Court Opinion

ID: 9686055
Source: CourtListenerOpinion
Date Created: 2023-08-24 15:21:53.039446+00
Date Added: 2024-06-11T09:35:42.979219
License: Public Domain

RUSSELL, Bankruptcy Judge,
dissenting:
I respectfully dissent and would reverse. The Oregon Department of Veterans’ Affairs (“ODVA”) asserts that § 1322(b)(5) does not provide for the cure and reinstatement of a mortgage note secured by a debtor’s primary residence after the issuance of a foreclosure decree. I agree.
Section 1322(b)(5) provides that a Chapter 13 plan may:
Notwithstanding paragraph (2) of this subsection, 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)(5).
The Bankruptcy Appellate Panel has previously held that a Chapter 13 debtor could not restore his pre-foreclosure interest in property once the mortgage contract had been extinguished by a decree of foreclosure under Oregon law. In re Broker, 125 B.R. 798 (9th Cir. BAP 1991).
The Panel in Broker reasoned that the curing of a default under § 1322(b)(5) requires an existing contract: “The circuit courts concluded that the curing of a default under 11 U.S.C. section 1322(b)(5) requires an existing contractual relationship.” Broker at 800. (The Broker Panel referring specifically to: Justice v. Valley National Bank, 849 F.2d 1078, 1085 (8th Cir.1988); In re Mann Farms, Inc., 917 F.2d 1210, 1214 (9th Cir.1990); In re Roach, 824 F.2d 1370, 1377 (3rd Cir.1987); In re Glenn, 760 F.2d 1428, 1442 (6th Cir.1985), cert. denied, 474 U.S. 849, 106 S.Ct. 144, 88 L.Ed.2d 119 (1985); and In re Tynan, 773 F.2d 177, 178 (7th Cir.1985)).
Referring to those same decisions, the Broker Panel stated: “The circuit courts reasoned the need for a contractual relationship from the common meaning of the words ‘cure’ and ‘default.’ To have a cure, there must be a default, and to have a default, there must be a contract.” Broker at 801.
As the bankruptcy court below pointed out, no foreclosure sale has occurred in the facts of this case. Under Broker, however, one must come to the same result because the court identified that it was the decree of foreclosure that was the crucial event in cutting off the debtors’ right to cure under § 1322(b)(5): “An Oregon decree of foreclosure also extinguishes the mortgage, contract.” Broker at 800 (emphasis added) (citing Call v. Jeremiah, 246 Or. 568, 571, 425 P.2d 502, 505 (1967)).
The holding in In re Seidel, 752 F.2d 1382 (9th Cir.1985) is of no assistance to the debtors. There, the Ninth Circuit affirmed the denial of confirmation of a Chapter 13 plan that proposed to pay off a *162mortgage note secured by the debtors’ home which had become due, without acceleration, before the filing of the debtors’ petition. Id. at 1383 (affirming In re Seidel, 31 B.R. 262 (Bankr.D.Or.1983)). The Ninth Circuit held that the arrangement contemplated by the plan amounted to an impermissible “modification” of a claim secured by the debtor’s principal residence which was specifically prohibited by § 1322(b)(2). Id. at 1387.
The contractual relationship in this case has been irrevocably extinguished by the entry of the decree of foreclosure. That foreclosure decree was entered before the debtors’ petition was filed. There was no contract remaining to which to apply § 1322(b)(5) to cure at the time of the petition under Oregon law. Under both Broker and Seidel, § 1322 does not resurrect rights that have terminated under state law. “The cure contemplated by section 1322(b)(5) is a cure that provides both debt- or and creditor with the equivalent of their state law rights.” Braker, at 801; cf. Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 917-18, 59 L.Ed.2d 136 (1979). “The code neither creates nor enhances the rights a debtor brings into the bankruptcy estate.” Braker at 801 (citing 11 U.S.C. § 541(a)(1)); In re Kaplan, 97 B.R. 572, 576 (9th Cir. BAP 1989); In re Gull Air, Inc., 890 F.2d 1255, 1261 (1st Cir.1989).
The majority fails to recognize that § 1322(b)(5) operates against a backdrop of well-developed state law rights. This is why § 1322(b)(5) does not statutorily prescribe a universal cut-off point applicable to all states. The operative event is clearly the decree of foreclosure. This is the holding of Broker. It is also what the highest court in the state of Oregon held. Call v. Jeremiah, 246 Or. 568, 571, 425 P.2d 502, 505 (1967). That decision was cited and relied upon by the Broker Panel. Broker, at 800.
In Call v. Jeremiah, the Oregon Supreme Court, sitting en Banc, clearly stated that the decree of foreclosure was the event that terminated the mortgage contract:
Ulrich v. Lincoln Realty Co., 180 Or. 380, 168 P.2d 582, 175 P.2d 149 (1947), clearly establishes that a decree of foreclosure extinguishes a first mortgage and that when the land is redeemed by the mortgagor or his grantee the mortgage is not revived as to any deficiency on the foreclosure sale.
Call v. Jeremiah, 246 Or. at 570, 425 P.2d at 503. The majority gives no deference to state law in deciding when a mortgage contract has been terminated.
I agree that circuit courts have not uniformly decided what point terminates rights of redemption under § 1322(b)(5). I view this as a testament that reasonable minds may differ on this issue. Further, each circuit decision is made against a back-drop of varied state foreclosure laws, ones which may or may not have chosen the foreclosure decree or judgment as their own cut-off point, as the State of Oregon has in this case.
The majority opinion contains the following statements about Broker:
Although the phrase “contractual relationship” implies that Broker adopted the contractual theory for cure, we find that Broker merely used the contract theory as one alternative to support the limited proposition that the right to cure is extinguished after the foreclosure sale. This proposition is clear after evaluating the divergent theories advanced by the circuit court cases cited by Broker.
Accordingly, we view Broker’s analysis of the contract theory as one of several theories available to address the limited issue raised in this appeal.
I do not agree with this characterization of the Broker decision. Broker simply states: that a decree of foreclosure is one event that extinguishes the contract under Oregon law; there was a decree of foreclosure; a contract so terminated before a bankruptcy petition is filed cannot be revived by the cure provision of § 1322(b)(5). Broker may not be avoided by minimizing its holding down to an “alternative analy*163sis.” The holding of an opinion is not an “alternative analysis.”
As the majority readily admits, all of the cited theories are objectionable to someone. The majority quotes the Sixth Circuit’s frustration in choosing a cut-off point: “Each of the cases and each result reached therein is subject to some objection either in theory or in practice.” Majority, supra at 156 (quoting In re Glenn, 760 F.2d at 1435). Which theory is least objectionable is a subjective choice. The majority now chooses the “estate theory” as being “the most viable.” I believe the correct choice has previously been made by the BAP in Braker.
For the above reasons, I respectfully dissent and would reverse.