In Re Wayne D. And Annie M. Thompson, Debtors-Appellees. Jim Walter Homes, Inc., Creditor-Appellant v. Ann Spears, Trustee-Appellee

BALDOCK, Circuit Judge,

concurring in the judgment only.

At issue in this case is whether debtors in a chapter thirteen bankruptcy may cure a default of a residential mortgage under 11 U.S.C. § 1322(b) following an Oklahoma State court’s entry of a foreclosure judgment and order of sale, but prior to the actual sale of the property.1 Purporting to interpret § 1322(b), the court holds that the right to cure a default of a residential mortgage extends through the equitable period of redemption until the foreclosure sale. Yet the court acknowledges that neither the statute nor its legislative history places any time limitation on the exercise of this right. What the court in truth does is assume a legislative role based on what it perceives as the demands of equity. While the court’s rationale for its holding may be the reason why Congress should amend § 1322(b) to include a time limitation on the right to cure, such rationale is not the reason for this court to do so. The duty of reconciling the adverse views of mortgage lenders and borrowers is not judicial; rather, the Constitution vests Congress with the duty of establishing property rights in bankruptcy proceedings. See generally In re Glenn, 760 F.2d 1428, 1433-34 (6th Cir.), cert. denied, 474 U.S. 849, 106 S.Ct. 144, 88 L.Ed.2d 119 (1985) (discussing policy considerations behind § 1322(b)). As Chief Justice Marshall recognized long ago, until Congress chooses to establish uniform bankruptcy laws, state law controls. Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122, 191-208, 4 L.Ed. 529 (1819).

Article I, § 8 of the Constitution empowers Congress to establish uniform bankruptcy laws. This provision undoubtedly authorizes Congress to promulgate a federal statute delineating a time limitation on the right to cure a defaulted residential mortgage under § 1322(b). But Congress has chosen not to exercise its power in this regard. Instead, “Congress has generally left the determination of property rights in the assets of a bankrupt’s estate to state law.” Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). “[Sjtate laws are thus suspended only to the extent of actual conflict with the system provided by the Bankruptcy [Code]-” Stellwagen v. Clum, 245 U.S. 605, 613, 38 S.Ct. 215, 217, 62 L.Ed. 507 (1918). In the absence of an express conflict between state and federal bankruptcy law or a federal interest which requires state law to give way, the law of the state where the property is located controls questions of property rights. Butner, 440 U.S. at 55, 99 S.Ct. at 918. Accordingly, because no conflict exists between state and federal law on the issue of when a debtor may cure a default on a residential mortgage in a chapter thirteen proceeding, the proper analysis must focus on any federal interest likely to be infringed due to the application of state law.

Addressing the affect of debt acceleration on the right to cure under § 1322(b), *1232the court makes the curious statement that “if a mechanical application of state law were to be used in all respects, the right to cure would end at the time the mortgage debt is accelerated.” However correct this statement may be, it is simply irrelevant to the proper analysis. The reason that a court is justified in deviating from state law is because of a legitimate and articulated federal policy to the contrary. No court has advocated, nor do I advocate, a “mechanical application” of state law in construing § 1322(b). As explained in the preceding paragraph, any application of state law is impermissible where such law conflicts with a federal statute, its legislative history, or an underlying federal interest.

Virtually every note secured by a mortgage contains an acceleration clause which permits the lender to accelerate payments upon default. But allowing state law to control the effect of an acceleration and its curability in the context of chapter thirteen would render § 1322(b) all but meaningless for residential mortgagors. The Second Circuit ably explained the reason for rejecting a “mechanical application” of state law in In re Taddeo, 685 F.2d 24, 29 (2d Cir.1982):

[Creditor's argument reduces in the end to an assertion that because she can accelerate her mortgage under state law, the [debtors] can cure only as provided by state law. This interpretation of § 1322(b) would leave the debtor with fewer rights under the new Bankruptcy Code than under the old Bankruptcy Act of 1898. Defaulting mortgagors would forfeit their right to cure even before the start of foreclosure proceedings, before they hired lawyers and therefore before they knew anything about their rights under Chapter 13. Such a result would render the remedy in § 1322(b) unavailable to all but a select number of debtors. Such a result would be totally at odds with the overriding rehabilitative purpose of Chapter 13.

Accord Grubbs v. Houston First American Sav. Assoc., 730 F.2d 236, 241-42 (5th Cir.1984) (en banc). Chapter thirteen is designed to encourage debtor rehabilitation rather than liquidation. H.R.Rep. No. 595, 95th Cong., 2d Sess. 116-117 (1977), reprinted in 1978 U.S.Code Cong. & Admin. News 5787, 6076-78. Policy considerations thus dictate that § 1322(b) be construed to permit the curing of a mortgage debt acceleration in order to effectively preserve the relief Congress has provided debtors under chapter thirteen.

The question of how far beyond acceleration the debtor’s right to cure extends is more difficult. After acceleration and the commencement of foreclosure proceedings, the necessity of fashioning a federal rule to effectuate the purpose of chapter thirteen is less compelling. By that time, the debt- or should have recognized the seriousness of the problem and obtained legal counsel. Allowing state law to control the right to cure beyond this point would not significantly impede a debtor’s use of § 1322(b). See Justice v. Valley Nat’l Bank, 849 F.2d 1078, 1086 (8th Cir.1988) (interpreting chapter twelve provision, 11 U.S.C. § 1222(b), identical to § 1322(b)). Yet without citing any congressional command or identifying any federal interest, the court today proclaims that the issue of where the right to cure should end “is as much one of federal law, the proper construction of 11 U.S.C. § 1322(b), as the determination that this section gives the debtor the right to reverse contractual acceleration of a mortgage in default.”

The Supreme Court has admonished lower federal courts that in bankruptcy law “undefined considerations of equity provide no basis for adoption of a uniform federal rule.” Butner, 440 U.S. at 56, 99 S.Ct. at 918. Neither does perceived difficulty in applying what the court refers to as “archaic” state property and mortgage law provide such a basis. See In re Roach, 824 F.2d 1370, 1379 (3d Cir.1987) (declining to ignore, “in the name of pragmatism,” state law in applying § 1322(b) where such an approach was not grounded in the language of the statute). Proper respect for federalism and state sovereignty demands that a federal court override state law only where Congress so intended. “The Bankruptcy Code was written with the expecta*1233tion that it would be applied in the context of state law and that federal courts are not licensed to disregard interests created by state law when that course is not clearly required to effectuate federal interests.” Id. at 1374. A federal court’s desire for a uniform rule simplifying application of § 1322(b) is no substitute for proof that the use of state law would undermine a federal statutory scheme. Justice, 849 F.2d at 1087.

Oddly enough, the court is willing to discuss the mortgage redemption laws of the fifty states to justify its result, but declines to address the problem of whether the right to cure should continue during a state’s statutory redemption period when the mortgagee purchases at the foreclosure sale and the mortgagor-mortgagee relationship is essentially unchanged. Perhaps the court’s approach will not be so easy to apply after all. In any event, the law in this instance requires only that the court address the effect of an Oklahoma state court foreclosure judgment and order of sale on the right to cure under § 1322(b). See In re Clark, 738 F.2d 869, 874 (7th Cir.1984) (refusing to reach the question of whether the same result obtains in a state in which the effect of a foreclosure judgment is different than Wisconsin).

For these reasons, I cannot join in the court’s unwarranted exercise of judicial power.2

. The mortgagee, Walter Homes, moved the bankruptcy court to lift the automatic stay imposed by 11 U.S.C. § 362 in order to execute its foreclosure judgment and complete the sale. Over the mortgagee’s objection, the bankruptcy court confirmed the debtors' reorganization plan. According to the bankruptcy court, the mortgagee’s objection was defective for want of proper service on the trustee and for the mortgagee’s failure to appear at the scheduled confirmation hearing. We are unable to address in this appeal the sufficiency of the mortgagee’s objection, however, because the debtors have not provided this court with the documentation to support the bankruptcy court’s findings. See Fed.R.App.P. 10(b)(3). The question of the objection’s validity is presumably the "other issue” to which the court refers in footnote two of its opinion.

. In Oklahoma, a mortgagor in default is not divested of title to the mortgaged premises until the foreclosure sale is held. Coursey v. Fairchild, 436 P.2d 35, 38 (Okla.1967) (mortgagor cannot be divested of title until foreclosure decree and sale); In re Anderson, 73 B.R. 993, 996 (Bankr.W.D.Okla.1987) (plan proposing to cure mortgage default confirmed notwithstanding entry of foreclosure judgment prior to bankruptcy). Consequently, I believe the district court acted quite properly in affirming the bankruptcy court’s confirmation of the debtors’ plan. Because the sale of the mortgaged premises had not yet occurred at the time of the filing of the bankruptcy petition, title remained vested in the debtors and their contractual relationship with the mortgagee remained intact.