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In Re Connors

497 F.3d 314 (3d Cir. 2007)

BANKRUPTCY; FORECLOSURE; REDEMPTION —In the Bankruptcy Court, a mortgage default cannot be cured once the owner’s right to redeem under state law has expired and, in New Jersey, the redemption period is measured from the day the foreclosure sale is conducted, not from the later date when the Sheriff’s deed is delivered.

A homeowner defaulted on a mortgage loan and its lender foreclosed the mortgage. A final judgment for foreclosure was entered and a foreclosure sale was conducted. At the foreclosure sale, the property was sold and the buyer tendered the deposit. Shortly thereafter, the homeowner filed a voluntary bankruptcy petition under Chapter 13 of the Bankruptcy Code, which triggered an automatic stay. The homeowner then filed a Chapter 13 plan in which he proposed to cure the default. However, he did not exercise his right to object to the foreclosure sale within the ten-day period provided under state law, or within sixty days of the filing of the bankruptcy petition as provided under New Jersey Court Rule 4:65-5 and 11 U.S.C. 108(b). After the sixty-day period expired, the buyer moved to lift the automatic stay so that it could pay the balance of the purchase price and receive the deed. The homeowner opposed the motion.

The Bankruptcy Court held that, under Section 1322(c)(1) of the Bankruptcy Code, the homeowner could not cure the mortgage default once his right to redeem under state law had expired. It found that, since the homeowner did not timely object to the foreclosure sale, the right to cure expired once the foreclosure sale concluded. The District Court affirmed, and the homeowner appealed, but the Court of Appeals affirmed. Section 1322 of the United States Bankruptcy Code lists the requirements for a Chapter 13 plan. It permits the debtor’s plan to provide for the “curing or waiving of any default within a reasonable time and the 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.” Subsection (c)(1) limits the right to cure a default with respect to a lien on a debtor’s principal residence until the residence is sold at a foreclosure sale conducted according to applicable non-bankruptcy law.

In this case, the question before the Court was when the right to cure ceased under New Jersey law. New Jersey federal courts were divided, with some deciding that the right to cure expires once the foreclosure sale is conducted, while others decided that the right to cure expires once the Sheriff’s deed is delivered. Here, the Court of Appeals found that the right to cure expires once there is a successful bidder at the foreclosure sale. It found that the term “foreclosure sale” is understood to mean the foreclosure auction, and referred to it as a single event rather than an ongoing process that ends with the delivery of the Sheriff’s deed. It noted that, in New Jersey, the successful bid at a foreclosure sale is generally irrevocable except in narrow circumstances. The successful bidder acquires equitable title to the property that day, subject to the homeowner’s right to object or redeem within ten days. Therefore, the foreclosure sale is deemed to have occurred once the auction takes place. The Court noted that the homeowner had the right to object to the foreclosure sale within ten days after it took place, or within sixty days after the debtor filed his bankruptcy petition. Since he failed to do so, his right to cure expired once the sixty-day period expired.

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