Cure and maintain

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First Circuit BAP Applies “Gavel Rule” to Foreclosure Sale

A panel for the First Circuit BAP found that the debtor could not cure and maintain her mortgage in bankruptcy because she had no interest in the property which was sold in a foreclosure sale prior to her bankruptcy petition, despite the fact that the mortgagee failed to record the deed of sale in accordance with state foreclosure law. U.S. Bank Nat’l Assoc. v. Vertullo, Nos. 18-56, 18-63 (B.A.P. 1st Cir. Jan. 10, 2020).

After the debtor defaulted on her mortgage, the mortgagee, U.S. Bank, sold the property to a third party through a foreclosure sale. The foreclosure deed was not recorded. When Ms. Vertullo filed for chapter 13 bankruptcy, the Bank sought to lift the automatic stay in order to evict Ms. Vertullo from the property. Ms. Vertullo countered that, because the foreclosure sale was not recorded within the time required by state law, she retained an interest in the property and could cure and maintain the mortgage through her plan. The bankruptcy court agreed. It denied the Bank’s motion for relief from stay and, in a separate order, confirmed the debtor’s plan. In re Vertullo, 593 B.R. 92, 94 (Bankr. D.N.H. 2018). The Bank appealed both orders to the Bankruptcy Appellate Panel for the First Circuit. [Read more…] about First Circuit BAP Applies “Gavel Rule” to Foreclosure Sale

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Foreclosure Not Complete Until Deed Recorded so Debtor May Cure and Maintain

Where the debtor’s residence was sold in a foreclosure sale but the mortgagee failed to record the foreclosure deed as required by state law, the debtor had the right to cure and maintain under section 1322(c). In re Vertullo, 18-10552 (Bankr. D. N.H. Oct. 1, 2018).

In this case, the mortgagee, U.S. Bank, moved for relief from stay, arguing that because the foreclosure auction was completed prior to Darlene Vertullo’s chapter 13 bankruptcy filing, the property did not enter the bankruptcy estate and she could not cure and maintain under section 1322(c). Ms. Vertullo countered that U.S. Bank’s failure to record the deed allowed section 1322(c) to preempt the state law which would have otherwise divested her of ownership interest in the property upon foreclosure sale at auction. [Read more…] about Foreclosure Not Complete Until Deed Recorded so Debtor May Cure and Maintain

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Direct Payments to Mortgagee are “Payments under the Plan”

“A chapter 13 debtor’s direct payments to a secured creditor pursuant to a ‘cure and maintain’ plan are ‘payments under the plan’ for purposes of § 1328(a), and a debtor who fails to make such payments is not entitled to a discharge under 11 U.S.C. § 1328(a).” In re Coughlin, No. 11-76202 and In re Sangamaya, No. 12-71109 (Bankr. E.D. N.Y. June 15, 2017). [Read more…] about Direct Payments to Mortgagee are “Payments under the Plan”

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Debtor may not modify default interest rate.

A “cure and maintain” plan permits deceleration of the loan but does not allow a debtor to return to the pre-default interest rate. Anderson v. Hancock (In re Hancock), No. 15-1505 (4th Cir. April 27, 2016).

The Andersons purchased residential property from the Hancocks, financed in the amount of $255,000 by the sellers. The Andersons signed a thirty year note agreeing to pay $1,368.90 per month including interest payments at 5%. In the event of a default, the note provided that the interest rate would increase to 7%. The note also entitled the Hancocks to accelerate the loan. When the Andersons defaulted on the loan, the Hancocks imposed the default interest rate, notified the Andersons of acceleration of the loan, and instituted foreclosure. The debtors filed chapter 13 bankruptcy proposing to cure the arrears and maintain payments at the 5% interest rate through the life of the plan. The Hancocks objected to the plan on two bases. First, they argued that the calculation of arrears was too low because it was based on the pre-default interest rate. Second, they maintained that all future payments on the loan should be at the 7% interest rate. [Read more…] about Debtor may not modify default interest rate.

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Debtors Denied Discharge for Failure to Make Mortgage Payments Outside Plan

Debtors whose chapter 13 plan included a provision for curing mortgage arrears through the plan with regular mortgage payments paid outside the plan, are not entitled to discharge when they fail to keep up with the mortgage payments. Kessler v. Wilson (In re Kessler), No. 15-40 (N.D. Tex. Nov. 19, 2015). [Read more…] about Debtors Denied Discharge for Failure to Make Mortgage Payments Outside Plan

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Court Gets it Wrong in Cure and Maintain Case

Contrary to the principle that “cure and maintain” permits a residential loan debtor to return to status quo ante, the Bankruptcy Court for the Eastern District of North Carolina found that while operation of section 1322(b)(5) reverses a loan acceleration, it does not reverse other contractual consequences of default; specifically an increased interest rate. In re Anderson, No. 13-5843 (Bankr. E.D. N.C. Sept. 5, 2014). [Read more…] about Court Gets it Wrong in Cure and Maintain Case

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Effect of Foreclosure Sale on Right to Cure and Maintain

A couple recent cases deal with application of the automatic stay when the debtor files his bankruptcy petition in the no-man’s-land between a foreclosure sale and the legal transfer of title through recordation. TD Bank v. LaPointe, No. 13-29 (B.A.P. 1st Cir. Feb. 24, 2014) and In re Comer, No. 13-12148 (Bankr. E.D. Tenn. March 10, 2014). [Read more…] about Effect of Foreclosure Sale on Right to Cure and Maintain