In re Reinhardt

• Decision Date: 29 April 2009
• Docket Number: No. 08-3309.,08-3309.
• Citation: 563 F.3d 558
• Parties: In re Christopher C. REINHARDT and Tina M. Reinhardt, Debtors. Christopher C. Reinhardt and Tina M. Reinhardt, Debtors-Appellees, v. Vanderbilt Mortgage and Finance, Inc., Creditor-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

563 F.3d 558

In re Christopher C. REINHARDT and Tina M. Reinhardt, Debtors Christopher C. Reinhardt and Tina M. Reinhardt, Debtors-Appellees, v. Vanderbilt Mortgage and Finance, Inc., Creditor-Appellant.

No. 08-3309.

United States Court of Appeals, Sixth Circuit.

Argued: March 11, 2009.

Decided and Filed: April 29, 2009.

ARGUED:

Thomas L. Canary, Jr., Lexington, Kentucky, for Appellant.

ON BRIEF:

Thomas L. Canary, Jr., Lexington, Kentucky, Gregory A. Stout, Mapother & Mapother, Louisville, Kentucky, for Appellant.

Before: CLAY and GIBBONS, Circuit Judges; GREER, District Judge.^*

OPINION

CLAY, Circuit Judge.

Creditor-Appellant Vanderbilt Mortgage and Finance, Inc. ("Vanderbilt") appeals the order of the bankruptcy court, overruling Vanderbilt's objection and confirming the reorganization plan proposed by Debtors Christopher C. Reinhardt and Tina M. Reinhardt. Under Debtors' plan, Vanderbilt's rights as a secured creditor were modified so as to reduce its secured claim on Debtors' mobile home and real estate to the current estimated value of the properties. On appeal, Vanderbilt contends that the Bankruptcy Code (the "Code"), 11 U.S.C. § 101 et seq., forbids the modification of Vanderbilt's secured claim because it pertains to real property that is Debtors' principal residence. For the following reasons, we AFFIRM the bankruptcy court's order.

BACKGROUND

On August 15, 2002, Debtors purchased a parcel of three acres of land in Ohio and a mobile home in which to live on the real property. Debtors paid no money down, financing the purchase of the land through a mortgage agreement and financing the mobile home through a retail installment sale contract containing a security agreement. The sale contract provided: "Buyer will not let the Manufactured Home become part of any real estate. Buyer agrees that the Manufactured Home sold by the terms of this contract is personal property. Unless Seller gives prior written consent, Buyer shall not allow the Manufactured Home to become a part of real estate or to otherwise lose its status as personal property under applicable law[.]" (Joint Appendix at 250.) Vanderbilt obtained a security interest in both the real property and the mobile home.

On December 12, 2006, Debtors filed for bankruptcy protection under Chapter 13 of the Code. In their bankruptcy petition, Debtors included the mobile home and the land on which the home sits in their schedule of assets. They listed the mobile home as personal property valued at $12,000, and listed the land as real property valued at $3,000. They listed the total value of Vanderbilt's secured claim on the mortgage and mobile home as $37,399.87. On December 27, 2006, Vanderbilt filed a proof of secured claim totaling $44,823.65.

In their proposed plan of reorganization filed on December 15, 2006, the Debtors sought a "cramdown" of Vanderbilt's secured claim, proposing that only $15,000 of Vanderbilt's outstanding claim — i.e., the current estimated value of the land and the mobile home — be secured.¹ Under the proposed plan, Debtors would pay Vanderbilt's $15,000 secured claim in monthly installments, with the remainder left as a general unsecured claim. Debtors filed an amended reorganization plan on February 13, 2007, though they left the proposed cramdown of Vanderbilt's secured claim unchanged.

On February 22, 2007, Vanderbilt filed an objection to Debtors' proposed cramdown and bifurcation of its claim into secured and unsecured components. Because the parties stipulated that Vanderbilt held a valid mortgage on Debtors' real property and a valid lien on the title to the mobile home, the only issue in dispute was whether the proposed cramdown was permissible under the Code.

On November 13, 2007, the bankruptcy court overruled Vanderbilt's objection, and on November 15, 2007, it confirmed the proposed plan. In overruling Vanderbilt's objection, the bankruptcy court cited 11 U.S.C. § 1322(b)(2), which permits a bankruptcy court to modify secured creditors' rights with respect to any claim "other than a claim secured only by a security interest in real property that is the debtor's principal residence." The court then found that although Debtors' mobile home qualified as the "debtor's principal residence" under the newly amended Code, a modification was still permissible because the mobile home did not constitute "real property." On November 21, 2007, Vanderbilt timely appealed the bankruptcy court's order, and then filed for direct appeal to this Court pursuant to 28 U.S.C. § 158(d). On March 20, 2008, this Court accepted the request to take the case on direct appeal.

DISCUSSION

I. Standard of Review

When this Court hears an appeal from an order of a bankruptcy court, we review the bankruptcy court's factual findings for clear error and its legal conclusions de novo. In re Federated Dept. Stores, Inc., 328 F.3d 829, 832 (6th Cir. 2003).

II. Analysis

A debtor reorganizing under Chapter 13 may take one of three approaches to an allowed secured claim in order to receive court approval for the plan: the debtor may obtain the secured creditor's approval of its reorganization plan; the debtor may modify, or cram down, the creditor's secured interest; or the debtor may transfer the collateral securing the creditor's interest to the creditor. 11 U.S.C. § 1325(a)(5); Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 956-57, 117 S.Ct. 1879, 138 L.Ed.2d 148 (1997). With respect to the cramdown option, a bankruptcy court may "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, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims[.]" § 1322(b)(2) (emphasis added). Under the Code, "`debtor's principal residence' (A) means a residential structure, including incidental property, without regard to whether that structure is attached to real property; and (B) includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer." § 101(13A). The definition of "debtor's principal residence" in § 101(13A) was added to the Code as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"); prior to BAPCPA, the term was undefined. H.R.Rep. No. 109-31, pt. 1, at 72 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 140.

"Real property" is undefined in the Code. See § 101. Under Ohio law, a mobile home is generally considered personal property, and only becomes real property if (1) "[t]he home is affixed to a permanent foundation ... and is located on land owned by the owner of the home," and (2) "[t]he certificate of title for the [mobile] home has been inactivated by the clerk of the court of common pleas that issued it[.]" Ohio Rev.Code § 5701.02(B)(2).

The bankruptcy court found that for Vanderbilt's claim to fit within the exception to the modification provision in 11 U.S.C. § 1322(b)(2), the mobile home not only had to be the debtor's principal residence, but also had to be real property. The court found that under Ohio law, Debtors' mobile home was not "real property," because it was not attached to the land, and because Debtors never surrendered their certificate of title to the mobile home. The court therefore found that the anti-modification exception in § 1322(b)(2) did not apply, and overruled Vanderbilt's objection.

On appeal, Vanderbilt argues that its secured claim falls within the anti-modification exception because its claim is "secured only by a security interest in real property that is the debtor's principal residence," as per § 1322(b)(2). Vanderbilt does not contest the bankruptcy court's finding that the mobile home is personal property under Ohio law.² Rather, Vanderbilt contends that because the definition of "debtor's principal residence" specifically includes mobile homes that are not attached to the land, and because Vanderbilt also has a security interest in the real property beneath the home, this Court should find that Vanderbilt meets the anti-modification requirement without resorting to the definition of real property under Ohio state law. This argument presents an issue of first impression for this Court: whether § 1322(b)(2) of the Code precludes the modification of a secured interest in an unattached mobile home if the secured creditor also holds a security interest in the real property beneath the home.

"[T]he starting point in any case involving the meaning of a statute[ ] is the language of the statute itself." Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 210, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979). Pursuant to § 1322(b)(2), a secured claim cannot be modified if the claim "is secured only by a security interest in real property that is the debtor's principal residence." According to the grammatical structure of that clause, "that is the debtor's principal residence" modifies "real property." Therefore, if the claim does not pertain to "real property," it does not matter whether the claim is on a "debtor's principal residence." The provision plainly contains two requirements: that the property be real property and that it be the debtor's principal residence. This interpretation is consistent with that of the only other federal appellate court to have addressed the issue since the enactment of BAPCPA. See In re Ennis, 558 F.3d 343, 345-46 (4th Cir.2009) ("The prohibition against modification in § 1322(b)(2) has two distinct requirements: first, the security interest must be in real property, and second, the real property must be the debtor's principal residence.").

Because § 1322(b)(2) clearly contains a separate requirement that the "debtor's principal residence" must be real property, there is no need to examine BAPCPA's legislative history to determine Congress' intent in adding the definition. See Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (...