In re Rolle
| Decision Date | 20 February 1998 |
| Docket Number | Adversary No. 97-0280-BKC-AJC-A.,Bankruptcy No. 96-17214-BKC-AJC |
| Citation | 218 BR 636 |
| Parties | In re Mae ROLLE, Debtor. Mae ROLLE, Plaintiff, v. CHASE MANHATTAN MORTGAGE CORPORATION and Metropolitan Dade County, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
Carolina Lombardi, Miami, FL, for Debtor.
Peter Spindel, Miami, FL, for Chase Manhattan Mortgage Corp.
This adversary proceeding is before the Court upon the complaint of Mae Rolle ("Debtor") to determine the extent of Chase Manhattan Mortgage Company's ("Chase") interest in the Debtor's real estate and the value of Chase's secured claim. After a hearing on June 17, 1997, in Miami, Florida, the matter was taken under advisement.
The Court has jurisdiction of this case pursuant to 28 U.S.C. § 1334 & § 157. This is a core proceeding in accordance with 28 U.S.C. § 157(b)(2)(K)(1994), and the Court may enter a final judgment in the case. The following shall constitute findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
The Debtor has owned her current residence at 1328 Northwest 71st Street, Miami, Florida, since 1987. On August 27, 1987, the Debtor executed a mortgage in favor of Chase conveying a lien (security interest) in the 71st Street residence described as follows:
(Pretrial Order, Admitted Fact "H".)
The Debtor filed her voluntary petition for relief under chapter 13 of title 11 of the United States Bankruptcy Code on November 12, 1997. Chase filed a proof of claim on January 22, 1997, in the secured amount of $25,789.23, together with interest, penalties, attorneys fees and costs. On March 10, 1997, the Debtor filed a complaint to determine the value of Chase's interest in her residence and the amount of Chase's secured claim.
At the June 17, 1997, hearing to adjudicate the complaint, both the Debtor and Chase presented expert appraisal testimony as to the value of the Debtor's residence. The Debtor's expert valued the property at $22,000.00, while Chase's expert appraised the property at $24,000.00. Both appraisals were well documented with no significant difference in the methods used or conclusions reached by the two expert opinions. Therefore, the Court fixes the value of the Debtor's residence at $23,000.00.1 Neither appraiser offered an opinion as to the value of any personal property which might also be subject to Chase's security interest.
The Debtor's testimony at the hearing centered on her receipt of rents and her ownership interest in a kitchen range and refrigerator. She stated that in recent months, her daughter had lived in the residence and paid the Debtor rent in an unspecified amount. The Debtor also said that she had purchased for home use two major appliances, a propane-gas fueled stove and a refrigerator, and she estimated each purchase occurred about five years ago. She said she planned to take these two appliances, but not the accompanying propane gas receptacles, with her if she ever vacated the residence. The Debtor presented no evidence that Chase satisfied state law requirements to perfect a security interest in either appliance under applicable provisions of the Uniform Commercial Code.
The Debtor argues that because Chase's claim exceeds the value of its collateral and the claim is secured by a security interest in collateral in addition to the Debtor's personal residence, the Debtor's chapter 13 plan may reduce the amount of Chase's secured claim to the value of its collateral pursuant to 11 U.S.C. § 506 and 11 U.S.C. § 1322(b)(2). Chase concedes that its claim exceeds the value of its collateral but argues that its claim is secured only by the Debtor's principal residence, and, therefore, 11 U.S.C. § 1322(b)(2) prevents modification.
The Bankruptcy Code provides in pertinent part that a chapter 13 plan 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. . . ." 11 U.S.C. § 1322(b)(2)(1994). Thus, the Debtor may modify Chase's rights unless Chase has taken a security interest only in the Debtor's residential real property. However, if the security interest conveyed in the mortgage is construed to extend to property in addition to the Debtor's personal residence, Chase loses the anti-modification protection of 11 U.S.C. § 1322(b)(2). This issue has been the subject of considerable litigation and numerous conflicting decisions by the courts.
Where a home mortgage recites a security interest in collateral that is an incident of the real property securing the mortgage lien, no additional security interest exists and the creditor retains protection against modification. Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208, 213 (6th Cir.1993); In re French, 174 B.R. 1, 7 (Bankr.D.Mass.1994); In re Spano, 161 B.R. 880, 887 (Bankr.D.Conn.1993); Wright v. C & S Family Credit, Inc. (In re Wright), 128 B.R. 838, 843 (Bankr.N.D.Ga.1991). The fact that a mortgage recites the various property rights that are inextricably bound to the fee simple estate does not mean that the mortgagee has claimed a security interest in collateral other than the described real property. In re Spano, 161 B.R. at 884. Section 1322(b)(2) anti-modification protection remains if a security interest has been granted in additional collateral that is "nothing more than an enhancement which is or can, by agreement of the parties, be made a component part of the real property or is of little or no independent value." In re French, 174 B.R. at 7. But see In re Hammond, 27 F.3d 52, 58 (3d Cir.1994) (); Sapos v. Provident Inst. of Sav., 967 F.2d 918, 925-26 (3rd Cir.1992) (same); Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123, 129 (3rd Cir.1990)(same).
With few exceptions, state law determines the existence of property rights in assets of a debtor's estate in bankruptcy. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). It follows that whether an item of collateral is actually an interest incidental to real property ownership is a matter of state law. In re Spano, 161 B.R. at 884-85. However, the issue of whether the taking of a security interest in an asset is sufficient to deny a creditor the anti-modification protection of section 1322(b)(2) is a matter of federal bankruptcy law. In re French, 174 B.R. at 6-7.
The mortgage in this case purports to grant to Chase a security interest in "all rents, issues, proceeds and profits accruing and to accrue from said premises, all of which are included within the foregoing description and the habendum thereof. . . ." (Pretrial Order, Admitted Fact "H".) Florida law determines whether additional collateral recited in the mortgage is or could be a component part of the real property at issue.
Both statutory and case law in Florida expressly provide that one aspect of real property is its potential for generating rent. This rule is implicit in Florida's Article 9 of the Uniform Commercial Code, which specifically excludes from secured transactions in personalty, "the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder. . . ." Fla. Stat. Ann. § 679.104(10) (West 1990) (emphasis added). Clearly, rent generated by real property is an interest in real estate under subsection 679.104(10). Weitzner v. Goldman (In re Kavolchyck), 154 B.R. 793, 798 (Bankr.S.D.Fla.1993) aff'd, Barnett Bank v. Weitzner, 164 B.R. 1018 (S.D.Fla.1994).
Furthermore, real property law in Florida classifies the right to unaccrued or accruing rents as incorporeal hereditaments or interests that pass or run with the land. McBryde v. Lowe, 163 So.2d 896, 899-900 (Fla.2d DCA 1964) (quoting 52 C.J.S. Landlord and Tenant § 518; Lipschultz v. Robertson, 407 Ill. 470, 95 N.E.2d 357 (Ill.1950); First & Citizens Nat'l Bank v. Sawyer, 218 N.C. 142, 10 S.E.2d 656 (N.C.1940)). The most persuasive view under bankruptcy case law is that if state law provides that rents are part of the debtor's residential property, a security interest in rents does not remove the mortgage from section 1322(b)(2) protection. Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208, 213 (6th Cir.1993); In re Spano, 161 B.R. 880, 886 (Bankr.D.Conn. 1993); Dent v. Associates Equity Servs. Co., Inc. (In re Dent), 130 B.R. 623, 628 (Bankr. S.D.Ga.1991); Wright v. C & S Family Credit, Inc. (In re Wright), 128 B.R. 838, 843 (Bankr.N.D.Ga.1991). But see In re Jackson, 136 B.R. 797, 802-03 (Bankr.N.D.Ill. 1992) ().
Applying Florida law, the Court finds that the right to unaccrued or accruing rents generated by the Debtor's residence is an incorporeal hereditament of the real property and runs with the land. Bankruptcy case law instructs that if a lien on rents is indistinguishable from a lien on the real property that generates those rents, no additional collateral...
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