguably for most debtors the life events leading to bankruptcy create the environment for a lack of planning, and missing deadlines, like seeking legal help before the foreclosure sale of their home. Further, with the recent requirement for pre-filing budget and credit counseling, incidence of this dilemma may increase. See supra note 5.
[167] See e.g. supra note 151.These decisions are either rendered by the respective United States District court or, if established and the debtor so chooses, the Bankruptcy Appellate Panel. Id. The judicial counsel of each circuit is required to establish a Bankruptcy Appellate Panel unless they found certain conditions apply. 28 U.S.C. § 158(b)(1) (2000). Bankruptcy Appellate Panel is composed of bankruptcy judges from districts within the respective circuit and presides in three member panels. 28 U.S.C. § 158(b)(1),(5). Bankruptcy Appellate Panels are presently established in the First, Sixth, Eighth, Ninth, and Tenth circuits. United States Bankruptcy Appellate Panel of the Tenth Circuit, Introduction to the Bankruptcy Appellate Panel (Nov. 19, 2004), http://www.bap10.uscourts.gov/guide/historyBAP.pdf
[168] Henry Jack Boroff, The Precedential Effect of Bankruptcy Appellate Panel Decisions, 103 Com. L. J. 212, 218-19 (1998) (explaining that with the possible exception of the Ninth Circuit, the weight of authority holds that Bankruptcy Appellate Panel and United States District court decisions in multi-judge districts are without precedential value); Judith A. McKenna & Elizabeth C. Wiggens, Alternative Structures for Bankruptcy Appeals, 76 Am. Bankr. L. J. 625, 627 (2002) (recognizing that most Bankruptcy Appellate Panels and United States District Courts do not create binding bankruptcy law precedent).
[169] Cain v. Wells Fargo Bank (In re Cain), 423 F.3d 617 (6th Cir. 2005); Colon v. Option One Mortgage Corp., 319 F. 3d 912 (7th Cir. 2003). Although it has not had the opportunity to interpret Section 1322(c)(1), the United States Court of Appeals for the Eleventh Circuit has indicated a bright-line intent is "most likely" in dicta. Commercial Fed. Mortgage Corp. v. Smith (In re Smith), 85 F.3d 1555, 1558 n.3 (11th Cir. 1996) (taking bright-line position on policy and equitable grounds before addition of Section 1322(c)(1) to the Bankruptcy Code and noted if the section were applicable a bright-line intent is "most likely").
[172] Jeffery A. Deller & Nicholas E. Meriwether, Putting Order to The Madness: BAPCPA and the Contours of the New Prebankruptcy Credit Counseling Requirements, 16 J. Bankr. L. & Prac. 1 Art. 5 (Noting that Congress's passage of the BAPCPA created the most sweeping change to bankruptcy law since the passage of the Bankruptcy Act in 1978); see In re Ott, 343 B.R. 264, 268 (Bankr. D. Col. 2006) (describing the BAPCPA as complex and extensive). Most provisions of the BAPCPA became effective on October 17, 2005. See discussion supra, note 5.
[173] See Judith A. McKenna & Elizabeth C. Wiggens, Alternative Structures for Bankruptcy Appeals, 76 Am. Bankr. L. J. 625, 627 (2002) (recognizing "the inability of most appellate reviewers to create binding precedent diminishes the value of appellate review and is asserted to hinder lawyers' and others' ability to structure transactions and predict litigation outcomes."); see also Henry Jack Boroff, The Precedential Effect of Bankruptcy Appellate Panel Decisions, 103 Com L. J. 212, 221 (1998) (highlighting the various proposals to solve the dilemma created by the lack of precedent granted bankruptcy appellate decisions and concluding that "if no solution is found, the goal of developing a uniform and consistent body of bankruptcy case law will be difficult to attain.")
[174] See In re Simmons, 202 B.R. 198, 203 (Bankr. D.N.J. 1996) (applying the canons reddendo singula singulis and that a successive phrase should only modify its immediate antecedent phrase to language and concludes bright-line approach is correct). These four canons are referred to as traditional and generally accepted for their longevity, frequency of use, and the concomitant precedent established by the height of the authority that has adopted them. See infra note 176, 178-180. The author finds them the simple expression of common sense. The author chose to apply these four canons from among those he regards as traditional and generally accepted because of their applicability to the conditions presented in the language of Section 1322(c)(1) and their demonstrated usefullness to extract legislative intent from statutes. Some believe the value of a canon's utility will inevitably be frustrated by the application of another equally valid canon. Edwin W. Patterson, The Interpretation and Construction of Contracts, 64 Colum. L. Rev. 833, 852-53 (1964) (doubting relevance of canons to interpret contracts); Karl N. Llewellyn, Remarks on the Theory of Appellate Decision and the Rules or Canons about How Statutes Are to Be Construed, 3 Vand. L. Rev. 395 (1950). Upon closer inspection, this proposition breaks down. Antonin Scalia, Common-law Courts in a Civil-Law System: The Role of United States Federal Courts in Interpreting the Constitution and Laws, in A Matter of Interpretation 3, 27-28 (Amy Gutmann ed. 1997) (explaining the utility of generally accepted canons and revealing Karl N. Llewellyn's use of "faux canons"); Michael Sinclair, "Only a Sith Thinks Like That: Llewellyn's "Dueling Canons," One to Seven, 50 N.Y.L. Sch. L. Rev. 919, 992 (2005) (scrutinizing in depth the first seven pairs of Carl Llewellyn's opposing canons and finding "[g]enuine contrariety . . . is not evident."); Jonathan R. Macey & Geoffrey P. Miller, The Canons of Statutory Construction and Judicial Preferences, 45 Vand. L. Rev. 647 (1992) (arguing that Carl Llewellyn's claims were overstated and even if correct were irrelevant because the use of canons is unnecessary to employ judicial willfulness). The author concedes that canons are not independent absolute rules but rather useful common-sense aids to provide one indication of meaning. Scalia, supra at 28; see Sinclair, supra at 992. The author uses them as building blocks to reach his ultimate conclusion. The opposing camp's sparse use of canon principles does not include any canons not utilized herein to arrive at their contrary view of the text's meaning. See Colon, 319 F.3d at 918-19; Chisholm v. Cendant Mortgage Corp., No. 04-6398, 2005 U.S. Dist. LEXIS 32266, at *11 (D. N.J June 27, 2005); Randall v. Equicredit Fin. Serv. Corp. (In re Randall), 263 B.R. 200, 202 (D.N.J. 2001); In re Wescott, 309 B.R. 308, 311 (2004); In re Spencer, 263 B.R. 227, 230 (2001); In re Tomlin, 228 B.R. 916, 919 (Bankr. E.D. Ark. 1999); In re Beeman, 235 B.R. 519, 525-26 (Bankr. D. N.H. 1999); In re Downing, 212 B.R. 459, 461 (Bankr. D. N.J. 1997); In re Rambo, 199 B.R. 747, 751 (Bankr. W.D. Okla. 1996); In re Barham, 193 B.R. 229, 231 (1996). Therefore, this analysis provides a complete picture of the canonical sources of reasoning utilized by the courts in the controversy over the meaning of the statutory language in Section 1322(c)(1).
[175] Reddendo singula singulis means "by rendering each to each." Black's Law Dictionary 1281 (7th ed. 1999).
[176] Hibbs v. Winn, 542 U.S. 88, 101 (2004); Duncan v. Walker, 533 U.S. 167, 174 (2001) ("It is our duty 'to give effect, if possible, to every clause and word of a statute.'" (quoting United States v. Menasche, 348 U.S. 528, 538-39 (1955) (quoting Montclair v. Ramsdell, 107 U.S. 147, 152 (1883)))); see also Williams v. Taylor, 529 U.S. 362, 404 (2000) (applying this "cardinal principle of statutory construction"); Earl T. Crawford, Construction of Statutes §§ 194, 204 (1940); 2 John Lewis, Sutherland Statutory Construction § 380 (John Lewis ed., 2nd ed. 1904) (1896) (collecting cases).
[177] Noscitur a sociis means "it is known by its associates." Black's Law Dictionary 1084 (7th ed. 1999).
[178] Gen. Dynamics Land Sys., Inc. v. Cline, 540 U.S. 581, 596 (2004) (stating the "cardinal rule that '[s]tatutory language must be read in context [since] a phrase 'gathers meaning from the words around it'" (quoting Jones v. United States, 527 U.S. 373, 389 (1999))).
[179] Smith v. United States, 508 U.S. 223, 228 (1993); Chapman v. United States, 500 U.S. 453, 462 (1991); Perrin v. United States, 444 U.S. 37, 42 (1979) (stating text not defined by statute should be given its ordinary and common meaning); Minor v. Mech. Bank of Alexandria, 1 Pet. 48, 64 (1828). See Scalia, supra note 174, at 3, 23-24.
[180] Nat'l Coal. for Students with Disabilities Edu. & Legal Def. Fund. v. Allen, 152 F.3d 283, 288 n.6 (4th Cir. 1998) ("Absent an expression of contrary congressional intent, the failure to apply this canon 'flies in the face of common sense in grammar hardened into law.'" (quoting United States ex rel. Santarelli v. Hughes, 116 F.2d 613, 616 (3d Cir. 1940))); United States v. Montejo, 353 F. Supp. 2d 643, 648 (E.D. Va. 2005); 2A Norman J. Singer, Sutherland Statutory Construction § 47.33 (6th ed., rev. 2002).
[181] 11 U.S.C. § 1322(c)(1) (2000). The entire subsection reads: "(1) a default with respect to, or that gave rise to, a lien on the debtors 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." Id.
[182] JPMorgan Chase Bank v. McKinney (In re McKinney), 344 B.R. 1, 5 (Bankr. D. Me. 2006) (noting the disagreement between courts over the meaning of "sold" in § 1322(c)(1)); In re Beeman, 235 B.R. 519, 525 (Bankr. D.N.H. 1999) (referencing two dictionaries for meaning of "sale" and adopting the completed-transfer interpretation). Black's Law Dictionary contains the following definitions for "sale:"
1. The transfer of property or title for a price. 2. The agreement by which such a transfer takes place. · The four elements are (1) parties competent to contract, (2) mutual assent, (3) a thing capable of being transferred, and (4) a price in money paid or promised.
Black's Law Dictionary 1337 (7th ed. 1999).
[183] In re Bobo, 246 B.R. 453, 456 (Bankr. D.D.C. 2000) ("Common parlance draws a distinction between the property being 'sold at a foreclosure sale' and the later consummation of that sale and satisfaction of all contingencies required to prevent defeasance of the sale"); see also In re Tomlin, 228 B.R. 919, 919 (Bankr. E.D. Ark. 1999) (proposing words "foreclosure sale" in statute to have these two possible meanings); see also Colon v. Option One Mortgage Corp., 319 F.3d 912, 917 (7th Cir. 2003).
[184] In real property transfers, there are different promises concerning the type of title actually transferred. However, these varied real property concerns do not affect the meaning of the word "sold."
[185] In re McKinney, 344 B.R. at 5-6 (Bankr. D. Me. 2006) (finding word "at" connects "sold" with "foreclosure sale"); In re Crichlow, 322 B.R. 229, 234 (Bankr. D. Mass. 2004) (finding phrase "sold at a foreclosure sale" to refer to the actual sale event); In re Bobo, 246 B.R. at 456 (finding word "at" requires what is "sold" to occur at time of foreclosure sale event); Homeside Lending, Inc. v. Denny (In re Denny), 242 B.R. 593, 597 (Bankr. D. Md. 1999) (finding that the "preposition 'at' clearly indicates the specific event of the foreclosure sale").
[186] In re Bobo, 246 B.R. at 456 ("The statute refers to the property being sold at, not after or pursuant to, a foreclosure sale.").
[187] In re Watts, 273 B.R. 471, 476-78 (Bankr. D.S.C. 2000); In re Bobo, 246 B.R. at 455; In re Denny, 242 B.R. at 599.
[191] In re Crawford, 232 B.R. 92, 96 (Bankr. N.D. Ohio 1999); In re Simmons, 202 B.R. 198, 203 (Bankr. D.N.J. 1996).
[192] In re Crawford, 232 B.R. at 96; In re Simmons, 202 B.R. at 203; see In re Crichlow, 322 B.R. 229, 234 (Bankr. D. Mass. 2004).
[195] The failure to follow the state-law foreclosure proceeding has substantive federal bankruptcy ramifications. If a debtor could show that the sale was not "conducted in accordance with [state] law," then the bankruptcy court could void the transaction and find the debtor's right to cure continuous and intact. Colon v. Option One Mortgage Corp., 319 F.3d 912, 921 (7th Cir. 2003) (holding that if the sale was not confirmed correctly then there continues a right to cure under § 1322(c)(1)). In the event that a new occupant took possession, the debtor could be entitled to a fair rental price for the time the buyer occupied the premises. Cf. JPMorgan Chase Bank v. McKinney (In re McKinney), 344 B.R. 1, 6-7 (Bankr. D. Me. 2006) (where the debtors' claim foreclosure sale was not conducted according to state law); see also In re Crichlow, 322 B.R. 321, 322-23 (Bankr. D. Mass. 2005) (acknowledging assessment of "monthly use and occupancy payments" upon a debtor continuing to occupy premises after foreclosure buyer successfully lifted debtor's automatic stay). Thus, the successive phrase also gives federal teeth to the state law but only to the extent of how the foreclosure sale event is to be conducted.
[196] In re Downing, 212 B.R. 459, 461 n.2 (Bankr. D.N.J. 1997) ("Federal foreclosure law does not exist.").
[197] See, e.g., Swift v. Tyson, 41 U.S. 1, 18-19 (1848) (describing real property issues as truly local and beyond federal law-making process); McCulloch v. Maryland, 17 U.S. 316, 375 (1819) (prohibiting state taxation of the business conduct of federal banks but permitting state taxation of the state property the bank is located upon).
[198] BFP v. Resolution Trust Corp., 511 U.S. 531, 544-45 (1994) (recognizing state foreclosure sale processes as a traditional and important state interest requiring a clear and manifest intent to be displaced by federal statute).
[199] This has been referred to as "the Butner principle," as expressed in Butner v. United States. Baird, supra note 9, at 4-6 (citing Butner v. United States, 440 U.S. 48, 55 (1979)). Section 1322(c)(1) does preempt state law that would terminate the debtor's cure right before the foreclosure sale. Colon, 319 F.3d at 920 (questioning only post-foreclosure-sale cure termination); In re Downing, 212 B.R. at 463 n.4. However, it does not offend the Butner principle because it has been deemed necessary to serve the "fundamental bankruptcy principle allowing the debtor a fresh start through bankruptcy." 140 Cong. Rec. 27,696 (1994); see Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934); Baird, supra note 9, at 34.
[200] In re McKinney, 344 B.R. at 6. There is some disagreement by courts adopting the bright-line approach over whether the state foreclosure process needs to meet a federal standard. Compare In re Crichlow, 322 B.R. 229, 234 (Bankr. D. Mass. 2004) (holding that state law controls the question of whether the foreclosure sale process was legally proper and stating its disagreement with In re Bobo (citing In re Bobo, 246 B.R. 453 (Bankr. D.D.C. 2000))), with In re Bobo, 246 B.R. at 457-58 (reasoning that federal law controls whether a foreclosure sale has occurred and finding that federal courts should look past state law labels to determine whether the state law process is adequate for federal standards). The author agrees that the statute does not dictate that federal standards are to be placed upon state foreclosure sale processes.
[201] Randall v. Equicredit Fin. Serv. Corp. (In re Randall), 263 B.R. 200, 202 (D.N.J. 2001); In re Barham, 193 B.R. 229, 232 (Bankr. E.D. N.C. 1996).
[202] See, e.g., In re Beeman, 235 B.R. 519, 524-25 (Bankr. D.N.H. 1999) (referencing only one definition of "sale" in both Black's Law Dictionary and Merriam Webster's Collegiate Dictionary to ascertain the meaning of "sold" but failing to consider other definitions or associated words in the statute); Schinck v. Stephens (In re Stephens), 221 B.R. 290, 294 (Bankr. D. Me. 1998) (considering the meaning for "sold" could only be the completion of the foreclosure sale defined by state law; Cf. In re Bobo, 246 B.R. at 456 ("Common parlance draws a distinction between the property being 'sold at a foreclosure sale' and the later consummation of that sale and satisfaction of all contingencies required to prevent defeasance of the sale."); see discussion supra note 171, 172.
[203] The court in In re Beeman and In re Stephens make this mistake. In re Beeman, 235 B.R. at 525; In re Stephens, 221 B.R. at 294. In re Beeman not only isolates the word "sold" but also selectively chooses a portion of only one of the available definitions for the word "sale" that avoids revealing an alternative meaning. In re Beeman, 235 B.R. at 525. The In re Beeman court quotes the fifth edition of Black's Law Dictionary as defining "sold" as: "by which [the seller], in consideration of the payment or promise of payment of a certain price in money, transfers to [the buyer] the title and the possession of property." Id. (alterations in original). The court omits the proceeding words of the definition, which are: "A contract between two parties, called, respectively, the "seller" (or vender) and the "buyer" (or purchaser)." Black's Law Dictionary 1200 (5th ed. 1979) (emphasis added). This entry in Black's Law Dictionary spans over two pages and contains many sub-definitions. Id. at 1200-02. A cursory review of the definition of "sale" in this fifth edition of Black's Law Dictionary encompasses either possible definition described herein. Id.; see supra Part IV.A.
[205] 11 U.S.C. § 1322(c)(1) (2000). Colon v. Option One Mortgage Corp., 319 F.3d 912, 917 (7th Cir. 2003); In re Rambo, 199 B.R. 747, 751 (Bankr. W.D. Okla. 1996).
[207] The term "foreclosure sale" is not defined in the Bankruptcy code. In re Beeman, 235 B.R. at 525.
[208] See In re Beeman, 235 B.R. at 525; In re Tomlin, 228 B.R. 916, 919 (Bankr. E.D. Ark. 1999); In re Crawford, 217 B.R. 558, 560 (N.D. Ill. 1998) (finding the fact that Congress did not use "auction" to indicate its intent to terminate the debtor's right to cure according to when state law deems the sale complete); 8 Collier On Bankruptcy, supra note 134, § 1322.15.
[209] For example, the term "applicable nonbankruptcy law" has also been used to widen a statute's application. Patterson v. Shumate, 504 U.S. 753, 758 (1992) (holding the meaning of statutory language, "applicable nonbankrutpcy law," is not limited to only state law and noting Congress's use of contrary term "state law" when only state law is intended).
[210] In re Bobo, 246 B.R. 453, 456 (Bankr. D.D.C. 2000) (stating that the term "foreclosure sale" was used to encompass sales that did not occur at an auction style sale and noting the lack of definition of "foreclosure sale" in Bankruptcy Code). Section 1322(c)(1) has been applied in strict foreclosure situations where no public sale occurs. See, e.g., In re Pellegrino, 284 B.R. 326, 330-31 (Bankr. D. Conn. 2002) (applying § 1322(c)(1) to strict foreclosure absent actual foreclosure sale); In re Taylor, 286 B.R. 275, 281 (D. Vt. 2002) (same). But see Schinck v. Stephens (In re Stephens), 221 B.R. 290, 290 (Bankr. D. Me. 1998) (holding that § 1322(c)(1) only applied when state law foreclosure process included actual foreclosure sale event). The statute's language demands that the right to cure expires where the property is "sold at a foreclosure sale." Therefore, it cannot apply when no foreclosure sale occurs and thus, the In re Stephens court is correct. Further, in title-theory jurisdictions, the mortgagee always holds legal title to the property and is simply foreclosing on the mortgagor's right of possession and equity of redemption interest, which usually occurs at the foreclosure judgment.
[212] Colon v. Option One Mortgage Corp., 319 F. 3d 912, 918 (7th Cir. 2003); In re Townsville, 268 B.R. 95 (Bankr. E.D. Pa. 2001); H.R. Rep. No. 103-835; 140 Cong. Rec. 27,690 (1994).
[213] H.R. Rep. No. 103-835, at 52 (1994) as reprinted in 1994 U.S.C.C.A.N. 3340, 3361. The report was formally submitted to the House by Representative Brooks of the Judiciary Committee and was entered into the congressional record in its entirety as part of his statement during debate over the bill. 140 Cong. Rec. 27,696 (1994). A legislative report is regarded as more reliable than most other forms of legislative history, but is not infallible. See Reed Dickerson, The Interpretation and Application of Statutes 158-59 (Little Brown 1975).
[214] H.R. Rep. No. 103-835, at 52 (1994) as reprinted in 1994 U.S.C.C.A.N. 3340, 3361 (emphasis added); 140 Cong. Rec. 27,696 (1994).
[218] See McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 161 (B.A.P. 10th Cir. 1998) (recognizing "Congress cited with approval Glenn, the principle case espousing the bright-line test"); In re Townsville, 268 B.R. 95, 117 (Bankr. E.D. Pa. 2001); see also In re Glenn, 760 F.2d 1428, 1435 (6th Cir. 1985) ("The event we choose as the cut-off date of the statutory right to cure defaults is the sale of the mortgaged premises.").
[219] In re Glenn, 760 F.2d at 1435-36 (expressing seven policy reasons for its bright-line position and stating "In so ruling we avoid any effort to analyze the transaction in terms of state property law.").
[220] In re Clark, 738 F.2d 869, 871 (7th Cir. 1984). The majority of jurisdictions follow the lien theory. 1 Nelson & Whitman, supra note 53, § 4.2, at 156-57. Under the lien theory, the mortgagee's interest is merely as a lien holder and the mortgagor retains a fee simple comprising legal and equitable title. Id.
[221] Presently at least eight states, and arguably a few more, follow the title theory. All are located in the eastern United States. 1 Nelson & Whitman, supra note 53, § 4.1 at 155. Under title theory, the mortgagee retains legal title to the property and the mortgagor obtains equitable title. Id. at § 4.1.
[222] This is the least popular mortgage theory in the United States. 1 Nelson & Whitman, supra note 53, § 4.3. This follows lien theory until default where it changes to follow the title theory. Id.
[223] In re Clark, 738 F.2d at 874 ("[W]e do not reach the question whether the same result [would be] obtain[ed] in a state in which the effect of a judgment of foreclosure is different"); see Douglas A. Winthrop, Note, The Chapter 13 Cure Provisions: A Doctrine in Need of a Cure, 74 Minn. L. Rev. 921, 932-34 (1990) (observing that the In re Clark decision approved of pre-foreclosure sale cure termination in title jurisdictions by negative implication).
[224] See McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 162-63 (B.A.P. 10th Cir. 1998); In re Bobo, 246 B.R. 453, 459 (Bankr. D.D.C. 2000) (finding House Report's discussion of In re Glenn demonstrative of Congress' bright-line intent).
[225] H.R. Rep. No. 103-835, at 52 (1994), as reprinted in 1994 U.S.C.C.A.N. 3340, 3361; 140 Cong. Rec. 27,696 (1994).
[227] H.R. Rep. No. 103-835, at 52 (1994), as reprinted in 1994 U.S.C.C.A.N. 3340, 3361; 140 Cong. Rec. 27,696.
[228] H.R. Rep. No. 103-835, at 52 (1994), as reprinted in 1994 U.S.C.C.A.N. 3340, 3361; 140 Cong. Rec. 27,696.
[229] See Cain v. Wells Fargo Bank (In re Cain), 423 F.3d 617, 619 (6th Cir. 2005); In re Crawford, 232 B.R. 92, 98 n.3 (Bankr. N.D. Ohio 1999) (noting that if House Report were not using the word "cure" in the technical sense then the plausible interpretation of it could be that state statutory redemption rights were to be left intact); In re Downing, 212 B.R. 459, 461 n.1 (Bankr. D.N.J. 1997). The house report is not the only authority which confusingly uses the word "cure" to describe the debtor's nonbankruptcy legal rights (that could solve his mortgage default) that are left undisturbed by the Bankruptcy Code. See, e.g., In re Woodford, No. 06-50418, 2006 WL 2959522, at *3 n.4 (Bankr. W.D. Ky. Oct. 15, 2006) ("We emphasize that under any interpretation of 11 U.S.C. § 1322(c), a Chapter 13 debtor always retains any right to cure provided by state law outside the Chapter 13 plan." (emphasis added)). The word and legal concept of "redemption" has also been used incorrectly to refer to a bankruptcy cure under §1322(c)(1); see e.g., Colon v. Option One Mortgage Corp., 319 F.3d 912, 918 (2003) (stating "there is significantly scholarly support for the view that the states have the last word in determining the scope of redemption" and then quoting Collier on Bankruptcy commentary that describes cure rights under § 1322(c)(1)).
[230] McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 162-63 (B.A.P. 10th Cir. 1998); In re Downing, 212 B.R. at 461 n.1; see In re Clark, 738 F.2d 869, 872 (7th Cir. 1984) ("[T]he plain meaning of 'cure,' as used in § 1322(b)(2) and (5), is to remedy or rectify the default and restore matters to the status quo ante.").
[231] In re McCarn, 218 B.R. at 162-63; In re Downing, 212 B.R. at 461 n.1; see 1 Nelson & Whitman, supra note 53, § 8.4; see also 1 Nelson & Whitman, supra note 53, § 7.6 at 617.
[232] See supra Part II and notes 76-80. The same general equitable arguments made in Part IV.C. could be made against state redemption rights, a subject not addressed here.
[234] The lack of effect bankruptcy has of the state statutory right of redemption is expressed in bankruptcy decisions. In re Cain, 423 F.3d at 619; In re Woodford, 2006 WL 2959522, at *3; In re Crawford, 232 B.R. at 98 n.3; In re Scheldt, 220 B.R. 362, 364-65 (Bankr. C.D. Ill. 1998); see also Wright v. Union Cent. Life Ins. Co., 304 U.S. 502, 514-15 (1938) (drawing a distinction between foreclosure sale and later state law right of redemption).
[238] See In re Barham, 193 B.R. 229, 231 n.1 (Bankr. E.D. N.C. 1996) (holding debtor's cure right terminates after the foreclosure sale event and in accordance with the completed-transfer position but finding Senator Grassley's statement "might favor [the bright-line interpretation] although the context makes his intent unclear.").
[243] McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 161 (B.A.P. 10th Cir. 1998) (finding Senator Grassley's statements indicative of bright-line intent when finding legislative history on whole unhelpful); In re Townsville, 268 B.R. 95, 117-18 (Bankr. E.D. Pa. 2001) (finding Senator Grassley's statement supportive of its bright-line holding based on legislative history); In re Bobo, 246 B.R. 453, 459 (Bankr. D.D.C. 2000) (finding Senator Grassley's floor statement supports the court's bright-line holding); In re Beeman, 235 B.R. 519, 526 (Bankr. D.N.H. 1999) (weighting Senator Grassley's statement in favor of bright-line intent in analysis but finding legislative history overall not contrary to its holding for completed-transfer reading of unambiguous text); In re Tomlin, 228 B.R. 916, 919 n.2 (Bankr. E.D. Ark. 1999) (considering Senator Grassley's statement seemed to indicate bright-line intent but legislative history overall consistent with completed-transfer interpretation); In re Simmons, 202 B.R. 198, 202 (D. N.J. 1996); In re Ziyambe, 200 B.R. 790, 798-99 (Bankr. D.N.J. 1996); In re Barham, 193 B.R. at 231 n.1 (holding debtor's cure right under the statute is completed-transfer but finding Senator Grassley's statement "might favor [the bright-line interpretation] although the context makes his intent unclear"). But see Colon v. Option One Mortgage Corp., 319 F. 3d 912, 918 (7th Cir. 2003); In re Downing, 212 B.R. 459, 463-64 (Bankr. D.N.J. 1997) (finding Senator Grassley's statement, when read in conjunction with House Report, indicates completed-transfer intent).
[244] In re Barham, 193 B.R. at 231 n.1; Dickerson, supra note 213, at 156 ("Least reliable are floor debates concerning what a bill means."); Crawford, supra note 176, § 213.
[245] Dickerson, supra note 213, at 156 (Little Brown 1975) (describing floor statements as made "in circumstances that call for gross oversimplification").
[246] Crawford, supra note 176, § 215 (noting when legislative history has been considered, committee reports have been given more weight than floor statements).
[247] 11 U.S.C. § 105 (2000) allows "any order, process or judgment that is necessary or appropriate to carry out the [Bankruptcy Code] provisions." Baird, supra note 9, at 6.
[249] In re Chrichlow, 334 B.R. 321, 324 (Bankr. D. Mass. 2005) (considering harm to foreclosure buyer greater than to debtor who continued to live on premises after the bankruptcy court ruled debtor's right to cure terminated when the gavel dropped at the foreclosure sale).
[250] Fed. Land Bank v. Glenn (In re Glenn), 760 F.2d 1428, 1436 (6th Cir. 1985); McCarn v. WyHy Fed. Credit Union (In re McCarn), 218 B.R. 154, 160 (B.A.P. 10th Cir. 1998).
[252] In re Chrichlow, 334 B.R. at 324 (considering harm to foreclosure buyer to weight against debtor who continued to live on premises after the bankruptcy court ruled debtor's right to cure terminated when the gavel dropped at the foreclosure sale).
[253] Lenders are governed by both state and federal regulators. Mortgage defaults affect their standing to obtain acceptance into the federal mortgage insurance program. HUD Mortgage & Insurance Programs Eligibility Rule, 24 C.F.R. §§ 203.3-.4 (2006); 2 Nelson & Whitman, supra note 53, § 11.2, at 61-62.
[254] See In re Glenn, 760 F.2d at 1436 (holding one of seven policy reasons in support for termination of debtor's right to cure at the foreclosure sale is the very serious danger of a chill to the foreclosure market).
[255] In re Chrichlow, 334 B.R. at 324 (considering harm to foreclosure buyer greater than to debtor who continued to live on premises after the bankruptcy court ruled debtor's right to cure terminated when the gavel dropped at the foreclosure sale).
[256] In re Downing, 212 B.R. 459, 463 n.4 (Bankr. D.N.J. 1997) (noting the holding of In re Roach that distinguished property interests from federal cure rights survives despite its being superseded by statute); In re Sims, 185 B.R. 853, 866 (Bankr. E.D. Ala. 1995) ("Section 1322(c)(1) abrogates the need of courts to analyze the state property rights of the debtor in the property to determine when a cure is available."); see also 11 U.S.C. § 541(a) (2000).
[258] JPMorgan Chase Bank v. McKinney (In re McKinney), 344 B.R. 1, 5-6 (Bankr. D. Me. 2006) (recognizing that Section 1322(c)(1) provides substantive rights to debtors well after their property interests in the residence are terminated according to Maine law).
[260] Travelers Cas. and Sur. Co. of America v. Pacific Gas and Elec. Co., No. 05-1429, 2007 U.S. LEXIS 3566, at *15-16 (U.S. March 20, 2007); In re Downing, 212 B.R. at 463 n.4; In re Sims, 185 B.R. at 866 ("Section 1322(c)(1) abrogates the need of courts to analyze the state property rights of the debtor in the property to determine when a cure is available."); see also 11 U.S.C. § 541(a).
[261] Butner v. United States, 440 U.S. 48, 55 (1979); Stellwagon v. Clum, 245 U.S. 605, 613 (1918) ("state laws are . . . suspended only to the extent of actual conflict with the system provided by the Bankruptcy [Code]"); Baird, supra note 9, at 4-6.
[263] In re Tomlin, 228 B.R.916, 919, 921 (Bankr. W.D. Ark. 1999); In re Sims, 185 B.R. at 866 (holding the clear and unambiguous language of § 1322(c)(1) requires bright-line termination of debtor's right to cure but expressing it is not consistent with bankruptcy principles for lack of harmony with state law).
Citation
7 U.C. Davis Bus. L.J. 461 (2007)