Opinion
No. 97-1263, Bankr. No. 97-11901.
January 30, 1998
ORDER REVERSING BANKRUPTCY COURT'S ORDER
Appellant Adrian State Bank ("Bank") has brought this appeal from the United States Bankruptcy Court's decision which overruled the Bank's objection to the confirmation of the Chapter 13 plan of Mary J. Moody ("Debtor"). For the reasons set forth below, the Bankruptcy Court's order finding that the Debtor could surrender her mobile home while retaining the land on which the mobile home sat even though the mobile home and the land were collateral for the Bank's single secured claim is REVERSED.
On May 30, 1997, the Debtor filed a petition and plan under chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of Tennessee, Eastern Division. The Bank objected to the Debtor's proposed plan, and a hearing on the objection was held on September 11, 1997. In an order entered on October 9, 1997, the bankruptcy court issued findings of fact and conclusions of law, overruling the Bank's objection. The Bank has appealed that decision to this court pursuant to 28 U.S.C. § 158(a) and Bankr. Rules 8001-8019. The Bank contends that the bankruptcy court erred in finding that the Debtor could modify the Bank's security interest by severing the mobile home from the real property.
The factual findings of a bankruptcy court should not be overturned on appeal by a district court unless they are clearly erroneous. Bankr. Rule 8013. See In re Southern Industrial Banking Corp., 809 F.2d 329, 331 (6th Cir. 1987); In re H S Transp. Co., 110 B.R. 827, 829 (M.D. Tenn. 1990). Under the clearly erroneous standard, when the judge's inferences are reasonable and supported by the evidence, they will not be disturbed. In re Southern Industrial, 809 F.2d at 829. However, questions of law are reviewed de novo. Id. See also In re Tudor Assoc., Ltd., 20 F.3d 115, 119 (4th Cir. 1994).
In the present case, the relevant facts are undisputed. On December 18, 1995, the Debtor purchased a ten-acre tract of land On December 23, 1995, the Debtor entered into a retail installment contract with Mobile Homes, Inc., of Jackson ("Mobile") for the purchase of a mobile home to be placed on the ten-acre tract. As collateral for the transaction, the Debtor granted Mobile a security interest in her mobile home, which was noted on the mobile home's certificate of title. As additional security, the Debtor issued Mobile a deed of trust on the ten-acre tract. Mobile assigned these security interests to the Bank on December 23, 1995.
The mobile home was placed on the ten-acre tract, and the Debtor used the mobile home as her principal residence until December 1996. (TR at 7-8). The wheels of the mobile home were removed, and the mobile home was tied down and secured, and underpinning was put around it. (TR at 8). The bankruptcy court found that, because the Debtor used the mobile home as her home, utility connections must had been made at some point.
In her bankruptcy plan, the Debtor proposed surrendering the mobile home to the Bank while retaining the ten-acre tract. The bankruptcy court overruled the Bank's objection to the plan, and this appeal followed. The Bank has presented two issues on appeal: (1) whether the bankruptcy court erred in finding that the mobile home was personalty that could be severed from the ten-acre tract; and (2) whether the bankruptcy court erred in allowing the Debtor to split her secured claim.
The question of whether a mobile home constitutes real property or personalty pursuant to the Bankruptcy Code is a question of state law. In re Witt, 199 B.R. 890, 892 n. 4 (Bankr. W.D. Va. 1996), aff'd 113 F.3d 508 (4th Cir. 1997), (citing In re Blevins, 152 B.R. 130 (Bankr. N.D. Tex. 1992)). In Fuson v. Whitaker, 28 Tenn. App. 338, 190 S.W.2d 305, 307 (1945), the court explained the criteria for determining when a fixture is personalty as opposed to realty:
We must consider whether or not the owner intended to affix the fixtures permanently to the premises. In considering this we must take into consideration the nature of the fixture, the manner of its attachment, its essential relation or necessity to the business, and the fact that the annexor owned both the premises and the fixtures at the time of their installation.
In Tennessee, whether a mobile home is considered to be a motor vehicle and therefore personal property or part of the real property on which it sits depends upon how the mobile home is actually used. In re Owens, 36 B.R. 661 (M.D. Tenn. 1984) (citing Associates Capital Corp. v. Cookeville Production Credit Association, 569 S.W.2d 474, 479 (Tenn.App. 1978). In determining whether property affixed to realty is deemed realty or personal property, the controlling factor is the intention and purpose of the installation. Hubbard v. Hardeman County Bank, 868 S.W.2d 656, 660 (Tenn.App. 1993). Personal property does not become part of the realty to which it is attached "`[i]f it is intended to be removable at the pleasure of the owner.'" Memphis Hous. Auth. v. Memphis Steam LaundryCleaner, Inc., 225 Tenn. 46, 52, 463 S.W.2d 677, 679 (1971) (quoting Hickman v. Booth, 131 Tenn. 32, 34, 173 S.W. 438, 438 (1914)). In determining the intent and purpose of the parties, a court should look at both objective and subjective factors. Hubbard, 868 S.W.2d at 660.
In Owens, the court determined that the mobile home in question had become affixed to the debtors' real property based on the following factors: the certificate of title on the mobile home and the Chapter 13 petition listed the same address for the debtors; the mobile home had been located on the debtors' real estate for more than five years; and the debtors referred to the mobile home and lot as "realty" in their pleadings. Owens, 36 B.R. at 662. The court then held that the debtors could not modify the terms of their loan which was secured by a mobile home affixed to realty because the mobile home was no longer personal property under Tennessee law. Id. United States v. Shelby County, 385 F. Supp. 1187, 1188 (W.D. Tenn. 1974), was an action by the United States for a declaratory judgment establishing that the Tennessee tax on mobile homes was, in effect, a tax in respect of personalty prohibited by the Soldiers' and Sailors' Civil Relief Act. In deciding that mobile homes owned by nonresident service personnel on active duty and present in the state solely by reason of compliance with naval or military orders constituted personal property, the court relied on the fact that the mobile homes had never been permanently affixed to the land but, instead, were tied to a cable or anchor grounded by an auger end which screwed into the ground. Id. at 1188. The court also noted that the "intentions of the service personnel and landowners involved appear obvious under these circumstances in that they do not intend the trailer to become a part of the real estate." Id. at 1189.
Other states apply a similar test. See, e.g., In re Fink, 4 B.R. 741 (Bankr.W.D.N.Y. 1980) (Concluding that a mobile home had become part of the realty after finding that it was installed on land which the debtor had contracted to purchase, that as a part of the installation the debtor had added a crawl space, installed a septic system, and run water and electricity into the home thereby making it ready for permanent occupancy, and the debtor had resided in the mobile home since its installation.)See also In re Onyan, 163 B.R. 21 (N.D.N.Y. 1993) (Holding that the mobile home was permanently affixed to the real property because the debtor intended to dig a well and install utilities and use the mobile home as his permanent residence.)
In reaching its decision in the present case, the bankruptcy court relied on the following language in Paskell v. Nobility Homes, Inc., 871 S.W.2d 481, 483 (Tenn. 1994):
Although a mobile home in Tennessee is treated as real property for the purposes of tax assessment, a transaction involving the sale of a mobile home is considered the sale of personal property and is subject to the terms and conditions found in the Uniform Commercial Code.
(citations omitted). However, although mobile homes are considered "personal property" constituting "consumer goods" for purposes of the U.C.C., a mobile home may cease being personalty upon its annexation to real property. In re Onyan, 163 B.R. 21, 25 (N.D.N.Y. 1993). Once annexed to real property, a fixture becomes part of the realty. Id.
Here, the Debtor's mobile home may have been personalty at the time of its sale, but it became affixed to the the ten-acre tract when its wheels were removed, utilities were added, and the mobile home was underpinned. Furthermore, the Debtor used the mobile home as her primary residence for approximately one year, and the Debtor placed the mobile home on land that she owned, clear indications that the Debtor intended the mobile home to be permanently affixed to the realty and not "removable at the pleasure of the owner." Memphis Hous. Auth., 463 S.W.2d at 679. Therefore, this court finds that the bankruptcy court erred in holding that the mobile home was personalty that the Debtor could surrender to the Bank.
Moreover, the Debtor could not split her secured claim and surrender the mobile home while retaining the ten-acre tract.See In re Covington, 176 B.R. 152, 154 (Bankr. E.D. Tenn. 1994) (A single claim secured by multiple items of property cannot be severed.) As explained, in Covington, "[t]o hold otherwise, would be tantamount to a finding that a creditor in a Chapter 13 case who has a single claim may, at the whim of the debtor, be compelled to bifurcate the secured portion of its claim into as many individual claims as it has items of property securing its claim." Id. at 155.
For these reasons, the decision of the bankruptcy court overruling the objection of the Adrian State Bank to the Chapter 13 plan of the Debtor is REVERSED. The matter is REMANDED to the bankruptcy court for proceedings not inconsistent with this order.
IT IS SO ORDERED.