September 6, 2011
WELLS FARGO BANK, NA AS TRUSTEE, PLAINTIFF-RESPONDENT.
LEM BURNHAM, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Burlington County, Docket No. F-10370-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted August 24, 2011
Before Judges Simonelli and Espinosa.
Defendant Lem Burnham appeals from the October 25, 2010 Chancery Part order denying his application to stay the Sheriff's sale on his property. Defendant contends that the court erred in denying the stay because his bankruptcy discharge under Chapter 7*fn1 effectively voided plaintiff Wells Fargo Bank's in personam foreclosure judgment. We disagree and affirm.
The facts are straightforward. Defendant does not dispute that (1) he executed a note and mortgage on June 6, 2006, securing a $937,500.00 loan; (2) plaintiff is the current holder of the note and mortgage; and (3) he has made no payments on the note since November 1, 2006, yet he continues to reside in the mortgaged premises. Plaintiff instituted a foreclosure action, which defendant contested. In an April 8, 2008 consent order, the judge struck defendant's answer, entered default against him, and transferred the matter to the Foreclosure Unit to proceed as an uncontested foreclosure, among other things.
The court entered a final foreclosure judgment on June 23, 2009. The judgment ordered, in part, that the mortgaged premises be sold via a Sheriff's sale. Defendant does not deny that on the day of the scheduled Sheriff's sale, he filed a Chapter 7 bankruptcy petition. Plaintiff filed several proofs of claim in that action. The bankruptcy judge allowed two claims of $1,235,176.95 and $334,888.52. The bankruptcy court entered a discharge of debtor on December 23, 2009, which discharged most of defendant's personal liabilities.
Following the discharge, another Sheriff's sale was scheduled. Defendant then filed applications to stay the Sheriff's sale. At a hearing on October 25, 2010, defendant argued that the Sheriff's sale should be stayed based on his bankruptcy discharge. The judge denied the application, concluding the bankruptcy discharge personally discharged defendant under the note, but did not discharge the mortgage lien. The judge entered an order on October 25, 2010, denying the stay and scheduled the Sheriff's sale for October 28, 2010. This appeal followed.
On appeal, defendant argues that the bankruptcy discharge voided the in personam judgment plaintiff obtained against him for his personal liability on the note and required plaintiff to obtain an in rem judgment, which plaintiff did not obtain. Accordingly, he concludes that plaintiff cannot execute on the judgment. Defendant is wrong.
We review the denial of a stay under an abuse-of-discretion standard. See Pressler & Verniero, Current N.J. Court Rules, comment 4.7 on R. 2:10-2 (2011). We discern no abuse of discretion here.
A discharge of debt under Chapter 7 voids any judgment against the debtor in personam, while leaving intact an action in rem against the property. Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S. Ct. 2150, 2154, 115 L. Ed. 2d 66, 75 (1991). A discharge "voids any judgment . . . of the personal liability of the debtor," 11 U.S.C.A. § 524(a)(1), and "operates as an injunction against the commencement or continuation of an action . . . to collect . . . any such debt as a personal liability of the debtor[,]" 11 U.S.C.A. § 524(a)(2). However, 11 U.S.C.A. § 524(a)(2) does not operate as an injunction against a creditor who holds a secured claim if the creditor retains a security interest in the real property. 11 U.S.C.A. § 524(j)(1). A creditor's debt secured by a lien on real property survives or passes through the bankruptcy unaffected unless it is void because it was not an "allowed secured claim" in bankruptcy. 11 U.S.C.A. § 506(d); Dewsnup v. Timm, 502 U.S. 410, 418, 112 S. Ct. 773, 778, 116 L. Ed. 2d 903, 911-12 (1992). It is not void, however, if it was disallowed under 11 U.S.C.A. §§ 502(b)(5), 502(e), or not allowed because the creditor failed to file a proof of such claim. 11 U.S.C.A. § 506(d).
Here, plaintiff's claims that were secured by the lien on defendant's real property were allowed secured claims in the bankruptcy action. Accordingly, the judge properly denied defendant's application to stay the Sheriff's sale.