In re Wimmer

• Decision Date: 30 June 2014
• Docket Number: Case No. 13–37533 (cgm)
• Citation: In re Wimmer, 512 B.R. 498 (Bankr. S.D.N.Y. 2014)
• Parties: In re: Klaus and Linda Wimmer, Debtor(s).
• Court: U.S. Bankruptcy Court — Southern District of New York

512 B.R. 498

In re: Klaus and Linda Wimmer, Debtor(s).

Case No. 13–37533 (cgm)

United States Bankruptcy Court, S.D. New York.

Signed June 30, 2014

Brian McCaffrey, Esq., Brian McCaffrey Attorney At Law, P.C, 88–18 Sutphin Blvd, 1st Floor, Jamaica, NY 11435, Attorney for Debtors.

James J. Rufo, Esq., McCabe, Weisberg & Conway P.C., 145 Huguenot Street, Suite 210, New Rochelle, NY 10801, Attorney for OneWest Bank, FSB.

Chapter 13

MEMORANDUM DECISION DENYING CONFIRMATION AND DISMISSING CASE

CECELIA G. MORRIS, CHIEF UNITED STATES BANKRUPTCY JUDGE

Chapter 13 Debtors filed a motion to avoid liens, heard in conjunction with confirmation of the Debtors' chapter 13 plan, that sought to bifurcate and cram down a first mortgage while avoiding a wholly unsecured second mortgage. Debtors proposed to pay the contractual rate of interest rather than the rate of interest prescribed in Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004). Debtors sought to pay the value of the collateral over the remaining contract term rather than the applicable commitment period of the chapter 13 plan. Debtors also sought a determination from the Court that the unsecured portions of the liens should not count toward the chapter 13 debt limit due to a prior chapter 7 discharge. The Court denies confirmation of the Debtors' chapter 13 plan for failure to properly treat the secured claim of the first mortgage. The Court also dismisses the case for exceeding the debt limit.

Jurisdiction

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a), and the Amended Standing Order of Reference signed by Chief Judge Loretta A. Preska dated January 31, 2012. This is a “core proceeding” under 28 U.S.C. §§ 157(b)(2)(A) (matters concerning administration of the estate), 157(b)(2)(B) (allowance of claims against the estate), and 157(b)(2)(L) (confirmation of plans).

Background

Klaus and Linda Wimmer (“Debtors”) filed this chapter 13 case on November 19, 2013. Vol. Pet., ECF No. 1. In their petition, the Debtors listed their street address as 12 Blueberry Hill Road in Hopewell Junction, New York (the “Blueberry Hill Property”). Id. at 1. In the Debtors' Schedule A, which was filed on December 17, 2013, the Debtors listed the Blueberry Hill Property as their only real property. Scheds. 3, ECF No. 8. The Blueberry Hill Property is allegedly encumbered by a first mortgage in the amount of $1,223,033.54 in favor of OneWest Bank, FSB (“Creditor”). Conf. Obj. 1, ECF No. 25. Creditor also purportedly holds a second mortgage against the property in the amount of $153,981.81. Mot. 5, ECF No. 18.

On January 6, 2014, the Debtors filed an amended petition and amended schedules. Am. Scheds., ECF No. 11. The Debtors' amended petition lists their street address as 747 North Quaker Hill Road in Pawling, New York (the “Quaker Hill Property”). Id. at 1. The Debtors' Schedule A does not list an interest in the Quaker Hill Property. Id. at 10. In response to Question 15 of the Debtors' Statement of Financial Affairs (requesting prior addresses within three years of the petition date), the Debtors listed the Blueberry Hill Property as a prior address. Id. at 32. The column where the Debtors are asked to fill in the dates of occupancy of the Blueberry Hill Property is left blank. Id.

A. Motion to value collateral and bifurcate claims.

On January 31, 2014, the Debtors filed a motion to determine that the value of the Blueberry Hill Property is $545,000 pursuant to an appraisal dated October 11, 2013. Mot. 5, ECF No. 18. With this valuation, the Debtors seek to: (i) bifurcate the first mortgage into a secured claim for $545,000 and an unsecured claim for the remainder; (ii) avoid the lien securing the unsecured portion of the first mortgage; (iii) reclassify the junior mortgage to an unsecured claim; and (iv) avoid the lien securing the junior mortgage. Id. at 5–8. The motion contends that the bifurcation of the first mortgage claim is not prohibited by the anti-modification provisions of § 1322(b)(2),¹ as the Debtors no longer claim the Blueberry Hill Property as their principal residence. Id. at 6.

The motion states that the Debtors fell behind on their mortgage payments on the Blueberry Hill Property and Creditor initiated foreclosure. Id. at 4. The motion alleges that Creditor engaged in misconduct in the foreclosure proceeding, stating:

Throughout the course of settlement conferences in the state court action the Creditor refused to consider the Debtor[s] for loss mitigation because the amount owed to the Creditor exceeded the loan limits for loss mitigation programs available through [Creditor].

As a result of the intransigence of [Creditor], the Debtor[s] sought to find a place to live that would afford [them] a lower monthly payment for rent, while enabling [them] to rent the [Blueberry Hill] Property to someone who could afford the payment amount dictated by the mortgage. In September 2013 the Debtor[s] ... took up residence at 747 North Quaker Hill Road, Pawling, N.Y. 12564.

Id. The motion does not specify what interest, if any, the debtors have in the Quaker Hill Property. See id.

Debtors attach what appears to be a full interior appraisal of the Blueberry Hill Property conducted on October 11, 2013. Mot. Ex. A, ECF No. 18.

B. Creditor's first opposition papers.

On March 11, 2014, Creditor filed opposition to the motion. Opp'n, ECF No. 29. Creditor raised two issues in its initial opposition. Id. at 3–5. Creditor claims that § 1322(b)(2) and In re Pond, 252 F.3d 122 (2d Cir.2001) (“Pond”) allow the Debtors to modify claims secured by a debtor's principal residence and not investment property, and since the Debtors no longer live at the Blueberry Hill Property, they may not modify Creditor's secured claims. Id. at 3–4. Creditor also alleges that the Debtors' chapter 13 plan is not feasible, which Creditor believes to be fatal to the motion. Id. at 4. Creditor believes that if the Debtors bifurcate the first mortgage claim, the Debtors will be required to pay the secured portion over the 60–month life of the chapter 13 plan while paying the Creditor interest in accordance with Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004) (“Till”). Id. According to Creditor, this will result in a payment of $10,994.13 per month. Id. at 5. Creditor points to the Debtors' Schedule I, which shows gross monthly income of $10,792.08, to demonstrate that the Debtors cannot make the required payment. Id.

C. Prior case.

On June 7, 2012, Mr. Wimmer filed a chapter 7 bankruptcy individually (Case No. 12–36464). Vol. Pet., In re Wimmer,No. 12–36464–cgm (Bankr. S.D.N.Y. June 7, 2012),² ECF No. 1. He received a discharge on September 7, 2012. Order D'chg 1, chapter 7 case, ECF No. 9. Creditor was listed as a secured creditor on the petition and mailing matrix; Vol. Pet. 12, 45, chapter 7 case, ECF No. 1; was mailed notice of the 341 meeting; Not. 341 Mtg. 3, chapter 7 case, ECF No. 5; and was mailed notice of the discharge; Order D'chg 3, chapter 7 case, ECF No. 9.

The promissory note and mortgage for both the first and second mortgages are only signed by Mr. Wimmer. Opp'n Ex. A, at 7, 24, ECF No. 29 (first mortgage); Proof of Claim Ex., at 16, Claim Reg. 1–1 (second mortgage).

D. Debtors' second motion.

Debtors filed a second motion. 2d Mot., ECF No. 36. This motion objects to claim 14–1, which is the first mortgage secured claim of Creditor. Id. at 3. Debtors seek complete reclassification of claim 1–1 to zero and reclassification of claim 14–1 as a secured claim of $545,000 (based on the appraisal) and an unsecured claim of $678,033.54. Id. at 5.

In the second motion, the Debtors also argue that Mr. Wimmer's prior chapter 7 discharge renders the unsecured portions of the potentially avoided liens unenforceable. Id. at 4.

E. Debtors' reply to Creditor's opposition.

Debtors also filed a reply to Creditor's opposition to the first motion. Reply, ECF No. 38. As to the second mortgage, Debtors argue that Pond and Nobelman v. Am. Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) (“Nobelman”) do not prohibit bifurcation and reclassification of claims secured by investment property, and only speak to liens against the debtor's principal residence. Id. at 3.

As to the first mortgage, Debtors argue that they can de-accelerate the loan while paying the value of the collateral over a term that is longer than the duration of the five-year chapter 13 plan. Id. at 5–6. Debtors seek to continue the remaining duration of the note (270 months), pay only the $545,000 value of the property, and pay the contract rate of interest. Id. at 8–11.

Debtors reiterate their argument that the unsecured portion of the loans should be deemed void due to the prior chapter 7 discharge. Id. at 12–15. Debtors argue that disallowance would mean that the debt does not count towards the debt limit of § 109. Under § 109(e), “[o]nly an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $383,175 and noncontingent, liquidated, secured debts of less than $1,149,525 can be a debtor under chapter 13. The debt limits apply equally to married couples filing jointly.” 11 U.S.C. 109(e). With these two motions, Debtors seek a total reclassification of $832,015.35 to unsecured, which exceeds the unsecured debt limit by nearly double. Consequently, Debtors seek a Court determination that these portions do not count towards the debt limit. Rep. 12, ECF No. 38. Otherwise, by prevailing on these motions, the Debtors would render themselves ineligible for chapter 13.

F. Creditor's additional response.

Creditor put forth additional briefing in support of its opposition. Cr. Rep., ECF No. 46. Creditor asserts that the Blueberry Hill Property is actually the Debtors' principal residence, meaning the first mortgage claim cannot be bifurcated. Id. at...