2007 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-3-2007

In Re: Connors

Precedential or Non-Precedential: Precedential

Docket No. 06-3321

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 06-3321

 

IN RE: VINCENT J. CONNORS,

 Debtor

 Vincent J. Connors,

 Appellant

 

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

D.C. Civil No. 05-cv-02236

District Judge: The Honorable Dennis M. Cavanaugh

 

Argued: June 27, 2007

 

Before: BARRY, FUENTES, and JORDAN, Circuit Judges

(Opinion Filed: August 3, 2007)

 

Scott D. Sherman, Esq. (Argued)

Minion & Sherman

33 Clinton Road, Suite 200

West Caldwell, NJ 07006

-ANDHerbert B. Raymond, Esq.

Raymond & Raymond

7 Glenwood Avenue

East Orange, NJ 07017

Counsel for Appellant
2

Neil J. Fogerty, Esq. (Argued)

Hudson County Legal Services Corp.

574 Summit Avenue, 2nd Floor

Jersey City, NJ 07306

-ANDScott F. Waterman, Esq.

Black, Stranick & Waterman

327 West Front Street

P.O. Box 168

Media, PA 19063

Counsel for Amicus National Association of Consumer

Bankruptcy Attorneys

Warren S. Wolf, Esq. (Argued)

Cureton Caplan

3000 Midlantic Drive, Suite 200

Mount Laurel, NJ 08054

Counsel for Appellee Deutsche Bank National Trust Co.

Matthew M. Fredericks, Esq. (Argued)

David Kessler & Associates

1373 Broad Street

Clifton, NJ 07013

Counsel for Appellee 41 Lakeridge LLC

Richard P. Haber, Esq. (Argued)

Joel A. Ackerman, Esq.

Zucker, Goldberg & Ackerman, LLC

200 Sheffield Street - Suite 301

Mountainside, NJ 07092

Counsel for Amicus New Jersey League of Community Bankers

 
3

OPINION OF THE COURT

 

BARRY, Circuit Judge

This bankruptcy appeal presents a question on which New

Jersey federal bankruptcy and district courts have been divided

for more than ten years: whether, under 11 U.S.C. § 1322(c)(1),

a Chapter 13 debtor has the right to cure a default on a mortgage

secured by the debtor’s principal residence between the time the

residence is sold at a foreclosure sale and the time the deed is

delivered. Having finally been given the opportunity to break

what is a virtual tie between the New Jersey federal courts, we

hold that § 1322(c)(1) does not afford the debtor that right. 

I.

On August 21, 2002, Appellant Vincent J. Connors

executed a $252,000 note and mortgage on his residence at 41

Lakeridge Drive, Matawan, New Jersey, in favor of the

predecessor in interest of Appellee Deutsche Bank National

Trust Co. (“Deutsche Bank”). Connors subsequently defaulted

on the note, causing Deutsche Bank to foreclose on March 4,

2004. At a foreclosure sale on November 10, 2004, the property

was sold to Appellee 41 Lakeridge LLC (“Lakeridge”) for

$330,000; Lakeridge tendered the required 20% deposit.

On November 14, 2004, Connors filed a voluntary

petition under Chapter 13 of the Bankruptcy Code. The filing

triggered an automatic stay of proceedings under 11 U.S.C. §

362. Two weeks later, on November 30, 2004, Connors filed a

Chapter 13 Plan, which proposed to cure his pre-petition arrears

on the mortgage. He did not, however, exercise his statutory

right to object to the foreclosure sale or redeem within 60 days

of the filing of his Chapter 13 petition, as is permitted under N.J.

Ct. R. 4:65-5 and 11 U.S.C. § 108(b), respectively. 

On January 19, 2005, the 60-day period having expired,

Lakeridge filed a motion to lift the automatic stay to permit it to

tender the balance of the purchase price and receive the deed. 

Connors opposed the motion. The Bankruptcy Court held a
4

hearing and granted the motion, explaining, in its March 9, 2005

letter opinion, that Connors no longer had the right to cure the

default on his mortgage under 11 U.S.C. § 1322(c)(1), and that

his right to redeem under state law had expired. Before

Lakeridge could tender the balance and receive the deed,

however, the Court granted a stay pending Connors’s appeal.

The District Court affirmed. Noting a “schism” among

New Jersey courts regarding whether § 1322(c)(1) creates a right

to cure a default that expires upon delivery of the deed, the Court

held that the right to cure expires at the foreclosure sale, and that

§ 1322(c)(1) “allows the debtor to exercise only what additional

remedy applicable state law provides.” (App. at 7.) Because

Connors’s state-law rights had expired, the Court held, the

Bankruptcy Court appropriately granted Lakeridge’s motion to

lift the automatic stay. This appeal followed.

II.

The Bankruptcy Court had jurisdiction, pursuant to 28

U.S.C. §§ 157(b) and 1334(b), over Connors’s Chapter 13

petition. The District Court had jurisdiction, pursuant to 28

U.S.C. § 158(a), over Connors’s appeal from the Bankruptcy

Court’s order lifting the automatic stay. See United States v.

Pelullo, 178 F.3d 196, 200 (3d Cir. 1999) (holding that order

lifting automatic stay in bankruptcy proceeding is appealable); In

re Comer, 716 F.2d 168, 172 (3d Cir. 1983) (holding that

bankruptcy court’s order lifting automatic stay “is final in the

sense that it completes litigation on the question and subjects the

property to a foreclosure action in state court”). We have

jurisdiction, pursuant to 28 U.S.C. §§ 158(d) and 1291 and

Federal Rule of Appellate Procedure 6(b), over Connors’s appeal

from the District Court’s final order affirming the order of the

Bankruptcy Court. 

Our review of the District Court’s order is plenary. In re

Brannon, 476 F.3d 170, 173 (3d Cir. 2007). We apply the same

standards as the District Court, examining the Bankruptcy

Court’s legal conclusions de novo and reviewing its factual

findings for clear error. In re United Healthcare Sys., Inc., 396

F.3d 247, 249 (3d Cir. 2005). 
5

III.

The sole question we must decide is whether, under 11

U.S.C. § 1322(c)(1), a Chapter 13 debtor has the right to cure a

default on a mortgage secured by the debtor’s principal

residence between the time the residence is sold at a foreclosure

sale and the time the deed is delivered. 

A. The Unambiguous Language of § 1322(c)(1) Supports

the “Gavel Rule”

Section 1322 of the Bankruptcy Code sets forth the

minimum requirements for a mandatory Chapter 13 Plan. 11

U.S.C. § 1322; S. Rep. 95-989, at 141 (1978). Subsection (b)(3)

broadly permits the plan to “provide for the curing or waiving of

any default,” and subsection (b)(5) permits the plan to “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.” 11 U.S.C. § 1322(b)(3), (5). Subsection (c)(1) limits the

broad sweep of subsections (b)(3) and (b)(5) by providing, in

relevant part, as follows:

[A] default with respect to, or that gave rise to, a

lien on the debtor’s principal residence may be

cured under paragraph (3) or (5) of subsection (b)

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). 

Since the enactment of subsection (c)(1) as part of the

Bankruptcy Reform Act of 1994, New Jersey bankruptcy and

district courts have disagreed over whether (c)(1) gives a

Chapter 13 debtor the right to cure a default on a home mortgage

between the time the residence is sold at a foreclosure sale and

the time the deed is delivered. One line of cases holds that §

1322(c)(1) guarantees the right to cure a default on a home
1

 Connors v. Deutsche Bank Nat’l Trust Co., No. Civ. A.

05-2236, 2006 WL 1722609, at *2 (D.N.J. June 20, 2006); In re

Maricic, No. 02-37500, slip op. (Bankr. D.N.J. 2002); In re

Mangano, 253 B.R. 339, 344-45 (Bankr. D.N.J. 2000); In re Veltre,

No. 99-40669, 2000 Bankr. LEXIS 1409, at *4-6 (Bankr. D.N.J.

May 31, 2000); In re Hric, 208 B.R. 21, 26 (Bankr. D.N.J. 1997);

In re Simmons, 202 B.R. 198, 203, 205-06 (Bankr. D.N.J. 1996);

In re Ziyambe, 200 B.R. 790, 794 (Bankr. D.N.J. 1996); In re

Little, 201 B.R. 98, 105 (Bankr. 1996). The Sixth Circuit has also

adopted this view. See In re Cain, 423 F.3d 617, 619 (6th Cir.

2005).

2

 Chisholm v. Cendant Mortgage Corp., No. Civ. 04-6398,

2005 WL 1522232, at *1 (D.N.J. June 27, 2005); In re Randall,

263 B.R. 200, 201 (D.N.J. 2001); In re Downing, 212 B.R. 459,

467 (Bankr. D.N.J. 1997); In re Ross, 191 B.R. 615, 621 (Bankr.

D.N.J. 1996); In re Macavia, No. 95-34118, 1995 Bankr. LEXIS

2103, at *7-8 (Bankr. D.N.J. 1995).

6

mortgage only until the gavel falls at a foreclosure sale.1

 Courts

frequently refer to this view as the “gavel rule.” The other line

of cases maintains that a residence is not “sold” within the

meaning of § 1322(c)(1), and the debtor has the right to cure a

default, until the deed is delivered to the winning bidder.2

 This

view is commonly known as the “deed-delivery rule.”

We start with the language of the statute. United States v.

Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989); Idahoan Fresh

v. Advantage Produce, Inc., 157 F.3d 197, 202 (3d Cir. 1998). 

Some courts have found ambiguity in the phrase, “that is

conducted in accordance with applicable nonbankruptcy law.” 

In Simmons, for instance, the Court found the phrase ambiguous

because “it is not readily apparent whether Congress intended

the phrase to apply only to the event of sale, or to the entirety of

the sale process, including the giving of a deed.” 202 B.R. at

201. We are unpersuaded that the phrase is ambiguous; indeed,

to find ambiguity would be to deny the words their plain

meaning. The word “that” is a relative pronoun that restricts

and, therefore, modifies, the preceding noun, “foreclosure sale.” 

Thus, when the statute refers to “a foreclosure sale that is
3

 Connors asks us to consider Wright v. Union Central Life

Insurance Co., 304 U.S. 502 (1938), a case in which the Supreme

Court upheld the constitutionality of a provision of the Bankruptcy

Code that extended any state-law right of redemption that a debtor

possessed at the time he or she filed a petition in bankruptcy. That

holding is inapplicable here because § 1322(c)(1) does not purport

to extend any state-law right; it simply recognizes a federal right to

cure that extends until the property is “sold at a foreclosure sale.”

The provision that did extend Connors’s state-law right to redeem,

§ 108(b), expired 60 days after he filed his petition. 

7

conducted in accordance with applicable nonbankruptcy law,” it

clearly refers to a foreclosure sale that complies with state-law

procedures. See New Castle County v. Hartford Acc. & Indem.

Co., 970 F.2d 1267, 1270 (3d Cir. 1992) (“[T]he question is not

whether there is an ambiguity in the metaphysical sense, but

whether the language has only one reasonable meaning when

construed, not in a hypertechnical fashion, but in an ordinary,

common sense manner.”). We agree with those decisions that

have reached this conclusion without resorting to legislative

history. See, e.g., Cain, 423 F.3d at 620; Hric, 208 B.R. at 25;

see also Simmons, 202 B.R. at 203 (finding that canons of

statutory construction, as well as “common sense,” mandated the

same reading, but also considering legislative history).3

We must also determine what it means for a residence to

be “sold at a foreclosure sale.” Deconstructing this phrase

further, we must determine the meaning of “foreclosure sale”—

a term that Appellees contend is synonymous with the

foreclosure auction, but that Connors insists refers to the entire

foreclosure process, terminating with the delivery of a deed. The

Bankruptcy Code does not define “foreclosure sale,” so we must

give it its ordinary meaning. Liberty Lincoln-Mercury, Inc. v.

Ford Motor Co., 171 F.3d 818, 822 (3d Cir. 1999). 

Outside of cases applying the deed-delivery rule, the term

“foreclosure sale” is broadly understood to mean the foreclosure

auction. First, the preposition “at” in “sold at a foreclosure sale”

signifies a discrete event, rather than an ongoing process. See

Chisholm, 2005 WL 1522232, at *3. Second, at least one New
8

Jersey bankruptcy court has taken judicial notice of the fact that

New Jersey foreclosure practitioners refer to the foreclosure

auction as the “sale.” Hric, 208 B.R. at 25. Third, the New

Jersey statute setting forth the procedures governing sheriffs’

sales specifically refers to the auction as the “foreclosure sale.” 

See N.J.S.A. § 2A:50-64 (requiring the successful bidder to

deposit 20 percent of the purchase price “immediately upon the

conclusion of the foreclosure sale”). Fourth, New Jersey rules

governing sheriffs’ sales treat “sale” as synonymous with the

auction, and distinguish between the “sale” and the delivery of

the deed. See N.J. Ct. R. 4:65-2 (requiring notice to be served

“at least 10 days prior to the date set for sale”); 4:65-4

(specifying the place of the “sale”); 4:65-5 (permitting

objections to be served “within 10 days after the sale,” and

permitting courts to dispose of such objections and direct the

sheriff to deliver the deed); 4:65-6 (requiring sheriff to file with

the court “a report of any sale made,” and authorizing a

subsequent judicial confirmation hearing at which the court may

order delivery of the deed). And, fifth, the Supreme Court of

New Jersey consistently refers to the foreclosure auction as the

“foreclosure sale.” See, e.g., Panetta v. Equity One, Inc., 920

A.2d 638, 648 (N.J. 2007); BTD-1996 NPC 1 L.L.C. v. 350

Warren L.P., 784 A.2d 1214, 1223 (N.J. 2001); Conklin v.

Hannoch Weisman, 678 A.2d 1060, 1063 (N.J. 1996). There is

no doubt that “foreclosure sale,” as it is commonly understood,

signifies the foreclosure auction. See, e.g., Cain, 423 F.3d at

620; Hric, 208 B.R. at 25; Simmons, 202 B.R. at 203.

Some courts have found ambiguity arising from a

perceived conflict between the terms “sold” and “foreclosure

sale.” These courts have reasoned that, in New Jersey, a

residence is not “sold” until the deed is delivered, and the deed is

not delivered until after the foreclosure sale. See, e.g., Chisholm,

2005 WL 1522232, at *4; Randall, 263 B.R. at 203; Downing,

212 B.R. at 463; Ross, 191 B.R. at 621. The terms “sold” and

“foreclosure sale” are not in conflict. In New Jersey, the

successful bid at a foreclosure auction is generally irrevocable,
4

 Cf. N.J.S.A. § 2A:61-16 (allowing purchaser relief from

bid if defect of title renders title unmarketable, or if title is subject

to lien or encumbrance).

5

 In rare circumstances, as when the mortgagor has received

insufficient notice of foreclosure proceedings, the right to redeem

may be asserted even after delivery of the deed. Mercury Capital

Corp. v. Freehold Office Park, Ltd., 832 A.2d 369, 378 n.10 (N.J.

Sup. Ct. Ch. Div. 2003) (citing cases relying on the inherent equity

power of the Chancery Court). An equity of redemption that

continues beyond the delivery of the deed would undermine any

suggestion that the delivery of the deed is the only true “point of

finality” in the foreclosure process. Cf. Chisholm, 2005 WL

1522232, at *5. A “finality” requirement, moreover, has no basis

in the language of the statute. 

9

see Simmons, 202 B.R. at 204,4

 and the bidder acquires equitable

title that is not subject to defeasance except under narrow

circumstances. If, for instance, within ten days of the

foreclosure sale, the mortgagor files objections that are judicially

sustained, N.J. Ct. R. 4:65-5, or exercises the right of

redemption, Hardyston Nat’l Bank of Hamburg v. Tartamella,

267 A.2d 495, 498 (N.J. 1970), the purchaser may lose equitable

title. Simmons, 202 B.R. at 204; see also Ziyambe, 200 B.R. at

796 (“Under New Jersey law, . . . title to the property is

indefeasibly vested in the successful bidder unless objection to

the sale is filed within ten days.”). Although delivery of the

deed conveys legal title, Randall, 263 B.R. at 203, the delivery

itself has been described as “a ministerial act, routinely

performed, which does not affect the redemption rights of the

parties.” Ziyambe, 200 B.R. at 796.5

 Numerous courts have

concluded, accordingly, that a residence is “sold” at the

foreclosure auction. See, e.g., In re Townsville, 268 B.R. 95,

118-19 (Bankr. E.D. Pa. 2001); In re Denny, 242 B.R. 593, 598-

99 (Bankr. D. Md.1999); Hric, 208 B.R. at 25; Ziyambe, 200

B.R. at 796-97. For purposes of § 1322(c)(1), we conclude

likewise.

The gavel rule does not, of course, cut off the debtor’s

state-law post-sale remedies. Those remedies may continue past
6

 Some courts suggest that § 108(b) extends the state-law

grace period by an additional 60 days. See, e.g., Ross, 191 B.R. at

617-18. We are bound by our holding in Counties Contracting that

the 60-day period runs from the filing of the petition.

10

the date of the foreclosure sale by operation of another provision

of the Bankruptcy Code, 11 U.S.C. § 108(b). Section 108(b)

provides, in relevant part, as follows:

[I]f applicable nonbankruptcy law . . . fixes a

period within which the debtor . . . may file any

pleading, demand, notice, or proof of claim or loss,

cure a default, or perform any other similar act,

and such period has not expired before the date of

the filing of the petition, the trustee may only file,

cure, or perform, as the case may be, before the

later of–

(1) the end of such period, including any

suspension of such period occurring on or after the

commencement of the case; or

(2) 60 days after the order for relief.

11 U.S.C. § 108(b). We have interpreted this provision to mean

that “when a bankruptcy petition is filed before the expiration of

a statutory grace period, if need be § 108(b) can extend the grace

period for 60 days from the date of the filing of the petition.”

Counties Contracting & Constr. Co. v. Constitution Life Ins.

Co., 855 F.2d 1054, 1059 (3d Cir. 1988).6

 Under New Jersey

law, the applicable grace period is the ten-day period to object,

pursuant to N.J. Ct. R. 4:65-5, or redeem, pursuant to Hardyston. 

When a Chapter 13 petition is filed during the ten-day period,

this period is extended to 60 days from the filing of the petition

by operation of § 108(b). Connors, therefore, had 60 days from

the filing of his petition to object or redeem. When he failed to

do so, Lakeridge’s equitable title was no longer subject to

defeasance. 

We hold, therefore, that under the unambiguous language

of 11 U.S.C. § 1322(c)(1), a Chapter 13 debtor does not have the

right to cure a default on a mortgage secured by the debtor’s
11

principal residence between the time the residence is sold at a

foreclosure sale and the time the deed is delivered.

B. The Legislative History behind § 1322(c)(1) and Policy

Considerations Lend Further Support for the Gavel

Rule

Although, given the foregoing, it is unnecessary to

examine the legislative history of § 1322(c)(1), we briefly do so

here because it is consistent with the statutory language. 

Subsection (c)(1) was added to the Bankruptcy Code to make

explicit that a debtor’s right to cure a default on a mortgage

secured by his or her principal residence continues at least until

the “foreclosure sale,” and may continue beyond that date if state

law provides additional cure rights. H.R. Rep. 103-835, at 52

(1994), reprinted in 1994 U.S.S.C.A.N. 3340, 3361. Until our

decision in In re Roach, 824 F.2d 1370 (3d Cir. 1987), all of the

federal courts of appeals had recognized that a debtor’s right to

cure a default on a home mortgage continued at least until the

time of the foreclosure sale. H.R. Rep. 103-835, at 52, reprinted

in 1994 U.S.S.C.A.N. at 3361. In Roach, however, we held that

a debtor’s right to cure expired at the foreclosure judgment, an

event that preceded the foreclosure sale. Roach, 824 F.2d at

1378-79. Congress added subsection (c)(1) to overrule Roach

and establish a uniform time—the “foreclosure sale”—for

expiration of a debtor’s federal right to cure.

Proponents of the deed-delivery rule tend to place great

emphasis on a statement in the legislative history suggesting

Congress’s intent to “allow[] the debtor to cure home mortgage

defaults at least through completion of a foreclosure sale under

applicable nonbankruptcy law.” H.R. Rep. 103-835, at 52,

reprinted in 1994 U.S.S.C.A.N. at 3361 (emphasis added). They

reason that under state law, a foreclosure sale has not been

“completed” until delivery of the deed. See, e.g., Chisholm,

2005 WL 1522232, at *4-5; Randall, 263 B.R. at 203; Downing,

212 B.R. at 466; Ross, 191 B.R. at 621; Macavia, 1995 Bankr.

LEXIS 2103, at *7-8. It is by no means evident from the word

“completion” in this one fragment of legislative history,

however, that Congress intended “foreclosure sale” to refer to

the entire state-law foreclosure process. Viewed in the context
12

of Congress’s express intent to overrule the aberrant Roach

holding, it is eminently more plausible that Congress intended to

set the expiration of a debtor’s federal right to cure at the

foreclosure sale, thus restoring the uniformity that existed preRoach. The foreclosure sale is, thus, “completed” with the fall

of the gavel and the vesting of equitable title in the winning

bidder. See Cain, 423 F.3d at 621. 

That the federal right to cure expires at the foreclosure

sale finds support in the statement of Senator Charles Grassley

when speaking on behalf of the bill that was ultimately enacted: 

Title III of the bill will assist homeowners. Some

homeowners attempt to prevent their homes from

being foreclosed upon, even though a bankruptcy

court has ordered a foreclosure sale. There may be

several months between the court order and the

foreclosure sale. Section 301 will preempt

conflicting State laws, and permit homeowners to

present a plan to pay off their mortgage debt until

the foreclosure sale actually occurs.

140 Cong. Rec. S14,462 (1994). Senator Grassley was an

original co-sponsor of the Senate bill, which would have

permitted the debtor to cure a default so long as he or she

“possesses any legal or equitable interest, including a right of

redemption,” at the time the petition was filed. S. Rep. 103-168,

at 21 (1993). This is precisely the interpretation that Connors

now urges, and Congress’s rejection of the Senate bill in favor of

the current language of §1322(c)(1) is telling. 

The gavel rule also makes sense as a matter of policy. In

In re McCarn, 218 B.R. 154, 160 (B.A.P. 10th Cir. 1998), a

bankruptcy appellate panel in the Tenth Circuit acknowledged

that the foreclosure sale, in contrast to the delivery of the deed,

must be preceded by notice to the debtor. Such notice affords

the debtor ample opportunity to protect his or her interests by

filing a bankruptcy petition before the foreclosure sale and

exercising the right to cure under § 1322(c)(1). See also

Simmons, 202 B.R. at 203-04. To the extent that debtors’ rights

are not sufficiently protected, states remain free to provide them
13

with additional post-sale remedies by virtue of § 108(b). See,

e.g., Justice v. Valley Nat’l Bank, 849 F.2d 1078, 1082 (8th Cir.

1988). Meanwhile, the gavel rule protects purchasers by

avoiding an interpretation that turns § 1322(c)(1) into a federal

vehicle for divesting them of property rights acquired at

foreclosure sales. Increased uncertainty of ownership may also

translate to lower foreclosure bids, a factor that New Jersey

courts consider when confirming foreclosure sales. See N.J. Ct.

R. 4:65-5 (permitting court to confirm sale if it “is satisfied that

the real estate was sold at its highest and best price at the time of

the sale”). 

IV.

We, therefore, hold that under 11 U.S.C. § 1322(c)(1), a

Chapter 13 debtor does not have the right to cure a default on a

mortgage secured by the debtor’s principal residence between

the time the residence is sold at a foreclosure sale and the time

the deed is delivered. We will, accordingly, affirm.