Summary
This Ninth Circuit Bankruptcy Appellate Panel decision addresses whether a Chapter 13 debtor can use a confirmed plan to redeem her residence after a prepetition judicial foreclosure sale but before the expiration of the state's statutory redemption period. The panel holds that once the bankruptcy code's extension of the redemption period under § 108(b) expires, the debtor loses the right to reclaim the property through a Chapter 13 plan because the foreclosure sale purchaser holds an ownership interest rather than a creditor's claim subject to modification under § 1322. Consequently, the panel reverses the bankruptcy court's confirmation order and remands for entry of an order granting relief from the automatic stay.
Topics
Practice areas
Questions Presented
- Whether the bankruptcy court erred by confirming a chapter 13 plan that required payment to a judicial-foreclosure purchaser after the debtor's statutory redemption period had expired.
- Whether a judicial-foreclosure purchaser holding an ownership interest subject to redemption holds a Bankruptcy Code claim that may be modified, cured, or paid through a chapter 13 plan.
- When a residence is considered sold at a foreclosure sale for purposes of 11 U.S.C. § 1322(c)(1).
- Whether the bankruptcy court abused its discretion by denying Vitruvian relief from the automatic stay.
Holdings
- Sharp could not use her chapter 13 plan to invoke or extend expired state-law redemption rights. Her Washington redemption period expired on September 8, 2023, 60 days after the petition date, before confirmation of her plan.
- Vitruvian's inchoate, defeasible ownership interest in the property was not a Bankruptcy Code claim. Because the foreclosure proceeds satisfied Lakeland's judgment before bankruptcy, Sharp had no surviving debt and Vitruvian had no right to payment from Sharp; therefore, §§ 1322(b) and 1322(b)(8) did not permit the plan to alter Vitruvian's ownership interest.
- Under federal law, a residence is sold at a foreclosure sale when the foreclosure auction concludes and the gavel falls, even if state law preserves a post-sale redemption interest.
- Vitruvian established cause for relief from the automatic stay under § 362(d)(1) because Sharp had no legitimate prospect of using chapter 13 to reclaim the property. The denial of stay relief was reversed and remanded for entry of an order addressing appropriate terms and timing.
Key quotations
“As a matter of federal law, the residence is sold and the right to cure terminates under § 1322(c)(1) when the “gavel falls” at the foreclosure sale.” (2-3)
“Though the Bankruptcy Code’s definition of a “claim” is exceedingly broad, we cannot conjure a “right to payment” where none exists.” (17-18)
“Upon payment of the debt, there is no claim to be addressed through the plan even if the debtor’s right to redeem becomes property of the bankruptcy estate.” (27)
Factual background
Lakeland obtained a judicial foreclosure judgment against Sharp's Washington residence based on unpaid homeowners' association assessments. At a July 15, 2022 sheriff's sale, Vitruvian purchased the property for $25,000, and the state court directed that Lakeland be paid from the proceeds, thereby satisfying Sharp's debt to Lakeland. Sharp filed chapter 13 on July 10, 2023, five days before Washington's one-year statutory redemption period expired; the Bankruptcy Code extended the redemption period by 60 days under § 108(b). Sharp did not redeem within that extended period but proposed a plan requiring payment to Vitruvian in an effort to reclaim the property.
Procedural history
Lakeland Village Community Club obtained a Washington judicial foreclosure judgment against Sharp and conducted a sheriff's sale at which Vitruvian purchased the property. Sharp filed chapter 13 bankruptcy shortly before the one-year Washington redemption period expired. After the bankruptcy court denied confirmation of an initial plan, Sharp proposed plans requiring lump-sum payments to Vitruvian intended to function as redemption; the bankruptcy court ultimately confirmed the third amended plan and denied relief from stay. Vitruvian timely appealed both orders.
Remand instructions
Remand for the bankruptcy court to enter an order granting Vitruvian relief from the automatic stay and addressing any specific terms concerning the manner and timing of that relief.