In re Guice
| Decision Date | 28 February 2019 |
| Docket Number | Case No.: 18-27443 (JKS) |
| Parties | In Re: PAMELA E. GUICE, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
DECISION AND ORDER RE: MARLBOROUGH HOUSE ASSOCIATION, INC.'S OBJECTION TO CONFIRMATION OF PLAN
The relief set forth on the following pages, numbered three (3) through twelve (12), is hereby ORDERED.
/s/_________
HONORABLE JOHN K. SHERWOOD
UNITED STATES BANKRUPTCY JUDGE
Dated: February 28, 2019
APPEARANCES
Law Offices of Marc G. Alster, LLC
Marc G. Alster, Esq.
Two University Plaza
Suite 311
Hackensack, New Jersey 07601
Counsel for Debtor
Buckalew, Frizzell & Crevina LLP
David G. Frizzell, Esq.
Heritage Plaza I
55 Harristown Road
Suite 205
Glen Rock, New Jersey 07452
Counsel for Marlborough House Association, Inc.
WHEREAS:
1. On August 30, 2018, Pamela E. Guice ("Debtor") filed her Chapter 13 petition. The Debtor resides in a condominium unit in Lodi, New Jersey. Marlborough House Association, Inc. ("Marlborough"), the Debtor's condominium association, filed a secured proof of claim in the bankruptcy case for maintenance, attorneys' fees, costs and other fees assessed against the Debtor in the amount of $38,045.12. The Debtor's Chapter 13 plan seeks to "cram down" Marlborough's claim to the amount secured pursuant to N.J.S.A. 46:8B-21, six months of condominium assessments, and treat the balance of the claim as unsecured.1 Marlborough objected to this treatment arguing that its secured claim cannot be modified and has to be paid in full.
2. The Court has reviewed the pleadings and the arguments of counsel, and for the reasons set forth below (and discussed on the record at the hearing), the Court finds that Marlborough obtained a security interest in the Debtor's primary residence along with a judgment lien on any and all of Debtor's real and personal property. Therefore, Marlborough has a claim secured by more than a security interest in Debtor's primary residence which is not protected against modification pursuant to 11 U.S.C. § 1322(b)(2).
3. The Debtor owns a condominium unit with an estimated market value of $140,000 located at 44 South Main Street, Unit 5J, Lodi, New Jersey (the "Condo"). The Condo is subject to a first mortgage held by Mr. Cooper for $185,000 and consensual liens held by Marlborough totaling $38,045.12.2
4. The Debtor's Chapter 13 plan provides for monthly plan payments of $200 and seeks to reclassify Marlborough's $38,045.12 secured claim as an unsecured claim.3 The Debtor is also proposing to pay her $185,000 mortgage against the Condo in full outside of the plan. If Marlborough's secured claim must be paid in full as Marlborough suggests, the Debtor will be paying approximately $225,000 of "secured" claims against an asset worth $140,000. Also, it is likely that if the Debtor's plan fails, Marlborough will get nothing more than the six months of condominium assessments in a foreclosure.
5. On November 26, 1980, a Master Deed for the Condo was recorded in the Bergen County Clerk's Office. The Master Deed incorporates the New Jersey Condominium Act, N.J.S.A. 46:8B-1, et. seq. (the "Condominium Act"). The Master Deed and the Condominium Act provide that all charges and expenses chargeable to any unit shall constitute a lien against said unit, that liens for unpaid assessments may be foreclosed by suit in the same manner as a foreclosure of a mortgage on real property and that a suit to recover a money judgment for unpaid assessments may be maintained without waiving the lien securing the same.4
6. On November 27, 2013, the Superior Court of New Jersey, Bergen County Law Division, Special Civil Part entered a final judgment (the "Judgment") for Marlborough against the Debtor for $11,713.36 based on assessments due from the Debtor. The Judgment was docketed on January 15, 2014.5
7. On December 18, 2013, Marlborough served a copy of the Judgment on the Debtor. In the cover letter, Marlborough asserted that - "The Judgment constitutes a lien on any and all real property in the State which you presently own, and against any property you may acquire in the future."6
8. On April 25, 2014, the Superior Court entered an Order Granting Issuance of a Writ of Execution to Levy Upon Real Property Pursuant to New Jersey Court Rule 4:59-1.7 Under this Rule, Marlborough was required to execute against the Debtor's personal property before it could be authorized to proceed with a sale of the Condo. Apparently, the Debtor's personal property was insufficient to satisfy the Judgment because a sheriff's sale of the Condo occurred on September 26, 2014 and Marlborough was the purchaser at the sale. But, based on a prior bankruptcy by the Debtor filed in July 2010, the Debtor alleged that the sheriff's sale was conducted in violation of the automatic stay. The parties negotiated a settlement which was memorialized by a letter dated January 26, 2015. In relevant part, the settlement provided that (i) the Debtor would pay her past-due condominium charges over time; (ii) Marlborough would hold off on enforcement of the Judgment; and (iii) Marlborough would vacate the sheriff's sale of the Condo. It appears that the Debtor made some payments due under the settlement, but only through August 2015. The record does not show any payments on account of past-due or current condominium charges for the three-year period from August 2015 to the filing of this Chapter 13 case in August 2018.8
9. On October 1, 2015, apparently due to the Debtor's non-payment under the settlement after August 2015, Marlborough recorded an amended lien on the Condo in the amount of $23,956.63 for unpaid condominium association assessments.9
MODIFICATION OF SECURED CLAIMS UNDER § 1322(b)(2)10. Marlborough contends that the Debtor's plan violates 11 U.S.C. § 1322(b)(2) by attempting to modify its claims because it is "secured only by a security interest in real property that is the Debtor's principal residence."10 The Debtor argues that, with the exception of Marlborough's six-month super-priority claim pursuant to N.J.S.A. 46:8B-21, Marlborough's liens can be avoided in spite of 11 U.S.C. § 1322(b)(2) because Marlborough was secured by more than its consensual lien against the Debtor's Condo.11
11. Pursuant to N.J.S.A. 46:8B-21, a condominium association "shall have a lien on each unit for any unpaid assessment duly made by the association for a share of common expenses . . . [and] [such] [lien] . . . shall have a limited priority over prior recorded mortgages and other liens . . . [in] [an] amount of which shall not exceed the aggregate customary condominium assessment against the unit owner for the six-month period prior to the recording of the lien."12 Pursuant to § 1322(b)(2) of the Bankruptcy Code, a debtor's plan may "modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence."13 Interpreting § 1322(b)(2), the Third Circuit in In re McDonald held, "if any part of[a] [creditor's] claim is secured, then the entire claim, both secured and unsecured parts, cannot be modified."14 Because of the six-month priority, New Jersey condominium associations assert that their liens cannot be modified because they are secured - at least in part. This view is not popular with debtors' counsel in Chapter 13 cases because it is much harder to confirm a Chapter 13 plan where all of the outstanding condominium charges have to be paid in full. But, federal courts in New Jersey have held that because condominium liens are consensual liens that are partially secured under N.J.S.A. 46:8B-21, they cannot be modified or stripped off in a Chapter 13 plan.15 On the other hand, at least two bankruptcy courts in this District have allowed the secured claims of condominium associations to be stripped down to the six-month priority, with the balance of the claim being treated as unsecured. These courts based their decisions on the view that a condominium lien is both a statutory lien and a consensual lien. The existence of the statutory lien in favor of condominium associations means that they cannot rely on the anti-modification protections of § 1322(b)(2) of the Bankruptcy Code - such protections are reserved for creditors secured "only by a security interest in real property."16
12. Before picking a side in the split among the New Jersey federal courts on the treatment of condominium liens under § 1322(b)(2), the Court must consider a different question that is presented by the facts here - the significance of the lien rights that Marlborough acquired because of the Judgment.
13. Section 101 of the Bankruptcy Code defines the term "lien" as "a charge against or interest in property to secure payment of a debt or performance of an obligation." The Code distinguishes three types of liens:
14. Thus, a judgment lien is different than a security interest. The Court must determine whether the Judgment gave Marlborough something more than a security interest in Debtor's Condo and, if so, whether these additional rights mean that § 1322(b)(2) no longer applies to Marlborough's claim.
15. As discussed above, § 101 of the Bankruptcy Code defines the term "judgment lien" as "a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." The docketing of a judgment creates a...
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