Opinion
CASE NO. 1-01-00647
March 24, 2003
Jeffrey N. Yoffe, Esquire, For the Objectant
Kara Dolphin Beem, Esquire, For the Respondent
OPINION
Drafted with the assistance of John Kelly, Law Clerk.
The background for this Order is as follows. On February 8, 2001, Rita Greene (Debtor) filed a Petition in Chapter 13. Her schedule of secured debts listed two mortgages on her residence. Citifinancial Services, Inc. (CSI) holds the second mortgage. Debtor's Plan sought to strip off the second mortgage based on a lack of any value to secure it. According to the Plan, the property is worth only $29,000.00, while the amount of the first mortgage is $38,036.74. CSI objected to the Plan. It asserts that the property is worth $48,000.00 and so there is value enough to secure its mortgage. The issue now before me is which value is the more accurate one.
In re McDonald, 205 F.3d 606 (3rd Cir. 2000) held that a lien on a debtor's primary residence could be stripped off, despite the provisions of 11 U.S.C. § 1322(b)(2), but only if the property had absolutely no value to which the lien could attach.
Each party presented testimony from an appraiser. Each appraiser opined a figure that supported the position of the respective party for whom each was testifying. Both appraisers were equally qualified to testify as to their opinions. Both used equally creditable appraisal methods. Each side pointed out weaknesses in the opinion asserted by the other. There was nothing in the testimony of either appraiser sufficient to exalt one opinion over the other. The testimony was a wash.
Under such circumstances, the determinative question is who bears the burden of proof as to value. If it is the Debtor, then she has not satisfied her burden and so CFI wins. If CFI bears the burden, then the Debtor wins. The Bankruptcy Code itself does not specifically allocate the burden of proof in an objection to a Chapter 13 Plan.
As a general matter, the debtor has the burden "to prove that a proposed plan complies with Chapter 13." In re Stewart, 172 B.R. 14 (W.D.Va. 1994). Some courts, however, view the objecting creditor as the "movant" and therefore place the burden on him to prove the substance of his objection. In re Blevins, 150 B.R. 444 (Bankr.W.D.Ark. 1992); In re Mendenhall, 54 B.R. 44 (Bankr.W.D.Ark. 1985); 5 Norton Bankr. L. Prac.2d § 122:2, fn. 36. Still other courts hold that, in objections under 11 U.S.C. § 1325(b), the unsecured creditor has the "initial burden of production", and, once that burden is met, the burden of persuasion shifts to the debtor. In re Navarro, 83 B.R. 348 (Bankr.E.D.Pa. 1988).
The Court in In re Brown, 244 B.R. 603(Bankr.W.D.Va. 2000) wrote an insightful opinion on this issue in a case in which a creditor secured by a purchase money security interest in personal property objected to a Plan because it undervalued the property. The Court said:
[A] valuation of the creditor's collateral securing an admittedly valid debt is different in kind than an issue of the debt's or the security interest's very validity. For example, if the debtor makes some showing that it has no liability to the creditor [e.g. the creditor's claims is actually against my spouse, not me], or that the security agreement is void [e.g. it describes the wrong property], then the creditor has and should have the burden of establishing that it truly does have a legally enforceable claim against the debtor and his property. The creditor would have exactly the same burden of proof in a state court enforcement action outside of bankruptcy. . . . Similarly, outside of bankruptcy . . ., the creditor may retain its lien against the collateral prior to foreclosure until its claim has been paid in full without regard to the "value" of the collateral [as] asserted by the debtor. In a Chapter 13 case, however,. . . the debtor may compel the release of the creditor's security interest upon payment of only the value determined by the Court of the creditor's interest in the property. . . . Accordingly, because the creditor's rights are being reduced or eliminated, it seems appropriate that the burden of proof in such a situation should be placed upon the party benefitting from the process, i.e., the debtor.
Id., at 610.
I agree with the Brown Court's analysis. Brown was critical of the opinion in In re Blevins, 150 B.R. 444 (Bankr.W.D.Ark. 1992), in which the court placed the burden of proof on the creditor in any objection to plan case. Blevins reasoned that such placement was appropriate because, in civil litigation, it is the party seeking to "change the status quo" who carries the burden of proof, and so the objector to the "status quo", i.e. the proposed Plan, must prove his case. I agree with Blevin's logic, but disagree with the way in which the Court applied it. That is, I agree that the party seeking to change the status quo usually carries the burden of proof, but I believe that it is the debtor proposing a plan that will alter the terms of a mortgage who is, in fact, seeking to change the status quo. Therefore, I conclude that it is the Debtor who carries the burden of proof.
In the instant case, because the Debtor's expert was no more persuasive than CSI's, the Debtor has failed to carry her burden of proving that the house is worth less than the amount of the first mortgage. Therefore, under 11 U.S.C. § 1322(b)(2), she cannot strip the mortgage off. The Objection to Plan is hereby sustained.
An Order will follow.
ORDER
For those reasons indicated in the Opinion filed this date, IT IS HEREBY ORDERED that the Objection of Citifinancial Services, Inc. to Debtor's Plan is hereby sustained.