Rodriguez v. Firstbank P.R. (In re Rodriguez)

• Decision Date: 24 September 2014
• Docket Number: No. 13–03252 ESL.,Adversary No. 13–00134 ESL.,13–03252 ESL.
• Citation: 517 B.R. 404
• Court: U.S. Bankruptcy Court — District of Puerto Rico
• Parties: In re Hector M. Cruz RODRIGUEZ, Brenda S. Rodriguez Vazquez, Debtors. Hector M. Cruz Rodriguez, Brenda S. Rodriguez Vazquez, Plaintiffs v. Firstbank Puerto Rico, Defendant Jose R. Carrion (Chapter 13 Trustee).

517 B.R. 404

In re Hector M. Cruz RODRIGUEZ, Brenda S. Rodriguez Vazquez, Debtors.

Hector M. Cruz Rodriguez, Brenda S. Rodriguez Vazquez, Plaintiffs

v.Firstbank Puerto Rico, Defendant

Jose R. Carrion (Chapter 13 Trustee).

No. 13–03252 ESL.

Adversary No. 13–00134 ESL.

United States Bankruptcy Court, D. Puerto Rico.

Signed Sept. 24, 2014.

Manuel F. Casellas, Juan Manuel Suarez Cobo, Legal Partners PSC, San Juan, PR, for Plaintiff.

Carlos R. Hernandez Vivoni, W & B Law Office PSC, CAGUAS, PR, for Defendant.

Jose Ramon Carrion Morales, pro se.

OPINION AND ORDER

ENRIQUE S. LAMOUTTE, Bankruptcy Judge.

This case is before the court upon the Motion for Summary Judgment (Docket No. 17) filed by the Plaintiffs seeking a determination of value (at $150,000) of a real property registered as Lot No. 8,479, page no. 147, volume no. 266 (the “Real Property”) of the Property Registry of Puerto Rico, Section I of Caguas (the “Property Registry”) and that First Bank Puerto Rico (“First Bank”), a junior lien holder on the property, be found to be a wholly unsecured creditor under Section 506(a) of the Bankruptcy Code. The Plaintiffs also request an order directing the Registrar of the Property Registry (the “Property Registrar”) to eliminate First Bank's junior mortgage from the Property Registry under Section 1322(b)(2). Also before the court is the Partial Opposition to Motion for Summary Judgment (Docket No. 22) contending that an order for the Property Registrar to eliminate its junior mortgage cannot be entered until the Plaintiffs have completed all payments under their Chapter 13 plan. For the reasons stated herein, the Motion for Summary Judgment is granted in part and denied in part.

Procedural Background

The Plaintiffs filed their Chapter 13 bankruptcy petition on April 26, 2013. See Lead Case Docket No. 1. In Schedule A, they listed the Real Property as their residential property with a value of $150,000.00 and a secured claim of $230,319.19. See Lead Case Docket No. 3, p. 21.

On June 21, 2013, the Plaintiffs filed the Complaint that initiated the instant adversary proceeding (Docket No. 1). On September 19, 2013, First Bank filed the Answer to Complaint (Docket No. 13).

On October 18, 2013, the court held an initial pre-trial conference in which it granted the parties 90 days to conclude discovery and 120 days to file dispositive motions and/or file a settlement agreement (Docket No. 15).

On May 9, 2014, the Plaintiffs filed the Motion for Summary Judgment (Docket No. 17) and the Statement of Uncontested Facts in Support of Plaintiffs' Motion for Summary Judgment (Docket No. 18). The Plaintiffs pray for an order (a) determining that the value of the Real Property is $150,000.00; (b) declaring that First Bank's junior lien on the Real Property is wholly unsecured; (c) declaring that First Bank's claim for its junior lien be classified as unsecured; (d) to enter an order directing the Property Registrar to erase from the Property Registry First Bank's junior mortgage; and (e) to provide for reasonable attorney fees and costs incurred in the litigation of this proceeding.

On June 13, 2013, First Bank filed a Partial Opposition to Motion for Summary Judgment “agree[ing] with: (i) Plaintiffs' proposed value of the [Real P]roperty, (ii) the correctness of the amounts of any senior lien encumbering the [Real P]roperty, and (iii) with the consequent application of the law to [its] claim” (Docket No. 22, p. 2, ¶ 6) Notwithstanding, First Bank's “partial objection refers to Plaintiffs' request for an immediate order instructing the Registrar of the Property Registry to erase from their records [First Bank]'s mortgage note for the junior lien recorded on the Plaintiff's property”. Id. Fist Bank also “agree[d] and incorporate[d] Plaintiffs' Statement of Uncontested Facts”. Id., p. 2, ¶ 9.

No further briefs or replies were filed.

Uncontested Material Facts

As per First Bank's admissions and the totality of the record, the following facts are uncontested¹ :

1. On May 14, 2004, the Plaintiffs and First Bank executed Deed of Mortgage No. 139 before Notary Public David Gómez Rosario (the “First Mortgage ”). See Claims Register No. 6–1, Part 4, pp. 1–24. The First Mortgage was recorded on the Real Property at the Property Registry at page 38 of volume 562, 7th inscription. See Claims Register No. 6–1, Part 2, p. 1.

2. Also on May 14, 2004, the Plaintiffs and First Bank executed Deed of Mortgage No. 140 before Notary Public David Gómez Rosario (the “Second Mortgage ”). See Claims Register No. 18–1, pp. 7–32. The Second Mortgage was recorded on the Real Property at the Property Registry at page 38 of volume 562, 8th inscription. See Claims Register No. 18–1, p. 5.

3. The Plaintiffs are the owners of the Real Property.

4. As of the date the instant case was filed, the Real Property had been valued at $150,000.00.

5. First Bank holds a senior lien over the Real Property in the amount of $182,340.53.

6. First Bank also holds a junior lien over the Real Property in the amount of $50,500.00.

7. The Real Property is encumbered by liens senior to First Bank's junior mortgage, to wit, the Second Mortgage.

8. There is no equity in the Real Property after payment in full of the liens senior to First Bank's junior and thus, the value of First Bank's interest in the Real Property, as it pertains to the junior lien, is zero.

9. First Bank's interest on the Real Property as to the junior lien is completely unsecured.

Jurisdiction

The court has jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334(b). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K). Fed. Rs. Bankr.P. 7001(2) and 7001(9) provide that proceedings to determine the validity, priority or extent of a lien or other interest in property and to obtain a declaratory judgment relating to such validity or priority are adversary proceedings² .

Applicable Law and Analysis

Section 506 of the Bankruptcy Code governs the determination of whether a claim is secured, partially secured or unsecured. Section 506(a)(1) explains the bifurcation of an allowed claim into secured and unsecured portions, the secured part being “secured” by the collateral's value and the unsecured part being the remaining amount of the claim in excess of the collateral's value:

An allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property, ... and is an unsecured claim to the extent that the value of such creditor's interest ... is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest.

11 U.S.C. § 506(a)(1).

Therefore, “under 11 U.S.C. § 506(a), an under-secured creditor's claim is split (bifurcated) into two claims: (a) a secured claim equal to the value of the collateral; and (b) an unsecured claim equal to the amount by which the allowed claim exceeds the value of the collateral.” In re Moore, 275 B.R. 390, 392 (Bankr.D.Colo.2002).

Section 506(d) of the Bankruptcy Code provides that:

To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless—

(1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or

(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.

11 U.S.C. § 506(d).

“[I]f a creditor does not have an in rem interest in a debtor's property or if that interest was voided in bankruptcy, the creditor simply has a debt with no right to collect from the debtor or his property.” In re Dendy, 396 B.R. 171, 178 (Bankr.D.S.C.2008).

For Chapter 13 cases, like the instant one, the foregoing must be read in conjunction with Section 1322 of the Bankruptcy Code. Section 1322(b)(2) allows a Chapter 13 debtor to “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). A “debtor's principal residence”:

(A) means a residential structure, including incidental property, without regard to whether that structure is attached to real property; and

(B) includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer.

11 U.S.C. § 101(13A).

A majority of courts have held that a junior mortgagee whose lien is supported by no equity can be treated as an unsecured creditor and its lien “stripped off” by the debtor's Chapter 13 plan. For instance, the Second, Third, Fifth, Sixth, Ninth, and Eleventh Circuits have ruled that such strip off is permissible. See e.g. In re Pond, 252 F.3d 122 (2nd Cir.2001) ; In re McDonald, 205 F.3d 606 (3rd Cir.2000) ; First Mariner Bank v. Johnson, 2011 U.S.App. Lexis 402 (4th Cir.Md.2011); In re Bartee, 212 F.3d 277 (5th Cir.2000) ; In re Lane, 280 F.3d 663 (6th Cir.2002) ; In re Zimmer, 313 F.3d 1220 (9th Cir.2002) ; In re Tanner, 217 F.3d 1357 (11th Cir.2000). The Bankruptcy Appellate Panel for the First Circuit has ruled that Section 1322(b)(2) does not bar a Chapter 13 debtor from stripping off a wholly unsecured lien on his principal residence. See Domestic Bank v. Mann (In re Mann), 249 B.R. 831 (1st Cir. BAP 2000). Pursuant to First Bank's admissions, there is no dispute that the current value of the Real Property is $150,000.00 and therefore there is no equity on the Real Property to secure First Bank's Second Mortgage. In other words, First Bank's junior lien is wholly unsecured under Section 506(d) of the Bankruptcy Code. The exception afforded in Section 1322(b)(2) for primary residences is not applicable to the instant case as it pertains to the Second Mortgage.

The only remaining controversy is whether the...