In re Hussain

• Citation: 250 BR 502
• Decision Date: 17 July 2000
• Docket Number: No. 99-62058(RTL).,99-62058(RTL).
• Parties: In re Syed M. HUSSAIN, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

250 B.R. 502 (2000)

In re Syed M. HUSSAIN, Debtor.

No. 99-62058(RTL).

United States Bankruptcy Court, D. New Jersey.

July 17, 2000.

John F. Bracaglia, Jr., Cohn, Bracaglia & Gropper, P.C., Somerville, NJ, for Debtor.

Brian F. Breen, Begley, McCloskey & Gaskill, Moorestown, NJ, for First Union National Bank.

Milica A. Fatovich, Fein, Such, Kahn & Shepard, P.C., Parsippany, NJ, for Citicorp Mortgage.

Mark S. Lichtenstein, Herrick, Feinstein LLP, Princeton, NJ, for Ocwen Federal Bank, FSB, Loan Servicer for LaSalle National Bank, Trustee.

Mario A. Serra, Jr., Stern, Lavinthal, Frankenberg, Norgaaed & Kapnick, LLC, Englewood, NJ, for Alliance Mortgage Company.

OPINION

RAYMOND T. LYONS, Bankruptcy Judge.

Before this court is the contested confirmation of the chapter 13 plan proposed by debtor, Syed M. Hussain (the "Debtor"). Debtor's 60 month plan sought to modify the original terms of several mortgage loans by reducing the interest rates and extending the maturity dates by twenty to thirty years on mortgages secured by his residence and four rental properties. The various mortgage holders opposed the proposed modifications of the mortgage obligations. For the reasons set forth below, the court will deny confirmation of Debtor's chapter 13 plan because it violates 11 U.S.C. § 1322(d) of the Bankruptcy Code¹ which limits plans to five years. The following constitutes the court's findings of fact and conclusions of law.

JURISDICTION

This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. §§ 157(a) and (b)(1) and the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984 referring all cases under Title 11 of the United States Code to the bankruptcy court. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) and (L) concerning confirmation of plans.

FACTS

The Debtor filed a petition under chapter 13 of the Bankruptcy Code on October 25, 1999. According to the Debtor's bankruptcy schedules he owns a one-half interest (with his non-filing spouse) in various parcels of real property located in New Jersey. One piece of property is the Debtor's residence, while the other four parcels are investment properties utilized for rental income. The Debtor's bankruptcy filing was precipitated by the pre-petition maturity, and imminent foreclosure, of one of the Debtor's mortgages. Apparently the Debtor could not obtain alternative financing on this property, nor could he afford to satisfy the entire obligation. In addition, the Debtor had fallen behind on the mortgage payments for several of the other investment properties.

At the same time the Debtor filed his bankruptcy petition and schedules, he also filed his plan of reorganization (the "Plan"). The Plan outlined the Debtor's suggested treatment for each of the properties. The Plan provided for the Debtor to pay $429.17 per month for sixty months and to modify the various mortgage obligations to be paid outside the Plan. Because of the significant equity in the properties, the Plan provided for a one hundred percent dividend to unsecured creditors. The Debtor's petition and schedules, as well as the Plan and the various objections filed by the mortgage holders in response to the Plan, reveal the following information with respect to each of the Debtor's properties.²

Union, New Jersey (Hillcrest Avenue)

Alliance Mortgage Company ("Alliance") holds a first mortgage on the Debtor's rental property located at 1864 Hillcrest Avenue in Union, New Jersey. In his schedules, the Debtor estimated that he owed approximately $150,000 on this property that has a fair market value of $170,000. The Debtor's Plan proposed to modify the original terms of Alliance's mortgage to reduce the interest rate from the current 7-½ percent adjustable rate to seven percent and to extend maturity for thirty years from confirmation.

Alliance filed an objection to confirmation claiming that the Plan sought to improperly modify its rights in violation of § 1322(d); that the value of property to be distributed under the Plan is less than the amount of its claim in violation of § 1325(a)(5)(B)(ii); and that the Plan failed to comply with the provisions of Title 11. Thereafter, on April 4, 2000 the Debtor filed a first amended plan (the "Amended Plan") that proposed to pay Alliance its original contract rate of interest, with an appropriate escrow for taxes and insurance. The only modification under the Amended Plan would be the thirty year extension of the maturity date. In a letter brief received by the court on April 26, 2000, Alliance once again objected to confirmation of the Amended Plan, arguing that "the Debtor is essentially rewriting or attempting to refinance secured creditor's loan."

Union, New Jersey (Pleasant Parkway)

Citicorp Mortgage Corp. ("Citicorp") holds the first mortgage on the Debtor's rental property located at 2058 Pleasant Parkway in Union, New Jersey. According to Debtor's schedules, the property is worth approximately $150,000, and Citicorp has a lien of about $85,000. The Plan proposed to modify the original terms of the mortgage to decrease the interest rate to seven percent and to extend payment for thirty years from confirmation.

Citicorp filed an objection to confirmation asserting that Debtor failed to provide for payment of pre-petition arrears; the Plan sought to improperly modify the original terms of the mortgage by decreasing the interest rate to seven percent from the variable interest rate provided for in the original note (currently 7.75%, up to a maximum rate of 14.25%) and to extend the loan maturity for an additional seventeen years in violation of § 1322(d). In addition, Citicorp objected to Debtor's use of rental income from the property to fund the Plan because Citicorp had an absolute assignment of rents.³ See First Fidelity Bank v. Jason Realty, L.P. (In re Jason Realty, L.P.), 59 F.3d 423 (3d Cir.1995)(Under New Jersey law, an assignment of rents vests the mortgagee with title to the rents and the mortgagor with a license to collect the rents that expires upon default. After a default by the debtor the rents are no longer property of the estate and may not be used as a funding source for a debtor's plan of reorganization.). The Amended Plan's treatment of Citicorp's secured claim contemplated no changes from the original terms of the loan, except to extend payment for thirty years from confirmation.

Maplewood, New Jersey

First Union National Bank ("First Union") holds the first mortgage on the rental property located at 10-12 Oregon Street in Maplewood, New Jersey. Debtor estimated the fair market value of the property to be $190,000. First Union is owed approximately $93,000 on its mortgage. The Plan sought to modify the original terms of the mortgage to decrease the interest rate to seven percent and to extend payment for twenty years from confirmation. Because no objection was received from First Union prior to the Debtor filing his Amended Plan, there was no change in the proposed treatment. However, shortly after the Amended Plan was submitted, First Union filed its objection asserting that no provisions of the Bankruptcy Code permitted the Debtor to modify the interest rate and duration of the consensual mortgage in the manner being attempted by the Debtor. First Union maintained that Debtor's effort to treat First Union's claim both inside and outside the Amended Plan was impermissible.

Irvington, New Jersey

LaSalle National Bank ("LaSalle") holds the first mortgage on the Debtor's rental property in Irvington, New Jersey. The property is valued at approximately $200,000 with LaSalle holding a lien of approximately $95,000. The plan proposed to modify the original terms of the mortgage to lower the interest rate from 13-3/4% to seven percent and to extend the maturity date by twenty years.

LaSalle filed an objection to confirmation based on the proposed treatment of its claim under the Plan. Specifically, LaSalle contended that because the Debtor's mortgage had matured pre-petition on April 22, 1998, the Debtor's only option was to cure the default by satisfying LaSalle's entire allowed secured claim during the sixty months of the Plan, not over twenty years as advocated by Debtor⁴. On or about July 27, 1999, LaSalle instituted a foreclosure action in New Jersey state court, but a judgment was not obtained prior to the Debtor's bankruptcy filing. Under the Amended Plan, LaSalle would be paid the full amount of its allowed claim with 8.625% interest over twenty years from confirmation.

Bridgewater, New Jersey

First Nationwide Mortgage ("First Nationwide") holds the first mortgage on the Debtor's residence located in Bridgewater, New Jersey. Midstates Resources Corp. ("Midstates") holds a second mortgage on this property. The Midstates' mortgage is also cross-collateralized with a second mortgage on the Hillcrest Avenue property in Union, New Jersey. Debtor values his residence at $400,000 and the liens on the property are approximately $331,000⁵. Under the Plan, First Nationwide's mortgage would be paid in accordance with the original terms of the mortgage. Debtor's Plan would alter Midstates' mortgage to reduce the interest rate to seven percent and to extend payment for twenty years from confirmation.

No objection to confirmation was received from First Nationwide. Midstates, however, objected to confirmation claiming that the Plan's proposed treatment violated § 1322(d) because Debtor sought to extend the maturity date eight years. Midstates also complained that the reduction in the interest rate from ten percent to seven percent was unreasonable and below current market rates; that the Plan did not provide for Midstates' arrearage claim and that the value of property to be distributed under the Plan was less than the amount of its claims. After reviewing Midstates' objection, Debtor's Amended Plan sought to pay Midstates'...