In re Kevin Taing

• Docket Number: 22-40896-CJP
• Decision Date: 12 August 2024
• Citation: In re Kevin Taing, 22-40896-CJP (Bankr. Mass. Aug 12, 2024)
• Parties: In re: KEVIN TAING, Debtor
• Court: U.S. Bankruptcy Court — District of Massachusetts

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In re: KEVIN TAING, Debtor

No. 22-40896-CJP

United States Bankruptcy Court, D. Massachusetts

August 12, 2024

Chapter 11

ORDER PARTIALLY DETERMINING OBJECTIONS TO CONFIRMATION AND ENTERING CERTAIN RELATED RELIEF

Christopher J. Panos, United States Bankruptcy Judge

Subchapter V debtor Kevin Taing (the "Debtor") seeks confirmation of the Debtor's Second Amended Chapter 11 Plan of Reorganization Dated July 31, 2023 with Disclosures Pursuant to 11 U.S.C. § 1190 [ECF No 115] (the "Plan"), as modified [ECF No. 161] (the "Modified Plan"). U.S. Bank Trust, National Association, not in its individual capacity but solely as owner trustee for VRMTG Asset Trust (the "Trust") and U.S. Bank, National Association, Successor Trustee to Bank of America, N.A. as Successor to LaSalle Bank, N.A. as Trustee, for Merrill Lynch First Franklin Mortgage Loan Trust, Mortgage Loan Asset-Backed Certificates, Series 2007-H1 (the "Bank"), each filed objections to confirmation of the Plan. respectively, at ECF No. 120 ("Trust Objection") and ECF No. 135 ("Bank Objection." together with the Trust Objection, the "Objections").^[1] The Debtor responded to the Objections. Resp. to Trust Obj. [ECF No. 122]; Resp. to Bank Obj. [ECF No. 159].

At a combined hearing on (i) confirmation of the Plan, (ii) the motions for relief from the automatic stay filed by the Bank [ECF No. 89] as to property located at 30-32 Saratoga Street. Lowell, MA (the "Saratoga Street Property) and the Trust [ECF No. 95], by its servicer NewRez LLC d/b/a Shellpoint Mortgage Servicing, as to property located at 121 Bellevue Street, Lowell, MA (the "Bellevue Street Property") (together, the "Motions for Relief) and (hi) the Bank's Motion to Show Cause [ECF No. 154] (the "Show Cause Motion"), the Court, by agreement of the Debtor, the Trust, and the Bank (the "Parties"), directed further briefing on certain threshold issues related to confirmation discussed at the hearing as to whether: 1) the Trust and the Bank have claims that can be treated through a plan in the Debtor's bankruptcy proceeding where the Debtor is not, and has never been, personally liable for debt secured by property that is now owned or partially owned by the Debtor (the "Privity of Contract Dispute"), and 2) with respect to the Bank, the Plan may cram down the Bank's claim where the Debtor only possesses an alleged partial ownership interest in the property that is subject to the Bank's mortgage (the "Cramdown Dispute").

The Privity of Contract and Cramdown Disputes are also central to the Show Cause Motion, pursuant to which the Bank asks for an order directing the Debtor to show cause why the Saratoga Street Property and the Bank's claim should be "included in the Debtor's bankruptcy estate." Show Cause Mot. at 1. Similar to arguments made in its objection to confirmation, the Bank asserts in the Show Cause Motion that the Debtor camiot restructure a debt with respect to which he is a stranger to the loan documents and raises an issue as to the Debtor's ownership of the Saratoga Street Property because, at the time of the Bank's Show Cause Motion, the registry of deeds did not reflect Debtor's title to the property. See id at 3-4.

The Trust and the Bank filed further briefing [ECF Nos. 171 and 172, respectively] (the "Briefing"), and the Debtor filed a supplemental statement in support of confirmation [ECF No. 173] that largely reiterates the arguments from his responses to the Objections. Upon consideration of the Plan, Objections, Responses, Briefing, supplemental statement, argument of counsel at the hearing, and the record of this case, the Objections are hereby overruled in part with respect to the Privity of Contract Dispute and the Bank Objection is sustained in part as to the Cramdown Dispute. The Court reserves on any remaining component of the Objections, including whether the Debtor filed the Plan in good faith pursuant 11 U.S.C. § 1129(a)(3).^[2] This ruling is a limited to the narrow issue of what constitutes a "claim" that may be restructured by a plan of reorganization in a Chapter 11 case. While it may be difficult to foresee that the Debtor, who appears to have had no relationship to the properties at issue at the time when loans were made by lenders with which the Debtor was not in privity, could meet his burden to demonstrate good faith in seeking confirmation of a plan that restructures that debt, the Debtor is entitled to put on evidence of good faith at a confirmation hearing.

A. The Trust's and the Bank's Claims

The Trust and Bank are both mortgagees on properties that the Debtor seeks to restructure in his Plan. The Debtor purports to have acquired ownership interests in the properties subject to both mortgages but is not an obligor on either mortgage or the debt secured by either mortgage.^[3] Plan § 2.3. The Trust and Bank argue the Plan caimot be confirmed because it treats their mortgages and collateral when the Debtor lacks privity to the mortgages. Trust Obj. at 3-1; Bank Obj. at 4. The objecting parties assert that because the Debtor is not an obligor on the underlying mortgages and notes, the Debtor is not liable to the Trust and Bank for any "debt," thus no "claim" can be treated. In contrast, the Debtor argues the Supreme Court's decision in Johnson v. Home State Bank is controlling as to what constitutes a "claim" within the meaning of § 101(5) that is subject to inclusion in a plan of reorganization. See 501 U.S. 78, 80 (1991) (examining whether a mortgage lien in a Chapter 13 reorganization plan can be restructured once the personal obligation secured by the mortgaged property has been discharged in a Chapter 7 proceeding and holding "that the mortgage lien in such a circumstance remains a 'claim' against the debtor that can be rescheduled under Chapter 13"). The Debtor asks this Court to join "the overwhelming majority of courts" that have applied Johnson and hold that the Trust and Bank have claims that may be treated in the Plan. ECF No. 173 at 2; see Resp. to Trust Obj. at 3; Resp. to Bank Obj. at 4.

The Bankruptcy Code defines a "claim" as a "right to payment" or a "right to an equitable remedy." 11 U.S.C. § 101(5), and a'"claim against a debtor1 includes claim against property of the debtor," id at § 102(2). The Supreme Court in Johnson held that a "right to payment" includes a "right to the proceeds from the sale of the debtor's property," even where the debtor is not liable on die underlying mortgage. 501 U.S. at 84; see also Ford v. Skorich (In re Skorich), 482 F.3d 21,26 (1st Cir. 2007) ("As its legislative history makes plain, section 102(2) does nothing more than clarify that claims to money payable out of the debtor's property are to be treated no differently than claims to money enforceable against the debtor personally." (emphasis in original)). In Johnson, because the objecting bank creditor's right to proceed against the "Chapter 20" debtor's property in rem in connection with its non-recourse loan survived the discharge of debtor's personal liability in a previous Chapter 7 case, the bank still retained its claim. Johnson, 501 U.S. at 80, 84. The Supreme Court concluded that "[alternatively, the creditor's surviving right to foreclose on the mortgage can be viewed as a 'right to an equitable remedy' for the debtor's default on the underlying obligation." Id. at 84. Considering the wide range of other provisions that protect creditors from debtors who, for example. "file[] serially," as well as "Congress' intent that 'claim' be construed broadly," the Supreme Court specifically discouraged bankruptcy courts from "us[ing] the Code's definition of 'claim' to police the Chapter 13 process for abuse." Id. at 88. In other words, the creditor in Johnson could have objected to confirmation on different grounds, including good faith. Id. at 87 (objecting bank creditor's claim argument "fails to apprehend the significance of the full range of Code provisions" including whether '"the plan has been proposed in good faith'" (quoting 11 U.S.C. § 1325(a)(3))).

"The majority of courts apply the Supreme Court's broad interpretation of 'claim' in Johnson [] to permit confirmation of Chapter 13 plans that cure arrears where there are only in rem rights and no contractual privity between the debtor and creditor." In re Stevenson, No. 23-32811-KRH, 2023 WL 7401456 at * 1 (Bankr. E.D. Va. Nov. 8. 2023) (concluding that secured creditor's in rem claim against property inherited by die debtor was a "claim" for puiposes of § 101(5) and could be cured through the plan and collecting cases); see also, e.g., In re Mack, No. 22-02503-DD, 2023 WL 1869211, at *4 (Bankr. D.S.C. Feb. 9, 2023) (allowing debtor to cure a default on a mortgage granted by her mother, who had died intestate); In re McNeal, No. 3:11-BK-3148-PMG, 2011 WL 4381725, at *3 (Bankr. M.D. Fla. Sept. 1, 2011) (determining that, notwithstanding that the debtor is not personally obligated on the note and mortgage. "[s]ince the Debtor has an ownership interest in the property, he may cure the arrearage on the Mortgage, reinstate the Mortgage, and make regular payments on the Mortgage through his Chapter 13 Plan."); Newcomer v. Litton Loan Servicing, LP. (In re Newcomer), 438 B.R. 527, 542 n.14 (Bankr. D. Md. 2010) ("[TJ the majority view since [Johnson] is that it is appropriate to permit a Chapter 13 debtor who is the owner of real property to cure a pre-petition default under a mortgage, even if the debtor lacks privity with the mortgagee.") (quotation omitted); Bank of America, N.A. v. Garcia (In re Garcia), 276 B.R. 627, 633 (Bankr. D. Ariz. 2002) (concluding that "the alleged lack of a debtor-creditor relationship between the Bank and the [purchasing] [d]ebtors has no bearing on the [debtors' rights...