In re Caster
| Decision Date | 24 August 1987 |
| Docket Number | Adv. No. 87-0282S.,Bankruptcy No. 86-03889G |
| Citation | 77 BR 8 |
| Parties | In re Darlette CASTER, Debtor. Darlette CASTER, Plaintiff, v. UNITED STATES of America, Secretary of Housing and Urban Development, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Philip A. Bertocci, Community Legal Services, Inc., Philadelphia, Pa., for debtor.
Virginia R. Powel, Asst. U.S. Atty., Philadelphia, Pa., for defendant.
Edward Sparkman, Philadelphia, Pa., Trustee.
Before us is another in the parade of cases challenging the validity of a secured claim of a mortgagee with the double-edged sword of 11 U.S.C. § 506(a) and the federal Truth-in-Lending Act, 15 U.S.C. § 1601, et seq. (). One unique element is the Defendant: none other than the United States of America, on behalf of the Secretary of Housing and Urban Development (hereinafter referred to as "HUD"). The identity of the Defendant blunts the TILA claim but, despite a valiant effort by the Defendant to convince us to forsake our own recent precedents and find that 11 U.S.C. § 1322(b)(2) precludes the § 506(a) claim, we reject same. We conclude that the Debtor can reduce the Defendant's secured claim to the amount of the fair market value of the Debtor's home. In resolving the shoot-out between the inevitable "dueling appraisers," we give the Defendant's expert the slight nod and value the premises, and hence the value of its secured claim, at $13,000.00.
The opponent of her country in this proceeding is an indigent single parent of four children, aged from ten years to a new born baby, i.e., the Debtor, DARLETTE CASTER. The Debtor commenced her Chapter 13 bankruptcy case on August 18, 1986, and filed this Adversary proceeding on March 24, 1987. At issue for the Debtor in this case is retention of her home, situated at 6128 Upland Street, Philadelphia, Pennsylvania 19142 (hereinafter referred to as "the home").
The trial of this proceeding took place on June 30, 1987. We allowed the parties until July 31, 1987, and August 17, 1987, to file their Briefs, and they proceeded to do so in timely fashion.
Many of the facts are undisputed. However, because we must make a factual determination as to the value of the Debtor's home and as to whether the Debtor received a TILA disclosure statement, and technically Bankruptcy Rule 7052 and Federal Rule of Civil Procedure 52(a) requires us to do so, we shall present our decision in the classic format of Findings of Fact, Conclusions of Law, and a Discussion.
1. The Debtor executed a mortgage on January 29, 1981, in the amount of $11,500.00, insured by HUD's Federal Housing Administration (hereinafter referred to as "FHA"), whereby she purchased the home.
2. The mortgage recites that security is taken in the property of the Debtor, inter alia, as follows:
TOGETHER with all and singular the Buildings and Improvements on said premises, as well as all alterations, additions or improvements now or hereafter made to said premises, and 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, Streets, Alleys, Passages, Ways, Waters, Water Courses, Rights, Liberties, Privileges, Hereditaments and Appurtenances whatsoever thereunto belonging, or in any wise appertaining, and the Reversions and Remainders, Rents, Issues and Profits thereof.
3. The Debtor testified that, at the time of settlement on her home purchase, she received several papers which she put in a metal box. When she examined the papers at the request of her counsel, she did not turn up a TILA disclosure statement. As a result, the Debtor claims that she did not receive such a disclosure statement.
4. Despite this testimony, we find that the Debtor did receive a disclosure statement. While we do not doubt the subjective honesty of the Debtor's testimony, our observations of her on the witness stand cause us to question the accuracy of her powers of recall, and hence we refuse to base a finding that something that ordinarily is done has not been done on the sole basis of this testimony.
5. After becoming in arrears on the mortgage and unsuccessfully attempting to comply with Forebearance Agreements from almost the onset of the mortgage, the Debtor successfully requested an assignment of her mortgage to HUD, which was effected on September 21, 1982.
6. After the 36-month period in which the Debtor's mortgage payments were reduced in accordance with her income under the HUD assignment program, see 24 C.F.R. § 203.652(a)(6), the Debtor continued to experience difficulties in making payments, and HUD's threats to foreclose were ceased only upon the Debtor's filing bankruptcy.
7. On November 7, 1986, the Defendant filed a secured Proof of Claim in the amount of $19,559.34 in the Debtor's main bankruptcy case.
8. On March 27, 1987, the Defendant filed a Motion for Relief from the Automatic Stay, in response to which the Debtor admitted that, after her 36-month forebearance period expired in 1985, she had made only six payments through March, 1987.
9. Nevertheless, on June 30, 1987, at which time both the Defendant's Motion and the Adversarial proceeding were listed for trial, the Defendant agreed to withdraw the Stay Relief Motion, without prejudice, pending the outcome of this proceeding, due to the Debtor's commencement of regular payments in recent months.
10. On April 17, 1987, Harry Meyers, a senior residential appraiser who has been employed by HUD, principally in reviewing appraisals, for over twenty-five years, prepared a written appraisal of the home, finding that its fair market value was $15,000.00.
11. On May 18, 1987, Israel Silver, a licensed real estate broker in the vicinity of the Debtor's home for over forty years, prepared a brief written appraisal in which he concluded that the fair market value of the home was $10,000.00.
12. The Debtor, while offering no testimony as to value, testified concerning the condition of the home, which had deteriorated due to her financial inability to repair and maintain it. She noted the following defects: a portion of the back wall had pulled away, which she contended rendered the back bedroom uninhabitable; walls, floors, and ceilings were in need of repair; leaks existed in her tub and sink; porch floorboards were missing; there were several leaky windows; and wires were exposed in the hall and one bedroom.
13. We give more weight to the valuation of Mr. Meyers than that of Mr. Silver because Mr. Meyers' written report was more complete and his oral presentation emphasized the good points of the neighborhood, while taking at least some account of the foregoing defects. None of the defects in the home appeared serious except that to the back wall. On the other hand, we cannot totally accept Mr. Meyers' appraisal because he minimized the nature of the defects and he was biased to some degree due to his lengthy employment by HUD. He also lacked Mr. Silver's long experience with the neighborhood, and was somewhat overly impressed by its superficially positive aspects, e.g., convenience to shopping.
14. Weighing the foregoing, we conclude that the fair market value of the home is $13,000.00.
1. Since 15 U.S.C. § 1612 appears to exempt the Defendant from civil liability and the Debtor has failed to prove the existence of any TILA violations, the Debtor's TILA claim must fail.
2. The Defendant's claim, arising from a mortgage providing that the obligee has a security interest in certain personalty of the Debtor-obligor, as well as the home itself, is not "secured only by a security interest in real property that is the debtor's principal residence" (emphasis added), and hence is not within the scope of 11 U.S.C. § 1322(b)(2).
3. Assuming arguendo that the Defendant's claim were within the scope of 11 U.S.C. § 1322(b)(2), this would not preclude the bifurcation of the Defendant's claim into secured and unsecured portions, per 11 U.S.C. § 506(a).
4. The Debtor therefore may bifurcate the Defendant's claim into a secured claim of $13,000.00, the fair market value of the home, and an unsecured claim of $6,559.34, by operation of 11 U.S.C. § 506(a).
The repetition of the parade of cases successfully reducing secured claims of mortgagees to the fair market value of the premises in question on the strength of 11 U.S.C. § 506(a) is broken by the novelty of the challenges to the invocation of this Code provision by Debtors. In this case, the federal government, as mortgagee, boldly confronts the reasoning of this Court at length head-on, and contends that its mortgage, despite including security in such obvious personalty as appliances, is secured only by real estate. Thus, the Defendant opts to butt heads with our decisions in, e.g., In re Crompton, 73 B.R. 800, 805-06 (Bankr.E.D.Pa.1987); and In re Jablonski, 70 B.R. 381, 385-86 (Bankr.E.D. Pa.1987), where, following a long line of decisions by our honored former Chief Judge, Emil F. Goldhaber, we carefully explained our reasons for concluding why 11 U.S.C. § 1322(b)(2) has no impact on a determination of secured status pursuant to 11 U.S.C. § 506(a). Therefore, at least briefly, we traverse our road of reason again, noting the pitfalls in the by-ways down which the Defendant seeks to send us.
Our beginning point is 11 U.S.C. § 506(a), which provides as follows:
§ 506. Determination of secured status (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 value of such property, or to the extent of the amount subject to setoff, as the case...
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