Bankruptcy No. 00-59168 (SAS)
The opinion of the court was delivered by: Cooper, District Judge.
AMENDED MEMORANDUM OPINION
This matter comes before the Court on appeal from the bankruptcy court decision denying the debtor's motion to extend the redemption period and granting the mortgagee's motion to vacate the automatic stay. (See 11-14-00 Tr.; Order filed 11-20-00.) The issue before us is whether the debtors' right to cure a default on their mortgage expires at the end of the foreclosure sale (the "gavel rule") or when the sheriff delivers the deed to the successful bidder at the auction (the "deed-delivery" rule). Concluding that the right to cure default terminates when the sheriff delivers the deed to the successful bidder, we will reverse the bankruptcy court's decision.
The facts are undisputed. The debtors had defaulted on a loan secured by a mortgage on their primary residence. (Br. of Appellants dated 1-8-01 ("Appellants' Br.") at 3; Br. of Appellee dated 1-28-01 ("Appellee Br.") at 7.) The Superior Court of New Jersey granted the mortgagee, Equicredit, a final judgment of foreclosure on May 17, 2000. (Appellee's Br. at 7.) A public foreclosure sale was conducted on August 28, 2000 at which Equicredit was the successful bidder on the residence. (Appellants' Br. at 4; Appellee's Br. at 7.)
The debtors filed a petition for relief under Chapter 13 of the Bankruptcy Code on September 6, 2000, extending the redemption period to October 27, 2000 pursuant to 11 U.S.C. 108(b). (Appellants' Designated Record on Appeal ("DRA") Ex. 1: Chapter 13 Petition filed 9-6-00.) On September 27, 2000 they filed their Chapter 13 Plan and a motion to extend the redemption period. (DRA Ex. 4: Mot. to Extend Redemption filed 9-27-00.) Through their Chapter 13 Plan, the debtors proposed to reinstate their mortgage loan with Equicredit and to cure their default. Equicredit opposed the motion and cross-moved for an order vacating the automatic stay. (DRA Ex. 8: Cross Mot. dated 11-1-00.)
At a November 14, 2000 hearing, the bankruptcy court held that the debtors' right to cure had terminated on August 28, 2000 at the close of the sheriff's sale. (11-14-00 Tr. at 5.) The bankruptcy court accordingly denied the debtors' motion to extend the redemption period and granted Equicredit's cross-motion for stay relief. (11-14-00 Tr. at 5-7; Order filed 11-20-00.) The debtors filed this appeal on December 15, 2000 and the bankruptcy court imposed an automatic stay pending appeal.
In reviewing an order of the bankruptcy court, the district court applies a clearly erroneous standard to the bankruptcy court's findings of fact, and a de novo standard to the bankruptcy court's legal conclusions. See In re Sharon Steel Corp., 871 F. 2d 1217, 1222 (3d Cir. 1989); In re Reid, 757 F. 2d 230, 233 (10th Cir. 1985); In re Morrissey, 717 F. 2d 100, 104 (3d. Cir. 1983). The issue on appeal is whether the bankruptcy court erred in its application of New Jersey law to 11 U.S.C. 1322(c) in denying the debtors' motion to extend the redemption period and granting the mortgagee's motion to vacate the automatic stay. Because the only issue to resolve is a legal one, and there are no factual findings to review, our review is plenary.
The bankruptcy court ruled that the debtors' right to cure the default on their mortgage loan contract terminated at the end of the foreclosure auction. (11-14-00 Tr. at 5; Order filed 11-20-00.) In applying this so-called "gavel rule" the court relied on its previous decision in In re Hric, 208 B.R. 21 (Bankr. D.N.J. 1997), in which it ruled that, after the foreclosure auction, a debtor has no right to cure a default under section 3222(c)(1). 208 B.R. at 26. Debtors argue that the right to cure expires when the sheriff delivers the deed to the successful bidder at the auction sale. (Appellants' Br. at 8-11.)
A debtor's right to cure a mortgage-loan default through a Chapter 13 Plan is established by 11 U.S.C. § 1322(c), providing in relevant part:
(c) Notwithstanding subsection (b)(2) and applicable non-bankruptcy law-
(1) a default with respect to, or that gave rise to, a lien on the debtor's 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 ...