In re Materne
| Decision Date | 07 April 2022 |
| Docket Number | 20-40027-CJP,19-40930-CJP |
| Parties | In re: RUSSELL K. MATERNE, Debtor In re: DOMINIQUE J. GNAMAN, Debtor |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Before the Court are objections by secured creditors to confirmation of Chapter 13 plans in two unrelated cases. While the plans and the confirmation objections of the secured creditors are not identical, the cases share certain common issues presented by Chapter 13 "sale" plans, pursuant to which a debtor treats the claim of a secured creditor including prepetition arrears, by proposing to sell the debtor's principal residence that secures the mortgage during the term of the plan. In the plans before me, the debtors do not specify a time for the sales to occur, such that the sales could take place at any time before the respective plan terms expire. As the objections to confirmation raise overlapping legal issues related to sale plans, I am issuing a single memorandum of decision to address the issues together. For the reasons set forth below I will sustain the objections of the secured creditors in each of the cases.[1]
On June 6, 2019, Dominque J. Gnaman filed a petition for relief under Chapter 13 of the Bankruptcy Code. Wilmington Trust, NA, successor trustee to Citibank, N.A., as Trustee for Structured Asset Mortgage Investments II Inc., Bear Stearns ALT-A Trust, Mortgage Pass-Through Certificates, Series 2006-4 ("Wilmington") is the current holder of the first mortgage of the real property located at 102 Jordan Road, Franklin, Massachusetts (the "Franklin Property"). The debtor owns the single-family Franklin Property individually and values it at $553, 655.00 on Schedule A/B. There is no dispute that this is Mr. Gnaman's principal residence. On Schedule C, Mr. Gnaman claims a homestead exemption in the Franklin Property in the amount of $500, 000.00 under Mass. Gen. Laws ch. 188, § 3. Wilmington, through its servicer, Select Portfolio Servicing, Inc., filed a secured proof of claim in the amount of $411, 417.95, including prepetition arrears of $206, 561.84.
Wilmington objects (Case No. 19-40930, Dkt. No. 36) to confirmation of the Chapter 13 plan (Case No. 19-40930, Dkt. No. 26) proposed by Mr. Gnaman.[2] Mr. Gnaman seeks to cure his prepetition arrears by selling the property that secures Wilmington's mortgage at any time up to the conclusion of the plan's 60-month term. The plan provides that, until the property is sold, Mr. Gnaman will pay contractual monthly mortgage payments directly to Wilmington. Mr. Gnaman proposes to pay Wilmington the full amount of its claim from proceeds of the proposed sale. Wilmington objects to this treatment, asserting that it violates §§ 1325(a)(3), (a)(5), and (a)(6) and 1322(b)(5) of the Bankruptcy Code.[3]
Mr. Gnaman addresses Wilmington's secured claim in two sections of his plan, each of which must be considered to determine Wilmington's plan treatment. Part 3.A.2 of the plan, Maintenance of Contractual Installment Payments (To Be Paid Directly to Creditors), provides that Mr. Gnaman will directly maintain contractual mortgage payments to Select Portfolio Servicing, Inc.[4] "outside" of the plan, meaning that the debtor will make the payments directly to the mortgagee, instead of through the Trustee as a conduit.[5] Additionally, in Part 8.6 of the plan, Nonstandard Plan Provisions, the debtor proposes to pay the balance of the mortgage claim of Wilmington in a lump sum (sometimes called a "balloon payment"), including prepetition arrearages, through the sale of the Franklin Property. Mr. Gnaman's plan specifically provides that:
Gnaman Plan 6, Part 8.6.
Mr. Gnaman left Part 3.A.1 of the plan blank, which references "prepetition arrears to be paid through this plan." There is also no timetable associated with the sale of the Franklin Property, so Mr. Gnaman is proposing to retain the Property for a period of up to 60 months in which he would sell the Franklin Property and pay Wilmington's claim balance from the sale proceeds of its collateral. The debtor does not provide for any alternative treatment of Wilmington's claim if the Franklin Property is not sold during the 60-month plan period.
There does not appear to be any sale presently in prospect. Mr. Gnaman has never sought to employ a broker to list the Franklin Property in his case. Wilmington also asserts, upon information and belief, the property is not listed for sale.
In its objection, as supplemented by its additional briefing, Wilmington objects to the plan on numerous grounds.[6] Specifically, Wilmington argues that (i) cure of Mr. Gnaman's default under a 60-month sale plan is an unreasonable period of time and, because it is does not provide for cure "within a reasonable time," runs afoul of the anti-modification provision of § 1322(b)(2); (ii) the "balloon" payment contemplated through the sale to cure the prepetition arrears violates § 1325(a)(5)(B)(iii)(I) requiring periodic payments to be in "equal amounts"; (iii) the plan is not feasible under § 1325(a)(6) given the lack of movement toward a sale or guideposts for progress regarding the sale process; and (iv) the plan is not proposed in good faith pursuant to § 1325(a)(3) for those same reasons.
On January 7, 2020, Russell K. Materne filed a petition for relief under Chapter 13 of the Bankruptcy Code. Bank of America, National Association ("BoA") holds both the first and second mortgages of the real property located at 140 Oak Knoll Road, Carlisle, Massachusetts (the "Carlisle Property"). The debtor owns the single-family Carlisle Property with his non-filing spouse as tenants by the entirety and values his interest at $1, 320, 000.00 on Schedule A/B. There is no dispute that this is Mr. Materne's principal residence. On Schedule C, Mr. Materne claims a homestead exemption in the Carlisle Property in the amount of $500, 000.00 under Mass. Gen. Laws ch. 188, § 3. BoA, through its servicer, PNC Bank, National Association ("PNC Bank"), filed a secured proof of claim for the first mortgage in the amount of $889, 187.51, including prepetition arrears of $243, 367.33. BoA filed a secured proof of claim for its second mortgage in the amount of $82, 463.70, including prepetition arrears of $8, 373.42.
BoA has filed two separate objections to confirmation, (Case No. 20-40027, Dkt. No. 50, the "First Mortgage Objection")[7] and (Case No. 20-40027, Dkt. No. 68, the "Second Mortgage Objection"), of the debtor's Chapter 13 plan (Case No. 20-40027, Dkt. No. 25).[8] Mr. Materne proposes to cure his prepetition arrears by selling the property that secures BoA's first and second mortgages at any time prior to the conclusion of the plan's 36-month term. Until the property is sold, Mr. Materne proposes to make monthly "adequate protection" payments to BoA in amounts less than the monthly payments provided under BoA's first mortgage and less than the amount of the monthly escrow for insurance and real estate taxes required by that mortgage. In the First Mortgage Objection, BoA objects to this treatment, asserting that it violates §§ 1325(a)(1), (a)(3), (a)(5), and (a)(6) and 1322(b)(2). In the Second Mortgage Objection, BoA does not focus on specific provisions at issue, but generally references §§ 1322 and 1325 and objects to the fact that, although the plan proposes a sale, there is no time limit on the sale term and no realtor has been retained.[9]
With respect to the specific treatment of BoA under his plan, Mr. Materne marked "none" in Part 3 of the plan governing secured claims and addresses the BoA claims entirely in Part 8 of his plan, Nonstandard Plan Provisions. In Part 8.7 of the plan, which the debtor captions "[t]reatment of secured lender mortgage / sale [p]lan," the debtor notes that he and his non-filing spouse will sell the Carlisle Property, which will be subject to further order of the Court, and that the claims of BoA, including prepetition arrearages, will be paid in a lump sum from the proceeds of such sale. The plan specifically provides that:
Materne Plan 5. Additionally, in Part 7.a of the plan, Mr. Materne proposes the following “Adequate Protection/Maintenance Payments” to PNC Mortgage and BoA [10]:
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