Opinion
Case No. 06-14376.
11-13-2007
In Re CHRISTOPHER C. REINHARDT TINA M. REINHARDT, Chapter 13, Debtors.
In an Objection To Confirmation Of Chapter 13 Plan ("Objection") (Doc. 38) filed by Vanderbilt Mortgage and Finance, Inc. ("Vanderbilt"), Vanderbilt contends that the Debtors' First Amended Chapter 13 Plan ("Plan") (Doc. 30) cannot be confirmed because it impermissibly modifies Vanderbilt's rights in violation of 11 U.S.C. § 1322(b)(2).
The Court has jurisdiction to hear and decide the matters presented in this case pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference from the District Court. The matters before this Court constitute core proceedings under 28 U.S.C. § 157(b)(2) for which final orders may be entered.
The Debtors, Christopher and Tina Reinhardt, live in a mobile home. They own the mobile home and the real estate beneath it. Vanderbilt is the holder of a first lien on both the mobile home and real estate. The Debtors filed their chapter 13 petition after the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
("BAPCPA").
BAPCPA added § 101(13A) to define the term "debtor's principal residence" as follows:
(13A) The term "debtor's principal residence"
(A) means a residential structure, including incidental property, without regard to whether that structure is attached to real property; and
(B) includes . . . a mobile or manufactured home[.]
The Plan proposes a cramdown of Vanderbilt's secured claim on the Debtors' mobile home. Vanderbilt argues that a cramdown of its claim violates § 1322(b)(2) which provides, in relevant part:
(b) [T]he plan may
. . .
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence[.]
The question before the Court concerns whether Vanderbilt is the holder of "a claim secured only by a security interest in real property that is the debtor's principal residence." If answered in the affirmative, it would be impermissible under § 1322(b)(2) for the Debtors to modify Vanderbilt's claim, and confirmation of the plan as proposed must be denied. See Nobelman v. American Sav. Bank, 508 U.S. 324, 329 (1993).
The Reinhardts contend that the mobile home constitutes personal property: (1) because it is not physically attached to the real property; or (2) because the certificate of title has not been surrendered to the county auditor. According to the Debtors, § 1322(b)(2) has no application and they are permitted by § 506 to modify Vanderbilt's contract rights under the proposed plan.
In pre-BAPCPA cases, courts looked to state law to determine whether a mobile home constituted "real property" for purposes of applying the anti-modification provisions of § 1322(b)(2). See In re Cluxton, Ch. 13 Case No. 02-17602 (Bankr. S.D. Ohio Feb. 20, 2004), aff'd, 327 B.R. 612 (B.A.P. 6th Cir. 2005). When applying Ohio law, courts examined the factors cited by the Debtors in the preceding paragraph. See id.
With the addition of § 101(13A) to the Bankruptcy Code, Vanderbilt argues that "mobile or manufactured homes are to be considered the `debtor's principal residence' regardless of whether the mobile home is attached to the real property or if the certificate of title was surrendered to the county auditor." See Doc. 46 at 4. Vanderbilt further contends that § 101(13A), by definition, renders all mobile homes which are a chapter 13 debtor's principal residence subject to the § 1322(b)(2) prohibition against cramdown.
Bankruptcy courts around the nation are sharply divided over the effect of § 101(13A) on § 1322(b)(2). Some courts, including one from within this district, have reasoned that the expanded definition under BAPCPA of a debtor's principal residence prohibits a debtor from modifying a secured claim that is secured by a lien on the debtor's mobile home and a mortgage on the underlying real property. To hold otherwise, these courts conclude, would give rise to irreconcilable inconsistencies or absurdities in the application of § 1322(b)(2) as amended by § 101(13A). See In re Davis, 373 B.R. 46 (Bankr. S.D. Ohio 2007); In re Shepherd, 354 B.R. 505 (Bankr. E.D. Tenn. 2006).
Among other bankruptcy courts, however, there is a growing trend which has concluded that § 101(13A) changed little, if anything, about the § 1322(b)(2) analysis. See In re Fuller, No. 07-81073, 2007 WL 3244113 (Bankr. M.D.N.C. Nov. 2, 2007); In re Oliveira, No. 07-60240, 2007 WL 3001654 (Bankr. E.D.Tex. Oct. 11, 2007); In re Bartolome, No. 07-10731, 2007 WL 2774467 (Bankr. M.D. Ala. Sept. 21, 2007); In re Manning, No. 07-70190, 2007 WL 2220454 (Bankr. N.D. Ala. Aug. 2, 2007); In re Coleman, 373 B.R. 907 (Bankr. W.D. Mo. 2007); In re Herrin, No. 07-10126, 2007 WL 1975573 (Bankr. S.D. Ala. July 3, 2007); In re Cox, No. 07-60073, 2007 WL 1888186 (Bankr. S.D. Tex. June 29, 2007); In re Moss, No. 07-10126, 2007 WL 1076688 (Bankr. S.D. Ala. Apr. 4, 2007).
With due respect to all the courts which have struggled with interpreting §§ 101(13A) and 1322(b)(2), this Court agrees with the majority view. Section 1322(b) specifically applies to "real property that is the debtor's principal residence." "Congress has generally left the determination of property rights in the assets of a bankrupt's estate to state law." Butner v. United States, 440 U.S. 48, 54 (1979). And, "[a]lthough federal bankruptcy law determines whether the mobile home at issue constitutes the 'debtor's principal residence,' state law determines whether that same mobile home constitutes real property." Bartolome, 2007 WL 2774467 at *2.
In Ohio, a mobile home loses its character as personal property and becomes part of the real property in only one of two ways. Either the mobile home becomes physically attached to the real estate so as to satisfy the state's traditional fixture law requirements, set forth in Teaff v. Hewitt, 1 Ohio St. 511 (1853), or the certificate of motor vehicle title is surrendered to the county auditor and the mobile home becomes part of the real estate by operation of law. Ohio Rev. Code § 4505.11(H)(4).
In the case at bar, there is no evidence that the mobile home is attached to the real estate, nor is there proof that the certificate of motor vehicle title was surrendered to the appropriate county auditor. Consistent with the state law, the motor home in question can only be viewed as personal property. Because the mobile home never lost its character as personal property under Ohio law it does not meet the definition of real property to which the anti-modification provisions of § 1322(b)(2) apply. Thus, Vanderbilt does not hold a claim to "real property that is the debtor's principal residence," which is unmodifiable.
This analysis relies upon a plain meaning reading of the Bankruptcy Code as amended by BAPCPA. In re Coleman, 373 B.R. 907 (Bankr. W.D. Mo. 2007); In re Herrin, No. 07-10126, 2007 WL 1975573 (Bankr. N.D. Ala. July 2, 2007); In re Cox, No. 07-60073, 2007 WL 1888186 (Bankr. S.D.Tex. June 29, 2007); contra In re Shepherd, 354 B.R. at 511-12 . This Court finds untenable the notion that amended § 101(13A) renders § 1322(b)(2) irreconcilable, inconsistent or absurd when applied in this context. Besides, "the canon against absurdities is a very narrow exception to the plain meaning rule that is only employed 'where it is quite impossible that Congress could have intended the result ... and where the alleged absurdity is so clear as to be obvious to most anyone.'" Oliveira, 2007 WL 3001654 at *2 (quoting Public Citizen v. U.S. Dept. of Justice, 491 U.S. 440, 470-71 (1989) (Kennedy, J., concurring)).
When interpreting an amended statute, courts must "read the amendment together with the original provisions of the [statute] 'as parts of an integrated whole.'" Republic Steel Corp. v. Costle, 581 F.2d 1228, 1232 (6th Cir. 1978)(quoting Markham v. Cabell, 326 U.S. 404, 411 (1945)). "The unchanged sections and the amendment must generally be given 'the most harmonious, comprehensive meaning possible' so that they do not conflict." Republic Steel Corp., 581 F.2d at 1232 (quoting Clark v. Uebersee Finanz-Korp., 332 U.S. 480, 488 (1947)). In the opinion of this Court, the most harmonious and integrated interpretation of § 101(13A) and § 1322(b)(2) would be to construe these two provisions such that § 1322(b)(2) retains its pre-BAPCPA interpretation. "[W]hen Congress amends an existing statute, a court must presume that any part of the statute left intact reflects Congress' intent to preserve the prevailing judicial interpretation of that portion." Air Crash Disaster, 210 F. Supp. 2d 570, 575 (E.D. Pa. 2002) (quoting Pierce v. Underwood, 487 U.S. 552, 567 (1988); Lorillard v. Pons, 434 U.S. 575, 580-81 (1978). "Courts are not authorized to rewrite a statute because they might deem its effects susceptible of improvement." Badaracco v. Commissioner of Internal Revenue, 464 U.S. 386, 398 (1984).
Even though § 101(13A) was clearly intended to sweep more forms of a debtor's property within the protective ambit of § 1322(b)(2), there is nothing in the sparse legislative history of § 101(13A) that suggests that it was enacted specifically to protect mobile home lenders. Manning, 2007 WL 2220454 at *2. Rather, as the Manning court noted, the enactment of § 101(13A) appears more likely to reflect a Congressional response to pre-BAPCPA jurisprudence under § 1322(b)(2).
Prior to BAPCPA, numerous cases around the country had found that when mortgage lenders included anything other than the real estate as collateral. . . then the mortgage holder did not have a claim "secured only by a security interest in real property that is the debtor's principal residence." Other courts had found that [a] security interest in additional collateral did not take the mortgage outside the protection of § 1322(b)(2). With the courts differing on this issue, a logical conclusion is that the purpose behind the definitions set out in BAPCPA was to give more protection to mortgage lenders who take a security interest in additional collateral such as easements, fixtures, rents, royalties, escrow funds, and insurance proceeds, which are now considered "incidental property" and therefore part of the "debtor's principal residence."
Manning, 2007 WL 2220454 at *2 (emphasis added) (footnotes omitted).
In this Court's view, the majority of opinions construing §§ 101(13A) together with 1322(b)(2) have correctly interpreted "real property" and "debtor's principal residence" as being dual requirements to the application of the anti-modification clause, which must be satisfied under BAPCPA as amended. In re Cox, No. 07-60073, 2007 WL 1888186 (Bankr. S.D. Tex. June 29, 2007). Because Vanderbilt is unable to satisfy the first of the dual requirements, namely that the mobile home in question was converted to real property under Ohio law, either through attachment or by operation of law from surrender of the motor vehicle title to the county auditor, its objection to confirmation cannot be sustained. Vanderbilt does not possess "a claim secured only by a security interest in real property that is the debtor's principal residence." Consequently, Vanderbilt's secured claim in personal property is subject to modification under § 506. See Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997).
Accordingly, it is ORDERED AND ADJUDGED that Vanderbilt's objection to confirmation of Debtors' first amended plan solely on the basis that it contravenes § 1322(b)(2) is hereby OVERRULED.
IT IS SO ORDERED.