In re Rowe, Bankruptcy No. 98-28641(WFT).
| Decision Date | 22 February 1999 |
| Docket Number | Bankruptcy No. 98-28641(WFT). |
| Citation | 239 BR 44 |
| Parties | In re Allan Richard ROWE and Judith P. Gold-Rowe, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
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Richard P. Shapiro, Middlebrooks & Shapiro, P.C., Parsippany, New Jersey, for the debtors.
John D. Birchby, Dieffenbach, Witt & Birchby, Paramus, New Jersey, for Hudson City Savings Bank.
This matter comes before the Court via a Motion for Relief From the Automatic Stay pursuant to section 362(d) of the Bankruptcy Code and Objection to Confirmation of Debtors' Chapter 13 Plan ("the Plan") pursuant to Bankruptcy Code section 1325(a) by Hudson City Savings Bank, ("Hudson" or "the Bank"). Allan Richard Rowe and Judith P. Gold-Rowe, (Collectively "the Debtors" or "the Rowes"), oppose Hudson's Motion, and seek confirmation of the Plan which undertakes, pursuant to Bankruptcy Code section 1322(c)(2) to pay a prepetition foreclosure judgment on a long term mortgage whose maturity date, by its own terms extends beyond the life of the debtors' Chapter 13 Plan.
Issues concerning stay relief and confirmation of a Debtor's Chapter 13 Plan are core matters as defined by the United States Congress in 28 U.S.C. § 157(b)(2)(G) and (L). The within Opinion constitutes this Court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.
The facts in this case are not in dispute. On March 29th 1990, the Rowes obtained financing to purchase their home located at 1 Sweetwater Lane, Ringwood, New Jersey ("the Property") in the amount of $179,300 from Hudson. To secure Hudson's loan the Rowes gave Hudson a mortgage, ("the Mortgage"), on the Property. (Certification of V. Barry Corridon, filed September 3, 1998, Exhibit A). The Mortgage was recorded on April 10, 1990 in the mortgage book at Passaic County. Significantly for purposes of the within Opinion, by its own terms, the Mortgage matures on April 1, 2020. On June 1, 1995, the Rowes failed to make the monthly payments required under the Note. (Corridon Certification, Exhibit A). On November 6, 1995, Hudson filed a foreclosure complaint in Passaic County, New Jersey.
During Hudson's attempt to foreclose on the Property several bankruptcies were filed by the Rowes. The procedural history of these multiple filings reveal that initially, the Rowes filed a voluntary petition under Chapter 7 of the Bankruptcy Code on March 26, 1996 (case no. 96-22425). On July 5, 1996, an Order was then entered granting the debtors their Chapter 7 discharge. On July 8, 1996, the Trustee, filed a Certification of No Objection to Abandonment of the Property securing Hudson's Mortgage.1 The case was then closed on July 25, 1996. (Bank's Brief in Support of Stay Relief, filed September 3, 1998).
Approximately four months after receiving their Chapter 7 discharge, on November 18, 1996, the debtors filed a second petition, this time seeking relief under Chapter 13 of the Bankruptcy Code (case no. 96-40523). Thereafter, On December 1, 1997, Hudson was granted stay relief with respect to the debtors' Property insofar as the debtors were four months delinquent in making payments to Hudson outside of the Chapter 13 Plan. (Corridon Certification, Exhibit B—Order entered December 1, 1997 vacating stay). On December 9, 1997, confirmation of the debtors' Chapter 13 Plan was denied and the Petition was dismissed for failure to make payments to the Trustee. (Corridon Certification, Exhibit C). On March 31, 1998, Hudson then obtained a Final Judgment of Foreclosure ("the Judgment") and a Writ of Execution. (Corridon Certification, Exhibit D). A Sheriff's Sale was scheduled for July 7, 1998, but was stayed due to the debtors' filing of the third and current petition for relief, again under Chapter 13 of the Bankruptcy Code on July 2, 1998.
The Rowes seek to treat Hudson's Foreclosure Judgment, under their Chapter 13 plan. The Rowes wish to pay the Bank monthly installments over a fifty nine month period with the balance paid by refinancing the Mortgage on the sixtieth month. (Chapter 13 Plan, filed August 17, 1998). In essence, the Rowes are proposing to pay the Bank within the Plan over a period of fifty nine months with a balloon payment at the sixtieth month. The proof of claim filed by Hudson on July 20, 1998, indicates that as of the petition date, $219,937.44, with a per diem interest of $39.66, was required in order to satisfy the loan in full and, that the amount due for reinstatement of the Mortgage was $70,177.20. (See also, Corridon Certification, Exhibit E).
The Bank seeks to vacate the automatic stay with respect to the debtors' Property and objects to the confirmation of the Debtor's plan. In essence, the Bank's objection to confirmation is twofold. First, the Bank contests the debtors' attempt to pay the amount of the Foreclosure Judgment through the Plan pursuant to Bankruptcy Code section 1332(c)(2), since the maturity date on the within Mortgage occurs after final payment under the Plan becomes due. The Bank asserts that the Rowes "only option" pursuant to 11 U.S.C. sections 1322(c)(1) and (b)(5) is to cure the arrears owed on the Mortgage within the Plan, while making regular mortgage payments of principal, interest and taxes outside of the Plan. (Supplemental Brief in Response to Debtors' Memorandum in Opposition to Stay Relief, filed December 1, 1998). Second, the Bank asserts inter alia, that the debtors' Plan cannot meet the feasibility requirements of 11 U.S.C. section 1325(a).
For the reasons discussed below, this Court finds in favor of Hudson, that confirmation of the Debtor's Chapter 13 Plan as proposed must be denied, and further that the Plan is not feasible.
Section 1322(b)(2) provides that a plan may "modify the rights of holders of secured claims . . . or of holders of unsecured claims. . . ." However, § 1322(b)(2) carves out an exception for creditors whose mortgages are secured by the debtor's principal residence only. In that case, § 1322(b)(2) prohibits any modification of the original terms agreed upon between the creditor and the debtor. Section 1322(c)(2), which was added to the Code as part of the 1994 Amendments, provides that in some instances, which shall be discussed below, even a mortgage that is only secured by the debtor's principal place of residence can be modified and paid through the debtor's Chapter 13 plan.
Hudson's Mortgage is secured by the Debtor's principal residence. The Mortgage is a long term mortgage that extends, by its terms, beyond the life of the debtors' Plan. The issue before this Court is whether or not a long term mortgage exceeding the life of a Debtor's plan that has been reduced to a foreclosure judgment is within the meaning of § 1322(c)(2). Should the Court find that the Judgment, in the present case, is not within the confines § 1322(c)(2), since the residence has not yet been sold at foreclosure sale, the Debtors may nevertheless choose to reinstate the mortgage, make regular monthly payments outside of the Plan, and pay the arrearage under the Plan as provided for under sections 1322(c)(1) and (b)(5), provided that said Plan meets the feasibility requirements of 11 U.S.C. section 1325(a).
The Rowes argue that pursuant to 11 U.S.C. § 1322(c)(2), a debtor is allowed to modify a mortgage that has been reduced to a foreclosure judgment, even though the mortgage by its own terms exceeds the life of the plan. The Debtors' maintain that once a mortgage has been reduced to a judgment, the Court should no longer look to the terms of the mortgage. Rather, the Rowes contend, the Court should look to the fact that the judgment is a matured claim that is owed before the final payment under the plan and as such should be within the scope of § 1322(c)(2). In support of their position, the Debtors rely on Judge Winfield's opinion In re Nepil, 206 B.R. 72 (Bankr.D.N.J.1997).
For its part, the Bank argues that the Court should look to the underlying obligation to determine whether or not a foreclosure judgment is within § 1322(c)(2). If the underlying obligation exceeds the life of the plan then, the Bank contends, the foreclosure judgment is not within § 1322(c)(2) and thus the Debtors' only remedy is to reinstate the mortgage and pay the arrears under the Plan, while providing for regular monthly payments outside of the Plan pursuant to sections 1322(c)(1) and (b)(5). The Bank argues that the Debtors current plan violates § 1322(b)(2) since it proposes to modify the terms of the original note by changing the date the mortgage matures and the agreed upon rate of interest, and that, if any, the debtors' only remedy with respect to said Mortgage is to attempt to cure same pursuant to subsection (c)(1). In support of its position, the Bank relies inter alia, on the cases of In re Mattson, 210 B.R. 157 (Bankr.D.Minn.1997); In re Bagne, 219 B.R. 272 (Bankr.E.D.Cal.1998); In re Eubanks, 219 B.R. 468 (6th Cir. BAP 1998); and In re Witt, 113 F.3d 508 (4th Cir.1997).
Bankruptcy Code § 1322(c)(2) provides, in part:
As applied to the facts herein, this Court must examine whether the words "last payment on the original payment schedule", as set forth above, refer to the original note or the Foreclosure Judgment as argued by the debtors.
In undertaking the above analysis, the Court first looks to the plain meaning of the statute. "The starting point in every...
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