Wages v. J.P. Morgan Chase Bank, N.A. (In re Wages)

• Decision Date: 07 March 2014
• Docket Number: BAP No. ID–12–1397–JuKiKu.,Bankruptcy No. 8:11–bk–40249–JDP.
• Citation: 508 B.R. 161
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit
• Parties: In re Clayton Hoyt WAGES and Andrea S. Wages, Debtors. Clayton Hoyt Wages; Andrea S. Wages, Appellants, v. J.P. Morgan Chase Bank, N.A.; United States Trustee, Appellees.

508 B.R. 161

In re Clayton Hoyt WAGES and Andrea S. Wages, Debtors.Clayton Hoyt Wages; Andrea S. Wages, Appellants,

v.J.P. Morgan Chase Bank, N.A.; United States Trustee, Appellees.

BAP No. ID–12–1397–JuKiKu.

Bankruptcy No. 8:11–bk–40249–JDP.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted Nov. 22, 2013 by video conference.

Filed March 7, 2014.

Brent Taylor Robinson, Esq., Robinson, Athone & Tribe, argued, Rupert, ID, for appellantsClayton Hoyt Wages and Andrea S. Wages; Jon A. Stenquist, Esq., Moffatt Thomas Barrett Rock & Fields, Chtd., argued, Idaho Falls, ID, for appelleeJ.P. Morgan Chase Bank, N.A.

Before: JURY, KIRSCHER, and KURTZ, Bankruptcy Judges.

OPINION

JURY, Bankruptcy Judge.

Debtors, Clayton Hoyt Wages and Andrea S. Wages, appeal from the bankruptcy court's order denying confirmation of their chapter 11¹ plan in which they sought to modify the terms of a mortgage on their real property held by appellee-creditor, J.P. Morgan Chase Bank, N.A.(Creditor).

At issue is whether the anti-modification provision under § 1123(b)(5) applies to any loan secured only by real property that the debtor uses as a principal residence or whether it is limited to those claims secured by property used only as a debtor's principal residence.The issue is one of statutory construction and of first impression in this Circuit.We hold that the anti-modification provision in § 1123(b)(5) applies to any loan secured only by real property that the debtor uses as a principal residence.Accordingly, we AFFIRM.

I.FACTS²

In 1999, debtors purchased property consisting of a house, buildings and eleven acres near Heyburn, Idaho (property).Initially, they used approximately four acres for raising feed or crops, five acres for pasturing livestock and two acres for residential purposes.At that time, debtors' employment consisted of raising roping stock on the property to rent out for rodeos and roping events.About a year later, debtors purchased a truck to haul their livestock, and income from use of their truck became a component of their business income.

Between 2004 and 2006, debtors sold all their livestock to raise money to stave off a foreclosure against the property.³Since then, debtors have not used the property at all to generate income from livestock.Debtors leased an additional truck and began hauling commodities for others.

At some time, their former livestock/trucking business became a trucking-only business.Mr. Wages drives one of the trucks; Mrs. Wages secures permits, keeps the books for the business, and handles other administrative chores from an office in debtors' home.When they are not being used on the road, debtors park the two trucks and trailers on the property.

On March 4, 2011, debtors filed their chapter 11petition to allow them to retain their residence.At the time, they were using a portion of the property to operate the business, including a small office in the house and enough adjoining space to park two truck tractors and up to three trailers.

In May 2011, Creditor ⁴ filed a $127,418.31 secured claim in debtors' bankruptcy case based on a mortgage debt.Under the mortgage note's terms, debtors agreed to make monthly payments through April 1, 2029, at an annual interest rate of 7.5%.The debt was secured by a mortgage on the property.

In November 2011, debtors filed a chapter 11 plan.Under the plan, debtors proposed to modify the terms of Creditor's mortgage by reducing the interest rate to 5.0% per year and extending the payoff date to March 1, 2032.Creditor objected to confirmation of the plan, arguing that it does not meet the confirmation requirements of §§ 1129(a)(1)and1123(b)(5).

On June 12, 2012, the bankruptcy court held an evidentiary hearing on the confirmation of debtors' proposed plan.At the end of the hearing, the court took the matter under advisement.

On July 24, 2012, the bankruptcy court entered its Memorandum of Decision, sustaining Creditor's objection to confirmation of debtors' proposed chapter 11 plan.On the same day, the court entered the order denying confirmation of debtors' chapter 11 plan.Debtors timely appealed and filed a motion for leave to appeal with this court.On September 10, 2012, a motion's panel granted leave to appeal.

II.JURISDICTION

The bankruptcy court had jurisdiction over this proceeding under 28 U.S.C. §§ 1334and157(b)(2)(L).We have jurisdiction under 28 U.S.C. § 158.

III.ISSUES

A.Whether the anti-modification provision under § 1123(b)(5) applies to any loan secured only by real property that the debtor uses as a principal residence; and

B.Whether the bankruptcy court erred when it used the petition date as the date to determine whether the deed of trust or mortgage could be modified.⁵

IV.STANDARD OF REVIEW

We review the bankruptcy court's statutory construction of § 1123(b)(5) de novo.BAC Home Loans Serv., LP v. Abdelgadir(In re Abdelgadir),455 B.R. 896, 900(9th Cir. BAP2011).

V.DISCUSSION

A.Amended Statement Of Issues Is Proper

Appellants' Statement of Issues (SOI) on appeal filed on December 5, 2012, listed only the first issue stated above, but their opening brief contained both issues.Appellee argued that the second issue was waived because it had not been included in Appellants' SOI.In response, Appellants amended their SOI to include the second issue and filed it with the bankruptcy court.Appellee objected to the amended SOI again asserting that issues not included in an SOI are waived under the holding in Marshack v. Orange Commercial Credit(In re Nat'l Lumber & Supply, Inc.),184 B.R. 74(9th Cir. BAP1995).A motions panel deferred resolution of the waiver issue to the hearing on the merits.

We conclude that Appellants did not waive the second issue.The rule in In re Nat'l Lumber was abrogated by the Ninth Circuit's holding in Office of the U.S. Tr. v. Hayes (In re Bishop, Baldwin, Rewald, Dillingham & Wong, Inc.),104 F.3d 1147, 1148(9th Cir.1997).There, the Ninth Circuit held that arguments not specifically listed in an SOI are not waived.The court reasoned that an SOI required by Rule 8006“does not impact upon issue statements required by the court of appeals.The two are separate in nature and distinct in result.”Id.The Ninth Circuit's reasoning is equally applicable to appeals in this court.Therefore, the second issue is not waived and will be addressed on the merits.However, for purposes of flow, since this second issue has impact on the first, the order will be reversed in this opinion.

B.The Bankruptcy Court Did Not Err When It Used the Petition Date As the Date to Determine Whether The Deed Of Trust Could Be Modified

Debtors raise an issue that is now settled in this court.In In re Abdelgadir,455 B.R. at 902–903, this court held that the petition date is the appropriate date for determining whether the anti-modification provision of § 1123(b)(5) applies to a secured claim.We later applied the same reasoning to the identical wording in § 1322(b)(2) in Benafel v. One W. Bank, FSB(In re Benafel),461 B.R. 581(9th Cir. BAP2011).As we are bound to follow our published decisions, Salomon N. Am. v. Knupfer(In re Wind N' Wave),328 B.R. 176, 181(9th Cir. BAP2005), we use the petition date, rather than the loan transaction date, for determining whether the anti-modification provision of § 1123(b)(5) applies to Creditor's claim.

C.The Anti–Modification Provision Under§ 1123(b)(5) Applies To Any Loan Secured Only By Real Property That The Debtor Uses As A Principal Residence

A bankruptcy court shall confirm a plan only if it complies with the applicable provisionsof chapter 11.See§ 1129(a)(1).One such applicable provision is § 1123(b)(5) which states:

(b) Subject to subsection (a) of this section, a plan may—

...

(5) 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....

This provision, known as the anti-modification provision, prevents a debtor from modifying claims that are secured only by a debtor's primary residence.⁶

Our task of resolving the parties' dispute over the meaning of § 1123(b)(5) begins with the language of the statute itself.United States v. Ron Pair Enters., Inc.,489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290(1989).Where the statute's language is plain, the inquiry ends and our sole function is to enforce it according to its terms.Id.

According to its plain language, the prohibition against modification of the rights of the holders of secured claims in § 1123(b)(5) has three distinct requirements: first, the security interest must be in real property; second, the real property must be the only security for the debt; and third, the real property must be the debtor's principal residence.Here, there is no dispute that the first two requirements have been met.Creditor's claim is secured by debtors' real property and debtors do not assert that anything other than the real property secures the claim.Therefore, our focus is on the last requirement—whether the real property is debtors' principal residence.If it is, debtors may not modify the claim secured by their property.

Debtors do not dispute that the house on the property was being used as their principal residence on the petition date.Under our plain meaning analysis, the inquiry should end there.Nonetheless, relying on non-binding case law, debtors contend there is an uncodified exception to § 1123(b)(5) that applies when the property is used not only as the debtors' residence, but also for a commercial use.In this case, debtors use part of their residence for a home office to run their business and they also park trucks and trailers that they use in the business on the property.

Straying from the plain words of the statute, courts have taken different approaches in resolving whether real property should be considered a “debtor's principal...