Carrollan Gardens Condo. Ass'n v. Khan (In re Khan)

• Decision Date: 30 January 2014
• Docket Number: No. 11–33248PM.,11–33248PM.
• Citation: 504 B.R. 409
• Parties: In re Azharul KHAN, Debtor. Carrollan Gardens Condominium Association, Movant v. Azharul Khan, Respondent.
• Court: U.S. Bankruptcy Court — District of Maryland

504 B.R. 409

In re Azharul KHAN, Debtor.Carrollan Gardens Condominium Association, Movant

v.Azharul Khan, Respondent.

No. 11–33248PM.

United States Bankruptcy Court,

D. Maryland,

at Greenbelt.

Jan. 6, 2014.

As Corrected Jan. 30, 2014.

Christopher R. Wampler, Wampler & Souder, LLC, Kensington, MD, for Debtor–Respondent.

Lawrence I. Wachtel, Rockville, MD, for Creditor.

MEMORANDUM OF DECISION

PAUL MANNES, Bankruptcy Judge.

Carrollan Gardens Condominium Association (“the condominium”) seeks relief from the automatic stay of 11 U.S.C. § 362(a) so as to enable it to file legal action to collect post-filing obligations. The condominium filed a proof of claim for a secured claim in the nature of a statutory lien in the sum of $2,974.43. The proof of claim stated that the monthly condominium fee is $292.43 with a $16.00 late fee if not timely paid. In his opposition, Debtor argues that while the claim of the condominium may not be discharged before consummation of his plan, the stay must continue throughout the pendency of the case as otherwise Debtor's reorganization would be beyond his means. Debtor does not live in the condominium unit. He cannot afford to pay both the fees and his plan payment. He needs to free himself from it in order to continue the funding of his confirmed plan. Debtor might have proposed a plan that provided for the transfer of his unit to the condominium in satisfaction of the condominium's secured claim pursuant to 11 U.S.C. § 1322(b)(8). Cf. In re Bryant, 323 B.R. 635 (Bankr.E.D.Pa.2005). That opportunity passed.

This case presents the court with a situation frequently encountered in the world of bankruptcy. Here are two parties, neither one of which has done a thing wrong, engaged in mortal combat. The condominium is entitled to contributions from each of its unit owners for the common good. This is not a case of a creditor extorting usurious interest from a helpless debtor, a debtor seeking to pull a fast one, or a scam artist taking advantage of an unfortunate victim, but rather an effort to enforce the sums due pursuant to a voluntary association. On the other hand, Debtor here has no interest in the unit, does not benefit one iota from its ownership, and would dearly love to be disassociated from all connection to it. The real parties in interest—the secured creditors, or more precisely the senior secured creditor—sit by doing nothing. In a perfect world, the condominium could force GMAC, the holder of the senior lien, to take action and foreclose, returning the unit to the market place inhabited by a new resident who would pay its fees. Better still, the legislature might provide for a senior priority for condominium liens.¹

No one disputes the valuation of the property. Namely, that it is worth approximately one-third of the total of the claims secured by three liens on the property—a first mortgage securing a claim of GMAC said to be in the sum of $112, 695.00, a judgment lien held by BB & T whose claim is in the sum of $11,413.00, and the condominium lien claim in the sum of $2,973.43. Debtor's confirmed Chapter 13 Plan provides for 60 payments of $95.00 a month and for surrender of the unit to the secured lenders. In confirming Debtor's Plan, the court found that the $95.00 payment represented all Debtor's projected disposable income. However, none of the secured creditors has gone forward with foreclosure, and Debtor cannot compel them to accept his surrender pursuant to 11 U.S.C. § 1325(a)(5)(C).²In re Canning, 706 F.3d 64, 69–70 (C.A.1 2013); In re Brown, 477 B.R. 915 (Bankr.S.D.Ga.2012); In re Arsenault, 456 B.R. 627 (Bankr.S.D.Ga.2011); In re Ogunfiditimi, 2011 WL 2652371 (Bankr.D.Md.2011); but see In re Harris, 244 B.R. 556 (Bankr.D.Conn.2000).

In order to appreciate the dilemma faced by Debtor, and perhaps thousands of others in his shoes, consider the seminal case of In re Rosenfeld, 23 F.3d 833 (C.A.4 1994), holding that a condominium's right to payment for assessments arising post-petition is in the nature of a covenant running with the land and therefore survives a Chapter 7 discharge.³ This is in accord with the provisions of the Maryland Contract Lien Act, Md. Code Ann. Real Prop. § 14–201(b) (2013). The Rosenfeld ruling was substantially codified by the following section of the Bankruptcy Code added in 2005:

11 U.S.C. § 523(a)(16)

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—

(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case[.]

Another addition in 2005 was the following section dealing with discharges in cases under Chapter 13:

11 U.S.C. § 1328(a)(2)⁴

(a) Subject to subsection (d), as soon as practicable after completion by the debtor of all payments under the plan, and in the case of a debtor who is required by a judicial or administrative order, or by statute, to pay a domestic support obligation, after such debtor certifies that all amounts payable under such order or such statute that are due on or before the date of the certification (including amounts due before the petition was filed, but only to the extent provided for by the plan) have been paid, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt—

(2) of the kind specified in section 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a) [.] ⁵

Because 11 U.S.C. § 523(a)(16) is not specifically listed among the exceptions to a Chapter 13 discharge entered after completion of all of a debtor's payments under Chapter 13 plan, the in personam obligation to pay condominium fees does not survive as an exception to discharge. But, this obligation survives discharge as an in rem obligation because it is a covenant running with the land. If it were otherwise, a debtor could continue to live in a unit after completion of a Chapter 13 plan in perpetuity without the obligation to pay the same fees that neighbors must pay. In that event, 11 U.S.C. § 1328(a)(2) would not only provide a fresh start for the honest debtor but a head start as well, a result generally disapproved. In re Taylor, 3 F.3d 1512, 1516 (C.A.11 1993). When Congress enacted 11 U.S.C. § 523(a)(16) amending the Bankruptcy Code to place personal responsibility for post Chapter 7 discharge liability, it could have continued the protection from the 1994 Act for debtors in cases where debtors no longer used the condominium unit had it seen fit. It did not.

A ruling that with the entry of a discharge under 11 U.S.C. § 1328(a)(2) the obligation continues as an in rem remedy but is discharged as a personal liability is based upon the plain meaning of 11 U.S.C. § 1328(a) that does not include 11 U.S.C. § 523(a)(16) among the exceptions to the discharge entered after plan completion. The Rosenfeld ruling was implemented by the enactment of 11 U.S.C. § 523(a)(16) by the 2005 Bankruptcy Code revisions as to cases like it under Chapter 7. However, in cases under Chapter 13 after discharge of pre-petition claims the condominium contract obligation rides through leaving a debtor without personal liability as with consensual liens under long-established law. As the Court said in Johnson v. Home State Bank, 501 U.S. 78, 82–83, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991):

A defaulting debtor can protect himself from personal liability by obtaining a discharge in a Chapter 7 liquidation. See11 U.S.C. § 727. However, such a discharge extinguishes only “the personal liability of the debtor.” 11 U.S.C. § 524(a)(1). Codifying the rule of Long v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886), the Code provides that a creditor's right to foreclose on the mortgage survives or passes through the bankruptcy. See11 U.S.C. § 522(c)(2); Owen v. Owen, 500 U.S. 305, 308–309, 111 S.Ct. 1833, 1835–1836, 114 L.Ed.2d 350 (1991); Farrey v. Sanderfoot, 500 U.S. 291, 297, 111 S.Ct. 1825, 1829, 114 L.Ed.2d 337 (1991); H.R.REP. NO. 95–595, supra, at 361.

See In re Hamlett, 322 F.3d 342, 349 (C.A.4 2003).

The existence of a covenant running with the land does not impose personal liability in the absence of privity. The doctrine concerns the liability of assignees, not the original obligor. It is generally recognized that there are three requirements that must be satisfied for a covenant to run with the land. First, the covenanting parties must intend to create such a covenant. Second, the covenant must “touch and concern” the land in question. Third, there must be privity of estate between the person claiming the right to enforce the covenant and the person upon whom the burden of the covenant falls. Greenspan v. Rehberg, 56 Mich.App. 310, 224 N.W.2d 67, 73 (1974). The essence of the covenant and its distinction from a personal covenant is that it is binding on the original covenantor and follows title so as to be binding upon all subsequent holders of title. Wild Acres Lakes Property & Homeowners Ass'n v. Coroneos, 690 A.2d 794, 796 (Pa.Cmwlth.1997); Glendening v. Fed. Land Bank of Louisville, 112 Ind.App. 162, 44 N.E.2d 251, 254 (1942) ( en banc); Johnson v. Myers, 226 Ga. 23, 172 S.E.2d 421, 424 (1970).

In accord with the Rosenfeld decision...