In re Moore

• Decision Date: 18 November 2010
• Docket Number: No. 09-61990,09-61990
• Parties: In re Linda Ann MOORE and Dee Yancey Moore, Jr., Debtors.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Northern District of New York

441 B.R. 732

In re Linda Ann MOORE and Dee Yancey Moore, Jr., Debtors.

No. 09-61990.

United States Bankruptcy Court,

N.D. New York.

Nov. 18, 2010.

Peter A. Orville, Esq., Zachary McDonald, Esq., Peter A. Orville, P.C., Binghamton, NY, for Debtors.

Natalie A. Grigg, Esq., Steven J. Baum, P.C., Amherst, NY, for America's Servicing Company.

Mark W. Swimelar, Esq., Maxsen D. Champion, Esq., of Counsel, Syracuse, NY, Chapter 13 Standing Trustee.

MEMORANDUM-DECISION AND ORDER

DIANE DAVIS, Bankruptcy Judge.

The question before the Court is whether Linda Ann Moore and her husband, Dee Yancey Moore, Jr., (collectively, "Debtors") may modify a mortgage that encumbers a single parcel of real property that consists of Debtors' personal residence and a stand-alone apartment building. Specifically, Debtors seek to "strip down" ¹ the first mortgage lien held by America's Servicing Company as servicer for U.S. BankNational Association, as Trustee for the Structured Asset Securities Corporation, Series 2005-AR1 ("ASC") on their real property located at 2619-2621 N.Y. Route 26, situated in Maine, New York (the "Property").²

Adjudication of this matter turns on this Court's interpretation of 11 U.S.C. § 1322(b)(2), which permits a debtor to "modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence." 11 U.S.C. § 1322(b)(2) (2010).³ Although this Court believes that the statutory text—commonly referred to as the anti-modification clause—has a plain meaning, as will be further discussed infra, "setting the boundaries of the 'home mortgage' exception to Section 1322(b)(2) has proven to be a remarkably difficult task." In re Bulson, 327 B.R. 830, 838 (Bankr.W.D.Mich.2005); accord Veryl Victoria Miles, The Bifurcation of Undersecured Residential Mortgages Under § 1322(b)(2) of the Bankruptcy Code: The Final Resolution, 67 Am. Bankr. L.J. 207 (1993) (identifying this issue as "[o]ne of the most controversial and contested bankruptcy issues addressed by our courts and pondered by the bankruptcy bar in recent years"). After examination of the parties' submissions and arguments, the facts and circumstances of this case, and the relevant body of case law developing and applying varied standards under § 1322(b)(2), the Court concludes that modification in this case is permitted by the Code.

The following now constitute the Court's findings of fact and conclusions of law to the extent required by Federal Rule of Civil Procedure 52, as incorporated by Federal Rule of Bankruptcy Procedure 7052.

JURISDICTION

The Court has jurisdiction over the parties and this core matter pursuant to 28 U.S.C. §§ 157(a), (b)(1), (b)(2)(B), (K), and 1334(a).

FACTS

The pertinent facts in this case are largely undisputed. The present controversy centers instead on the applicable standard of law. On July 20, 2010, the Court conducted an evidentiary hearing in this matter and heard testimony from two witnesses, Dee Yancey Moore, Jr. and Brenda Jashinsky, Bankruptcy Analyst for Wells Fargo Bank, N.A., the parent company of ASC (Transcript of Record at 29, ECF No. 51). The parties filed a post-hearing Stipulated Statement of Facts on July 23, 2010 ("Stipulation"). (ECF No. 41.) The following findings of fact are therefore derived from the parties' submissions, including, but not limited to, the Stipulation, admitted exhibits, and proffered testimony.

Debtors filed a voluntary Chapter 13 petition and accompanying schedules on July 17, 2009. (ECF No. 1.) On Schedules A and D, titled "Real Property" and "Creditors Holding Secured Claims," respectively, Debtors list and describe the Property as their personal residence, and they allege a market value for the Property of $56,000 as of the date of their bankruptcy filing. Debtors further list that theProperty is subject to a secured claim in the amount of $166,736.70. Debtors' Chapter 13 Plan ("Plan"), filed on the same date as their petition for relief, initially sought to pay the secured creditor, ASC, $56,000 over the course of sixty months at an interest rate of 6% per annum, with ASC to receive 5% on the remaining amount of its claim in accordance with the general unsecured distribution set by the Plan. (ECF No. 2.) ASC filed a secured Proof of Claim, docketed as Claim Number 3, on August 17, 2009 ("Claim"), that asserts its claim to be fully secured in the amount of $188,638.99, which amount includes pre-petition arrears in the amount of $40,749.61. ASC filed an Objection to Confirmation of Debtors' Plan on August 27, 2009 (ECF No. 12), alleging that Debtors' Plan improperly subjects its claim to valuation under § 506(a), and improperly bifurcates its claim in violation of § 1322. ASC therefore requested that confirmation be denied pursuant to § 1325. In response, Debtors filed an Amended Chapter 13 Plan on September 1, 2009 ("Amended Plan"), clarifying that the Property is one parcel consisting of two separate buildings, one of which is Debtors' residence and the other is a rental property. (ECF No. 13.) The Amended Plan does not alter the material terms of Debtors' treatment of ASC's Claim inside the bankruptcy case. Accordingly, ASC filed an Amended Objection to Confirmation on September 2, 2009, restating its original objections to bifurcation and cram down of its Claim and emphasizing that Debtors' Amended Plan fails to cure the deficiencies previously alleged by ASC. (ECF No. 15.)

The stipulated facts in this matter are as follows:

1. The Debtors executed a Note and Mortgage on March 2, 2005[,] in the amount of $175,500.00 secured by [the Property]. (Stip. ¶ 1.) ( See also ASC's Ex. 4.)

2. The Property consists of one main lot that holds two separate structures. (Stip. ¶ 2.)

3. The Debtors maintain their primary residence in the structure designated 2621 Main Street.... ( Id. ¶ 3.)

4. The second structure that is located on the parcel, ... is designated as 2619 Main Street.... ( Id. ¶ 4.)

5. The value of the entire [P]roperty, which contains both structures, is $64,600.00. ( Id. ¶ 5.)

Mr. Moore testified that Debtors have owned the Property for approximately nineteen years, and that they have resided at 2621 Main Street and used 2619 Main Street as a rental property the entire time. (Tr. at 5.) In this regard, Debtors produced receipt booklets for tenants' rental payments for various months beginning in August 1998 through May 2009, which were admitted into evidence without objection from ASC. (Debtors' Ex. A.) Debtors also offered and admitted into evidence their federal and state tax returns for the years 2003 (Debtors' Ex. B) and 2004 (Debtors' Ex. C). Debtors' returns reported losses from rental real estate in both years. ( Id.)

Mr. Moore explained that he and his wife first learned of Argent when they decided to refinance their prior mortgage with Countrywide Financing. (Tr. at 6-7.) They received a telephone call from a telemarketer and, upon expressing an interest in obtaining a reduced interest rate, they received a follow-up telephone call from a broker. ( Id. at 7.) Mr. Moore described the Property to the broker as consisting of "their home and the three rental units that were next door." ( Id.) He testified that he disclosed the rental units because they had encountered problems with the Property's dual use when they had pursued other mortgages in the past. ( Id. at 8.) At thattime, the broker required tax returns, which Debtors provided for the 2003 and 2004 tax years. ( Id.) As is customary, Debtors also provided Argent with proof of homeowners insurance in effect for 2621 Main Street. The broker advised Debtors that the rental property would need to be subdivided from the residential parcel prior to closing, but Debtors did not do so after learning that the cost would be approximately $400, which Debtors did not have at the time. ( Id. at 10.)

In the Spring of 2005, an individual associated with either the brokerage or Argent traveled to Debtors' home to conduct the closing. ( Id. at 11-12.) All documents, including the loan application documents, were signed by Debtors at the closing. Debtors signed a Uniform Residential Loan Application, which listed only 2621 Main Street and identified the Property as a one unit, primary residence. (ASC's Ex. 1.) The Application did not disclose any net rental income. ( Id.) Debtors also signed an Occupancy Agreement stating that they intended to occupy 2621 Main Street as their primary residence. (ASC's Ex. 5.) As part of the Mortgage, Debtors were not required to sign a 1-4 Family Rider, and the Mortgage made no mention of 2619 Main Street. (ASC's Ex. 4.)

Ms. Jashinsky testified that it is standard practice in the mortgage industry for banks to rely upon information provided by the borrower during the mortgage application process, and Argent did so in this case. (Tr. at 31.) The bank generally relies on the information provided by the borrower to determine, for example, whether the subject property is to be used as a singular, primary residence, secondary residence, or as an investment property. ( Id. at 32.) Ms. Jashinsky's testimony, however, was limited to industry standards because she had no personal knowledge of the facts and circumstances pertaining to Debtors' particular loan. From her experience and review of the documentation regarding the Property in issue, Ms. Jashinsky stated that she believed this loan was intended to cover a single family unit. ( Id. at 36.) Notwithstanding the statements contained in the origination file, Ms. Jashinsky conceded that the description of the Property set forth in the mortgage document broadly encompassed the entire parcel, including the rental property. ( Id. at 37-38.)

ARGUMENTS

Summaries of the parties' arguments are drawn from ASC's Supplemental Affirmation in Support of Secured Creditor's Objection to Confirmation filed on January 28, 2010 ("ASC's Supplemental Affirmation") (ECF No. 21), ASC's Memorandum of Law...