by Sara M. Buchanan, Esq.

Bendett & McHugh, P.C.

USFN Member (CT, MA, ME, NH, RI, VT)

On September 29, 2021, the United States District Court for the District of Connecticut issued a decision, In re Tumba, 3:20cv832 (MPS), vacating the Bankruptcy Court’s order denying the creditor’s motion for relief from the automatic stay. The District Court determined the Bankruptcy Court erred in determining the debtor was a “mortgagor” for purposes of Conn. Gen. Stat. § 49-15 and therefore entitled to the suspension of foreclosure proceedings the statute affords mortgagors who file for bankruptcy.

In Connecticut there are two possible foreclosure judgments – 1) a foreclosure by sale in which the property is publically auctioned on a date set by the court or 2) a strict foreclosure where the court sets dates of redemption (“Law Days”) for the owners and junior lienholder after which, if no one redeems, absolute title will vest in the foreclosing entity. Previously the Second Circuit Court of Appeals held that the automatic stay caused by a bankruptcy filing after a judgment of strict foreclosure did apply to, or prevent, the running of the Law Days. See In re Canney, 284 F.3d 362 (2d Cir. 2002). Instead the Second Circuit held that bankruptcy code §108(b) acted to extend the law days to a date that was at least sixty days from the date of the bankruptcy filing. The Connecticut Appellate Court also came to the same conclusion in deciding that a borrower lost her home when she thought the automatic stay would have prevented title from passing to the bank. See Provident Bank v. Lewitt, 84 Conn.App. 204 (2004).

To protect debtors from the Second Circuit and Connecticut Appellate Court rulings, the Connecticut legislature passed Conn. Gen. Stat. §49-15(b) which provides that a judgment of strict foreclosure “shall be opened automatically” upon the filing of a bankruptcy petition by a mortgagor. When the statute applies the Law Days will stop running when the bankruptcy petition is filed.

Both the Connecticut Bankruptcy Court and the United States District Court had the occasion to determine who qualified as a “mortgagor” for the purposes of § 49-15(b). In this case the debtor’s husband executed a mortgage on the subject property. The debtor was not a signatory to the mortgage or underlying note and held no interest in the property when the mortgage was executed. When the debtor’s husband died intestate, she inherited the real property through the probate proceedings. The creditor commenced a foreclosure action in state court and obtained a judgment of strict foreclosure and a law day for the equity of redemption was assigned to the debtor. The debtor filed a Chapter 11 bankruptcy petition prior to the passing of the law day.

In order to proceed with evicting the debtor the creditor moved for relief from the automatic stay under 11 U.S.C. § 362(d)(2) on the basis that it had obtained a judgment of strict foreclosure in state court with regard to the subject property, the law day passed without redemption, and the creditor was now the owner of the property. The Bankruptcy Court determined the debtor, as a successor in interest to the prior mortgagor, was herself a “mortgagor” under § 49-15(b) and therefore entitled to the automatic opening of the strict foreclosure judgment and the suspension of the running of the law days upon the filing of the bankruptcy petition. Consequently, the motion for relief from stay was denied.

Upon appeal the creditor argued that while § 49-15(b) did not specifically define the term “mortgagor,” the court must look to the plain meaning of the term when determining if the debtor was entitled to the protections under the statute. The District Court agreed the term “mortgagor” “has a common, well-established meaning,” citing to the Black’s Law Dictionary definition of a mortgagor as “[s]omeone who mortgages property; the mortgage-debtor, or borrower.” 1214 (11^th ed. 2019). The adoption of more expansive definitions of “mortgagor” in other mortgage related statutes further supports the argument that the legislature intended for the ordinary meaning of the term to apply in § 49-15(b) and deemed it only necessary to define the term when it wanted to change the term from its ordinary meaning.

Because the debtor was not a “mortgagor” within the meaning of § 49-15(b), the District Court ruled that the judgment of strict foreclosure was not automatically opened upon the filing of her bankruptcy petition and the law day was merely extended by sixty days under 11 U.S.C. §108(b). The District Court further held that because the debtor did not redeem within that sixty day period, title to the property vested in the creditor and neither the debtor nor her bankruptcy estate had any further interest in the property.

This case clarifies that only those parties that are mortgagors under the plain meaning of the word are entitled to the protections of § 49-15(b) and underscores the importance in Connecticut of evaluating a debtor’s status as a mortgagor when determining if and when title may vest by strict foreclosure in the creditor.

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October 2021 e-Update