Opinion
Case No. 94-20451, Chapter 13, Adversary No. 99-2058
June 26, 2000
DECISION ON MOTIONS FOR SUMMARY JUDGMENT
This case is before the court for hearing June 20, 2000 on the motions of both parties for summary judgment. The court has considered the undisputed facts, the arguments of the parties and the applicable law and concludes summary judgment for the plaintiff is proper.
Jurisdiction
The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 157 and 1334. This is a core proceeding within the definition of 28 U.S.C. § 157(b)(2)(B), (I) and (O). This motion is brought under Fed.R.Civ.P. 56, made applicable in adversary proceedings by Fed.R.Bankr.P. 7056.
Summary judgment is appropriate when there is no disputed issue of material fact and the moving party is entitled to judgment as a matter of law. In re Baum, 22 F.3d 1014, 1016 (10th Cir. 1994). In this case the parties agree the facts are undisputed and the issue before the court is one of law.
Undisputed Facts
On March 8, 1982, Kathleen Kay Charles, the debtor/plaintiff here, executed a promissory note and mortgage in favor of the defendant, First National Bank of Pinedale (FNB). The note was secured by a mortgage on the debtor's residence. The note provided for monthly payments of $794.96 which included interest on the principal balance at the rate of 18% per annum over a term of 15 years. The mortgage provides that the last payment was due on March 20, 1997.
On June 20, 1994, Ms. Charles filed a voluntary chapter 13 petition for relief in this court. At that time, she was in monetary default under the terms of the note and mortgage.
FNB filed a proof of claim in which it set out the total amount of the debt owed, i.e., $31,986.01, as a claim secured by real estate. The claim also included the "[a]mount of arrearage and other charges included in secured claim above, if any, $4,311.66." Attached to the claim was a document which contained a breakdown of the $4,311.66 as "Prepetition Charges In Addition To Principal," including prepetition interest, attorney's fees and costs for a foreclosure proceeding. The arrearage did not include the principal due on the note at the time the petition was filed. Rather, the prepetition principal due was included in the total amount of the claim.
The debtor filed a second amended chapter 13 plan in which she treated the FNB claim under two separate classes. In Class 2-A, the plan provided that "Defaults shall be cured and regular payments shall be made: First National Bank of Pinedale — per Proof of Claim dated 07/14/94 — default plus 14% interest $5,915.00."
Class 8 provided that the debt owed FNB, secured by residential property, would be paid directly by the debtor in accordance with the contract terms. In the motion to confirm, the debtor indicated that only the arrearage of $4,311.66 with interest for a total amount of $5,915.00 was "covered under the Chapter 13 Plan."
The plan and notice of an opportunity to object was served on FNB November 22, 1994. FNB did not object to the second amended plan, and the plan was confirmed by the court on December 27, 1994.
The debtor continued to make the monthly payments due under the note and mortgage through March 1997 as called for by the note and mortgage. She also completed the payments due under her chapter 13 plan in 1999, and the chapter 13 trustee distributed the plan payments in accordance with the plan. On May 14, 1999, the court entered the debtor's chapter 13 discharge. FNB did not file any pleadings in this court after the debtor made her final installment payment in March 1997.
After the case was closed, FNB began foreclosure proceedings for the unpaid prepetition principal and accrued interest which totaled $14,437.41 as of March 24, 1997. This adversary proceeding followed.
Conclusions of Law
A chapter 13 debtor is precluded by § 1322(b)(2) from modifying the rights of the holder of a claim "secured only by a security interest in real property that is the debtor's principal residence." In the case of Nobelman v. American Savings Bank, 508 U.S. 324, 113 S.Ct. 2106, 2110 (1993), the Court set forth a secured creditor's rights which are protected by § 1322(b)(2), including the right to accelerate a loan upon default and the right to repayment of principal in monthly installments over a fixed term.
Pursuant to § 1322(b)(3), the debtor may provide for the curing of any default. Under § 1322(b)(5), a debtor may provide for the "curing of any default . . . on any . . . secured claim on which the last payment is due after the date on which the final payment under the plan is due." The debtor's ability to cure a default is "accomplished by paying off arrearages over the life of the plan "notwithstanding" the exception in § 1322(b)(2)." Id.
In other words, the debtor may de-accelerate the contract and reinstate the mortgage with the residential lender. In re Cureton, 163 B.R. 494, 496 (Bankr.E.D.Mich. 1994). The debtor may do so as long as the debtor pays all defaults (as of the petition date) over a reasonable term under the plan and remains current on the postpetition payments due under the contract. United States v. Easley, 216 B.R. 543, 546 (W.D.Va. 1997). The arrears typically include missed monthly mortgage payments, late fees, and possibly costs and fees. In re Cureton, 163 B.R. at 496. If the arrears did not include all sums due on the date of filing, technically the debtor would not be permitted to reinstate the mortgage. In this case, the amount of the arrearage set forth in FNB's proof of claim should have included the prepetition principal as well as the other charges.
FNB contends that because its lien survives bankruptcy and the total proof of claim amount included the prepetition interest, the debtor was not discharged of the unpaid portion of the obligation. In some other circumstances, the bank's argument might be persuasive.
However, in a chapter 13 case, the treatment of a claim secured by the debtor's residence is unique. In the Tenth Circuit, an order confirming a chapter 13 plan is res judicata as to the rights of the parties, and its terms are not subject to collateral attack. In re Talbot, 124 F.3d 1201 (10th Cir. 1997). The res judicata effect of a confirmed chapter 13 plan applies even if provisions of the plan are contrary to the Bankruptcy Code. In re Andersen, 179 F.3d 1253, 1258 (10th Cir. 1999). The confirmed plan is a binding determination of the liabilities of the parties. Id.
Because the debtor is required to cure the entire prepetition default, and the amount of that claim was specifically identified in the chapter 13 plan, the court concludes the plan is res judicata as to the amount of the prepetition default. The debtor fulfilled her obligation to pay the claim in accordance with the plan, and to satisfy all of the postpetition installment payments as they became due. Therefore, the court concludes the debtor was discharged of the prepetition arrearage, including the principal, even though the amount was erroneously understated.
FNB contends it still retains its lien and the right to foreclose. Be that as it may, the prepetition arrearage is discharged. FNB has no claim to be secured by the lien, and to the extent the lien secures sums due prepetition and interest thereon, the lien is invalid.
The court will issue a judgment in favor of the debtor in accordance with this decision.