§ 85.3     Prepetition Foreclosure Judgment: Curing Default, Payment in Full or Modification under § 1322(c)(2)?
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 85.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Both before and after the 1994 Code amendments, prepetition home mortgage foreclosure judgments have been a headache in Chapter 13 cases. Can the plan cure defaults and reinstate the contract payment terms under § 1322(b)(3)1 or § 1322(b)(5)?2 Is a foreclosure judgment on the debtor’s principal residence protected from modification by § 1322(b)(2)?3 Is payment in full through the plan a prohibited modification?4 When is the last payment due on the original payment schedule for a home mortgage reduced to a prepetition foreclosure judgment?5 Some of these questions are answered by the 1994 amendments; some of these questions are raised by those amendments.

[2]

There is controversy whether a home mortgage that has been reduced to a prepetition foreclosure judgment is a claim secured (only) by a security interest for purposes of the protection from modification in § 1322(b)(2).6 Finding that the protection from modification in § 1322(b)(2) applied, some courts, led by the U.S. Court of Appeals for the Third Circuit, held before the 1994 amendments that payment of a prepetition foreclosure judgment over the life of the plan was an impermissible modification of the lienholder’s rights.7 Other courts held that § 1322(b)(3) and (b)(5) are accommodated with the prohibition against modification in § 1322(b)(2), with the result that a Chapter 13 debtor can manage a prepetition foreclosure judgment either by reinstating the original contract, by curing default and maintaining payments during the life of the plan or, in some decisions, by retiring the foreclosure judgment in full with interest through the plan.8 These cases overlap the broad fracture in the case law with respect to the management of demand, matured, balloon and other short-term home mortgages.9

[3]

There is logic to the argument that the powers to cure default in § 1322(b)(3) and (b)(5) include the power to undo the consequence of prepetition default, including the consequence that the creditor reduced the mortgage contract to a judgment of foreclosure.10 The plain meaning of curing default in § 1322(b)(3) and (b)(5) is that a Chapter 13 debtor can return the debtor-creditor relationship to its pre-foreclosure judgment condition by repairing the breaches of contract. To preclude the use of § 1322(b)(3) and (b)(5) when the creditor has a prepetition foreclosure judgment prematurely interrupts the power granted by these subsections.

[4]

The foreclosure judgment debate is similar to the short-term mortgage debate in the sense that curing default with respect to a mortgage that was reduced to a prepetition foreclosure judgment gets the debtor the right to perform the original contract terms and nothing more. If the underlying mortgage is protected from modification by § 1322(b)(2), undoing a prepetition foreclosure judgment by curing default under § 1322(b)(3) or § 1322(b)(5) gets the debtor the contract terms, including the original interest rate and monthly payments. If the last payment by contract is due before the last payment under the debtor’s plan, then § 1322(b)(5) is not available to undo the prepetition foreclosure judgment—not because a foreclosure judgment is a consequence of default that cannot be cured, but because the underlying mortgage contract is short term and does not meet the statutory requirements for curing default under § 1322(b)(5).

[5]

Prior to 1994, if the original contract was a short-term mortgage, § 1322(b)(3) was only sometimes available to cure (or waive) the prepetition default that led to the foreclosure judgment, thus permitting the debtor to reinstate the original short-term obligation.11 The use of § 1322(b)(3) to undo a prepetition foreclosure judgment and to then reschedule the mortgage for payment over the life of the plan is very controversial. Rescheduling for payment in full during the life of the plan under the guise of curing default is considered by many courts to be a prohibited modification of the rights of the mortgage holder as interpreted by the Supreme Court in Nobelman v. American Savings Bank.12 Again, this results not because a prepetition foreclosure judgment is a consequence of default that cannot be cured or waived under § 1322(b)(3); this results because rescheduling a mortgage for payment during the life of the plan is a prohibited modification under § 1322(b)(2) without regard to whether the mortgage was reduced to a prepetition foreclosure judgment.

[6]

In Chapter 13 cases filed after October 22, 1994, the 1994 amendments made two important changes to § 1322(c) that affect the management of foreclosure judgments. First, Congress specified that debtors can cure home mortgage defaults notwithstanding a prepetition foreclosure judgment. The 1994 Act amended § 1322(c)(1) to provide:

(c) Notwithstanding subsection [1322](b)(2) and applicable nonbankruptcy law—
(1) 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.13
[7]

Although there are conflicting interpretations of when a residence has been “sold at a foreclosure sale,” it is clear that in cases filed after October 22, 1994, § 1322(c)(1) permits a Chapter 13 debtor to cure residential mortgage defaults under § 1322(b)(3) or (b)(5) notwithstanding a prepetition foreclosure judgment, so long as the residence has not been sold at a foreclosure sale.14

[8]

The 1994 Act also amended § 1322(c)(2) to permit a Chapter 13 debtor to pay a short-term residential mortgage during the life of the plan consistent with § 1325(a)(5). As detailed immediately above,15 “notwithstanding [§ 1322](b)(2),” if the “last payment on the original payment schedule” is due before the final payment under the plan, the plan can pay a residential mortgage claim “as modified pursuant to section 1325(a)(5).”16

[9]

Do these two new sections work together to permit a Chapter 13 debtor to pay in full through the plan a short-term mortgage that has suffered a prepetition foreclosure judgment but with respect to which the residence has not yet been sold? The question arises because new § 1322(c)(1) permits curing default under § 1322(b)(3) or (b)(5) until a foreclosure sale, but the power to pay short-term mortgages during the life of the plan in § 1322(c)(2) is not cross- referenced in § 1322(c)(1).17

[10]

The legislative history to the 1994 amendments could be read to suggest that Congress expected these two new subsections to work together to overrule cases that had precluded Chapter 13 debtors from paying in full a claim secured by a residential mortgage that had been reduced to a prepetition foreclosure judgment. As explained by Congressman Brooks:

The changes made by this section, in conjunction with those made in section 305 [sic] of this bill, would also overrule the result in First National Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. 1991) with respect to mortgages on which the last payment on the original payment schedule is due before the date on which the final payment under the plan is due. In that case, the Third Circuit held that subsequent to foreclosure judgment, a chapter 13 debtor cannot provide for a mortgage debt by paying the full amount of the allowed secured claim in accordance with Bankruptcy Code section 1325(a)(5), because doing so would constitute an impermissible modification of the mortgage holder’s right to immediate payment under section 1322(b)(2) of the Bankruptcy Code.18
[11]

If new § 1322(c)(1) influences new § 1322(c)(2), the power to pay a short-term mortgage in full through the plan would not be cut off by a prepetition foreclosure judgment but would be limited that the residence was not sold at a foreclosure sale before the petition. This would bring some consistency to the treatment of short-term and long-term mortgages reduced to prepetition foreclosure judgments—both would be subject to management through the Chapter 13 plan so long as the residence had not been sold before the petition. Any other rule would lead to inconsistent treatment of short-term and long-term mortgages for no obvious reason. Reading the two subsections together would also be consistent with the emerging case law that new § 1322(c)(2) permits payment in full of a short-term mortgage that matured, ballooned or was subject to demand before the petition.19 If a foreclosure sale before the petition is not the boundary on the power in § 1322(c)(2), then what earlier or later point in the deterioration of the relationship will the courts use and on which side of that line will a prepetition foreclosure judgment fall? In spite of the chaotic case law with respect to the meaning of “foreclosure sale that is conducted in accordance with applicable nonbankruptcy law” in § 1322(c)(1),20 a uniform foreclosure sale boundary would be better than no rule at all.

[12]

It will be particularly interesting to see whether courts permit Chapter 13 debtors to use § 1322(c)(2) when a long-term mortgage has been accelerated or reduced to a prepetition foreclosure judgment. Put another way, does § 1322(c)(2) permit payment through the plan pursuant to § 1325(a)(5) of a mortgage with an amortization schedule longer than the proposed plan but with respect to which contractual acceleration or a prepetition foreclosure judgment has made the entire balance due before the final payment under the plan?

[13]

It is clear after the 1994 amendments to § 1322(c)(1) that a Chapter 13 debtor can cure default in a long-term home mortgage and maintain payments during the life of the Chapter 13 plan consistent with § 1322(b)(3) and (b)(5) notwithstanding prepetition acceleration or a prepetition foreclosure judgment, so long as the property has not been sold at a foreclosure sale before the petition.21 It is also now clear that a Chapter 13 debtor can provide for payment “pursuant to § 1325(a)(5)” of a home mortgage with respect to which “the last payment on the original payment schedule” is due before the final payment under the plan.22 Providing for payment “pursuant to § 1325(a)(5)” is not the same as curing default and maintaining payments under § 1322(b)(5).23 Application of § 1325(a)(5) would permit Chapter 13 debtors to pay in full during the life of the plan any mortgage that falls within § 1322(c)(2). Payment pursuant to § 1325(a)(5) would almost always modify the payment amount and usually the contractual interest rate—modifications not permitted when a debtor cures default and maintains payments under § 1322(b)(5). As demonstrated above,24 a majority of the reported decisions interpret the “notwithstanding subsection (b)(2)” at the beginning of § 1322(c)(2) to permit the full range of modifications available to Chapter 13 debtors with respect to a mortgage that wanders within the reach of § 1322(c)(2).

[14]

The reach of § 1322(c)(2) will turn on how courts interpret the phrase “last payment on the original payment schedule.”25 The power to cure default with respect to long-term mortgages in § 1322(b)(5) is not precisely parallel to the language in new § 1322(c)(2). The power to cure default and maintain payments in § 1322(b)(5) is available for any claim “on which the last payment is due after the date on which the final payment under the plan is due.” The power to manage a short-term mortgage in § 1322(c)(2) is available when the “last payment on the original payment schedule . . . is due before the date on which the final payment under the plan is due.” This lack of parallelism is confusing. Did Congress intend a difference? Is the last payment necessarily due at the same moment for all mortgage contracts under either description? Can the facts of individual Chapter 13 cases fit either or both sections? These questions come to roost in Chapter 13 cases involving prepetition mortgage foreclosures.

[15]

It can be argued that acceleration before the petition or a prepetition foreclosure judgment does not change the original payment schedule for purposes of § 1322(c)(2)—if the mortgage contract called for a last payment after the date on which the final payment under the Chapter 13 plan is due, the mortgage cannot be managed under § 1322(c)(2), without regard to whether the mortgage holder demanded or was awarded judgment for full payment at an earlier date.26 This interpretation reads “original payment schedule” to mean “original amortization schedule” to the exclusion of other contract terms that might require payment at a different time.

[16]

In contrast, a few courts have read “original payment schedule” in § 1322(c)(2) more broadly to include all of the mortgage holder’s contractual rights to payment, with the result that a prepetition foreclosure judgment falls within § 1322(c)(2):

The key phrase “original payment schedule” is not defined in the Bankruptcy Code and the phrase encompasses substantially different meanings depending on whether it is read broadly or narrowly. On the one hand, the phrase can be understood merely to refer to the amortization schedule under which the note is satisfied. On the other hand, the phrase can be read to reach the entirety of the mortgagee’s right to payment, including the fully accelerated payment reflected in the foreclosure judgment. . . .  Applying the reasoning of [In re Jones, 188 B.R. 281 (Bankr. D. Or. 1995)] and [In re Chang, 185 B.R. 50 (Bankr. N.D. Ill. 1995)], this Court finds that the language of § 1322(c)(2) is sufficiently broad so as to apply with equal force and result to a foreclosure judgment. As a practical matter this Court can discern no difference among a fully matured mortgage debt, a mortgage on which the balloon payment is due, and a foreclosure judgment. In each circumstance the holder of the obligation is entitled to immediate full payment. Given the overall objectives of Chapter 13, the fact that the 1994 Amendments express a particular concern that debtors be afforded opportunity to save their homes, and that no practical difference exists between the rights of holders of matured mortgage obligations and holders of foreclosure judgments, the Court construes the language of § 1322(c)(2) to include foreclosure judgments.27
[17]

The legislative history quoted above twists to serve more than one interpretation of the reach of new § 1322(c)(2). The Third Circuit’s First National Fidelity Corp. v. Perry,28 case did not involve a short-term amortization schedule—the mortgage in Perry was a typical long-term contract that had been accelerated and reduced to a foreclosure judgment before the Chapter 13 petition. Citing the doctrine of merger under New Jersey law, the Third Circuit held in Perry that the antimodification provision in § 1322(b)(2) prohibited paying the foreclosure judgment in full through a Chapter 13 plan. If new § 1322(c)(2) was intended to “overrule the result” in Perry, Congress must have contemplated that prepetition foreclosure judgments would come within the reach of the new section.

[18]

But are all prepetition home mortgage foreclosure judgments excepted from the modification protection in § 1322(b)(2)? The legislative history to new § 1322(c)(2) hedges on this point by indicating Perry is overruled “with respect to mortgages on which the last payment on the original payment schedule is due before the date on which the final payment under the plan is due.”29 This statement could be read as intent to limit § 1322(c)(2) to prepetition foreclosure judgments when the mortgage contract contains a short-term amortization schedule. The passage could also be read as merely a restatement of the (unanswered) question that started this discussion: What does “last payment on the original payment schedule” mean in the context of a prepetition foreclosure judgment?

[19]

The reach of § 1322(c)(2) will mushroom in importance if the courts hold that § 1322(c)(2) permits full-scale modification of mortgages.30 If § 1322(c)(2) applies to all mortgages accelerated before the petition or reduced to a prepetition foreclosure judgment without regard to the original amortization schedule and if all such mortgages are then subject to modification, then § 1322(c)(2) withdraws from the protection of Nobelman a broad range of mortgages in Chapter 13 cases.

[20]

All sorts of new strategies would be present for debtors and creditors. Debtors with long-term home mortgages might be best advised to briar patch their lenders before filing a Chapter 13 petition—dare the mortgage holder to accelerate or take a foreclosure judgment. The mortgage holder that accelerates or takes a prepetition foreclosure judgment will forfeit the protection from modification in § 1322(b)(2). Mortgage holders that have not accelerated and have not taken prepetition foreclosure judgments will be better off in a Chapter 13 case than those that have.31

[21]

In cases filed before the effective date of the 1994 amendments, the interaction of § 1322(b)(2), (b)(3) and (b)(5) is altogether too uncertain for the important task of permitting Chapter 13 debtors to save their homes from a prepetition foreclosure judgment. In cases filed after October 22, 1994, new § 1322(c)(1) and (c)(2) provide Chapter 13 debtors with tools for curing the default that led to the prepetition foreclosure and, possibly, with the power to modify foreclosure judgments for payment through the plan consistent with § 1325(a)(5).


 

1  See § 115.1 [ Curing Default, Waiving Default, Maintaining Payments and Combinations ] § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations.

 

2  See discussion beginning at § 81.1  Overview: General Rules for Saving Debtor’s Home.

 

3  See § 119.2 [ Statutory Liens and Judgment Liens, Including Foreclosure Judgments ] § 80.2  Statutory Liens and Judgment Liens, Including Foreclosure Judgments.

 

4  See §§ 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman and 142.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 ] § 85.1  Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994.

 

5  See §§ 142.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 ] § 85.1  Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 and 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

6  See § 119.2 [ Statutory Liens and Judgment Liens, Including Foreclosure Judgments ] § 80.2  Statutory Liens and Judgment Liens, Including Foreclosure Judgments.

 

7  See First Nat'l Fidelity Corp. v. Perry, 945 F.2d 61, 65 (3d Cir. 1991) (After foreclosure judgment, under New Jersey law, Chapter 13 debtor cannot propose payment of judgment over three- to five-year plan because full payment over time would be a modification in violation of § 1322(b)(2). Under New Jersey law, after entry of a foreclosure judgment, debtor may redeem the house by tendering the full amount due at any time up to 10 days after the foreclosure sale, and bankruptcy extends that right until 60 days after the order for relief. “[F]orcing a home lender to accept payment of a foreclosure judgment over the three to five years of a Chapter 13 plan goes far beyond that.”); In re Daniels, 91 B.R. 51 (Bankr. N.D. Ill. 1988) (Chapter 13 debtor cannot pay a foreclosure judgment in full with interest over the life of the plan without the consent of the mortgagee. A proposal to pay a prepetition mortgage foreclosure judgment in full over the life of the plan with interest impermissibly modifies the rights of the mortgage holder in violation of § 1322(b)(2). Debtor could cure the default and decelerate the mortgage under § 1322(b)(5).).

 

8  See §§ 115.1 [ Curing Default, Waiving Default, Maintaining Payments and Combinations ] § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations, 119.2 [ Statutory Liens and Judgment Liens, Including Foreclosure Judgments ] § 80.2  Statutory Liens and Judgment Liens, Including Foreclosure Judgments, 130.1 [ Prepetition Defaults ] § 82.1  Prepetition Defaults—When is Property “Sold” at Foreclosure? and 142.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 ] § 85.1  Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994. See, e.g., Multnomah County v. Rudolph (In re Rudolph), 166 B.R. 440 (D. Or. 1994) (Chapter 13 debtor can use § 1322(b) to “cure” prepetition decree of foreclosure in favor of the taxing authority; however, the cure available to the debtor is redemption consistent with the two-year redemption period established by Oregon law.); Larkins v. Commercial Bank of Dawson (In re Larkins), 50 B.R. 984, 987 (W.D. Ky. 1985) (Debtor is permitted to cure default and to pay mortgage over life of plan where mortgage matured and foreclosure judgment and order of sale were entered prior to filing. The court cites Grubbs v. Houston First American Savings Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc), for proposition that even though debtor cannot modify mortgage, debtor can “provide for the payment from future income of previously non-accelerated matured amounts that had become due prior to the filing of the Chapter 13 petition.”); In re Hollins, 150 B.R. 53 (Bankr. D. Or. 1993) (Section 1322(b)(3) permits a Chapter 13 debtor to pay a prepetition tax foreclosure judgment in full during the life of the Chapter 13 plan notwithstanding a state law redemption period that expires soon after the filing of the Chapter 13 case. The right to cure defaults under § 1322(b)(3) is independent of state limitations on redemption from a foreclosure sale for unpaid taxes.); In re O’Neal, 142 B.R. 411, 414 (Bankr. D. Or. 1992) (Section 1322(b)(3) permits Chapter 13 debtor to pay prepetition foreclosure judgment in favor of a state taxing authority in full during the life of the plan. Section 1322(b)(3) is broadly worded to permit the curing of any default. “[A] debtor may cure any default as long as the default relates to property in which the estate holds an interest. . . . ‘Default’ is not defined in the Code. . . . [A]ny failure to act where that failure results in adverse consequences to the non-acting party is a default. . . . [T]he debtor failed to pay the taxes on her property. . . . Pursuant to § 1322(b)(3), the debtor’s plan proposes to cure the default . . . by paying the taxes in full. . . . Such a cure will reinstate the debtor’s pre-default interest in the property.”); Equity Inv. Co. v. Moreland (In re Moreland), 124 B.R. 921, 923 (Bankr. D. Conn. 1991) (Applying DiPiero v. Cullen (In re Taddeo), 685 F.2d 24 (2d Cir. 1982), Chapter 13 debtor can provide for full payment of a matured home mortgage debt that was reduced to a prepetition foreclosure judgment in state court without running afoul of § 1322(b)(2). The ban on “modification” in § 1322(b)(2) does not prohibit the debtor from exercising curative powers under § 1322(b)(3). “Since a debtor in this circuit can use a Chapter 13 plan to pay off the matured defaulted payments of a mortgage, it is but a modest extension to permit a good faith Chapter 13 debtor to pay off the entire matured debt.”); In re Williams, 109 B.R. 36 (Bankr. E.D.N.Y. 1989) (Citing Grubbs v. Houston First American Savings Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc), § 1322(b)(3) permits Chapter 13 debtor to pay a non-purchase money secured claim holder that has a prepetition judgment of foreclosure on the debtor’s principal residence the present value of its debt over the life of the plan. Full payment through the plan constitutes curing default and is not a modification of the secured claim holder’s rights under § 1322(b)(2) or (b)(5).).

 

9  See § 142.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 ] § 85.1  Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994.

 

10  See §§ 130.1 [ Prepetition Defaults ] § 82.1  Prepetition Defaults—When is Property “Sold” at Foreclosure? and 142.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 ] § 85.1  Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994.

 

11  See § 142.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 ] § 85.1  Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994.

 

12  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993).

 

13  11 U.S.C. § 1322(c)(1), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994).

 

14  See § 130.1 [ Prepetition Defaults ] § 82.1  Prepetition Defaults—When is Property “Sold” at Foreclosure?.

 

15  See § 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

16  11 U.S.C. § 1322(c)(2), discussed in § 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

17  The interaction of §§ 1322(c)(1) and 1322(c)(2) is discussed further in §§ 130.1 [ Prepetition Defaults ] § 82.1  Prepetition Defaults—When is Property “Sold” at Foreclosure? and 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

18  140 Cong. Rec. H10,769 (section-by-section analysis by Congressman Brooks). See In re Chang, 185 B.R. 50, 53 (Bankr. N.D. Ill. 1995) (1994 amendments to § 1322(c) permit Chapter 13 debtors to cure defaults and to modify certain short-term mortgages at any time before a foreclosure sale. Mortgage ballooned on November 1, 1994. Chapter 13 petition was filed on March 3, 1995. Plan proposed to pay the outstanding balance of $185,000 with 9% interest over the term of the plan. “In the 1994 amendments to the Bankruptcy Code, Congress provided that, ‘notwithstanding subsection (b)(2) and applicable non-bankruptcy law,’ a Chapter 13 debtor may cure a default with respect to a lien on his or her principal residence until the property is sold at a foreclosure sale. 11 U.S.C. § 1322(c)(1). . . . Since the property in question here has not been sold by foreclosure sale, Debtors continue to have such rights. . . . The changes made by this section . . . also overrule the result in First Nat’l Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. 1991) . . . The statute now makes clear that judicial sale is the bright line that cuts off a debtor’s rights, not foreclosure judgment.”).

 

19  See § 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

20  See § 130.1 [ Prepetition Defaults ] § 82.1  Prepetition Defaults—When is Property “Sold” at Foreclosure?.

 

21  See § 130.1 [ Prepetition Defaults ] § 82.1  Prepetition Defaults—When is Property “Sold” at Foreclosure?.

 

22  11 U.S.C. § 1322(c)(2), discussed above in this section and in § 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

23  11 U.S.C. § 1325(a)(5) is discussed beginning at § 74.1  General Rules before BAPCPA 11 U.S.C. § 1322(b)(5) is discussed beginning at § 141.1  Conversion by Debtor.

 

24  See § 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

25  11 U.S.C. § 1322(c)(2).

 

26  See In re Duran, 271 B.R. 888, 891 (Bankr. D. Wyo. 2001) (Prepetition acceleration does not qualify mortgage for treatment under § 1322(c)(2). “[T]he language of the statute is plain. Section 1322(c)(2) applies when ‘the last payment on the original payment schedule’ is due before the plan’s final payment is due. The original payment schedule means the payment schedule contained in the promissory note and/or other security documents. . . . This court agrees with the [In re Rowe, 239 B.R. 44 (Bankr. D.N.J. 1999),] court and concludes the exception contained in § 1322(c)(2) is not applicable to the acceleration scenario. The exception is intended to reach cases in which a mortgage matures by its own terms prior to the last plan payment. Those instances include the note under which a debtor owes a balloon payment under the original contract terms, is nearing the end of a mortgage amortization, or has borrowed funds on a short term note. . . . [T]he acceleration of the note in anticipation of a mortgage foreclosure does not create a single obligation debt as intended by § 1322(c)(2).”); In re Amos, 259 B.R. 317, 320 (Bankr. C.D. Ill. 2001) (Section 1322(c)(2) does not empower the plan to bifurcate an undersecured mortgage based on acceleration and commencement of foreclosure before the petition. Plan proposed to strip down first mortgage to value of property and pay secured portion over 30 years. “The filing of a mortgage foreclosure does indeed accelerate the mortgage, as Debtors assert. However, § 1322(c)(2) applies, by its own specific language, only where ‘the last payment on the original payment schedule’ is due before the last plan payment is due. . . . The last payment on the original payment schedule is not due before the last payment of the proposed plan is due in this case, so the § 1322(c)(2) exception to § 1322(b)(2) anti-modification provision does not apply.”); In re Rowe, 239 B.R. 44, 50–52 (Bankr. D.N.J. 1999) (Prepetition foreclosure judgment does not subject a “long term” mortgage to modification under § 1322(c)(2). “This Court respectfully disagrees with the holdings of both [In re Nepil, 206 B.R. 72 (Bankr. D.N.J. 1997),] and [In re Winogora, 209 B.R. 632 (Bankr. D.N.J. 1997),] and finds that the ‘last payment’ language of section 1322(c)(2) refers to the date of the last payment on the original note rather than the date the accelerated debt is due and therefore declines to extend the scope of subsection (c)(2) to include entry of a foreclosure judgment on a mortgage whose final payment is due after the final payment under a debtor’s Chapter 13 Plan. Since the maturation date on the within Mortgage occurs after the contemplated final payment under the proposed Plan, this Court finds sections 1322(c)(1) and (b)(5) controlling  . . . . [T]he words ‘original payment schedule’ . . . refer to the last payment to be made under the terms of the original note and do not contemplate entry of a foreclosure judgment. In this regard, if Congress had intended to include foreclosure judgments in section 1322(c)(2), it did not need to insert the words ‘original payment schedule.’ . . . [T]he words ‘original payment schedule’ include only mortgages that mature prior to the last payment under the plan. Thus only short term mortgages, mortgages with balloon payments maturing before the date on which the last payment under the plan is due and long term mortgages maturing prior to the date on which the last payment under the plan is due are within the scope of § 1322(c)(2).”); In re Sims, 185 B.R. 853 (Bankr. N.D. Ala. 1995) (A mortgage that was reduced to judgment and foreclosure sale prior to the petition is not the sort of short-term mortgage contemplated by § 1322(c)(2), as amended by the Bankruptcy Reform Act of 1994. The words “last payment” in § 1322(b)(2) refer to the original contract payment schedule.).

 

27  In re Nepil, 206 B.R. 72, 74–77 (Bankr. D.N.J. 1997). Accord In re Padgett, 273 B.R. 277 (Bankr. M.D. Fla. 2001) (Citing § 1322(c)(2), residential mortgage that was reduced to final judgment of foreclosure before petition can be modified through a Chapter 13 plan “notwithstanding” § 1322(b)(2); mortgage holder’s motion for relief from the stay is denied conditioned that the debtor provide adequate protection.); In re Winogora, 209 B.R. 632, 635, 636 (Bankr. D.N.J. 1997) (Chapter 13 debtor can use § 1322(c)(2) to pay a prepetition foreclosure judgment in full through plan. When a plan pays a prepetition foreclosure judgment in full under new § 1322(c)(2), the judgment creditor is precluded from adding advances for taxes and insurance after entry of the prepetition foreclosure judgment. “As a matter of statutory construction, it is certainly questionable whether the entry of a foreclosure judgment constitutes ‘the last payment on the original payment schedule . . . that is . . . due before the date on which the final payment under the plan is due.’ It is clear, however, from the legislative history of the 1994 Reform Act that Congress intended in enacting § 1322(c)(2) to overrule First National Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir.1991), which held that a foreclosure judgment could not be paid through a chapter 13 plan. H.R.Rep. No. 103-834, at 33–34 (1994) . . . . For this reason and the others given in In re Nepil, 206 B.R. 72 (Bankr.D.N.J.1997), the court holds that Code § 1322(c)(2) authorizes the payment of a foreclosure judgment through a chapter 13 plan. . . . Neither subsection of § 1322(c) . . . reflects any intention to modify so much of [In re Roach, 824 F.2d 1370 (3d Cir. 1987),] as held that under New Jersey law a mortgage merges into a foreclosure judgment. If § 1322(c)(1) is not being used to reinstate a mortgage, it follows that any other consequences of the merger of a mortgage into a judgment under New Jersey law still apply. One of those consequences is the binding effect of [Stendardo v. Federal National Mortgage Ass’n (In re Stendardo), 991 F.2d 1089 (3d Cir. 1993),] holding that a mortgagee cannot add post-judgment advances for taxes and insurance to its secured claim.”).

 

28  945 F.2d 61 (3d Cir. 1991).

 

29  See section-by-section analysis by Congressman Brooks, quoted above.

 

30  See § 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

31  This outcome—greater protection of mortgage holders that have acted with restraint prior to the filing of a Chapter 13 case—is not so strange as might first appear. See discussion in § 130.1 [ Prepetition Defaults ] § 82.1  Prepetition Defaults—When is Property “Sold” at Foreclosure?.