Schmidt v. Bank of Am., N.A. (In re Schmidt), Case No. 16-22464-13
| Decision Date | 12 January 2018 |
| Docket Number | Adv. No. 17-6032,Adv. No. 17-6033,Case No. 16-22464-13 |
| Parties | In re: Sharon Eileen Schmidt, Debtor. Sharon Eileen Schmidt, Plaintiff, v. Bank of America, N.A., Defendant. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas |
The relief described hereinbelow is SO ORDERED.
Defendant Bank of America, N.A. has not done itself any favors with its actions in Debtor Sharon Eileen Schmidt's Chapter 13 bankruptcy case. When Debtor initially filed her case, her proposed plan provided for pro-rata payment through her plan of a first mortgage to Bank of America, to whom she claimed she owed $38,913.05. Debtor's proposed plan also acknowledged a second and third mortgage with Bank of America, for $11,105.94 and $24,738.03, respectively, but did not provide for payment of those debts and stated that the liens would be stripped. And Bank of America seemingly confirmed Debtor's understanding of their lending transactions, as Bank of America thereafter filed three separate claims in Ms. Schmidt's bankruptcy case, one for $37,706.59 (claim 16), one for $9453.31 (claim 5), and one for one $24,528.12 (claim 6).
Imagine Debtor's surprise when Bank of America then objected to Debtor's proposed Chapter 13 plan, arguing that the three claims really represented three different payment plans stemming from one "parent" mortgage, and claiming that the two "child" claims could not be stripped from the "parent" mortgage securing the property. In response, Debtor filed the two adversary proceedings captioned above, seeking to treat Bank of America's second and third "child" claims as junior unsecured mortgages that Debtor could then strip off.
Bank of America has moved for summary judgment on Debtor's complaints. Although Bank of America has complicated the issue with its confusing separate billing practices and three separate proofs of claim, the unmistakable and unchallenged contract language leads the Court to conclude that the liens in question are all part of the larger single mortgage, secured by a securityinterest in Debtor's principal residence, and therefore not subject to strip off under 11 U.S.C. §§ 502(a) and 1322(b)(2).1 As a result, Bank of America's motions for summary judgment are granted, and Debtor must amend her plan accordingly.
Debtor filed her petition for Chapter 13 bankruptcy protection on December 17, 2016, and proposed her plan for the repayment of her debts on the same date.2 Bank of America filed three proofs of claim—claims 5, 6, and 16. Claims 5 and 6 represent fixed rate portions of the loan that Bank of America refers to as the two "child" loans, while claim 16 reflects the variable rate portion of the loan that Bank of America refers to as the "parent" lending arrangement. At the time the claims were filed, claim 5 was for $9,453.31 at 6 percent interest; claim 6 was for $24,528.12 at 10.14 percent interest, and claim 16 was for $37,706.59 at a variable rate of interest of 4.990 percent when it was filed on February 20, 2017.3 Debtor's plan proposed to pay the "parent" loan pro rata through her plan and to strip off the two "child" loans.
After Bank of America objected to this proposed plan treatment, Debtor then filed the two adversary cases captioned above, seeking to strip off the two "child" liens held by Bank of America as wholly unsecured junior mortgages.4 In adversary proceeding 17-6032, Debtor seeks a determination that Bank of America is not entitled to secured status for the mortgage of$24,528.12, which Debtor terms HELOC #3; it is preceded by a first mortgage, also from Bank of America, of $37,706.59, against a house Debtor values at only $25,000. This corresponds to Bank of America's claim 6, which references an account ending in 9702. In separate adversary proceeding 17-6033, Debtor seeks the same determination as to her debt of $9,453.31 to Bank of America, which Debtor terms HELOC #2. This corresponds to Bank of America's claim 5, which references an account ending in 9701.5
Bank of America moved for summary judgment on both complaints, and the documents supporting its motions indicate that Debtor obtained a home equity line of credit from Bank of America in 2003, with a credit limit of $55,811 at a variable rate of interest (the "Note").6 The line of credit was secured by a mortgage on Debtor's principal residence, which Bank of America recorded with the Wyandotte County Register of Deeds.7 There were no other encumbrances on the property.8
In 2007 the original credit agreement was modified, with the credit limit being increased to $75,000.9 Debtor's line of credit was increased to $75,000. The mortgage was modified toreflect the new arrangement and was recorded with the Wyandotte County Register of Deeds.10
The Note contains a provision allowing Debtor to convert a portion of the loan to a fixed rate of interest.11 The provision specifies that Debtor may convert all or part of the variable rate principal balance to a fixed rate option and that the maximum term of any fixed rate option may not exceed the original repayment term of the line of credit. Additionally, the Note provides:
Debtor exercised this option twice, converting portions of her overall balance to a fixed rate option on two separate occasions.12 Billing statements provided by both parties show that Bank of America sent billing statements reflecting the total balance due to it by Debtor, as well as the balance for the variable rate portion and the two fixed rate portions. Bank of America also sent Debtor separate billing statements for the two fixed rate loan options.
Federal Rule of Civil Procedure 56 requires a court to grant summary judgment if themovant shows there is no genuine dispute of any material fact and the movant is entitled to judgment as a matter of law.13 An issue is genuine if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way."14 Material facts are those that are "essential to the proper disposition of [a] claim" under applicable law.15 The party moving for summary judgment bears the initial burden of proof to show an absence of genuine issues of material fact.16 When analyzing summary judgment, the Court will draw all reasonable inferences in favor of the non-moving party.17 In the absence of any material factual controversy, the Court will focus on the legal aspect of the argument, and whether the undisputed material facts establish as a matter of law that the movant's position is correct.18
Bank of America argues that the debt in question is a single debt, despite having been administratively divided into three portions. Debtor argues that the debts are three separate loans, each with different dates of origin, amounts tendered, and terms.
A lien that is secured by a security interest in real property that is Debtor's principal residence, even if the outstanding balance is greater than the value of the property, may not bedivided into secured and unsecured portions under §§ 506(a) and 1322(b)(2).19 If, however, a junior mortgage is wholly unsupported by value in the collateral, it may be treated as unsecured under §§ 506(a) and 1322(b)(2).20
Therefore, if the debt in question is a single debt, secured by a security interest in Debtor's principal residence, then it may not be modified per § 506(a) and § 1322, and summary judgment in favor of Bank of America would be appropriate. If, however, the debt is three separate mortgages, the junior mortgages would be subject to stripping, if they were wholly unsecured. The value of the property at issue has not been addressed by either party at this stage. Rather, Debtor disputes the conclusion to be drawn from the facts presented as to whether the debt is a single debt, or three separate mortgages.
The question of the "identity" of the debt(s) at issue can be resolved by looking to the terms of the documents themselves, to which there is no dispute.21 Debtor does not argue that the terms of the parties' contracts as presented by Bank of America are incorrect; Debtor's argument is instead that her recollection or perception of those documents differs, supported primarily by the fact that she received three separate statements each month from Bank of America, each with different due dates for payment.
Turning to basic contracting principles, however, the actual documents Debtor signed,and not her perception, are what control.22 The instruments the parties bargained for are to what this Court must give effect.23 Here, the terms of the original Note Debtor signed with Bank of America allowed Debtor to convert portions of her original, variable rate loan, into a fixed interest rate loan, and disclosed that the fixed rate portions would each have individual, separate billing statements. The Note also indicated that the "Variable Rate Balance statement will show all activity, including payments."24
That contemplated scenario is exactly what actually transpired. Debtor converted two portions of her contracted principal to fixed rate options, as per the terms of the Note. The billing statements provided by both parties show that Debtor received three billing statements, one of which indicated the overall indebtedness but also divided that amount into three distinct portions, and two separate billing statements that reflected only the fixed rate portions of the indebtedness.
The fixed rate portions of the debt were provided for...
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