In re Guilbert
| Decision Date | 09 January 1995 |
| Docket Number | Civ. A. No. 94-199L. |
| Citation | 176 BR 302 |
| Parties | In re Jeannette R. GUILBERT. |
| Court | U.S. District Court — District of Rhode Island |
Andrew S. Richardson, Boyajian, Harrington & Richardson, Providence, RI, Joseph M. DiGianfilippo, Sutherland, DiGianfilippo & Smith, Inc., Woonsocket, RI, for appellant.
Peter J. Brockmann, Quinn, Shechtman & Teverow, Providence, RI, for appellee.
This matter is before the Court as a bankruptcy court appeal. Jurisdiction has been conferred by 28 U.S.C. § 158(a). The appellant, Jeannette R. Guilbert, has sought review of the bankruptcy court's order declining confirmation of her Chapter 13 plan. 165 B.R. 88. The bankruptcy court ruled that Guilbert's proposed plan was unconfirmable because it contemplated an improper bifurcation of a secured interest in real estate, in contravention of 11 U.S.C. § 1322(b)(2). For the following reasons, the order of the bankruptcy court is reversed.
The dispute in this case arises out of a loan transaction that occurred on November 30, 1988 between the creditor, Marquette Credit Union ("Marquette"), and the debtors, Jeannette R. Guilbert ("Guilbert") and Leo E. Dufresne ("Dufresne"). The loan was in the amount of $125,500, and it was secured by a mortgage ("Mortgage") encumbering a three unit dwelling located at 215-217 Burnside Avenue, Woonsocket, Rhode Island ("Property").
Guilbert and Dufresne are mother and son. They live in separate units of the Property. The third unit of the Property is, from time to time, rented to third parties in consideration for the payment of rent to Guilbert. Family members have resided in the third unit in the past.
On September 19, 1988, both Guilbert and Dufresne completed a Marquette Consumer Credit Application. According to their applications, the Property was encumbered at that time by mortgages in favor of Bank of New England in the amount of approximately $25,500 and in favor of Fleet Bank in the amount of approximately $75,000. The purpose of the loan for which the applications were submitted was to refinance the Property and to provide approximately $25,000 in startup capital for Dufresne's new business involving security information services.
On November 30, 1988, the closing for the loan transaction occurred. At that time, Dufresne and Guilbert completed and signed a HUD-1A Settlement Statement, which set forth how the Loan proceeds were to be disbursed. Of the total proceeds of $125,500, $25,127.23 was applied to pay off the mortgage to Bank of New England, $76,327.03 was applied to pay off the mortgage to Fleet, and $22,491.74 was disbursed to Guilbert and/or Dufresne. As consideration for the loan, Guilbert and Dufresne executed and delivered a demand promissory note ("Note") in the amount of $125,500 as well as the Mortgage encumbering the Property to Marquette.
Three years later, in October, 1991, Dufresne and Guilbert defaulted on the Note. After the default, in both February and June, 1992, Marquette, by now in Receivership, accelerated the indebtedness pursuant to the Note and made demand upon Guilbert and Dufresne for payment in full. Guilbert and Dufresne failed to pay.
Shortly thereafter, the Receiver for Marquette assigned the loan, the Note and the Mortgage to the Rhode Island Depositors' Economic Protection Corporation ("DEPCO"). DEPCO now standing in the shoes of Marquette, made demand upon Guilbert and Dufresne for payment of the unpaid balance of the Note in full in May, 1993. When Guilbert and Dufresne failed to pay, DEPCO scheduled a foreclosure sale of the Property for September 30, 1993.
Six days before the foreclosure sale, on September 24, 1993, Guilbert filed her petition for protection pursuant to Chapter 13 of the United States Bankruptcy Code. As part of the plan submitted to the Bankruptcy Court, Guilbert proposed to bifurcate DEPCO's claim into a secured claim and an unsecured claim, a power conferred on Chapter 13 debtors pursuant to § 506(a). Guilbert sought this bifurcation in part because the estimated or appraised value of the Property was less than the value of the Mortgage. The Property had been appraised on September 30, 1993, by Albert G. Brian, IFA, who estimated that the then fair market value of the property was $69,000. Guilbert's plan was that she would honor the entirety of the secured portion of DEPCO's claim ($69,000) and that she would pay the unsecured portion ($53,555.07) pursuant to a 36% plan over 60 months.
DEPCO objected to this bifurcation in the bankruptcy court. DEPCO argued that the Chapter 13 plan proposed by Guilbert could not be confirmed since the plan did not comply with 11 U.S.C. § 1322(b)(2), which precludes the modification of a mortgagee's interest in property used only as the primary residence of the debtor. Bankruptcy Judge Votolato agreed, and, on March 23, 1994, he issued an order that the proposed plan was an impermissible modification of the Mortgage in violation of 11 U.S.C. § 1322 and Nobelman v. American Savings Bank, ___ U.S. ___, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993). This Court granted Guilbert's motion for leave to appeal on May 3, 1994, and oral argument was heard on July 13, 1994. The matter is now in order for decision.
On an appeal from the Bankruptcy Court, the District Court applies a "clearly erroneous" standard of review to findings of fact and a "de novo" standard of review to questions of law. Bankruptcy Rule 8013; In re Hammond, 156 B.R. 943 (E.D.Pa.1993); In re Hemingway Transport, Inc., 126 B.R. 656 (D.Mass.1991); In re First Software Corp., 97 B.R. 711 (D.Mass.1988); The Bible Speaks v. Dovydenas, 81 B.R. 750 (D.Mass. 1988). In this case, where a question of law is at issue, this Court is required "to make a judgment independent of the bankruptcy court's, without deference to that court's analysis and conclusions." In re Nobelman, 129 B.R. 98, 99 (N.D.Tex.1991). In short, the legal conclusions of a bankruptcy judge are subject to plenary review.
11 U.S.C. § 1322(b)(2) (emphasis added). Guilbert argues that DEPCO's mortgage claim may be modified both (1) because the Property is not the debtor's primary residence and (2) because DEPCO's security interest attaches to more property than "only . . . the debtor's primary residence." These arguments will be considered seriatim.
Appellant's first argument seeks to invalidate the protections of DEPCO's rights conferred by § 1322(b)(2) by stating that the Property in this case is not her primary residence. The basis for this argument is the design of the Property: it contains three units, of which Guilbert occupies only one. Another unit is occupied by her son, and the remaining unit has been rented in the past, with the income paid to Guilbert. Appellant offers these facts to prove that the Property is "something other than a residence." Appellant's Brief, at 5.
This argument, however, is not persuasive. That the residence in which the debtor primarily resides is also a source of income to the debtor does not render it "something other than a primary residence." Regardless of its income-earning functions or its residents, the Property is, has been, and will continue to be Guilbert's primary residence. As Judge Votolato wrote below, the language of § 1322(b)(2) "does not say, nor does it in any way imply that if the debtor's principal residence is also used to house other tenants, paying or otherwise, that the mortgagee's claim may be open to modification by the home owner." Indeed, if that were the case, homeowners poised to file for protection under Chapter 13 would, as a matter of course, seek temporary tenants prior to their filing, in order to modify the rights that their secured creditors have in their home. Such an apparent loophole is contrary to the spirit of Nobelman v. American Savings Bank, supra, as well as § 1322(b)(2), which protect creditors who lend to debtors seeking to purchase their principal residence. See Nobelman, ___ U.S. at ___, 113 S.Ct. at 2111 (Stevens, J., concurring).
Guilbert has never argued that she does not primarily reside at the Property. Rather, her contention is that she does not occupy the whole Property and therefore the Property is not her primary residence. While some courts have found this line of argument persuasive, see e.g., In re Zablonski, 153 B.R. 604, 605 (Bankr.D.Mass.1993), this Court does not. Had Congress meant to except creditors holding liens on multi-unit dwellings or dwellings not exclusively occupied by the debtor from the protections of § 1322(b)(2), it could have easily done so. However, given the procreditor history of this portion of the statute, see Nobelman, ___ U.S. at ___, 113 S.Ct. at 2111 (Stevens, J., concurring), such an intent seems unlikely. As a result, this Court finds appellant's argument misplaced. Accord In re Glenn, 760 F.2d 1428 (6th Cir.1985); In re Ballard, 4 B.R. 271 (Bankr.E.D.Va.1980).
Moreover, as a matter of fact, the Property has essentially been a home to Guilbert's family. Dufresne, her son and a so-called rent-paying tenant of another unit, is also a co-owner of the Property. His "rent" amounts to payment of the property taxes each year, an obligation he would already have as co-owner of the house anyway. Furthermore, when it has been rented, the third unit has at times been occupied by family members. These facts weaken appellant's position that the Property is an income producing...
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