[210 NJSuper Page 590] This is an application by the mortgagor, Brenda Johnson (Johnson) to vacate a sheriff's sale and resulting deed recorded by an innocent third party purchaser.
The mortgagee, Union County Savings Bank (Bank) brought the initial foreclosure action in April 1985. Johnson was served with the Complaint the following month. On July 2, 1985 default and final judgment were entered against Johnson in favor of the Bank. She does not challenge the propriety of the final judgment in foreclosure.
Pursuant to the judgment, a sheriff's sale was scheduled and conducted by the Essex County Sheriff's Department on September 10, 1985. There is no record of any adjournment. The property was sold at the sale to the highest bidder, New Jersey Equitable Realty Co. Pension Trust (Buyer).
Two weeks later, on September 25, 1985, Johnson filed a Chapter 13 bankruptcy petition. Unaware of this or any other change, the sheriff issued the deed to the Buyer under the terms of the sale. The deed was issued and recorded by the Buyer on October 2, 1985. Aside from filing the bankruptcy petition, Johnson made no objection to the Sheriff's sale within ten days of same or prior to the issuance of the deed.
On December 17, 1985, Johnson filed the instant application by order to show cause, initially to stay the scheduled writ of possession and ultimately to vacate the sale and deed. The court granted interim relief on the ground that Johnson may have been misled about an adjournment of the sale.
Johnson's bankruptcy confirmation has been adjourned pending disposition of this application. She claims that her attorney contacted the Bank's attorney before the sheriff's sale, and was told by "a representative" of the Bank's attorney that there was no objection to an adjournment. One of Johnson's attorneys testified that he obtained an adjournment from the Sheriff's Department on September 10. The sale was nevertheless conducted on September 10, allegedly without notice to either Johnson or her attorney. She claims to have been misled.
On the asserted "reasonable belief" that the sale was adjourned, Johnson filed the Chapter 13 bankruptcy petition and claims it stayed the sale and delivery of the deed. Moreover,
the Buyer is alleged to have known of Johnson's bankruptcy filing. Its acquisition of this knowledge is alleged to have given Buyer notice of Johnson's "objection to the sale" before the conveyance.
There are four components to Johnson's overall argument: First, she claims that the grant of the adjournment preserved her equitable right of redemption. Upon grant of the adjournment, the subsequent bankruptcy filing cured the default and stayed any and all further foreclosure proceedings. She argues that this court should follow the so-called federal rule: A Chapter 13 bankruptcy, if filed before the property is transferred to a purchaser for value, allows the debtor/mortgagor to retain her ownership rights in the premises pursuant to the bankruptcy plan. She relies on DiPiero v. Taddeo, 685 F.2d 24 (2d Cir.1982) and In re Cappadonna, Bankr. No. 81-04970 (Bankr.N.J. Jan. 7, 1983).
Second, regardless of any adjournment, legal title did not vest in the Buyer until delivery of the deed. Under R. 4:65-5, the sheriff may not lawfully convey title if an objection to the sale is received before the actual conveyance. The Chapter 13 bankruptcy petition operates as an objection to the sale for purposes of the rule, and thus she contends that the deed must accordingly be vacated because the bankruptcy petition preceded the delivery. This assertion is supposedly buttressed by the general policy favoring the mortgagor's opportunity to redeem. She again relies on Taddeo and Cappadonna.
Third, the sale was procedurally improper because it had allegedly been adjourned. Any sale conducted on the original date is therefore ineffective, and results in a defective deed, citing N.J.S.A. § 2A:17-33 and R. 4:65-2.
Fourth and finally, she urges that the pertinent bankruptcy statute, 11 U.S.C. § 362, stays the sale in light of Johnson's (a) belief that the sale was adjourned, and (b) that her bankruptcy filing was prior to delivery of the deed. Other than the statute
itself, no authority is cited for this particular proposition. This argument is virtually identical to the first.
Thus, the following four issues are presented:
(I) Whether the mere filing of a Chapter 13 bankruptcy petition two weeks after a foreclosure sale, but prior to the delivery of the deed to a purchaser for value at the sale, constitutes an "objection" to the foreclosure sale pursuant to R. 4:65-5, allowing the resulting deed to be vacated?
(II) Whether a mortgagor retains any right of redemption after the sale, permitting the mortgaged property to become part of the bankruptcy estate under 11 U.S.C. § 362, so long as the deed was not delivered?
(III) Whether Johnson's claim that she received an adjournment, thus invalidating the ...