IN RE BRADSHER, 09-80942.

• Decision Date: 16 February 2010
• Docket Number: No. 09-80942.,09-80942.
• Citation: 427 B.R. 386
• Court: U.S. Bankruptcy Court — Middle District of North Carolina
• Parties: In re Wendy Lucille BRADSHER, Debtor.

427 B.R. 386

In re Wendy Lucille BRADSHER, Debtor.

No. 09-80942.

United States Bankruptcy Court, M.D. North Carolina, Durham Division.

February 16, 2010.

427 B.R. 387

COPYRIGHT MATERIAL OMITTED

427 B.R. 388

John T. Orcutt, Raleigh, NC, for Debtor.

MEMORANDUM OPINION

WILLIAM L. STOCKS, Bankruptcy Judge.

Wells Fargo Bank, NA ("Wells Fargo") objects to confirmation of the Chapter 13 plan proposed by Wendy Lucille Bradsher (the "Debtor") on the ground that the Debtor is attempting to modify its secured claim in contravention of the anti-modification provision of section 1322(b)(2) of the Bankruptcy Code. The Debtor asserts that she is entitled to modify the rights of Wells Fargo because the claim of Wells Fargo is not secured solely by a security interest in real property that is the Debtor's residence. The Wells Fargo objection to confirmation came before the court on January 14, 2010. After hearing arguments, the court took the matter under advisement. For the reasons that follow, the court will overrule the objection of Wells Fargo.

FACTS

The Debtor's only residence consists of a mobile home that has been permanently attached to a parcel of real property located at 52 Apple Tree Lane, Roxboro, North Carolina. This property is subject to a deed of trust held by Wells Fargo that secures an indebtedness in the original amount of $65,491.00. Under the terms of the deed of trust, the Debtor was to include in her monthly payment principal and interest plus an additional sum to cover the payment of "Escrow Items" consisting of taxes and special assessments, leasehold payments or ground rents, and insurance premiums. Following the execution of the deed of trust, the Debtor made periodic payments of principal, interest, and escrow amounts. As a result of such payments, the portion of the funds that was included for taxes, insurance premiums, etc., at various times were held in escrow by Wells Fargo until disbursed by Wells Fargo to pay taxes, insurance and other items as they came due.

In her proposed plan, the Debtor valued her residence at $22,780.00 and proposes to modify Wells Fargo's secured claim by bifurcating the claim into a secured claim of $22,780.00 and an unsecured claim for the balance of the Wells Fargo indebtedness. Under the plan, the secured claim would be paid in full, with interest, while Wells Fargo would receive a zero dividend on its unsecured claim and be required to cancel its deed of trust upon completion of the plan. Wells Fargo asserts that this proposed treatment is precluded by section 1322(b)(2) of the Bankruptcy Code.

ANALYSIS

In combination, sections 506(a) and 1322(b)(2) of the Bankruptcy Code provide a mechanism for modifying the rights of a holder of a secured claim by bifurcating the secured creditor's claim into secured and unsecured portions if the amount of the claim exceeds the value of the collateral securing the claim. However, under section 1322(b)(2), some secured claims are protected against modification. Specifically, section 1322(b)(2) excludes from modification "a claim secured only by a security interest in real property that is the debtor's principal residence."

In the present case, the loan documents purport to provide a security interest for the indebtedness secured by the deed of

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trust in escrow funds in addition to a security interest in the residential land and housing structure. Here, the Wells Fargo loan documents do not simply provide for escrow payments for taxes and insurance and the establishment of an escrow account for such payments. Instead, the loan documents require the borrower to pledge the escrow funds as "additional security" for the principal and interest due under the promissory note and deed of trust. This court has ruled previously that a creditor whose loan documents provide for a security interest in an escrow account is not secured solely by "a security interest in real property that is the debtor's principal residence" within the meaning of section 1322(b)(2) and that such creditor is not entitled to invoke the anti-modification provision of section 1322(b)(2). In re Hughes, 333 B.R. 360 (Bankr.M.D.N.C. 2005)

The issue presented in this case is whether a different result now is required in light of the definitions of "debtor's principal residence" in section 101(13A) and "incidental property" in section 101(27B) that were included in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Under section 101(13A), "debtor's principal residence" means "a residential structure, including incidental property, without regard to whether that structure is attached to real property; and... includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer." Under section 101(27B), "incidental property" means "with respect to a debtor's principal residence ... property commonly conveyed with a principal residence in the area where the real property is located; ... all easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil and gas rights or profits, water rights, escrow funds or insurance proceeds; and ... all replacements or additions."

The United States Court of Appeals for the Fourth Circuit addressed the impact of the new definition of "debtor's principal residence" upon section 1322(b)(2) in In re Ennis, 558 F.3d 343 (4th Cir.2009). In doing so, the court first observed that section 1322(b)(2) "has two distinct requirements: first, the security interest must be in real property, and second, the real property must be the debtor's principal residence." Id. at 346. The court ruled that...