Third Circuit Settles Right To Cure Split In New Jersey

For more than 10 years, the courts in New Jersey were split as to whether, under the Bankruptcy Code, a chapter 13 debtor's right to cure a default on a mortgage loan secured by the debtor's primary residence expired at the foreclosure sale, or at the time the deed to the foreclosed property was delivered to the purchaser. That split now has been resolved by the U.S. Court of Appeals for the Third Circuit in favor of the line of cases cutting off the right to cure at the time of the foreclosure sale. In re Connors, No. 06-3321 (3d Cir., Aug. 3, 2007).

The so-called "gavel rule" does not, however, cut off a borrower's state court remedies, the court determined. In New Jersey, a borrower may redeem the property or object to the sale within 10 days of the sale, or within 60 days of the petition date, if the borrower filed a bankruptcy petition during the 10-day grace period.