## Facts

- Oak Farms, Inc., controlled by Curtis H. Johnson and Gloria Jean Johnson, mortgaged Minnesota farm real estate to First National Bank of Montevideo to secure a $300,000 note (1978) and later additional notes totaling about $650,000 (1979), with related entities and the Johnsons also obligated.
- After a September 1980 default, the bank initiated mortgage foreclosure under Minnesota law.
- A sheriff’s foreclosure sale occurred on October 31, 1980, and the bank purchased the property for $566,355.34.
- Minnesota law provided a 12-month post-sale redemption period, set to expire around October 31, 1981, during which the mortgagor could redeem by paying the sale price plus interest.
- About three weeks before expiration, the Johnsons filed a Chapter 11 petition and brought an adversary proceeding against the bank.
- The bankruptcy court, invoking 11 U.S.C. § 105, enjoined further foreclosure action and stayed the redemption period’s expiration until further order or completion of the bankruptcy proceedings involving the property.
- The district court affirmed; the bank appealed.

## Issues

1. Whether 11 U.S.C. § 105(a) authorizes a bankruptcy court to toll or suspend a state statutory redemption period after a foreclosure sale.
2. Whether 11 U.S.C. § 362(a) (automatic stay) permits extending or indefinitely staying the expiration of a state-law redemption period that runs automatically after a foreclosure sale.

## Decision

- The court of appeals reversed the district court’s affirmance of the bankruptcy court’s order.
- The bankruptcy court lacked authority under either § 105(a) or § 362(a) to toll or indefinitely stay Minnesota’s statutory redemption period following the foreclosure sale.
- The case was remanded for proceedings consistent with the holding that the redemption period could not be extended by bankruptcy court order.

## Legal Principles

- Bankruptcy courts’ equitable authority, including under § 105(a), may be exercised only in ways consistent with the Bankruptcy Code and cannot create substantive rights not provided by the Code.
- Under § 541, the bankruptcy estate takes the debtor’s property interests as they exist at filing, subject to state-law limitations; bankruptcy does not enlarge those interests.
- After a foreclosure sale under Minnesota law, the mortgagor retains only a statutory right of redemption for a fixed period; if not exercised, title vests in the purchaser automatically.
- The automatic stay under § 362(a) bars creditor acts to obtain possession or enforce liens, but it does not stop the passage of time or suspend an automatically running state-law redemption period because that expiration is not a creditor “act.”

## Conclusion

The court held that, following a completed foreclosure sale, bankruptcy does not authorize suspending or extending Minnesota’s fixed statutory redemption period through § 105(a) equitable relief or the § 362(a) automatic stay, because doing so would expand the debtor’s state-defined property rights beyond what the Code permits.


Johnson v. First Nat'l Bank of Montevideo, 719 F.2d 270 (8th Cir. 1983)