In re Snowden

345 B.R. 607

In re Neil SNOWDEN, Debtor.

No. 05 B 57906.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

April 14, 2006.

Patrick J. Semrad, Patrick J. Semrad & Associates, Chicago, IL, for plaintiff.

Mike Halpin, Pierce & Associates, Chicago, IL, for defendant.

Tom Vaughn, Chicago, IL, Chapter 13 Trustee.

MEMORANDUM OPINION ON DEBTOR'S MOTION TO VACATE ANNULMENT OF THE AUTOMATIC STAY

JACK B. SCHMETTERER, Bankruptcy Judge.

On October 15, 2005, Neil Snowden ("Snowden" or "Debtor") filed this bankruptcy case under Chapter 13 of the Bankruptcy Code ("Code"), Title 11. An Order was entered on November 28, 2005 granting Litton Loan Servicing, Inc.'s ("Litton Loan") Motion to Annul the Automatic Stay with respect to Snowden's foreclosed residential real estate that had been sold at a pre-petition judicial sale. On March 9, 2006, Snowden filed a Motion to Vacate Annulment of the Automatic Stay based on Rule 60(b) of the Federal Rules of Civil Procedure.

A hearing was held on March 15, 2006 and the parties were directed to submit legal authority supporting their arguments. Oral argument was held on March 29, 2006 and neither party requested an opportunity to offer evidence. Finding no factual dispute relevant to the matter, it was announced from the bench that an order denying Snowden's motion would be entered for reasons to be expanded upon in a written opinion. This ruling rests on the following Undisputed Facts and Conclusions of Law.¹

UNDISPUTED FACTS

1. Prior to filing the instant bankruptcy case, Snowden was a defendant in a mortgage foreclosure proceeding brought by Litton Loan in Cook County, Illinois. Litton Loan obtained a foreclosure judgment on September 9, 2005.

2. Litton Loan purchased the foreclosed property at a judicial sale for an amount less than the balance on the mortgage note.

3. As required under the Illinois Mortgage Foreclosure Law ("IMFL"), the sale was confirmed by a state court. An order indicating such was entered on October 5, 2005.

4. Snowden filed a voluntary Chapter 13 petition, along with a plan, on October 15, 2005. In his plan, Snowden sought to cure the default on the mortgage note to Litton Loan.

5. On November 8, 2005, Litton Loan filed its Motion to Annul the Automatic Stay. In its motion, Litton Loan incorrectly alleged that a third party had purchased Snowden's property. Relying on the Seventh Circuit Court of Appeals' decision in Colon v. Option One, 319 F.3d 912 (7th Cir.2003), it argued that the automatic stay should be annulled because the property was not a part of Snowden's bankruptcy estate. Snowden did not file a response to the motion or dispute the allegations stated therein by any means.

6. A hearing on Litton Loan's motion was held on November 23, 2005. The Order granting the motion was entered on November 28, 2005.

7. On March 9, 2006, Snowden filed a Motion to Vacate Annulment of the Automatic Stay based on Rule 60(b) of the Federal Rules of Civil Procedure. Relying on information obtained from a Litton Loan representative after the Order was entered, Snowden's motion is based on the discovery that Litton Loan had purchased the foreclosed property at the judicial sale. As the such, he argues that he therefore held an unexpired statutory special right to redeem the property when his case was filed that allows him to cure the default on the mortgage note in a Chapter 13 plan.

8. A hearing was held on March 15, 2006. The parties were ordered to submit legal authorities in support of their respective positions.

9. Oral argument on the issues involved in this matter was held on March 29, 2006. An oral ruling was issued from the bench that Snowden's motion would be denied after preparation of an opinion.

10. Any further facts set forth in the Conclusions of Law below are additional undisputed facts.

CONCLUSIONS OF LAW

Jurisdiction

Subject matter jurisdiction lies under 28 U.S.C. § 1334. This matter is before the bench pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (G) and District Court Internal Operating Procedure 15(a). Venue is proper under 28 U.S.C. § 1409(a).

Discussion

Snowden argues that the annulment Order was entered based on the false assertion that the foreclosed property was purchased by a third party and not the mortgagee, Litton Loan. Without further elaboration, Snowden alleges that his counsel discovered this information from a Litton Loan representative after the Order was entered. Under the Illinois foreclosure statute (discussed more fully below), Litton Loan's purchase at the foreclosure sale afforded Snowden a special right to redeem the foreclosed property. This right, according to Snowden, allows him to cure the default on the mortgage note in his Chapter 13 plan.

While Litton Loan agrees that it purchased the foreclosed property at the judicial sale, it takes the position that Snowden's special right to redeem cannot be extended for the life of his Chapter 13 plan. Illinois law specifically defines the contours of a mortgagor's right to redeem and the Code does not allow for the type of expansion of property rights advocated by Snowden. Litton Loan additionally argues that even if the Order had been entered prematurely, it inevitably would have been entered because Snowden's special right to redeem has since expired without being exercised.

The Bankruptcy Code & the Illinois Mortgage Foreclosure Law

The first issue presented is whether Snowden can use a Chapter 13 case to cure a default on a mortgage attached to his principal residence when the bankruptcy case is filed after the property has been sold at a foreclosure sale but before expiration of his right afforded under state foreclosure law to redeem the property.

Under section 1322(b)(5) of the Bankruptcy Code, a Chapter 13 plan may "provide for the curing of any default within a reasonable time and 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." See also 11 U.S.C. § 1322(b)(3) ("provide for the curing or waiving of any default."). Notwithstanding this allowance and applicable nonbankruptcy law, "a default with respect to, or that gave rise to, a lien on the debtor's principal residence may be cured under [section 1322(b)(5) ] until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law." 11 U.S.C. § 1322(c)(1) (emphasis added).

Under the Illinois foreclosure law, a successful bidder on foreclosed property at a judicial sale is awarded a receipt or certificate of sale. 735 ILCS 5/15-1507. Until the sale has been confirmed by a court, "[t]he highest bid received by a sheriff at a judicial sale is merely an irrevocable offer to purchase the property an[d] acceptance of the offer takes place when the court confirms the sale." Citicorp Say. v. First Chicago Trust Co., 269 Ill.App.3d 293, 206 Ill.Dec. 786, 645 N.E.2d 1038, 1045 (1995); see also 735 ILCS 5/15-1508. The judicial sale is usually consummated once it is confirmed by a court, where there is no right to redeem after that date. World Say. & Loan Ass'n v. Amerus Bank, 317 Ill. App.3d 772, 251 Ill.Dec. 385, 740 N.E.2d 466, 474 (2000); BCGS, L.L.C. v. Jaster, 299 Ill.App.3d 208, 233 Ill.Dec. 367, 700 N.E.2d 1075, 1079 (1998).

However, despite entry of a confirmation order, a mortgagor is granted a special right to redeem the property if it was purchased at the foreclosure sale by the mortgagee. This period ends 30 days after the date the sale is confirmed. 735 ILCS 5/15-1604(a). If a Chapter 13 case is filed prior to the expiration of a redemption right, section 108(b) of the Bankruptcy Code extends the redemption period to 60 days from the date that the bankruptcy case was commenced.²

Since the foreclosure sale of Snowden's property was confirmed by a state court judge on October 5, 2005 and the bankruptcy case was filed on October 15, 2006, Snowden argues that his special right to redeem existed on the date of his bankruptcy filing and even on the date that the stay was annulled on November 28, 2005. He further contends that for the purposes of curing his default under section 1322(c)(1) of the Bankruptcy Code, the foreclosure sale cannot be considered complete because his redemption right had not expired when his case was filed. Snowden relies primarily on the Seventh Circuit Court of Appeals' decision in Colon v. Option One, 319 F.3d 912 (7th Cir.2003) for support.

In Colon, the debtor filed a voluntary Chapter 13 petition after the foreclosure sale of her residential real estate but prior to the state court's confirmation of the sale. 319 F.3d at 915. The debtor's plan proposed to cure the default on the mortgage note. Id. Asked to determine "whether, under § 1322(c)(1) of the United States Bankruptcy Code, a Chapter 13 plan may provide for the curing of a default on a debtor's principal residence when the petition and plan were filed after the residence was sold at a foreclosure sale, but prior to the confirmation of the sale in accordance with the IMFL", the Court concluded the following:

Section 1322(c)(1) of the Bankruptcy Code states that a default on a mortgage lien "may be cured ... until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law." 11 U.S.C. § 1322(c)(1) (emphasis supplied). The statute's wording and its legislative history both indicate an intent to set the limit on the right to cure no earlier than the date of the judicial sale. This was Congress' response to In re Roach. However, the provision's reference to "applicable nonbankruptcy law" requires deference to state mortgage law on the scope of any right to cure after the sale. After our study of Illinois foreclosure law, we cannot conclude that the convergence of § 1322(c) and Illinois foreclosure law provides anything like an absolute right to cure a default up until...