Opinion
Case No. 07-54108.
September 23, 2008
MEMORANDUM OPINION AND ORDER ON DEBTORS' MOTION TO VALUE SECURED CLAIM
This cause came on for hearing on April 3, 2008, to consider the Motion to Value Secured Claim (Doc. 87) filed by Robert and Cynthia McCullum ("Debtors") and the Response (Doc. 92) filed by JP Morgan Chase Bank, N.A. ("Chase"). Present at the hearing were counsel for the Debtors, Grant Wolfe, and counsel for the Chase, David Powell.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334, and the general order of reference entered in this District. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B), (K) and (L).
To facilitate the implementation of provisions of their Chapter 13 Plan, the Debtors request valuation of the secured claim held by Chase, based on the appraised value of their residence. Chase holds a second mortgage on the property. Debtors contend that, notwithstanding the general prohibition of modification of mortgage claims secured by a debtor's principal residence, the terms of the mortgage except it from the general prohibition. Chase disagrees and insists that the mortgage falls within the parameters of § 1322(b)(2).
The Court agrees with Chase that its secured claim for the second mortgage cannot be modified. Therefore, the Court denies the Debtors' Motion to Value Secured Claim.
I. Factual Background
The facts upon which this matter may be decided are without dispute and may be summarized as follows: The Debtors filed for bankruptcy protection under Chapter 13 on May 30, 2007. The Debtors own real property located at 2399 Summit View, Powell, Ohio 43065, which is their principal residence. On December 21, 2004, the Debtors granted a second mortgage (the "Mortgage") to Chase to secure a home equity line of credit (the "HELOC"). The parties agree that the amount of $66,547.05, asserted in Claim # 6, accurately reflects the balance due on the second mortgage. Debtors' real property is worth $210,000. It is encumbered by a first mortgage in the amount of $164,157.57, as evidenced by Claim # 3 filed by Chase Home Finance LLC.
Chase stipulated to the value for the limited purpose of the hearing on Debtors' Motion to Value Secured Claim only.
Taking into consideration the appraised value of the real property and the balance of the first mortgage, the Debtors argue that, pursuant to 11 U.S.C. § 506(a), the second mortgage held by Chase is secured only to the extent that there is value in the property in excess of the amount due the first mortgage holder. More specifically, Debtors argue that Chase holds a secured claim in the amount of $45,842.43, which represents the value of the real property less the balance of the first mortgage, and the remaining balance of $20,704.62 is unsecured. Debtors contend that Chase's secured claim may be modified for the following reasons: 1) the secured claim held by Chase is secured by property in addition to Debtors' principal residence taking it outside the operation of § 1322(b)(2); 2) the last payment due under the terms of the loan is due before the last payment under the Debtors' Chapter 13 plan is due excepting it from § 1322(b)(2) by virtue of § 1322(c)(2); and 3) the Debtors propose to sell the real property and use the available sale proceeds to partially satisfy Chase's claim. In response, Chase argues that its secured claim cannot be modified because the mortgage does not encompass property in addition to the Debtors' principal residence, the payment term for the HELOC is fifteen years from the date it was executed which is longer than the term of the Chapter 13 plan, and the fact that Debtors propose to sell the real property does not remove its secured claim from the anti-modification protections provided by 11 U.S.C. 1322(b)(2). For these reasons, Chase asserts that the valuation proposed by the Debtors is impermissible. II. Legal Analysis
"Under Chapter 13 of the Bankruptcy Code, individual debtors may obtain adjustment of their indebtedness through a flexible repayment plan approved by a bankruptcy court." Nobelman v. American Sav. Bank, 508 U.S. 324, 327 (1993). In doing so, § 1325(a)(5) of the Bankruptcy Code "affords the chapter 13 debtor three alternatives for treatment of a secured creditor's claim through the chapter 13 plan: (1) treatment to which the secured creditor consents, (2) retention of the creditor's collateral and payment of the value of that collateral as a secured claim, with any balance treated as an unsecured claim (often referred to as "cramdown"), and (3) surrender of the collateral." In re Payne, 347 B.R. 278, 280 (Bankr. S.D. Ohio 2006).
Section 1325(a)(5) of the Bankruptcy Code provides as follows:
(a) Except as provided in subsection (b), the court shall confirm a plan if — . . .
(5) with respect to each allowed secured claim provided for by the plan —
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that —
(I) the holder of such claim retain the lien securing such claim until the earlier of —
(aa) the payment of the underlying debt determined under nonbankruptcy law; or
(bb) discharge under section 1328; and
(II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law; and
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; and
(iii) if —
(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and
(II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or
(C) the debtor surrender the property securing such claim to such holder[.]
Section 506(a) governs the determination of a creditor's secured status through valuation. It provides in relevant part that "an allowed claim secured by a lien on the debtor's property `is a secured claim to the extent of the value of [the] property'; to the extent the claim exceeds the value of the property, it `is an unsecured claim.'" Nobelman, 508 U.S. at 328 (quoting 11 U.S.C. § 506(a)). The process by which a secured claim is assigned a secured and unsecured amount for distribution under a chapter 13 plan is commonly referred to as bifurcation of the secured claim. The ability of a debtor to bifurcate a secured claim is limited, however, by 11 U.S.C. § 1322(b)(2) if it is "a claim secured only by a security interest in real property that is the debtor's principal residence[.]" 11 U.S.C. § 1322(b)(2); Nobelman v. American Sav. Bank, 508 U.S. 324 (1993). More specifically, § 1322(b)(2) prohibits a debtor from "providing that the unsecured portion of the [mortgage holder's undersecured] claim . . . be treated the same as other unsecured claims, because a plan providing that the claim would not be paid in full would modify the rights of the holder of the claim." 8 Collier on Bankruptcy P1322.06[1][a][i] (15th ed. rev.) (citing Nobelman v. American Sav. Bank, 508 U.S. 324 (1993)). Notwithstanding § 1322(b)(2), there are circumstances under which a mortgage holder's secured claim may be modified and possibly bifurcated based upon the value of the collateral.
Section 1322(b)(2) provides, in relevant part, that a debtor's Chapter 13 plan may "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. . . ." However, § 1322(b)(2) "does not apply when the creditor has an additional security interest in collateral other than the real property in which the debtor resides because section 1322(b)(2)'s express terms cover claims secured only by a security interest in the debtor's principal residence." Hammond v. Commonwealth Mortgage Corp. of Am. (In re Hammond), 27 F.3d 52, 55-56 (3rd Cir. 1994). Thus, "a mortgage which creates security interests in a debtor's personal property in addition to a lien on the mortgagor's principal residence takes the mortgage beyond the protection of the antimodification clause of section 1322(b)(2) . . . and permits bifurcation of the mortgage into secured and unsecured components under section 506(a)." Hammond, 27 F.3d at 58. Therefore, "[p]ursuant to [§ 1322(b)(2)], which is often referred to as the `anti-modification' provision, a debtor may modify a secured claim unless the claim is secured by property that is (1) real property, (2) the debtor's principal residence, and (3) the only property securing the claim." Davis v. Green Tree Servicing, LLC (In re Davis), 386 B.R. 182, 185 (B.A.P. 6th Cir. 2008) (citing Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208, 210 (6th Cir. 1993)).
In the case sub judice, the first two elements of the anti-modification provision are easily satisfied as the Debtors do not dispute that Chase holds a mortgage lien secured by real property owned by the Debtors and the real property is the Debtors' principal residence. The third element, however, is at issue in this case: Debtors argue that Chase's security interest encompasses more than just real property as collateral, and thus, removes it from the protections of § 1322(b)(2). Accordingly, the specific language in the Mortgage must be examined to determine whether the security interest includes more than just real property. 1. Security interest in fixtures does not constitute additional security for purposes of 11 U.S.C § 1322(b)(2)
Chase's secured claim remains protected by the anti-modification provision of § 1322(b)(2) because the language of the Mortgage does not grant a security interest in more than real property. A security interest remains within the class protected by § 1322(b)(2) if the language of the mortgage "does not extend [the] security interest beyond items which are inextricably bound to the real property itself as part of the possessory bundle of rights." Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208, 213 (6th Cir. 1993). The conveyance of an interest in "the Hereditaments and Appurtenances, rents, royalties, profits, and fixtures thereto appertaining" in a mortgage "refers to benefits which are merely incidental to an interest in real property . . . and does not constitute additional security for purposes of § 1322(b)(2)." Allied Credit Corp., 989 F.2d at 212; see also 11 U.S.C. § 101(13A), (27B) (defining debtor's principal residence to include incidental property which comprises, among other things, fixtures and rents). Further, the addition of such boilerplate language to a mortgage does not remove the claim from protection of the anti-modification provision in § 1322(b)(2). Allied Credit Corp., 989 F.2d 208.
In this case, the Mortgage executed by Debtors in favor of Chase provides, in pertinent part, as follows:
GRANT OF MORTGAGE For Valuable consideration, Grantor grants, mortgages and conveys to lender, with mortgage covenants and upon the statutory condition, all of Grantor's right, title, and interest in and to the following described real property together with all existing or subsequently erected or affixed buildings, improvements and fixtures, all easements, rights of way, and appurtenances, all water rights, watercourses and ditch rights (including stock in utilities with ditch or irrigation rights) and all other rights, royalties, and profits relating to the real property including without limitation all minerals, oil, gas, geothermal and similar matters, (the "Real Property") located in FRANKLIN County, State of Ohio . . . commonly known as 2399 SUMMIT VIEW RD, POWELL, OH 43065.
. . .
Grantor presently assigns to Lender all of Grantor's right title and interest in and to all present and future leases of the Property and all Rents from the Property. In addition, Grantor grants to Lender a Uniform Commercial Code security interest in the Personal Property and Rents.
. . .
DEFINITIONS The following words shall have the following meanings when used in this Mortgage.
. . .
Personal Property The words "Personal Property" mean all equipment, fixtures, and other articles of personal property now or hereafter owned by Grantor and now or hereafter attached or affixed to the Real Property together with all accessions, parts, and additions to, all replacements of, and all substitutions for, any of such property and together with all proceeds including without limitation all insurance proceeds and refunds of premiums from any sale or other disposition of the Property.
Property The word "Property" means collectively the Real Property and the Personal Property.
Real Property The words "Real Property" mean the real property interests and rights as further described in this Mortgage.
. . .
Rents The word Rents means all present and future rents, revenues, income, issues, royalties, profits and other benefits derived from the Property.
Open-End Mortgage, Trial Exhibit B. In this case, Debtors argue that because the language of the Mortgage conveys a security interest in rents and personal property, Chase's claim is not protected by the anti-modification provision of § 1322(b)(2). The Sixth Circuit Court of Appeals determined that "rents" is an item that is inextricably bound to the real property as part of the bundle of rights in the same, and its inclusion in the mortgage as boilerplate language does not cause a creditor to forfeit its antimodification protection under § 1322(b)(2). Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208, 213 (6th Cir. 1993). Therefore, Chase's security interest in "rents" derived from Debtors real property does not constitute additional security.
The language in Chase's Mortgage whereby Debtors granted Chase a security interest in personal property, as that term is defined in the document, is a more difficult issue because the phrase "personal property" is specifically identified as collateral in that document. The Mortgage states that "Grantor grants to Lender a Uniform Commercial Code security interest in the Personal Property . . ." Open-End Mortgage, Trial Exhibit B. A cursory review of this language might lead to the conclusion that this conveyance must be additional security for purposes of § 1322(b)(2) because personal property is not real property. However, a comprehensive review of the Mortgage as a whole leads to quite a different conclusion. The term "personal property" is defined in the Mortgage, in pertinent part, as follows: "The words `Personal Property' mean all equipment, fixtures, and other articles of personal property now or hereafter owned by Grantor and now or hereafter attached or affixed to the Real Property. . . ." (emphasis added). Pursuant to the terms of the Mortgage, Chase only has a security interest in personal property that is "attached or affixed to the Real Property." The fact that the personal property must be attached or affixed to the real property suggests that the items would be "inextricably bound to the real property itself as part of the possessory bundle of rights" similar to a fixture. In fact, Debtors acknowledged at the hearing on this matter that the personal property encompassed by the language in the Mortgage consists of various fixtures, such as, a central air conditioner, furnace and appliances. That being said, the Court must determine then, whether fixtures constitute real property. 2. Fixtures are real property
"Applicable state law determines what is real property." Davis v. Green Tree Servicing, LLC (In re Davis), 386 B.R. 182, 186 (B.A.P. 6th Cir. 2008) (citing Cluxton v. Fifth Third Bank (In re Cluxton), 327 B.R. 612 (B.A.P. 6th Cir. 2005)). "A fixture is an article which was a chattel, but which by being physically annexed or affixed to the realty, became accessory to it and part and parcel of it." Teaff v. Hewitt, 1 Ohio St. 511, 527 (1853). Ohio's Uniform Commercial Code ("UCC") defines fixtures as "goods that have become so related to particular real property that an interest in them arises under real property law." Ohio Rev. Code Ann. § 1309.102(A)(41). Clearly, fixtures constitute real property under Ohio law.
Debtors, however, argue that fixtures should be considered a "hybrid" type of property such that they constitute both real property and personal property concurrently because the UCC provides a secured creditor with the option of enforcing its security interest in fixtures under either real property law or the applicable provisions of the UCC. It is true that the UCC provides that "if a security agreement covers goods that are or become fixtures, a secured party may proceed: (1) Under section 1309.601 to 1309.628 of the Revised Code; or (2) In accordance with the rights with respect to real property. . . ." Ohio Rev. Code Ann. § 1309.604. Even though the UCC provides a choice of remedies for secured creditors to enforce security interests in fixtures, the UCC still defines fixtures as part of the real property to which they are affixed. See Ohio Rev. Code Ann. § 1309.102(A)(41). This Court is not persuaded that providing a choice of remedies for enforcing a security interest under the UCC somehow changes the nature of fixtures as part of real property under Ohio law. Accordingly, the language in the Mortgage granting a security interest in personal property by definition and acknowledgment by the Debtors, actually only grants a security interest in fixtures, and fixtures under Ohio law are interests in real property. Therefore, the security interest granted in personal property in the Mortgage does not constitute additional security and is protected from modification pursuant to § 1322(b)(2).
Ohio Revised Code § 1309.102(A)(41) provides as follows: "`Fixtures' means goods that have become so related to particular real property that an interest in them arises under real property law."
Section 1322(c)(2) "is a statutory exception to the protection from modification afforded most home mortgage lenders in Chapter 13 cases . . ." First Union Mortgage Corp. v. Eubanks (In re Eubanks), 219 B.R. 468, 471 (B.A.P. 6th Cir. 1998), and provides in pertinent part as follows:
(c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law —
. . .
(2) in a case in which the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor's principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5) or this title.
11 U.S.C. § 1322(c)(2). "The phrase `original payment schedule' as used in Section 1322(c)(2) is not defined by the Bankruptcy Code." In re Dandridge, 221 B.R. 741, 748 (Bankr. W.D. Tenn. 1998). Nonetheless, this should not present a problem in a typical Chapter 13 case because "most mortgages arise by contract and have some sort of repayment schedule that can be consulted." 1 Keith M. Lundin, Chapter 13 Bankruptcy, § 143.1, p 2 (3d ed. 2000 Supp. 2004). The parties in this case seek a determination as to what constitutes the "original payment schedule" according to the terms of the HELOC.
The HELOC provides in part as follows:
HOME EQUITY LINE OF CREDIT AGREEMENT AND DISCLOSURE STATEMENT
Principal Loan Date Maturity Loan No. Call/Coll Account Officer Initials $62,184.00 12-21-2004 12-21-2019 [xxxxxxx] [xxxxxx]
This information has been redacted from the original to protect the security of personal and/or financial information.
This information has been redacted from the original to protect the security of personal and/or financial information.
. . .
CREDIT LIMIT $62,184.00 DATE OF AGREEMENT December 21, 2004
. . .
Term The term of your Credit Line will begin as of the date of this Agreement ("Opening Date") and will continue until December 21, 2019 ("Maturity Date"). All indebtedness under this Agreement, if not already paid pursuant to the payment provisions below, will be due and payable upon maturity. The draw period of your Credit Line will begin on a date after the Opening Date, when the Agreement is accepted by us in the State of Ohio, following the expiration of the right to cancel, the perfection of the Mortgage, the receipt of all required certificates of noncancellation and the meeting of all of our other conditions and will continue as follows: five (5) years. The Draw Period is also referred to as the "First Payment Stream". You may obtain credit advances during this period ("Draw Period"). After the Draw Period ends the repayment period will begin and you will no longer be able to obtain credit advances. The length of the repayment period is as follows: ten (10) years. The Repayment Period is also referred to as the Second Payment Stream. You agree that we may renew or extend the period during which you may obtain credit advances or make payments. You further agree that we may renew or extend your Credit Line Account.
Minimum Payment During the Draw Period your Regular Payment will be equal to the amount of the FINANCE CHARGE accrued for the billing cycle for which the statement is rendered. You will make 60 of these payments. Your payments will be due Monthly. Advances to your credit line or an increase in the ANNUAL PERCENTAGE RATE may increase your Regular Payment. If you make only the Regular Payment during your Draw Period the principal balance outstanding on your line will not be reduced as a consequence of your payment of only the FINANCE CHARGE due.
During the Repayment Period your Regular Payment will be based on an Amortization of your Balance at Start of Repayment Period. Your payments will be due Monthly. Your Regular Payment for the Repayment Period is calculated by us at or near the end of the Draw Period. On the day we calculate your Regular Payment, we apply the ANNUAL PERCENTAGE RATE in effect on that day to the balance on your Credit Line and determine what amount is necessary to repay your balance at the ANNUAL PERCENTAGE RATE over the Amortization Period shown below
Range of Balances Number of Payments Amortization Period
All Balances 120 120 payments Home Equity Line of Credit Agreement, Trial Exhibit A.The Debtors contend that the defined terms Draw Period and First Payment Stream represent the "original payment schedule" of the HELOC. The agreement provides that the Draw Period, which is also referred to as the First Payment Stream, will run for five years from the date of the agreement. The date of the agreement is December 21, 2004. Thus, according to the Debtors, the last payment due under the "original payment schedule" is five years from the date of the agreement, or December 21, 2009. The Debtors filed this Chapter 13 case on May 30, 2007, and propose a Ch. 13 plan that is projected to last five years. Consequently, the Debtors' last plan payment will be made in May 2012. The Debtors insist that the second mortgage claim held by Chase can be modified pursuant to § 1322(c)(2) because the last payment due under the "original payment schedule" for their second mortgage is due before the last payment under their plan is due.
Chase argues that the Draw Period cannot be equated to the "original payment schedule" as that term is used in § 1322(c)(2). The term "Draw Period" is defined in the HELOC as the time period during which the Debtors can request withdrawals to the extent they do not exceed their Credit Limit, and the only payment required during that time period is for the accrued finance charge. The Draw Period is immediately followed by an amortizing repayment period of ten years during which time the Debtors are required to make 120 months of payments to retire the outstanding balance of the HELOC in full. Consequently, Chase's position is that the "original payment schedule" under the HELOC is actually fifteen years, consisting of the Draw Period plus the ten year repayment period.
The term "Credit Limit" is defined in the HELOC as a "revolving line of credit for the principal amount of Sixty-two Thousand One Hundred Eighty-four 00/100 Dollars ($62,184.00) [, and] [d]uring the Draw Period [Chase] will honor [the borrowers'] request for credit advances. . . ." Home Equity Line of Credit Agreement, Trial Exhibit A.
The HELOC provides that "[d]uring the Draw Period [the] Regular Payment will be equal to the amount of the FINANCE CHARGE accrued for the billing cycle for which the statement is rendered[, and the borrowers] will make 60 of these payments." Home Equity Line of Credit Agreement, Trial Exhibit A.
Although the Bankruptcy Code does not define the phrase "original payment schedule," it is clear that the phrase is intended to refer to a payment period during which the obligation is paid in full. The Debtors' interpretation of § 1322(c)(2) does not withstand scrutiny and is inconsistent with the goal of the statute. First, the Debtors' interpretation differentiates between mortgage notes with a straight amortization and those with multiple amortization schemes such as the one under consideration. Such an approach is not supported by the language of the statute, which makes no distinction between residential mortgage debt based on terms of payment related to amortization. Aside from that, there is no apparent reason why there should exist such a distinction, and the Debtors did not articulate any.
Additionally, the exceptions articulated in the statute are intended to "encompass short-term mortgages, long-term mortgages on which the debtor has nearly completed payments, and mortgages with balloon payments." 8 Collier on Bankruptcy P 1322.16 (15th ed. rev. 2001) (citations omitted); see also Am. Gen. Fin., Inc. v. Paschen (In re Paschen), 296 F.3d 1203, 1207 (11th Cir. 2002) ("[T]he plain language of the statute indicates a clear congressional intent to except certain short-term mortgages from the general rule prohibiting the modification of claims secured only by an interest in a debtor's primary residence. . . ."). "[C]ourts consistently apply § 1322(c)(2) exclusively to claims that mature prior to or during the term of the Chapter 13 plan." In re Perry, 235 B.R. 603, 608 (S.D. Tex. 1999) (citations omitted). "The focus of § 1322(c)(2) is short term, often high interest, second and nontraditional mortgages, to which those in financial distress sometimes fall victim." First Union Mortgage Corp. v. Eubanks ( In re Eubanks), 219 B.R. 468, 480 (B.A.P. 6th Cir. 1998); see also In re Mattson, 210 B.R. 157, 161 (Bankr. D. Minn. 1997) ("The section will typically apply to second mortgages such as this one, which are based very little on the value of the home and more on the leverage provided by having a mortgage on a debtor's homestead. . . . These short term, high interest rate home equity loans are more akin to consumer financing than traditional home lending."). In a very comprehensive opinion reviewing the legislative development of the Bankruptcy Reform Act of 1994, the Bankruptcy Appellate Panel for the Sixth Circuit recognized that the legislative history to that Act "reveals that between 1991 and 1994 both houses of Congress repeatedly studied ways to reduce the protection of subordinate and `short term' mortgages in Chapter 13 cases." In re Eubanks, 219 B.R. at 473-77 (emphasis added). When enacting § 1322(c)(2), the goal of Congress was to "maintain the protections afforded home mortgage lenders, while preventing `thinly disguised personal' lending [i.e., subordinate mortgage holders] from taking advantage of those protections." Bartee v. Tara Colony Homeowners Ass'n (In re Bartee), 212 F.3d 277, 294 (5th Cir. 2000) (citation omitted) (bracketed material added).
Thus, the Debtors may not modify the secured claim held by Chase because the exception to the anti-modification clause is inapplicable to the secured claim held by Chase. The terms of the HELOC clearly provide that the Debtors must maintain regular monthly payments for the first five years consisting of a minimum amount of the accrued finance charge for the applicable billing cycle, followed by 120 monthly payments in amounts sufficient to pay the HELOC in full. In addition, the HELOC specifically provides that the "[t]he term of [the] Credit Line will begin as of the date of this Agreement [December 21, 2004] . . . and will continue until December 21, 2019. . . ." Home Equity Line of Credit Agreement, Trial Exhibit A. Accordingly, the duration of the line of credit as explicitly stated in the agreement is fifteen years, and obviously, the last payment on the original payment schedule under the HELOC is due after the last payment under the Debtors' Chapter 13 plan is due. Therefore, the exception to the antimodification clause set forth in 1322(c)(2) does not apply to the secured claim held by Chase, and the Debtors may not modify Chase's claim.
The Debtors cannot bifurcate Chase's claim based on the fact that they propose to sell the subject real property pursuant to 11 U.S.C. § 1322(b)(8) because that section does not create an exception to the anti-modification clause of § 1322(b)(2) or otherwise make it inapplicable. Section 1322(b)(8) states that a plan may "provide for the payment of all or part of a claim against the debtor from property of the estate or property of the debtor[.]" 11 U.S.C. § 1322(b)(8). "Section 1322(b)(8) of the Bankruptcy Code expressly authorizes Chapter 13 debtors to liquidate assets to make payments under their plan." In re Hogue, 78 B.R. 867, 870 (Bankr. S.D. Ohio 1987). However, the sale of the debtor's homestead or other property cannot be used to "circumnavigate the antimodification requirements of sections 1322(b)(2) and (5)." In re Lindsey, 183 B.R. 624, 627 (Bankr. D. Idaho 1995). In this case, the Debtors argue that the subsections of § 1322(b) are elective and should be interpreted in light of what the Debtors' Chapter 13 plan provides. Thus, it is Debtors' contention that because they have elected to sell the property under subsection 1322(b)(8) and apply the proceeds of sale to satisfy the secured claims related to the property to the extent such proceeds are available, they do not also have to comply with the anti-modification provisions of (b)(2) or provide for regular monthly payments under (b)(5) with respect to Chase's secured claim. The Debtors, however, did not cite any supporting authority for such a proposition, and the Court did not find any.
The Court reserves judgment on whether the debtor is required to maintain monthly payments to Chase pending the sale of the real property as that issue is not presently before the Court. The Court notes, however, that one of the rights protected from modification discussed in Nobelman was the bank's right to "repayment of the principal in monthly installments over a fixed term at specified adjustable rates of interest. . . ." Nobelman v. American Sav. Bank, 508 U.S. 324, 329 (1993); see also 11 U.S.C. § 363. But see In re Newton, 161 B.R. 207, 217-218 (Bankr. D. Minn. 1993) (stating that a cure-by-sale may pass muster if the debtor's plan contains enough detail regarding the proposed sale to "ensure the likelihood of a realization for the secured party").
Congress specifically provided exceptions to the application of § 1322(b)(2) in certain subsections by using the phrases "notwithstanding paragraph (2)" and "[n]otwithstanding subsection (b)(2)." 11 U.S.C. § 1322(b)(5), (c). Thus, Congress clearly knows how to create an exception to the anti-modification provisions contained in § 1322(b)(2) as illustrated by the language used in other subsections. Section 1322(b)(8) does not, however, contain any such language that would lead to the conclusion or interpretation that the mandates of § 1322(b)(2) somehow do not apply if a debtor proposes to sell property. Similarly, § 1322(b)(2) does not contain any language limiting its application to situations other than when a debtor proposes to fund a plan or pay a claim through the sale of property. See 11 U.S.C. § 1322(b)(2). Accordingly, the plain language in § 1322 does not provide any exceptions to the application of the antimodification provision of § 1322(b)(2) when a debtor proposes to sell property under § 1322(b)(8). Therefore, the Debtors may not bifurcate the Chase's claim into secured and unsecured claims pursuant to § 506 because it is protected by the anti-modification provisions under § 1322(b)(2).
III. Conclusion
In light of the foregoing, the Court finds that the secured claim held by Chase cannot be modified due to the strictures of § 1322(b)(2) because: (i) the mortgage held by Chase is a claim secured only by a security interest in real property that is the Debtors' principal residence; (ii) the last payment on the original payment schedule under the home equity line of credit agreement is due after the last payment under the Debtors' Chapter 13 plan is due; and (iii) the plain language of § 1322 does not provide any exceptions to the application of the anti-modification provision of § 1322(b)(2) when a debtor proposes to sell property under § 1322(b)(8). Accordingly, Chase's claim must be treated as fully secured by Debtor's residential real property located at 2399 Summit View, Powell, Ohio. Therefore, the Debtors' Motion to Value Secured Claim (Doc. 87) is DENIED.
IT IS SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio. IT IS SO ORDERED.