In re Russell

• Decision Date: 30 June 2010
• Docket Number: No. 10–11720–SSM.,10–11720–SSM.
• Citation: 458 B.R. 731
• Parties: In re William F. RUSSELL, Jr., Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Virginia

458 B.R. 731

In re William F. RUSSELL, Jr., Debtor.

No. 10–11720–SSM.

United States Bankruptcy Court, E.D. Virginia,Alexandria Division.

June 30, 2010.

Daniel M. Press, Esquire, Chung & Press, P.C., McLean, VA, for Debtor.William F. Russell, Jr., Fredericksburg, VA, pro se.Eric David White, Esquire, Samuel I. White, P.C., Richmond, VA, for SunTrust Mortgage, Inc.Thomas P. Gorman, Esquire, Alexandria, VA, for Chapter 13 trustee.

MEMORANDUM OPINION

STEPHEN S. MITCHELL, Bankruptcy Judge.

Before the court is the repayment plan filed by the debtor on April 5, 2010. A hearing was held on May 12, 2010, at which the court heard argument on an objection to confirmation filed by creditor SunTrust Mortgage, Inc. (“SunTrust”).¹ Additionally, the court on its own motion raised the issue of whether a mortgage debt against a separate parcel of real estate could be re-amortized and paid out over a period exceeding 5 years. For the reasons stated, the court determines that SunTrust's objection is well-taken and that a “crammed-down” real estate loan must be paid within the term of the plan.

Background

The debtor, William F. Russell, Jr., filed a voluntary petition in this court on March 9, 2010, for adjustment of his debts under chapter 13 of the Bankruptcy Code. On his schedules, he listed ownership of two parcels of real estate, one at 4356 Normandy Court, Fredericksburg, Virginia, and the other at 1370 Cranes Bill Way, Woodbridge, Virginia. The Normandy Court property was his residence at the time he filed his petition,² while the Cranes Bill Way property was held for rental. The residence was valued at $80,000, subject to a mortgage in favor of SunTrust in the amount of $88,635. The rental property was valued at $232,401, subject to a mortgage in favor of BAC Home Loans Servicing (“BAC”) in the amount of $395,000. Scheduled unsecured claims (not including the unsecured portion of secured claims) total $41,775. ³

On April 5, 2010, the debtor filed the plan that is currently before the court for confirmation. It requires the debtor to pay the chapter 13 trustee $753 per month for 36 months. From this the trustee would pay his own statutory commission of 10%, $663 in attorney's fees to debtor's counsel, priority taxes in the estimated amount of $2,655, an $8,150 secured automobile debt, and $12,299 in mortgage arrears to SunTrust, with the post-petition monthly payments on the mortgage being made directly by the debtor. No meaningful distribution would be made to general unsecured creditors.⁴

The plan provides for judgment liens held by Lurean Robinson and Riverside Station Home Owners Association to be avoided under § 522(f), Bankruptcy Code.⁵ With respect to the BAC mortgage against the Cranes Bill Way rental property, the plan values the property at $232,401, and provides the following treatment:

I. The claim of BAC Home Loans Servicing is secured by a 1st Deed of Trust against 1370 Cranes Bill Way, Woodbridge VA 22191, a single family home which is not the debtor's principal residence. The rights of the secured creditor, BAC Home Loans Servicing (and the actual presently unknown holder of said secured claim, on whose behalf BAC Home Loans Servicing is acting—its “Principal”), shall be modified as follows:

A. The secured claim of BAC Home Loans Servicing and/or its Principal shall be reduced to $232,401.00, an amount equal to the present value of the collateral, and shall be paid directly by the debtor at the rate of $1143.27 per month over a term of 360 months from confirmation at a rate of interest of 4.25%. Valuation shall be determined in accordance with Section 3A of this Plan; in the event the value is determined to be different from the $232,401 amount, the loan shall be reamortized at the determined value of the collateral, at 4.25%. Escrow payments for taxes and insurance as required by the loan documents shall be added to the foregoing monthly payments.

B. The balance of the claim of BAC Home Loans Servicing and/or its Principal shall be paid as an unsecured claim pursuant to Section 4, to the extent proven and allowed.

Plan Section 11. No objection has been filed by BAC with respect to the valuation of the property or the treatment of its claim.⁶

With respect to the SunTrust claim, the plan, while providing for the cure of the prepetition arrears and the making of on-going payments, imposes a number of obligations and restrictions to which SunTrust has objected. These are as follows:

III. Confirmation of the plan shall impose a duty on Real Property Creditors and/or servicers of such Creditors, with respect to application of mortgage and mortgage-related payments, to comply with the provisions of 11 U.S.C. § 524(i). All Real Property Creditors and/or servicers for such Creditors shall have an affirmative duty to do the following upon confirmation of the Plan:

A. To apply all post-petition payments received from the Chapter 13 Trustee and designated to the pre-petition arrearage claim and the administrative arrearage claim only to such claims;

B. To apply all post-petition payments received directly from the Debtor only to post-petition payments;

C. To refrain from assessing or adding any additional fees or charges to the loan obligation of the Debtor based solely on the pre-petition default;

D. To refrain from assessing or adding any additional fees or charges to the loan obligation of the Debtor (including additional interest, escrow and taxes) unless notice of such fees and charges has been timely filed, and a proof of claim for such additional amounts has been filed and has not been disallowed upon objection of the Chapter 13 Trustee or the Debtor.

E. To the extent that any post-petition fees or charges are allowed and are added to the Plan, to apply only payments received from the Chapter 13 Trustee and designated in payment of such fees and charges to such fees and charges.

F. To the extent that any post-petition fees or charges are allowed and are NOT added to the Plan, to apply only payments received directly from the Debtor and designated in payment of such fees and charges to such fees and charges.

Upon completion of all payments due under the Plan, all loans will be deemed current through the date of the filing of this case. For the purposes of the imposition of default interest and postpetition charges, all loans shall be deemed current as of the filing of this case. Unless any post-petition fees or charges are allowed and are NOT added to the Plan, the loan shall be deemed current as of the date of discharge, and no such charges may thereafter be added.

Plan Section 11.

Discussion

A. Requirements Imposed on SunTrust.

SunTrust does not object to the debtor's proposed cure of the prepetition defaults over time. It does, however, vigorously objects to the affirmative requirements that Section 11(III) of the plan seeks to impose with respect to its administration of the loan. At the outset, it is important to note that the Eastern District of Virginia and the Western District of Virginia have adopted a joint form of chapter 13 plan that debtors are required to use. Loc.Bankr.R. 3015–2(A) & Exh. A (Bankr.E.D.Va., Dec. 1, 2009); Loc.Bankr.R. 3015–1(A)(2) (Bankr.W.D.Va., Dec. 1, 2009). The advantages of a uniform plan are many. A uniform format greatly facilitates review by creditors, the trustee, and the court and increases the efficiency of administering chapter 13 cases. In re Walat, 89 B.R. 11, 13 (E.D.Va.1988); In re Maupin, 384 B.R. 421, 426 (Bankr.W.D.Va.2007). As drafted, the uniform plan addresses the most common ways debts are treated in a chapter 13 case. Of necessity, however, no form plan (except perhaps a very unwieldy one) can anticipate every situation that might arise. Thus, the form plan includes a section (Section 11) in which the debtor can insert provisions specific to his or her particular debts and the proposed treatment of them. Maupin, 384 B.R. at 432 (“Paragraph 11 was added to the Uniform Plan so that a debtor might add provisions that are peculiar to the debtor's financial situation, not so that counsel could substitute his uniform plan for that of the Courts.”).

The provisions that SunTrust objects to fall squarely within the category of additions that are emphatically not peculiar to this debtor and his financial circumstances but rather seek to substitute counsel's vision of an appropriate uniform plan for the one adopted by the court. Indeed, the additional language does not even make the pretense of specifically addressing SunTrust's claim. Instead, it refers to “Real Property Creditors” as a generic category. There is no assertion that SunTrust has a record or practice of not properly accounting for chapter 13 plan payments or has previously misapplied the debtor's payments. The proposed treatment of SunTrust's claim—the curing of defaults by payment over time while maintaining current payments during the pendency of the case—is by far the most common treatment of mortgage debts in chapter 13 and is squarely provided for by Section 5 of the uniform plan. As explained at length in Maupin, the additional provisions that the debtor's counsel has placed in Section 11(III) either restate existing law, and are thus unnecessary; or by paraphrasing existing law may engender unnecessary litigation; or improperly impose requirements that do not exist under the Bankruptcy Code and Rules. Little would be gained by simply repeating Judge Anderson's careful analysis in Maupin; suffice it to say that this court agrees entirely.

When a mortgage debt against the debtor's principal residence is provided for under § 1325(a)(5), Bankruptcy Code, the debtor normally makes the regular payments becoming due post-petition under the terms of the note and security instrument,⁷ while the trustee makes the payments to cure the prepetition arrears. Inherent in this treatment is that the mortgage servicer must apply the debtor's payments to the payments becoming due...