Where the debtor entered bankruptcy prior to the maturation date of her pawn contract, she had an ownership interest in her pawned vehicle, the lender was a lienholder, and the pawn contract could be modified under section 1322(b). TitleMax of Alabama, Inc. v. Womack, 2021 WL 1343051 (M.D. Ala. April 9, 2021) (case no. 2:20-cv-416). [Read more…] about Modification of Pawn Contract
Bankruptcy Court Discusses Novel Argument Contesting Cram Down of Totally Unsecured Mortgage
In 2004 the Debtors purchased their home with a $209,000.00 purchase money deed of trust held by Bayview Loan Servicing (Bayview). In 2006 the Debtors obtained a second mortgage from Madison Management Services (Madison). In 2017, the Debtors and Bayview entered into a loan modification agreement that provided for a new principal balance of $257,566.94.
The Debtors filed a Chapter 13 bankruptcy. Bayview filed a claim indicating total indebtedness of $255,741.64. Madison filed a claim for $141,323.78. The stipulated value of Debtors’ is between $250,000.00 to $254,000.00.
Subsequently, the Debtors filed a motion to avoid the second lien because it was completely unsecured.
Madison countered that its lien was not unsecured. Under Maryland state law, when a mortgage is refinanced to increase the principal balance, the amount of the increased balance is given lien priority as of the date of the loan modification, not the date of the original loan. Therefore, Bayview effectively has two effective dates for its liens. The balance owed at the time of the refinance has priority as of 2004, and another lien (in the amount of the increased balance) with priority as of 2017. Therefore, when calculating whether Madison’s lien is unsecured the court should take Bayview’s first lien (approximately $207,000), then Madison’s lien ($141,323.78), then the balance of Bayview’s increased lien ($48,566.94). Since Madison’s lien is no longer unsecured, its lien is protected by the anti-modification provision in 11 U.S.C. @ 1322(b)(2).
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Debtors’ Manufactured Home Was Personal Property Under Iowa Law
The Eighth Circuit found no clear error in the bankruptcy court’s finding that, under Iowa common law, the chapter 13 debtors’ manufactured home was personal property and therefore the debt it secured was not subject to section 1322(b)’s anti-modification provision. The Paddock, LLC v. Bennett, No. 18-2098 (Feb. 28, 2019).
Benjamin and Teresia Bennett purchased a manufactured home from Paddock, and placed it on a lot owned by Paddock under a 990-year lease. In their chapter 13 bankruptcy, the Bennetts proposed to bifurcate the debt secured by the manufactured home into secured and unsecured portions under section 506(a)(1). Paddock objected arguing that the home was real property and the interest was subject to the anti-modification provision of section 1322(b). The bankruptcy court found that, under Iowa law, the home was personal property and confirmed the plan. In re Bennett, 2017 WL 1417221 (Bankr. N.D. Iowa Apr. 20, 2017). The Bankruptcy Appellate Panel affirmed. In re Bennett, 584 B.R. 15 (B.A.P. 8th Cir. 2018).
On appeal, the Eighth Circuit Court found that the bankruptcy court correctly applied Iowa law which provides that a fixture may be deemed real property when: “(1) it is actually annexed to the realty, or to something appurtenant thereto; (2) it is put to the same use as the realty with which it is connected; and (3) the party making the annexation intends to make a permanent accession to the freehold.” Applying these considerations, the court looked at the evidence to determine whether the bankruptcy court committed clear error in its findings of fact.
At the confirmation hearing, the parties introduced contradictory evidence as to the physical permanence of the home’s placement on the lot. Although Paddock produced testimony that the home was placed on a permanent, embedded cement foundation, the bankruptcy court credited the Bennetts’ contrary testimony that the home was placed on piers and blocks that were not deeply embedded. In fact, the Bennetts testified that one of the pier pads repeatedly sank into the ground requiring them to raise the pad to level the home. The bankruptcy court was also persuaded that the home was not a permanent accession to the freehold by the fact that the Bennetts leased the land where it was located and, even though the lease described the home as a permanent structure, it included provisions for moving it. The circuit court found no clear error in the bankruptcy court’s resolution of the factual disputes and affirmed the decisions below.
In dissent, Judge Beam argued that the bankruptcy court erred in disregarding the “uncontroverted” evidence that the home was placed on an embedded cement foundation and could not be moved without the use of a professional home mover. This conclusion was supported, according to the dissent, by Iowa law which requires that manufactured homes be placed on cement foundations. The dissent further disagreed with the bankruptcy court’s reliance on the fact that the land where the home was placed was subject to a lease. The dissent argued that the 990-year lease was, in fact, a transfer in fee simple “subject to a condition subsequent.”
Condominium Act Reprioritizes Lien
The New Jersey Condominium Act reprioritizes the condominium association’s lien making it partially secured and subject to the anti-modification provision of section 1322(b). Whispering Woods Condominium Assoc. v. Rones, No. 15-4271 (D. N.J. Feb. 17, 2016). [Read more…] about Condominium Act Reprioritizes Lien
Effect of Foreclosure Sale on Right to Cure and Maintain
A couple recent cases deal with application of the automatic stay when the debtor files his bankruptcy petition in the no-man’s-land between a foreclosure sale and the legal transfer of title through recordation. TD Bank v. LaPointe, No. 13-29 (B.A.P. 1st Cir. Feb. 24, 2014) and In re Comer, No. 13-12148 (Bankr. E.D. Tenn. March 10, 2014). [Read more…] about Effect of Foreclosure Sale on Right to Cure and Maintain
Tax Purchaser Claim May Be Modified in Chapter 13
In a chapter 13 bankruptcy filed prior to the expiration of the redemption period, a real property tax purchaser’s claim is treated as a secured claim which may be modified in the plan. Alexandrov v. LaMont (In re LaMont), No. 13-1187 (7th Cir. Jan. 7, 2014). [Read more…] about Tax Purchaser Claim May Be Modified in Chapter 13
8th Cir. BAP Allows Strip Off in No-Discharge 13
Today the Bankruptcy Appellate Panel for the Eighth Circuit reversed a Minnesota Bankruptcy Court in Fisette v. Keller, No. 11-6012, and that a debtor may strip off wholly underwater junior mortgages when the debtor is not eligible for a discharge in chapter 13. Prior to Fisette, the bankruptcy courts in the District of Minnesota had disallowed the strip of of underwater mortgages even when the debtor was eligible for a discharge. See the decision here.