The Bankruptcy Appellate Panel for the First Circuit used a case involving the split of authority over Section 1322(c)(1) to opine on the binding effect of a BAP opinion on a later BAP panel in the same circuit.

As background, keep in mind that bankruptcy courts are not bound by district court opinions in the same district that were issued in different cases. Similarly, district courts are not bound by decisions by other judges in the district. So, is a BAP panel at liberty to disagree with a prior BAP panel in the same circuit, in the same way that one district judge is not bound by another?

In a January 10 opinion by Bankruptcy Judge Melvin S. Hoffman, the First Circuit BAP decided that stare decisis typically binds a later BAP panel, unless the prior opinion seems “dead wrong” in light of later judicial authority or changes in the statute.

Curing a Mortgage Default After a Foreclosure Sale

The facts were as follows.

Before the debtor’s first chapter 13 filing, the mortgage lender had completed a foreclosure auction on the debtor’s home but had not recorded the foreclosure deed. Although the debtor had filed a plan to cure arrears on the mortgage, the bankruptcy court dismissed the first petition because the debtor had not made payments.

Less than a month after dismissal of the first case, the debtor filed a second chapter 13 petition. The lender still had not recorded a foreclosure deed. The bank filed a motion to modify the stay. The debtor responded by filing a plan to cure arrears on the mortgage and make current payments.

Citing recent authority from the First Circuit BAP, TD Bank N.A. v. LaPointe (In re LaPointe), 505 B.R. 589 (B.A.P. 1st Cir. 2014), the bank contended that the debtor had no property interest in the home because the foreclosure auction had been completed, even though the lender had not recorded the foreclosure deed.

Disagreeing with LaPointe, the bankruptcy judge ruled that a chapter 13 debtor’s plan may cure a default on a home mortgage even though a foreclosure auction was completed before bankruptcy, so long as the foreclosure deed has not been recorded. He therefore denied the motion to modify the stay and confirmed the plan. In re Vertullo, 593 B.R. 92 (Bankr. D.N.H. Oct. 1, 2018).

The outcome was governed by Section 1322(c)(1), added to the Bankruptcy Code in 1994. Notwithstanding “applicable nonbankruptcy law,” the subsection allows a chapter 13 debtor to cure a default on a mortgage on the debtor’s principal residence “until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.”

The result turned on the meaning of “sold.” Does the word refer to the foreclosure auction or to the recording of a deed? The courts are split. In this case, the bankruptcy judge believed that “sold” refers to the recording of a deed. He therefore respectfully declined to follow LaPointe. To read ABI’s report on the bankruptcy court decision, click here.

The lender appealed to the BAP. Surprisingly, the debtor did not insist on having the appeal heard by a district judge. In the BAP, a reversal seemed inevitable, and that’s what happened.

Stare Decisis

The lender naturally contended that the BAP was bound to follow LaPointe and reverse. The debtor argued that the new BAP panel was at liberty to follow courts reaching the opposite conclusion, including a New Hampshire bankruptcy court decision that predated LaPointe. In re Beeman, 235 B.R. 519 (Bankr. D.N.H. 1999).

Judge Hoffman conceded that courts disagree about the binding effect of a BAP decision on a later BAP panel in the same circuit. The First Circuit BAP had not formally taken a position, although a prior panel had found virtue in stability and predictability.

Judge Hoffman alluded to stare decisis that binds the First Circuit, absent an exception to the doctrine.

The First Circuit recognizes exceptions in two circumstances: when (1) a decision has been undermined by controlling authority, such as an opinion from the Supreme Court or an en banc opinion in the circuit; or (2) later authority, although not directly controlling, gives “sound reason” to believe that the former panel would change its mind based on new developments.

Judge Hoffman decided that “considerations” of stare decisis “support our adherence to LaPointe.” Neither the Supreme Court nor the First Circuit had overruled LaPointe, and the opinion below was the only published authority criticizing LaPointe.

Because the statute had not been changed, Judge Hoffman saw “no reason for this Panel to depart from our BAP’s own precedent . . . .”

However, Judge Hoffman did give some credence to a decision from the Ninth Circuit BAP where one judge said in a concurrence that a later panel can depart from a prior BAP opinion if the earlier decision seems “dead wrong.” In re Brooks-Hamilton, 400 B.R. 238, 256 (B.A.P. 9th Cir. 2009) (Markell, Bankr. J., concurring).

Judge Hoffman examined three arguments by the debtor. He found none of them persuasive, much less suggesting that LaPointe was “dead wrong.” Instead, he said that LaPointe represented the majority view. He cited Seventh and Third Circuit decisions holding that a home is sold at a foreclosure sale.

Holding that the debtor lost the right of redemption and the right to cure at the time of the foreclosure auction, Judge Hoffman reversed the denial of the lift-stay motion and confirmation of the plan.