In re Tosi

• Decision Date: 04 March 2016
• Docket Number: Case No. 13–14017–FJB
• Citation: 546 B.R. 487
• Parties: In re James W. Tosi, Debtor
• Court: U.S. Bankruptcy Court — District of Massachusetts

546 B.R. 487

In re James W. Tosi, Debtor

Case No. 13–14017–FJB

United States Bankruptcy Court, D. Massachusetts, Eastern Division .

Signed March 4, 2016

David G. Baker, Boston, MA, for Debtor.

MEMORANDUM OF DECISION ON OBJECTION OF GREEN TREE SERVICING LLC TO CONFIRMATION OF DEBTOR'S AMENDED CHAPTER 13 PLAN

Frank J. Bailey

, United States Bankruptcy Judge

The matter before the Court is the objection of creditor Green Tree Servicing LLC ("Green Tree") to confirmation of the plan of chapter 13 debtor James W. Tosi (the "Debtor"). The plan provides that the Debtor would first be afforded 90 days in which to attempt to sell the property that secures Green Tree's mortgage debt but also that, if he is unsuccessful in selling the property within 90 days of confirmation, his interest in the property would then automatically be surrendered to and vest in Green Tree. Objecting to both the sale period and the vesting feature, Green Tree argues that the Debtor may not vest the property in Green Tree against its will, that vesting would deprive it of prerogatives that it would retain were the plan to provide simply for surrender. For the reasons set forth below, the Court agrees and now sustains the objection.

I. Facts and Procedural History

On July 1, 2013, the Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code. Green Tree, as successor to the claim held by Flagstar Bank, is the servicer and holder of the first mortgage on the real property located at 185 East Foster Street, Melrose, Massachusetts (the "Property"). The Debtor owns the Property jointly with his wife, who is not also a debtor in this case. The Debtor and his wife are in divorce proceedings.

On March 27, 2014, the Debtor filed his Amended Chapter 13 Plan (the "Plan"). With respect to the secured claim of Flagstar—which is now, by assignment, the claim of Green Tree¹ —the Plan provides as follows:

The mortgage claim of Flagstar Bank will be paid by sale of the marital home within three months of confirmation. After paying all valid, unavoided liens, the surplus (if any) will be paid to the debtor and his spouse pursuant to their automatic homestead exemptions subject to any order of the divorce court. In the event that the property is not sold within three months of confirmation, the debtor's interest in the property shall be surrendered pursuant to section 1325(a)(5)(C) and shall immediately vest in Flagstar Bank (or its principal) pursuant to sections 1322(b)(8) and (9) without further order of the court. The confirmation order, when recorded at the Registry of Deeds, shall constitute a deed of conveyance of the property.

This language constitutes the entirety of the Plan's treatment of Green Tree's secured claim. It sets forth a two-part treatment of Green Tree's secured claim. In the first instance, the Debtor would retain the Property, Green Tree's collateral, for a period of up to ninety days in which he would attempt to broker a sale of the Property and, from the proceeds, pay Green Tree's claim.² I understand that there is at present no buyer in waiting; sale and payment are contingent on the Debtor's finding a buyer willing to purchase at a price and on terms to which both the Debtor and his wife agree. Therefore, although the Plan states the mortgage claim "will" be paid by sale of the marital home within three months of confirmation, as if sale were certain to occur in the specified time, in fact a sale is uncertain.

Accordingly, the Plan provides for an alternate treatment if a sale is not consummated within ninety days of confirmation. In that event, the Plan states, "the debtor's interest in the property shall be surrendered pursuant to section 1325(a)(5)(C) and shall immediately vest in Flagstar Bank (or its principal) pursuant to sections 1322(b)(8) and (9) without further order of the court." To be clear, the Debtor's wife does not join in proposing this plan; the interest in property that the Debtor would surrender to and vest in Green Tree is limited to his own interest in the Property. The Debtor's intent is for the surrender and vesting of his interest to be effective automatically, without need of further order of the Court or action on his part, upon the passage of ninety days from confirmation without a consummated sale.³ The Plan states that the Property shall be "surrendered" and shall "vest." Though the Plan does not define either term, the Debtor clearly means to use them as they are used in the specified sections of the Bankruptcy Code: 11 U.S.C. § 1325(a)(5)(C)

concerning surrender and § 1322(b)(9) concerning vesting. The Plan is thus predicated on the assumption—which the Debtor supports and Green Tree disputes—that vesting is a form of surrender and that surrendering and vesting are not mutually exclusive.

Green Tree objected to the Plan on two grounds.⁴ The first is that the plan is not feasible because the Debtor has previously tried to sell the property without success, such that the ninety-day period for sale amounts to an unwarranted and prejudicial delay in surrender of the Debtor's interest. The second is that the Bankruptcy Code does not permit a mortgagor debtor to vest his title in the mortgagee without the latter's consent. In support of this last ground, Green Tree further states that although the plan purports to surrender the Debtor's interest in the Property to Green Tree, in fact the vesting provision, which would take effect at the same time as surrender, effectively denies to the mortgagee at least one of its prerogatives as mortgagee under state law, that of foreclosing on the debtor's interest, and thus effects no true surrender, just a vesting. The "surrender" is illusory. To this the Debtor responds that vesting is just a form of surrender and that, in 11 U.S.C. § 1322(b)(9)

, the Bankruptcy Code expressly permits a debtor, through the chapter 13 plan and at his or her option alone, to vest property of the estate in any entity.

After a hearing on the matter, I ordered the parties to file further briefs and then took the matter under advisement.

Green Tree later moved for relief from the automatic stay to exercise its rights as to the Property and, without objection from the Debtor, the Court granted the relief requested. Though he did not oppose the motion, the Debtor noted that its allowance would not render moot the present objection to confirmation. The Court agrees that the grant of relief from the stay does not itself render moot the objection to confirmation: the plan, if confirmed, could vest the Debtor's interest in Green Tree before Green Tree succeeds in foreclosing. If and when Green Tree forecloses on the Property, the objection and the plan provisions to which they pertain will become moot, but I have received no indication to date that foreclosure has occurred.

II. Jurisdiction

The matter before the court is an objection to confirmation of a chapter 13 plan. It arises under the Bankruptcy Code and in a bankruptcy case and therefore falls within the jurisdiction given the district court in 28 U.S.C. § 1334(b)

and, by standing order of reference (codified in the district court's local rules at L.R. 201, D. Mass.), referred to the bankruptcy court pursuant to 28 U.S.C. § 157(a). It is a core proceeding within the meaning of 28 U.S.C. § 157(b)(1). 28 U.S.C. § 157(b)(2)(L) (core proceedings include confirmation of plans). The bankruptcy court accordingly has authority to enter final judgment.

III. Discussion

a. Objection to 90–Day Sale Period

Green Tree's first objection, on which it did not elaborate, is simply that the Plan is not feasible because the Debtor has already attempted to market the property without success, such that the sale period amounts to an unwarranted and prejudicial delay in surrender of the Debtor's interest and Green Tree's consequent ability to exercise its rights as to the interest. The Debtor denies that sale is not feasible; he contends that efforts to sell are on-going, and that he must take into account that his wife, too, has rights in the Property that must be honored. The Debtor does not elaborate on how his wife's rights bear on the feasibility of selling within the ninety days.

The first thing to note about this objection is not its substance, feasibility and prejudice, but simply that it is an objection, that Green Tree does not assent to the Plan's confirmation. Section 1325(a) of the Bankruptcy Code

sets forth requirements for confirmation of a chapter 13 plan. Among other things, it states that with respect to each allowed secured claim provided for by the plan, the plan must satisfy one of three enumerated options: acceptance, cramdown, or surrender. The plan must either (i) obtain the acceptance of the holder of the secured claim, § 1325(a)(5)(A), (ii) satisfy the conditions of the so-called "cramdown" option, § 1325(a)(5)(B), or (iii) surrender the property securing such claim to the holder of the claim, § 1325(a)(5)(C). 11 U.S.C. § 1325(a)(5). In this instance, it is undisputed that the cramdown option does not apply and that Green Tree has not accepted the Plan; indeed it objects to both phases of the treatment that the Plan proposes for Green Tree's secured claim. To qualify for approval, only one option remains: the plan must surrender the property securing the claim to the claim holder. Is this plan fairly characterized as one that surrenders the property securing the claim to Green Tree? For two reasons, I conclude that it is not.

The first is that such surrender as the Plan does propose would not become effective upon confirmation but, if it became effective at all, only ninety days thereafter, and is contingent on failure to consummate a sale within the ninety days—if a sale should occur, there would be no surrender at all. In short, with respect to the property that secures Green Tree's claim, the Plan does not exclusively or even necessarily effect a surrender. Certainly it would effect no surrender during the ninety-day period that is...