In Maine interesting and unresolved questions often arise when a mortgagor files for bankruptcy after a judgment of foreclosure has been entered in state court but before a foreclosure sale has occurred. Specifically, what rights does the mortgagor have in the real property? And are the mortgagee's subsequent steps to complete the sale barred by the automatic stay of the Bankruptcy Code (“Code”)? These questions are made more difficult because Maine is a title theory state and because the foreclosure sale occurs after the expiration of the statutory redemption period rather than, as in most states, before it. Because a mortgagor is statutorily entitled to any surplus from a foreclosure sale, this entitlement naturally piques the interest of a bankruptcy debtor, trustee, and judge. Each may have a desire to assure that a surplus is created if at all possible. Each of these considerations reveals a tension between the Code and Maine law. Unfortunately, even though the Maine bankruptcy court has had the opportunity, it has failed thus far to clarify these issues. In order to enable courts to mesh the two fields of law without doing violence to either, this Article proposes a solution. First, it asserts that the entry of a foreclosure judgment limits the scope of a debtor's rights under the Code—an approach which comports with legislative intent and Supreme Court mandate. Next, this Article analyzes the extent to which the automatic stay applies to a mortgagee's efforts to conclude a foreclosure sale and suggests how courts ought to analyze a mortgagee's request for relief from stay. In addition, this Article explains the temptation of some courts to make debtor-oriented decisions in certain cases where a surplus is possible or reinstatement is desired. Such decisions are bad precedent and run counter to existing law. Finally, this Article contends that the proposed analysis provides the Maine bankruptcy court with an approach that will clarify the current confusing state of bankruptcy law surrounding mortgagees' and mortgagors' rights in bankruptcy while also harmonizing the Code and Maine law.
Daniel L. Cummings,
Grinding Gears: Meshing Maine Mortgage Foreclosure Law and the Bankruptcy Code,
Me. L. Rev.
Available at: https://digitalcommons.mainelaw.maine.edu/mlr/vol44/iss1/13