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In re Mangano

253 B.R. 339 (D. N.J. 2000)

MORTGAGES; FORECLOSURE; BANKRUPTCY—A mortgagee’s acceptance of post-petition payments during the 60-day Chapter 13 bankruptcy redemption period does not bar the mortgagee from seeking to lift the automatic stay so as to proceed with a foreclosure.

After a homeowner defaulted on its mortgage payments, a lender obtained a judgment of foreclosure and scheduled a sheriff’s sale. The homeowner then filed a petition for relief under Chapter 13 of the Bankruptcy Code, thereby blocking the sale. That case, however, was dismissed. Following dismissal, the lender scheduled a second sheriff’s sale which took place about a week before the homeowner filed another petition for relief under Chapter 13. On notification of the pending bankruptcy case, the lender stayed off foreclosure eviction proceedings. The homeowner then failed to redeem the property within the time allotted by state and federal law. Instead, it filed a Chapter 13 plan which proposed to cure the arrearages and to maintain its mortgage payments. During the 60-day extended redemption period under the Bankruptcy Code, the homeowner made, and the lender accepted, two postpetition mortgage payments for the property. The lender, however, refused to accept any mortgage payments beyond the initial two from the homeowner. It then filed a motion seeking relief from the automatic stay under the Bankruptcy Code and for prospective relief so that it could commence eviction proceedings against the homeowner. The homeowner argued that the Court should not have granted relief from the automatic stay because the lender waived its right to relief by accepting postpetition payments. The lender argued that it did not waive its rights because it did not know it had the right to refuse payments from the debtor and that N.J.S. 2A:50-67 permits a debtor to tender, and a lender to accept, partial payments without either party waiving any rights. In response, the homeowner rested its entire argument upon prior cases that stood for the proposition that acceptance of postpetition mortgage payments constitutes a waiver of a mortgagee’s right to relief. In one of the cases relied upon by the homeowner, the court found that the mortgagee waived its right to relief because it recognized a post-foreclosure relationship with the debtor by accepting post-foreclosure payments. In a subsequent case, however, the court found reliance on the earlier case “inappropriate” because the facts present in the earlier case were absent in the later case. Specifically: (1) the debtor retained equity in the property; (2) the mortgagee filed a proof of claim; and (3) cause to set aside the underlying foreclosure judgment may have existed. In that later case, the Court noted that nothing about the acceptance of the two post-petition mortgage payments evidenced a “clear and unmistakable waiver by the mortgagee of its right to relief from the stay.” In the instant case, the lender never filed a proof of claim, which would have suggested that the mortgage could be reinstated, nor provided special payment coupons to the debtor for use while her petition was pending. “Aside from acceptance of two postpetition mortgage payments from the debtor, [the lender] did not engage in any form of conduct which was arguably “inherently inconsistent with its right to obtain relief from the stay. Indeed, the lender’s action to lift the stay taken within a week after the debtor’s right to redeem the property under the Bankruptcy Code expired, constituted a clear indication of its intent not to waive that right. Further, the lender successfully argued that neither the debtor nor the debtor’s bankruptcy estate had a legal or equitable interest in the property when the Chapter 13 petition was filed. Under New Jersey law, a sheriff’s sale transfers the interest of the property away from its previous owner. The only way in which a debtor can cure a default after a foreclosure sale is through redemption. By operation of the Bankruptcy Code, New Jersey’s ten-day redemption period is extended an additional sixty days from the date of the filing. Once a debtor fails to exercise the statutory right of redemption, all title, right, and interest in the property is lost. At that point, it is too late for the debtor to cure arrearages under a Chapter 13 plan.


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