In Re: Connors

Opinions of the United
2007 Decisions 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Precedential or Non-Precedential: Precedential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
-AND-
Herbert B. Raymond, Esq.
Raymond & Raymond
7 Glenwood Avenue
East Orange, NJ 07017

Counsel for Appellant
Neil J. Fogerty, Esq. (Argued)
Hudson County Legal Services Corp.
574 Summit Avenue, 2nd Floor
Jersey City, NJ 07306
-AND-
Scott 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

2
 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

3
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).

4
 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

5
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

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
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

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
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,

8
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

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
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

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
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

11
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 pre-
Roach. 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

12
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.

13