The bankruptcy court enjoined a deed of trust sale that was based on a pre-petition default under loan documents that were restructured by the terms of the debtor’s confirmed Chapter 11 plan.
The debtor’s debts to the bank are secured by deeds of trust against multiple parcels of real estate. Pre-petition, the borrower defaulted on her loan payments and the bank filed and served notices under the Nebraska Trust Deeds Act. The debtor then filed a Chapter 11 petition and her plan was confirmed. Provisions in the plan modified, superseded, and replaced the debtor’s original obligations to the bank.
The debtor subsequently failed to timely pay real estate taxes, which was a default under the plan. The bank notified the debtor of the default and the cure period. The debtor paid the real estate taxes in June 2025 shortly after the cure period expired. Nevertheless, the bank moved ahead with the deed of trust sale process that it had initiated pre-petition and published notice of sale with a sale date in August 2025. The debtor then moved for a temporary restraining order and injunction to stop the sale.
While the bank argued that the plan simply stayed enforcement of the pre-petition deed of trust foreclosure as long as the debtor continued to meet all plan obligations to the bank, the court pointed out that a confirmed plan modifies a debtor’s obligations and a creditor’s lien rights. A reorganized debtor is free of pre-confirmation obligations except to the extent they are provided for in the confirmed plan, and the confirmed plan is a new enforceable contract between the parties.
Accordingly, the bank could not enforce the pre-petition payment default nor rely on the pre-petition notice of default under the Trust Deeds Act. Instead, the bank was required to file a new notice of default identifying the debtor’s breach of her modified obligations to the bank under the plan – the failure to timely pay real estate taxes. Because the debtor has cured the default by paying the taxes, the bank is precluded from foreclosing.
