In re Lewis, CASE NO. 19-00014-NPO

CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Mississippi
Writing for the CourtJudge Neil P. Olack, United States Bankruptcy Judge
Citation607 B.R. 539
Parties IN RE: David J. LEWIS, Debtor.
Decision Date31 May 2019
Docket NumberCASE NO. 19-00014-NPO

607 B.R. 539

IN RE: David J. LEWIS, Debtor.

CASE NO. 19-00014-NPO

United States Bankruptcy Court, S.D. Mississippi.

Signed: May 31, 2019

607 B.R. 541

Robert Rex McRaney, Jr., George Adam Sanford, Clinton, MS, for Debtor.


Judge Neil P. Olack, United States Bankruptcy Judge

This matter came before the Court for hearing on April 8, 2019 (the "Hearing"), on the Objection to Proposed Chapter 13 Plan and Confirmation Thereof (the "Objection") (Dkt. 19) filed by U.S. Bank National Association, as Trustee for the C-BASS Mortgage Loan Asset-Backed Certificates, Series 2006-RP2 ("U.S. Bank") in the above-styled chapter 13 bankruptcy case (the "Bankruptcy Case"). At the Hearing, Bradley P. Jones appeared on behalf of U.S. Bank, George Adam Sanford appeared on behalf of David J. Lewis, the debtor (the "Debtor"), and James L. Henley, Jr., the standing chapter 13 trustee (the "Trustee"), appeared on his own behalf. After the Hearing, the Court instructed the Debtor and U.S. Bank to submit legal authorities in support of their respective positions regarding the confirmability of the Chapter 13 Plan (the "Plan") (Dkt. 2) proposed by the Debtor. The Debtor filed the Amended Notice of Authorities (Dkt. 32) on April 22, 2019, and U.S. Bank filed the Response to Debtor's Notice of Authorities (Dkt. 33) on April 29, 2019. After fully considering the matter, the Court finds as follows:1


The Court has jurisdiction over the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334. This matter is a core proceeding arising under 28 U.S.C. § 157(b)(2)(A), (B), (L), and (O). Notice of the Objection was proper under the circumstances.


1. On November 24, 1997, the Debtor and his spouse, Bettie J. Lewis ("Bettie Lewis") (who is not a joint debtor in the Bankruptcy Case), obtained a home loan in the principal amount of $68,000.00. They signed a note (the "Note") (Cl. #1-1 pt. 2 at 63-66) promising to repay the loan at an annual interest rate of 12.5% and a deed of trust (the "Deed of Trust") (Cl. #1-1 pt. 2 at 51-62) conveying their residence located at 452 White Road in Florence, Mississippi (the "Property") in trust as security until repayment of the debt. In 2005, U.S. Bank became the holder of the Note and the Deed of Trust through a series of assignments. (Cl. #1-1 pt. 2 at 58-60).

607 B.R. 542

2. The Note required the Debtor and Bettie Lewis to repay the loan in monthly installments of $772.59 beginning on January 1, 1998, with the final payment of remaining principal and interest due on December 1, 2017. (Cl. #1-1 pt. 2 at 63-66).

3. The introductory paragraphs in the Deed of Trust reiterate that the Debtor and Bettie Lewis owe a debt in the principal amount of $68,000.00, and that the debt is evidenced by the Note, which provides for monthly payments with the full amount due on December 1, 2017. (Cl. #1-1 pt. 2 at 51). The lien of the Deed of Trust is described as securing "the repayment of the debt evidenced by the Note, with interest, and all renewals, extensions and modifications of the Note. " (Id. ) (emphasis added). The Deed of Trust was duly recorded in the land records of Rankin County, Mississippi.

4. At some point, the Debtor and Bettie Lewis became behind in their mortgage payments. After negotiations, U.S. Bank, the Debtor, and Bettie Lewis signed a Loan Modification Agreement (the "Modification Agreement") (Cl. #1-1 pt. 2 at 49-50) on February 7, 2008, that amended both the Note and the Deed of Trust. The Debtor and Bettie Lewis promised to pay $60,272.55, the unpaid principal balance of the loan as of March 1, 2008, in monthly installments of $449.04 beginning on April 1, 2008, with the final payment of remaining principal and interest due on June 1, 2036. In addition to extending the December 1, 2017 maturity date, the Modification Agreement reduced the annual interest rate from 12.5% to 8%, resulting in the reduction in monthly payments from $772.59 to $449.04. After the date of the Modification Agreement, any principal-and-interest payments made by the Debtor and Bettie Lewis to U.S. Bank were in the reduced amount of $449.04. (Cl. #1-1 at 4-13).

5. The Modification Agreement was not filed in the land records of Rankin County, Mississippi, and no notation was recorded on the margin of the Deed of Trust indicating any extension of the original December 1, 2017 maturity date. (Cl. #1-1 pt. 2 at 51-62).

6. On January 3, 2019, the Debtor filed a voluntary petition for relief (the "Petition") (Dkt. 1) pursuant to chapter 13 of the U.S. Bankruptcy Code (the "Code"). On Schedule A/B: Property, the Debtor valued his interest in the Property at $35,000.00. (Dkt. 4 at 3). On Schedule D: Creditors Who Have Claims Secured by Property, the Debtor listed Ocwen2 as having a mortgage on the Property in the amount of $65,000.00 (Dkt. 4 at 11).

7. Contemporaneously with the Petition, the Debtor filed the Plan. The last payment under the 60-month Plan becomes due in 2024. (Plan ¶ 2.1). In the Plan, the Debtor proposes to pay U.S. Bank $35,000.00, the Debtor's estimated value of the Property, over the sixty (60)-month term of the Plan with post-confirmation interest at the " Till rate" of 6.75%.3 (Plan ¶ 3.2). In Part 8 of the Plan, the Debtor explained his treatment of U.S. Bank's secured claim: "The mortgage loan ... matures during the life of the plan

607 B.R. 543

[and so the] Debtor proposes to cram down the claim ... to pay the value of $35,000.00." (Plan ¶ 8.1).

8. U.S. Bank filed the Objection on February 4, 2019, challenging the Debtor's proposed treatment of its secured claim in the Plan. U.S. Bank contends that the Debtor is prohibited by 11 U.S.C. § 1322(b)(2) from cramming down the mortgage, which is secured only by the Debtor's principal residence and which does not become due, pursuant to the terms of the Modification Agreement, during the life of the Plan.

9. On February 7, 2019, U.S. Bank filed a proof of claim (the "POC") (Cl. #1-1) in the amount of $73,273.45, reflecting the loan balance as of the date of the Petition, which includes a pre-petition arrearage of $23,286.89. Attached to the POC are copies of the Modification Agreement, the Deed of Trust, and the Note. (Cl. #1-1 pt. 2 at 49-66). The Debtor has not filed an objection to the POC.4

10. After the Hearing, both the Debtor and U.S. Bank submitted briefs. In summary, the Debtor argues that 11 U.S.C. § 1322(c)(2) applies as an exception to 11 U.S.C. § 1322(b)(2) based on the maturity date of December 1, 2017 in the Deed of Trust (Dkt. 32 at 1), whereas U.S. Bank contends that 11 U.S.C. § 1322(c)(2) does not apply because the Modification Agreement extended the maturity date to June 1, 2036 (Dkt. 33 at 2).


For the Plan to be confirmed, it must satisfy the requirements of 11 U.S.C. § 1325.5 In the absence of an agreement between the Debtor and U.S. Bank, the Debtor has two other options under § 1325(a)(5) with respect to the treatment of U.S. Bank's secured claim in the Plan. The Debtor may attempt to "cram down" U.S. Bank's claim to its secured value under § 1325(a)(5)(B) or he may surrender the Property under § 1325(a)(5)(C). The Debtor has chosen to cram down U.S. Bank's secured claim in the Plan under § 1325(a)(5)(B).6 U.S. Bank opposes the Debtor's proposed treatment of its claim.

1. Bifurcation and Cram Down Process

Generally, a debt is secured only to the extent it is supported by the market value of the collateral to which the lien is attached. 11 U.S.C. § 506 ; United States v. Ron Pair Enters., Inc. , 489 U.S. 235, 239, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). When the value of the collateral is less than the entire amount of the debt, § 506(a) allows a debtor to bifurcate or "cram down" a claim into secured and unsecured portions. The ability to bifurcate a claim is important because unsecured debt generally receives less favorable treatment than secured debt. The extent to which a chapter 13 plan may use § 506(a) to bifurcate a claim depends upon the application of § 1325(a)(5)(B). See In re Young , 199 B.R. 643, 647 (Bankr. E.D. Tenn. 1996) ("The very essence of a § 1325(a)(5) modification is the write down or ‘cramdown’ of a secured claim to the value of the collateral securing the debt.").

607 B.R. 544

Under the cram down option in § 1325(a)(5)(B), a debtor may keep collateral over the creditor's objection as long as the creditor retains its lien until payment of the underlying debt or discharge under § 1328 and receives periodic payments under the plan at least equal in value to the allowed amount of its secured claim. The Supreme Court explained the cram down process in Associates Commercial Corp. v. Rash , 520 U.S. 953, 117 S.Ct. 1879, 138 L.Ed.2d 148 (1997) :

Under the cram down option, the debtor is permitted to keep the property over the objection of the creditor; the creditor retains the lien securing the claim, see § 1325(a)(5)(B)(i), and the debtor is required to provide

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