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

Posted by NCBRC - November 28, 2018

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.

Under New Hampshire law, a foreclosing mortgagee must record the foreclosure deed within 60 days of foreclosure sale or the transfer is void as to intervening lienholders. In In re Beeman, 235 B.R. 519 (Bankr. D. N.H. 1999), the bankruptcy court found section 1322(c) unambiguously extended a debtor’s right to cure and maintain up to the point at which the sale of the foreclosed property is completed by recording of the deed. The Beeman case was called into question, however, by TD Bank, N.A. v. LaPointe (In re LaPointe), 505 B.R. 589 (B.A.P. 1st Cir. 2014), which held that “sale” of the foreclosed property was completed at the fall of the gavel at auction completely cutting off the mortgagor’s interest and preventing the property from entering the bankruptcy estate without regard to whether the mortgagee recorded the deed pre-petition.

The court here found that the decision in LaPointe rested on several erroneous conclusions including a finding that Beeman found section 1322(c) to be ambiguous as to when the foreclosure sale is complete under state law. The Vertullo court also deemed LaPointe’s reasoning problematic where it found that even though section 1322(c) referred to completion of the foreclosure “sale” it actually meant completion of the foreclosure “auction.” Finally, the Vertullo court disagreed with LaPointe that section 1322(c) requires completion of the sale “with respect to the debtor” even though, under operation of state law, the sale might not have been complete with respect to other lienholders. This conclusion, the Vertullo court found, added language to the Bankruptcy Code that was not included by Congress.

For these reasons, the Vertullo court declined to follow LaPointe. Instead, the court found that Ms. Vertullo retained her right to cure and maintain, and, as U.S. Bank’s only argument in favor of relief from stay was Ms. Vertullo’s lack of interest in the property, the court denied that motion. U.S. Bank has appealed to the Bankruptcy Appellate Panel for the First Circuit, No. 18-56.

Vertullo Bky NH order

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