Holmes v. Cmty. Hills Condo. Ass'n
Decision Date | 16 September 2016 |
Docket Number | Bankr. Case no. 15-14034,Civ. No. 15-6834 (KM) |
Citation | 579 B.R. 327 |
Parties | Lindsey C. HOLMES, Appellant, v. COMMUNITY HILLS CONDOMINIUM ASSOCIATION, Appellee. |
Court | U.S. District Court — District of New Jersey |
Herbert B. Raymond, East Orange, NJ, for Appellant.
James G. Aaron, Ansell, Grimm & Aaron, Esqs., Ocean, NJ, for Appellee.
Marie-Ann Greenberg, Fairfield, NJ, pro se.
The debtor, Lindsey C. Holmes, appeals from an order by Judge Rosemary A. Gambardella of the United States Bankruptcy Court for the District of New Jersey. (ECF No. 1-2) Judge Gambardella's Order denied confirmation of the debtor's modified plan and dismissed the voluntary petition for relief under Chapter 13 without prejudice.
This appeal presents a single issue: whether a condominium association lien is a security interest in the debtor's principal residence, and hence subject to the "anti-modification" clause, 11 U.S.C. § 1322(b)(2). That issue of law is reviewed de novo. See In re American Pad & Paper Co. , 478 F.3d 546, 551 (3d Cir. 2007) ; In re United Healthcare Sys., Inc. , 396 F.3d 247, 249 (3d Cir. 2005). For the reasons set forth below, however, the decision of the bankruptcy court must be REMANDED for factual findings pertinent to that issue.
Ms. Holmes is a condominium unit owner; Community Hills is the condominium association. Community Hills claims a lien on Holmes's unit representing unpaid condominium assessments. The unit was on the verge of a Sheriff's sale when, on March 9, 2015, Holmes filed a Chapter 13 petition.
Bank of America, which holds a mortgage on the unit, filed a proof of claim of $206,525.23. The value of the property was estimated at $85,000. There seems to be no dispute that the mortgage lien easily exhausts the equity in the property. Holmes filed a schedule showing a net disposable income of $200 per month. She proposed a plan whereby she would pay $200 per month.
Under the "anti-modification clause" of 11 U.S.C § 1322(b)(2), certain security interests relating to the debtor's principal residence cannot be modified. It follows that a plan that relies on the modification of such a principal-residence lien is not feasible as a matter of law; confirmation may therefore be denied without exploration of other pertinent issues. That is what happened here. The bankruptcy court held that Community Hills' lien on the condominium could not be modified, and therefore declined to confirm the plan. It is from that order that Holmes has appealed.
Holmes acknowledges that the Community Hills unit is her principal residence. She contends, however, that § 1322(b) nevertheless does not apply.
I am initially guided by In re Rones , 551 B.R. 162, 168 (D.N.J. 2016), in which Judge Wolfson discussed many of the issues presented here. Rones starts from the indisputable premise that a Chapter 13 plan may, in general, modify the rights of holders of secured claims. See generally 11 U.S.C. § 506(a)(1). A nominally secured claim will be considered unsecured, however, to the extent it exceeds the value of the collateral, and may be "stripped down" or "crammed" to that value. See United States v. Ron Pair Enters., Inc , 489 U.S. 235, 239, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989).
Section 1322(b)(2) places an important limit on modification of secured claims.
It prohibits modification, stripping, or cramming down of claims secured only by a security interest in the debtor's principal residence:
11 U.S.C. § 1322(b)(2) (emphasis added). See Nobelman v. Am. Savings Bank , 508 U.S. 324, 331–32, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993).
There is an exception to the exception—i.e. , an avenue of escape from the anti-modification clause of § 1322(b)(2). If the relevant lien, even one on a principal residence, is junior to a lien that exceeds the value of the residence collateral, it is treated as unsecured. Being wholly unsecured, it is of course not secured by a principal residence, and therefore does not fall under § 1322(b)(2). See in re McDonald, 205 F.3d 606, 613-14 (3d Cir. 2000) ; Rones , 551 B.R. at 168.
So whether a condominium association's lien for assessments is secured only by a security interest in the debtor's unit might depend (inter alia ) on whether it is junior to another lien that exhausts the value of the collateral; if it is junior, it might not be secured by anything at all. On that question, Rones found the New Jersey Condominium Act to be dispositive. That statute gives the condominium lien a limited priority:
N.J. Stat. Ann. § 46:8B-21. Thus, under subsection (b), a condominium association's lien is granted priority to the extent of six months' worth of assessments. The condo lien, to that extent, is elevated to first priority. Rones reasoned that the condo lien was, at least to the extent of six months' assessments, secured by the principal residence, because it was senior to other liens. It followed, held Rones, that § 1322(b) applied.
Another issue arises. Assume arguendo that more than six months' assessments are in arrears. Under the NJ Act, the lien is senior only to the extent of six months' worth of assessments. Beyond that, it is junior—'subordinate," in the words of the statute. N.J. Stat. Ann. § 46:8B-21(a). Now it is possible to envision a rule that the lien should be bifurcated into a secured (up to six months) and unsecured (beyond six months) component. Thus bifurcated, it would have a hybrid quality; to the extent the lien is unsecured by the unit, it would not be subject to the "no-modification" rule of § 1322(b).
Case law forecloses that approach. The rule is applied broadly, and the exception strictly:
[I]f even one dollar of a creditor's claim is secured by a security...
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