Lyon v. United States (In re Lyon)
Lyon v. United States (In re Lyon)
Opinion of the Court
MEMORANDUM AND ORDER
On June 8, 1988, the bankruptcy court of this district
FACTS
On August 9, 1971, debtors John G. and Norma J. Lyon executed a promissory note in favor of the Farmers Home Administration (FmHA). The note was secured by a mortgage covering two residential lots owned by them. By July, 1987, the Lyons were in default on the note. On January 14, 1988, the United States District Court entered a default judgment of foreclosure against the debtors. On March 10, 1988, the United States Marshal sold the debtors’ property at a foreclosure sale. Eight days later, March 18, the debtors filed a petition for relief under Chapter 13 of the Bankruptcy Code. On March 24, the District Court entered an order confirming the sale.
The debtors’ plan of reorganization, filed with the March 18 petition, proposed to
ISSUES
The appellants present two issues on appeal which they have stated to be:
1. Whether a Chapter 13 debtor is allowed a reasonable time to cure a default in a federal mortgage on his residential homestead, when the bankruptcy petition was filed after the foreclosure sale, but before the sale was confirmed.
2. Whether the United States District Court had jurisdiction to confirm the foreclosure after the debtor had filed a voluntary bankruptcy petition in United States Bankruptcy Court.
DISCUSSION
1. The Right to Cure a Default Under Chapter 13 Ends with the Foreclosure Sale.
In reaching its decision, the bankruptcy court relied on In re Glenn, 760 F.2d 1428 (6th Cir.), cert. denied, 474 U.S. 849, 106 S.Ct. 144, 88 L.Ed.2d 119 (1985), and In re Ashton, 63 B.R. 244 (Bankr.D.N.D. 1986). The district court agrees with the decision of the bankruptcy court.
In support of their position appellants cite Justice v. Valley National Bank, 849 F.2d 1078 (8th Cir. 1988). The issue in Justice, decided June 15, 1988, was whether a Chapter 12 plan may allow a debtor to pay the redemption price over a period of time beyond the time limited by state law. Justice, 849 F.2d at 1080. The decision considered, among other things, when the right to cure a default ends under chapter 12. Because the chapter 12 cure provisions are, in substance, identical to the chapter 13 cure provisions, the discussion in Justice is applicable to this case. Cf. 11 U.S.C. § 1222(b)(3) and (b)(5) with 11 U.S.C. § 1322(b)(3) and (b)(5). The Justice court stated that it was “reluctant to dismiss the unanimous opinion of the circuit courts that no federal interest served by Chapter 13 justifies allowing a debtor to cure default after a foreclosure sale.” Justice, 849 F.2d at 1086.
Justice involved a foreclosure under South Dakota state law and discussed the effect of state law on the right to cure a default on a foreclosed motgage. Justice held that the cure provisions have particular reference to contractual mortgage rights. Id. at 1084. Because the foreclosure sale, under state law, extinguished the mortgage contract, no right to cure existed. Id. at 1080,1084. That holding is also applicable to federal mortgage foreclosures. The appellants have shown no need for a uniform federal foreclosure rule governing the right to cure a default. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1970); Justice at 1087-88. Reference to North Dakota law for the federal rule is appropriate. Under North Dakota law, only the right of redemption survives the foreclosure sale. This is a statutory and not contractual right. The appellants argue that the need for an order confirming the sale under the federal foreclosure statute compels a different result in this case. The argument is without merit. The order confirming the sale affects the appellants’ interests only insofar as it assures a mortgagor that the sale was conducted as required by law. It is a necessary step required to vest title in the purchaser. Although the decision of the bankruptcy court in this case and the Glenn decision make no reference to the particular interests surviving after foreclosure sale, the decision reached here is consistent with the teaching of Glenn, Justice and Kimbell.
2. Jurisdiction to Confirm the Sale.
The appellants also argue that the district court lacked jurisdiction to confirm
The June 8,1988 order of the bankruptcy court granting the Farmers Home Administration relief from the automatic stay, and the decision and order of the bankruptcy court entered July 7, 1988 denying reconsideration of its June 8 order are AFFIRMED.
. The Honorable William A. Hill, United States Bankruptcy Judge for the District of North Dakota.
. The appellants raised a third issue relating to whether state or federal law is applicable to this case. That issue is subsumed in the discussion of the first.
Reference
- Full Case Name
- In re John G. LYON and Norma J. Lyon, Debtors. John G. LYON and Norma J. Lyon v. UNITED STATES of America and Farmers Home Administration
- Status
- Published