Hammond, In re

• Decision Date: 07 July 1994
• Docket Number: No. 93-1747,93-1747
• Citation: 27 F.3d 52
• Parties: , 25 Bankr.Ct.Dec. 1679, Bankr. L. Rep. P 75,945 In re Michael HAMMOND; Jeanette Hammond, Debtors. Michael HAMMOND; Jeanette Hammond v. COMMONWEALTH MORTGAGE CORPORATION OF AMERICA. Commonwealth Mortgage Corporation of America, L.P., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 52

27 F.3d 52

62 USLW 2774, 25 Bankr.Ct.Dec. 1679,

Bankr. L. Rep. P 75,945

In re Michael HAMMOND; Jeanette Hammond, Debtors Michael HAMMOND; Jeanette Hammond v. COMMONWEALTH MORTGAGE CORPORATION OF AMERICA Commonwealth Mortgage Corporation of America, L.P., Appellant.

No. 93-1747.

United States Court of Appeals Third Circuit.

Argued Feb. 17, 1994.

Decided June 9, 1994.

Sur Petition for Rehearing July 7, 1994.

Lawrence T. Phelan and Peter C. Cillo (argued), Federman & Phelan, Philadelphia, PA, for appellant.

Susan L. DeJarnatt (argued), Community Legal Services, Philadelphia, PA, for Michael and Jeanette Hammond.

Present: BECKER, HUTCHINSON and COWEN, Circuit Judges.

OPINION OF THE COURT

HUTCHINSON, Circuit Judge.

Appellant, Commonwealth Mortgage Corporation of America ("Commonwealth"), appeals an order of the United States District Court for the Eastern District of Pennsylvania affirming a decision of the United States Bankruptcy Court for that district. The bankruptcy court had permitted appellees, Michael and Jeanette Hammond (the "Hammonds" or the "debtors"), to bifurcate Commonwealth's claim against the Hammonds into secured and unsecured components pursuant to 11 U.S.C.A. Sec. 506(a). In so doing, the bankruptcy court effectively limited Commonwealth's mortgage claim to the fair market value of the premises securing the mortgage. On appeal Commonwealth argues a bifurcation that has this effect is contrary to the recent United States Supreme Court decision of Nobelman v. American Savings Bank, --- U.S. ----, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), concerning the interplay between section 506(a) and section 1322(b)(2) of the Bankruptcy Code of 1978. ¹ We conclude that Nobelman overrules only one of the two rationales underlying our decisions in Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3d Cir.1990), and Sapos v. Provident Institution of Savings, 967 F.2d 918 (3d Cir.1992). Therefore, we will affirm the district court.

I. Factual & Procedural History

The Hammonds purchased their home at 5636 North 11th Street, Philadelphia, Pennsylvania, on June 15, 1984. They financed the purchase with a loan from Jersey Mortgage Company, which has since been assigned to Commonwealth. The assignment made Commonwealth the holder of a $22,500.00 purchase money mortgage on the Hammonds' home, as well as an additional security interest in:

any and all appliances, machinery, furniture and equipment (whether fixtures or Appendix ("App.") at 15.

not) of any nature whatsoever now or hereafter installed in or upon said premises....

On December 15, 1987, Commonwealth foreclosed the mortgage and obtained a foreclosure judgment for $30,726.10. ² The foreclosure eventually caused the Hammonds to file a Chapter 13 bankruptcy petition in the Eastern District of Pennsylvania on January 8, 1990. On February 8, 1990, Commonwealth filed a secured claim for $42,969.93. ³

The Hammonds thereafter filed an adversary proceeding, seeking to limit Commonwealth's allowed secured claim to the fair market value of their home by bifurcating the claim into secured and unsecured components pursuant to 11 U.S.C.A. Sec. 506. The parties stipulated that the fair market value of the Hammonds' home is $25,000.00.

On July 30, 1990, the bankruptcy court agreed with the Hammonds and entered an order limiting Commonwealth's secured claim to $25,000.00. See Hammond v. Commonwealth Mortgage Co. (In re Hammond), No. 90-10093 (Bankr.D.N.J. July 30, 1990). ⁴ The order provided for the Hammonds to repay Commonwealth's secured claim of $25,000.00 at an interest rate of ten percent over sixty-months in accord with the debtors' plan. The bankruptcy court confirmed the debtors' plan on August 21, 1990. The plan provides:

1. The future earnings of the debtor are submitted to the supervision and control of the trustee and the debtor shall pay to the trustee the sum of $666 on a monthly basis for a period of 60 months.

2. From the payments so received, the trustee shall make disbursements as follows:

* * * * * *

(b) Holders of allowed secured claims shall retain the liens securing such claims and shall be paid as follows:

--Lien of Commonwealth in excess of market value to be avoided.

Allowed secured claims to be paid inside plan.

App. at 21.

Commonwealth appealed the bankruptcy court's order of July 30, 1990 to the district court. It did not appeal the confirmation order. On July 2, 1993, the district court affirmed the bankruptcy court's decision to bifurcate Commonwealth's claim into secured and unsecured portions. At the same time the district court vacated and remanded the case for additional proceedings to determine the value of any remaining security. Hammond v. Commonwealth Mortgage Co. (In re Hammond), 156 B.R. 943, 948-49 (E.D.Pa.1990). This timely appeal followed.

II. Jurisdiction & Standard of Review

The statute which governs jurisdiction over appeals from bankruptcy court decisions is 28 U.S.C.A. Sec. 158. Section 158 provides in relevant part:

(a) The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees ... of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title....

* * * * * * (d) The courts of appeals shall have jurisdiction of appeals from all final decisions, judgments, orders, and decrees entered under subsections (a) and (b) of this section.

28 U.S.C.A. Sec. 158(a), (d) (West 1993) (emphasis added). We conclude that the district court had appellate jurisdiction under section 158(a), and we have jurisdiction over the district court's order under section 158(d). ⁵

Review of the district court order involved in this case presents questions of law. Therefore, we exercise plenary review. See Sapos, 967 F.2d at 922; Dent v. Cunningham, 786 F.2d 173, 175 (3d Cir.1986).

III. Analysis

This appeal concerns the interaction between two provisions of the Bankruptcy Code: section 506(a) and section 1322(b)(2). ⁶ Section 506(a) provides, in pertinent part:

(a) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim....

11 U.S.C.A. Sec. 506(a) (West 1993). In essence section 506(a) limits a creditor's secured claim to the value of its collateral. See United States v. Ron Pair Enters., Inc., 489 U.S. 235, 240 & n. 3, 109 S.Ct. 1026, 1029 & n. 3, 103 L.Ed.2d 290 (1989).

Section 1322(b)(2) governs the contents of a Chapter 13 bankruptcy plan and provides:

(b) Subject to subsections (a) and (c) of this section, the 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, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims....

11 U.S.C.A. Sec. 1322 (West 1993). This section, which limits a party's ability to modify the rights of a lien on real property that is a debtor's principal place of residence, is known as an "antimodification provision." Sapos, 967 F.2d at 921. The specific question which arises when one considers section 506(a) and section 1322 together is whether section 1322(b)(2) precludes a Chapter 13 debtor from relying on section 506(a) to modify the unsecured portion of an undersecured mortgage claim, or whether the debtor is entitled to bifurcate a secured claim pursuant to section 506(a).

In Wilson and Sapos, this Court considered the interplay between sections 506(a) and 1322(b)(2). In those cases we held that section 1322(b)(2) does not prohibit modification of the unsecured component of an undersecured mortgage. See Sapos, 967 F.2d at 926; Wilson, 895 F.2d at 127-28. Moreover, we held that section 1322(b)(2)'s antimodification clause 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 The district court, considering itself bound by Sapos and Wilson, affirmed the bankruptcy court's ruling bifurcating Commonwealth's mortgage claim into secured and unsecured portions because Commonwealth's mortgage was secured by a lien on the debtors' personal property as well as the real property that was their home. As the district court recognized, this case is on all fours with Wilson. There too the mortgagee's claim was secured by "any and all appliances, machinery, furniture and equipment (whether fixtures or not) of any nature whatsoever now or hereafter installed in or upon said premises" in addition to the lien on the mortgage debtors' residence. Wilson, 895 F.2d at 124.

1322(b)(2)'s express terms cover claims secured only by a security interest in the debtor's principal residence. See Sapos, 967 F.2d at 925-26; Wilson, 895 F.2d at 128.

Commonwealth argues that we should overrule our opinions in Wilson and Sapos because of the Supreme Court's recent decision in Nobelman. Nobelman did expressly overrule the holding in Wilson and Sapos that section 1322(b)(2) does not preclude a debtor from modifying the undersecured portion of a mortgage. Nobelman, --- U.S. at ----, ----, 113 S.Ct. at 2109, 2111. The Supreme Court stated: "Section 1322(b)(2) prohibits such a modification where, as here, the lender's claim is secured only by a lien on the debtor's principal residence." Id. at ----, 113 S.Ct. at 2111.

The Supreme Court's opinion in Nobelman, however, did not expressly address our alternate rationale for our decisions in Wilson and Sapos. In those cases, we...