In re Escue

• Decision Date: 01 May 1995
• Docket Number: Bankruptcy No. 395-02976.
• Parties: In re Anthony Ray ESCUE, Debtor.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Middle District of Tennessee

184 B.R. 287 (1995)

In re Anthony Ray ESCUE, Debtor.

Bankruptcy No. 395-02976.

United States Bankruptcy Court, M.D. Tennessee.

May 1, 1995.

Renard A. Hirsch, Smith & Hirsch, Nashville, TN, for debtor.

David M. Smythe, Nashville, TN, for First American Bank.

MEMORANDUM

GEORGE C. PAINE, II, Chief Judge.

I. Introduction

This matter is before the Court on the motion of First American National Bank ("FANB") for relief from the automatic stay pursuant to 11 U.S.C. § 362 in order to pursue foreclosure on debtor's principal residence for which FANB is the primary mortgage holder. Anthony Ray Escue ("Debtor") asserts that no cause exists to grant relief from the stay. A hearing was held on this matter on June 6, 1995. For the reasons hereinafter cited, the Court denies the relief sought by FANB. The following constitute the Courts findings of fact and conclusions of law. FED.R.BANKR.P. 7052.

II. Facts

The facts, as summarized by this Court are not in dispute by the parties. Debtor filed a petition for relief under Chapter 13 of the United States Bankruptcy Code on May 1, 1995. FANB is a perfected first lien mortgage creditor with respect to debtor's principal residence by virtue of a Deed of Trust properly recorded at the Register's Office in Sumner County, Tennessee. The Deed of Trust secures a promissory note dated March 23, 1990 in the original principal amount of $65,000.00. The note fully matured, becoming due and payable, on March 23, 1995, prior to debtor's bankruptcy filing, but the debtor failed to make the required payment to FANB. As of May 11, 1995, the date that FANB filed its relief stay motion, the total unpaid balance of the note is $57,272.56 plus attorney fees and expenses with interest accruing at the rate of $15.00 per diem.

Debtor's Chapter 13 Plan proposes to pay in full, over the life of the Plan, the indebtedness to FANB. FANB, however, filed this motion for relief from the automatic stay arguing that the mortgage debt matured pre-petition, and that the debtor is not entitled to modify its rights as a mortgage-holder within the Chapter 13 Plan. Debtor responded setting forth two reasons why it could provide for FANB's claim within the Plan. First, the Debtor argues that 11 U.S.C. § 1322(b)(2) provides that the rights of secured claim holders can be modified if the claim is secured by additional property other than the debtor's principal residence. Specifically, the Debtor asserts that the Deed of Trust in this case extends a security interest in additional property such as rents, profits, and fixtures which is in addition to the principal residence removing FANB from the protection of 11 U.S.C. § 1322(b)(2). Secondly, the Debtor argues that the Bankruptcy Reform Act of 1994 added subsection (c)(2) to section 1322 to allow debtors to cure defaults in mortgage indebtedness which have matured or ballooned prior to the date on which a final plan payment is due. The Court will address each of debtor's arguments.

III. Conclusions of Law

A. 11 U.S.C. § 1322(b)(2)

In order for FANB to receive the protection afforded by 11 U.S.C. § 1322(b)(2), it must be a mortgage holder which is secured "only by a security interest in the real property that is the debtor's principal residence." 11 U.S.C. § 1322(b)(2) (Clark Boardman Callaghan 1995). Debtor maintains that the language of the Deed of Trust grants FANB a much broader security interest than just the "principal residence of the debtor." Specifically, debtor argues that the following language gives FANB additional security in the debtor's personalty:

That Grantor, in consideration of the debt and trust herein after created, . . . does hereby grant, sell and convey unto the Trustee . . . the particular real estate constituting debtor\'s residence together with (1) all the Improvement now on or which may be hereafter placed on said land during the existence of this lien and all materials, equipment, furnishings, or other property whatsoever installed or to be installed or used or about the building or buildings on said land, including but not limited to all heating, plumbing, lighting, water-heating, cooking, refrigerating, incinerating, ventilating and air conditioning equipment, storm doors and windows, shades, awnings, blinds and linoleums, and property of like nature, all of which property and things are hereby declared to be permanent accessions to the freeholds and part of the realty conveyed herein; and (2) all tangible personal property of whatever kind and nature now or hereafter located on the aforedescribed premises, including but not limited to furniture, tools, machinery and equipment; provided however, that this clause (2) hereof shall not apply to any indebtedness governed by the Federal Trust and Lending Act. All of the foregoing shall be security for the indebtedness and obligations herein mentioned.

The transaction was, in fact, governed by the Federal Truth and Lending Act making clause (2) above not part of the security granted to FANB. Debtor, however, asserts that the extra security granted by clause (1) removes FANB from the protection of 11 U.S.C. § 1322(b)(2).

The Sixth Circuit Court of Appeals addressed what constitutes additional security which would remove a mortgage holder form the provisions of 11 U.S.C. § 1322(b)(2) in its decision Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208 (6th Cir.1993).¹ In that case, the debtor argued that boilerplate phrases such as "rents, royalties, profits, and fixtures" found in the deed of trust constituted additional security which would remove the home mortgage company from the provisions of 11 U.S.C. § 1322(b)(2). Davis, 989 F.2d at 212. The Sixth Circuit concluded that such items were "inextricably bound to the real property itself as part of the possessory bundle of rights" and did not grant additional security. The court did however, recognize decisions from other jurisdictions which had reached differing results when the boilerplate language specifically mentioned personalty or other non-fixture items. Davis, 989 F.2d at 212-13.² Several decisions since the Sixth Circuit's opinion in Davis have considered the question of what constitutes security beyond the debtor's principal residence when personalty or other non-fixture items are specifically mentioned.³

The District Court for the District of Rhode Island most recently addressed this issue in In re Guilbert, 176 B.R. 302 (D.R.I. 1995). In that case a mortgagee objected to the modification of its rights in contravention of 11 U.S.C. § 1322(b)(2) under the debtor's proposed plan. The debtor argued that the language in the mortgage gave the mortgagee an interest beyond her principal residence. The mortgage provided in part that the mortgagee was given an interest in:

buildings and improvements . . . together with all fixtures and tangible personal property now or hereafter owned by the homeowners or in which the homeowners have an interest (but only to the extent of that interest) and placed in or upon the Property . . . which gives the Mortgagee an interest in equipment and fixtures of every kind and description now or hereafter owned . . . or in which the homeowners have any interest (but only to the extent of that interest) and situated or to be situated upon or in, the Property . . .

Guilbert, 176 B.R. at 307. Citing the language of the Sixth Circuit's opinion in Davis, the Court in Guilbert noted that its case was easily distinguishable from Davis because the Deed of Trust contemplated in Davis made no mention of personalty.

The mortgage in Guilbert specifically mentioned both equipment and more importantly "tangible personal property," Guilbert, 176 B.R. at 307. The mortgagee's rights were not being impermissibly modified, according to the Court, because the mortgagee was secured by adequately described collateral which was independent from the debtor's residential real property. The language was not merely intended as "boilerplate" jargon, but was intended to create a security interest in personalty. Guilbert, 176 B.R. at 307-308.

In a decision, which was also a post-Nobelman, the Third Circuit Court of Appeals reached a similar conclusion with mortgage language which granted security in "appliances, machinery, furniture, and equipment (whether fixtures or not) of any nature whatsoever." In re Hammond, 27 F.3d 52 (3d Cir.1994). In that case the Court found that if a mortgage company wished to afford itself of the shelter of § 1322(b)(2) then it should delete the language granting the additional security from the security agreement. Hammond, 27 F.3d at 57 (citing 5 COLLIER ON BANKRUPTCY ¶ 1322.06 at XXXX-XX-XX; Wilson v. Commonwealth Mortgage Corp., 895 F.2d at 129 (admonishing the mortgagee to delete the additional language to be protected by § 1322(b)(2))). The Hammond Court followed earlier decisions of that Circuit, namely Wilson, supra and Sapos v. Provident Institution of Savings in Town of Boston, 967 F.2d 918 (3d Cir.1992), and perceived such collateral to be personalty of independent value rather than collateral merely incidental to an interest in real property.

The Bankruptcy Court for the Western District of Pennsylvania also grappled with this issue in In re Lutz, 164 B.R. 239 (Bankr. W.D.Pa.1994).⁴ The debtor objected to the claim of a bank which held a first mortgage on his property, and sought to "cram down" the amount of the bank's security interest pursuant to § 506(a). The bank argued that it was protected by the provisions of § 1322(b)(2) because its claim was secured only by a lien on the debtor's principal residence. Lutz, 164 B.R. at 241. The relevant provisions of the mortgage agreement gave the bank a security interest in:

the buildings, improvements and fixtures, as well as all additions or improvements now or hereafter made to said premises, streets, alleys, passages, ways, waters, water courses, rights, liberties, privileges, hereditaments, and appurtenances whatsoever

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