Case Law Summaries

In re Trabal

• Opinion Date: September 13, 2000
• Real Property Law
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BANKRUPTCY; DEFAULT; CURE—A mortgage need not make express reference to a lender’s right to collect miscellaneous charges and interest thereon from a bankrupt estate; those charges are part of the debt that a chapter 13 debtor must cure in order to reinstate its mortgage if the mortgage describes them as part of the secured debt and they are allowed by state law.

A homeowner filed for relief under Chapter 13 of the Bankruptcy Code at a time when she was in arrears on her mortgage payments. In that proceeding, she objected to the proof of claim filed by her mortgage company. The proof of claim included interest accruing on pre-petition arrears, consisting of pre-petition legal fees, property inspection costs, bad check charges, and escrow advances. The mortgage provided that it secured the payment of such sums, “with interest, advanced under certain other provisions of the mortgage.” Those “other” provisions included payments made by the lender to protect the value of the property and to protect the lender’s rights in the property. Under a Chapter 13 plan, it is necessary to determine the amount of money needed to cure a default. Under the Bankruptcy Code, “the amount necessary to cure the default shall be determined in accordance with the underlying agreement and applicable non-bankruptcy law.” Thus, it was necessary to determine whether the mortgage provided for the charges claimed together with the interest on those charges and whether New Jersey law permits the charges and the interest to be included. The debtor’s attorney argued “that because the mortgage does not contain a clause or phrase which specifically refers to interest on arrears in a bankruptcy case, the mortgage does not meet the requirements of” the Bankruptcy Code. The Court rejected the debtor’s attorney’s reading of the statute as “unreasonably narrow” and in conflict with the underlying purpose of the Bankruptcy Code. According to the legislative history of the Code section in question, the lawmakers intended to leave the parties to their rights under their agreements and applicable non-bankruptcy law. Thus, because this particular mortgage provided that disbursements made by the lender to protect the property and its own rights in the property became part of the mortgage debt and would bear interest at the note rate, no additional reference to bankruptcy was needed to make it evident that those charges could be part of the arrearage claim. As added weight to the Court’s view, it pointed out that the first page of the mortgage agreement expressly provided for “the payment of all other sums, with interest.” Further, “New Jersey law permits interest on advances to be collected as long as the parties contemplated it in the original agreement and as long as it is not usurious.” Further, pursuant to the Bankruptcy Code, an oversecured creditor may recover reasonable costs and expenses, including attorney’s fees provided for in its loan documents. Also, under New Jersey law, “a mortgagee may pay the tax on the land, and add the amount to his mortgage.” “Guided by the rulings, the Court conclude[d] that the taxes and other disbursements made by [the lender] were proper charges to be included in [its] proof of claim.”

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