§ 79.1     Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 79.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The power to modify secured claims in Chapter 13 cases is limited by § 1322(b)(2) to claims “other than a claim secured only by a security interest in real property that is the debtor’s principal residence.”1 This exception was intended to prohibit modification of home mortgages.2 Section 1322(b)(2) was not amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),3 but BAPCPA amendments to the lien retention provisions in § 1325(a)(5)4 and new limitations on successive discharges in § 1328(f)5 may impact the modification of home mortgages in cases filed on or after October 17, 2005.6

[2]

The home mortgage exception to the power to modify secured claims typically forces Chapter 13 debtors to provide for a home mortgage by curing default and maintaining payments during the life of the plan as permitted by 11 U.S.C. § 1322(b)(5).7 If the debtor finds a way around the antimodification provision in § 1322(b)(2), then the home mortgage can be modified by the plan just like most other secured claims.8 In Nobelman v. American Savings Bank,9 the Supreme Court read the antimodification provision in § 1322(b)(2) generously to prohibit modification of most rights of home mortgage holders in Chapter 13 cases.

[3]

One of the fundamental principles of the 1978 Bankruptcy Code is that an allowed claim is a secured claim only to the extent of the value of the collateral.10 The splitting or bifurcation of claims into allowed secured and unsecured portions is required by § 506(a) without regard to the nature of the collateral.11 Even a real estate-secured creditor with a debt that exceeds the value of the real property holds an allowable secured claim only to the extent of the value of the property and holds an unsecured claim for the balance.12

[4]

In a Chapter 13 case, § 1322(b)(2) permits the plan 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.”13 This power is applied routinely in Chapter 13 cases to split undersecured claims into secured and unsecured components and to provide for the separate components through the plan.14

[5]

Prior to 1993, an intense controversy developed whether § 506(a) functioned in the normal way in Chapter 13 cases to split a partially secured home mortgage into its secured and unsecured components if the mortgage was protected from modification by § 1322(b)(2). Chapter 13 debtors want § 506(a) to apply because then the secured portion of the home mortgage claim would be limited to the value of the real property (the allowed secured claim), and the debtor could provide for the (reduced) allowed secured claim through the plan either by payment in full with interest under § 1325(a)(5) or by curing default and maintaining payments under § 1322(b)(5).15 This controversy reduced to the question whether claim splitting or bifurcation under § 506(a) was an impermissible modification under § 1322(b)(2) of the rights of the holder of a claim secured only by real property that was the debtor’s principal residence.

[6]

Prior to 1993, a strong majority of courts, including the U.S. Courts of Appeals for the Second, Third, Ninth and Tenth Circuits, held that a Chapter 13 debtor could bifurcate a home mortgage under § 506(a) without impermissibly modifying the rights of the mortgage holder under § 1322(b)(2).16 The logic of these decisions was to give meaning to both § 506(a) and § 1322(b)(2) by permitting the use of § 506(a) to split the mortgage, but then § 1322(b)(2) prohibited changing the contract terms with respect to the secured portion of the claim. These courts prohibited Chapter 13 plans from changing the interest rate, the amount of the monthly payment or any other contract terms with respect to payment of the secured portion of the mortgage, but the allowed amount of the secured claim that must be paid consistent with the contract was limited to the value of the collateral. A shorter payment schedule resulted, but the majority of courts held that recasting the amortization schedule was not an impermissible modification under § 1322(b)(2), so long as the interest rate and dollar amount of each installment remained as in the original contract.

[7]

Prior to 1993, a minority of courts, including the U.S. Court of Appeals for the Fifth Circuit, held that claim splitting or bifurcation was an impermissible modification of a claim secured only by a security interest in real property that was the debtor’s principal residence, notwithstanding that § 506(a) rendered some or all of the claim unsecured.17 These courts reasoned that the specific prohibition against modification of home mortgages in § 1322(b)(2) prevailed over the general language of § 506(a). The 1992 decision by the Supreme Court in Dewsnup v. Timm18 was interpreted by some courts to indicate that the Supreme Court would not allow Chapter 13 debtors to use § 506(a) to split real estate-secured claims into secured and unsecured components; other courts read Dewsnup to express no opinion on the question.19

[8]

In 1993, in Nobelman, the Supreme Court resolved the deep conflict among the circuits and held that § 1322(b)(2) prohibits bifurcation of an undersecured claim through a Chapter 13 plan when the claim is secured only by a security interest in real property that is the debtor’s principal residence. In Nobelman, the bank’s claim of $71,335 was secured by real property that was the debtor’s principal residence valued at $23,500. The plan proposed payments consistent with the mortgage contract up to $23,500 (plus separate payment of the prepetition arrearages).20 The balance of the bank’s claim was treated as an unsecured claim to be paid nothing along with other unsecured claim holders.

[9]

Speaking for a unanimous court, Justice Thomas focused on the phrase “the rights of holders of secured claims” in § 1322(b)(2). Justice Thomas concluded that the status of the bank’s secured claim under § 506(a) “does not necessarily mean that the ‘rights’ the bank enjoys as a mortgagee, which are protected by § 1322(b)(2), are limited by the valuation of its secured claim.”21 Finding no definition of the term “rights” in § 1322(b)(2) or elsewhere in the Bankruptcy Code, Justice Thomas looked to state law and the mortgage contract itself:

The bank’s “rights,” therefore, are reflected in the relevant mortgage instruments. . . . They include the right of repayment of the principal and monthly installments over a fixed term and specified adjustable rates of interest, the right to retain the lien until the debt is paid off, the right to accelerate the loan upon default and to proceed against petitioners’ residence by foreclosure and public sale, and the right to bring an action to recover any deficiency remaining after foreclosure. . . . These are the rights that were “bargained for by the mortgagor and the mortgagee.”22
[10]

Justice Thomas concluded, “[T]o give effect to § 506(a)’s valuation and bifurcation of secured claims through a Chapter 13 plan in the manner petitioners propose would require a modification of the rights of the holder of the security interest. Section 1322(b)(2) prohibits such a modification where, as here, the lender’s claim is secured only by a lien on the debtor’s principal residence.”23

[11]

The prohibition against modification of home mortgages discussed in Nobelman does not seem to be dependent upon the value of the creditor’s collateral. Although most of the reported decisions do not extend the prohibition of bifurcation in Nobelman to wholly unsecured mortgages,24 it is arguable from Justice Thomas’s rights analysis that even a claim that would ordinarily be unsecured for bankruptcy purposes after application of § 506(a)25 is protected from modification by § 1322(b)(2) if the creditor has a security interest in real property that is the debtor’s principal residence.26

[12]

The expansive rights protection analysis by Justice Thomas in Nobelman introduces a barrier to the discharge of an undersecured or unsecured home mortgage: after Nobelman, the Chapter 13 plan cannot modify the debtor’s personal liability to the holder of a protected home mortgage. As Justice Thomas explained, among the rights that are protected from modification by § 1322(b)(2) is “the right to bring an action to recover any deficiency remaining after foreclosure.”27 By contract and the laws of most states, a mortgage holder is entitled to collect any deficiency after foreclosure as a personal liability of the debtor. Nobelman says that this right cannot be modified if the mortgage is protected from modification by § 1322(b)(2). After Nobelman, a Chapter 13 debtor with a claim secured only by real property that is the debtor’s principal residence cannot discharge personal liability through the plan except by payment in full consistent with the contract and state law.28

[13]

Before Nobelman, it was conventional wisdom that a Chapter 13 debtor could surrender the real property securing a claim and escape the prohibition on modification in § 1322(b)(2).29 Before Nobelman, after surrender of all the real property securing a mortgage holder’s claim, the debtor’s personal liability could be resolved through payment in whole or in part of the remaining unsecured claim through the Chapter 13 plan.

[14]

After Nobelman, this outcome is not at all certain. Although § 1322(b)(8) and (b)(9) and § 1325(a)(5)(C) permit a Chapter 13 debtor to surrender all the property securing a mortgage holder’s claim in satisfaction of some or all of that claim,30 if by contract or state law the mortgage holder would have a right to collect any deficiency as a personal liability of the debtor, then § 1322(b)(2) protects that right from modification through a Chapter 13 plan. In other words, after Nobelman, surrender may reduce but not eliminate the debtor’s personal liability if the value of the collateral surrendered is insufficient to pay the mortgage holder’s claim in full. Ironically, in a state that does not recognize a deficiency with respect to a mortgage on real property, the Chapter 13 plan cannot create a right to a deficiency without modifying the rights of the lender under § 1322(b)(2).31 On the other hand, the protection from modification in § 1322(b)(2) can be voluntarily waived by the lienholder.32

[15]

Nobelman requires debtors’ and creditors’ counsel to look deeply into mortgage contracts to determine exactly what rights are protected from modification by § 1322(b)(2).33 For example, even prior to Nobelman, the prohibition against modification had been interpreted to mean that the debtor could not reduce the interest rate on a home mortgage protected by § 1322(b)(2).34 If the mortgage contains a default interest rate that is higher than the base interest rate, the higher default interest rate may be a right that cannot be modified in the Chapter 13 plan.35 If the mortgage requires a reserve or escrow for the payment of taxes or insurance, § 1322(b)(2) prohibits the debtor from modifying the manner or amount of payment of taxes or insurance.36 It has been held to be an impermissible modification for the plan to require the allocation of payments in a manner that is inconsistent with the mortgage contract.37 If the debtor uses § 1322(b)(5) to cure default and maintain payments, the plan must be adequately funded to pay all mortgage arrearages and to maintain payments of principal and interest; otherwise, the plan will impermissibly modify the mortgage holder’s rights under § 1322(b)(2).38

[16]

One court has held that requiring mortgage payments to be made through the Chapter 13 trustee may constitute an impermissible modification of the rights of the mortgage holder.39 Direct payment by the debtor to a mortgage creditor cannot escape the protection from modification in § 1322(b)(2)—alone, or in combination with other claims litigation.40 That a mortgage holder is required to seek relief from the automatic stay before proceeding against a Chapter 13 debtor is not an impermissible modification under § 1322(b)(2).41 Prior to the 1994 amendments to the Code, when the original obligation was a demand note, most courts held the plan could not pay the debt other than at the demand of the creditor.42 The terms of the debt may be protected from modification even though the debtor’s liability arises from a divorce decree or court judgment.43 Most mortgage contracts require that monthly installment payments be received by a certain day of each month, else the borrower must pay a late charge. If the right to late charges cannot be modified after Nobelman, does a Chapter 13 debtor incur a late charge in every month in which distributions under the plan are received by the mortgage holder after the due date under the contract?44

[17]

The prohibition against modification in § 1322(b)(2) is not limited to the monetary provisions of the contract. If the creditor is protected by § 1322(b)(2), all the terms of the security agreement must be respected. Nonmonetary provisions—for example, prohibiting waste of the property, prohibiting certain activities on the property, a due-on-sale clause—also cannot be modified.45

[18]

Nobelman suggests complicated strategies (pre- and postbankruptcy) for debtors and creditors. Ironically, Nobelman takes a permissive power of a Chapter 13 debtor in § 1322(b)(2) and turns it into a substantial incentive for lenders to take security interests in a borrower’s home. A third or fourth mortgage, at least if supported by some value, gives the lender rights—including the right to avoid discharge—that cannot be modified through a Chapter 13 plan.46

[19]

The debtor who needs relief from an undersecured, or perhaps unsecured, homestead mortgage may be best advised to surrender the real property before filing a Chapter 13 case. If all the collateral is surrendered before the petition, it may be argued that the creditor is not the holder of a claim “secured only by real property that is the debtor’s principal residence.”47 Similarly, if the debtor moves out of the real property and does not use it as a residence at the petition, the protection from modification in § 1322(b)(2) might not be available.48

[20]

The protection from modification in § 1322(b)(2) is not a “get out of jail free” card for all lienholder misconduct. For example, the bankruptcy court in In re Dominique49 acknowledged that the protection from modification prohibited the plan from modifying ongoing debt obligations, but the lender’s rights were still subject to other statutes such as the Truth in Lending Act or the Real Estate Settlement Procedures Act which might alter the lienholder’s rights notwithstanding § 1322(b)(2).

[21]

Nobelman makes Chapter 7 more attractive than Chapter 13 for some debtors who need relief from an undersecured or unsecured homestead mortgage. A Chapter 7 debtor can discharge personal liability to the holder of a claim secured only by real property that is the debtor’s principal residence because there is no analogue to § 1322(b)(2) in Chapter 7. Especially with respect to second and third mortgage holders—the so-called home equity lenders and aluminum siding loans—Nobelman recognizes rights in Chapter 13 cases that far exceed the reasonable expectations of such creditors in a Chapter 7 case. The debtor who first receives a discharge in a Chapter 7 case and then files or converts to Chapter 1350 has no personal liability to the mortgage holder and can manage the (nonrecourse) lien through the Chapter 13 plan.51 Nobelman and § 1322(b)(2) will still prohibit modification of the surviving lien,52 but the debtor will be able to design a plan without concern for personal liability surviving the Chapter 13 discharge. Nobelman is an unfortunate incentive for some debtors to first consider Chapter 7 relief.

[22]

The Nobelman prohibition against bifurcation of home mortgages applies to all Chapter 13 cases pending on June 1, 1993, in which the treatment of the mortgage holder’s claim under the plan is still open to “direct review.”53 Confirmation of a Chapter 13 plan that bifurcates a home mortgage in violation of the rule announced in Nobelman probably precludes a postconfirmation request for relief from the stay or a postdischarge state court collection action if the confirmation order was final at the announcement of Nobelman.54 There has been no flood of decisions allowing mortgage holders with claims that were bifurcated before Nobelman to modify the plans after confirmation under § 1329 to conform the plan to the rule announced in Nobelman.55

[23]

In all Chapter 13 cases, the power in § 1322(b)(5) to cure default and maintain payments with respect to any secured (or unsecured) claim on which the last payment is due after the last payment under the plan is an exception to the prohibition against modification of home mortgages in § 1322(b)(2).56 The power to cure default and maintain payments under § 1322(b)(5) is limited that the Chapter 13 case must be filed before a foreclosure sale is conducted in accordance with nonbankruptcy law.57 In Chapter 13 cases filed after October 22, 1994, § 1322(c)(2) is a second exception to the antimodification provision of § 1322(b)(2) for home mortgages when the last payment “on the original payment schedule” is due before the final payment under the plan.58 The reach of this new exception and the possibility that this 1994 amendment withdrew some home mortgages from the protection of the holding in Nobelman are controversial questions.59

[24]

Recent decisions have tested the protection from modification in § 1322(b)(2) in the context of plan provisions that manage the payment of home mortgages. Sometimes called “best practices,” it is increasingly common for “model” plans to detail how a home mortgage will be managed after confirmation. These provisions are sometimes challenged by the mortgage holder, and the statutory touchstone for that contest is the protection from modification in § 1322(b)(2). The content of these “best practices” provisions and the extent to which § 1322(b)(2) is offended by best practices provisions are discussed in the next section.60


 

1  11 U.S.C. § 1322(b)(2).

 

2  See H.R. Rep. No. 95-595, at 429 (1977); S. Rep. No. 95-989, at 141 (1978); 124 Cong. Rec. H11,106-07 (daily ed. Sept. 28, 1978) (remarks of Congressman Edwards), S17,423 (daily ed. Oct. 6, 1978) (remarks of Sen. DeConcini).

 

3  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

4  See §§ 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA, 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA and 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases.

 

5  See §§ 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

6  There is also the slight possibility that the “hanging sentence” BAPCPA appended to the end of 11 U.S.C. § 1325(a) could interfere with the modification of a home mortgage. See § 451.2 [ Motor Vehicles and Any Other Thing of Value ] § 75.2  Motor Vehicles and Any Other Thing of Value.

 

7  See discussion of 11 U.S.C. § 1322(b)(5) beginning at § 81.1  Overview: General Rules for Saving Debtor’s Home

 

8  See discussion beginning at § 80.1  In General: Claims That Are Not Secured Only by Security Interest in Real Property That Is the Debtor’s Principal Residence.

 

9  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993).

 

10  11 U.S.C. § 506(a)(1) provides: “An allowed claim of a creditor secured by a lien on the 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.” See §§ 101.1 [ General Rules ] § 74.1  General Rules before BAPCPA, 103.3 [ Partially Secured Claims ] § 74.10  Partially Secured Claims and 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

11  But see § 75.1  In General: Modification Without § 506 for discussion of the limitation on the use of 11 U.S.C. § 506(a) to value purchase-money security interests in cases filed on or after October 17, 2005, based on the hanging sentence at the end of 11 U.S.C. § 1325(a).

 

12  There is at least a theoretical exception for a purchase-money security interest in real property under certain circumstances in the hanging sentence BAPCPA added at the end of 11 U.S.C. § 1325(a). See discussion beginning at § 75.1  In General: Modification Without § 506.

 

13  11 U.S.C. § 1322(b)(2).

 

14  See § 74.11  The Power to Modify. But see discussion of hanging sentence at the end of 11 U.S.C. § 1325(a)(5) beginning at § 75.1  In General: Modification Without § 506.

 

15  See §§ 115.1 [ Curing Default, Waiving Default, Maintaining Payments and Combinations ] § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations and 128.2 [ Providing for and Accounting for an Unprotected Mortgage: Modifying, Curing Default, Maintaining Payments and Combinations ] § 80.14  Providing for and Accounting for an Unprotected Mortgage: Modifying, Curing Default, Maintaining Payments and Combinations.

 

16  Cases allowing bifurcation of home mortgages before Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), are organized by circuit in App. J.

 

17  Cases prohibiting claim splitting before the Supreme Court’s decision in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), are organized by circuit in App. K.

 

18  502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992).

 

19  In Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992), the Supreme Court held that a Chapter 7 debtor cannot use § 506(d) to “strip down” the lien of a mortgage holder to the value of the real property. The Chapter 7 debtor in Dewsnup sought to use § 506(d) to void the mortgage holder’s lien to the extent the lien was not secured by value in the property. The Supreme Court tortured the notion of “secured claim” in § 506(a) and (d) to conclude that a Chapter 7 debtor could not use § 506(d) to void the lien on the debtor’s homestead in a Chapter 7 case.

    Some courts read the Supreme Court’s hostility to voiding liens in Chapter 7 cases in Dewsnup to indicate that the Supreme Court would also be hostile to splitting homestead-secured claims through a Chapter 13 plan. See Nobelman v. American Sav. Bank (In re Nobelman), 968 F.2d 483 (5th Cir.), cert. granted, 506 U.S. 1020, 113 S. Ct. 654, 121 L. Ed. 2d 580 (Dec. 7, 1992) (The Supreme Court’s recent decision in Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992), lends support to the conclusion that bifurcation of an undersecured home mortgage runs afoul of the protection from modification in § 1322(b)(2).); In re Barnes, 146 B.R. 854 (Bankr. W.D. Okla. Oct. 26, 1992) (Bohanon) (After Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992), the Tenth Circuit’s opinion in Eastland Mortgage Co. v. Hart (In re Hart), 923 F.2d 1410 (10th Cir. Feb. 26, 1991) (Moore, Tacha, Brorby), is not binding, and § 1322(b)(2) prohibits modification of a mortgage holder through bifurcation of its claim.); In re Doss, 143 B.R. 952 (Bankr. E.D. Okla. May 1, 1992) (Ryan); In re Strober, 136 B.R. 614 (Bankr. E.D.N.Y. Mar. 10, 1992) (Goetz) (It is “almost impossible” to reconcile Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992) with the Second Circuit’s opinion in Bellamy v. Federal Home Loan Mortgage Corp. (In re Bellamy), 962 F.2d 176 (2d Cir. Apr. 21, 1992) (Kaufman, Cardamone, Miner). Following Dewsnup, a Chapter 13 debtor cannot compel a mortgage holder to accept the current value of a residence in satisfaction of its mortgage lien.); In re Davidoff, 136 B.R. 567 (Bankr. M.D. Fla. Feb. 12, 1992) (Baynes) (Although Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992) was a Chapter 7 case that was limited to its facts, Dewsnup does indicate that the Supreme Court does not intend that the valuation mechanism in § 506(a) will be used to limit a creditor’s lien on the debtor’s principal residence.).

    Chapter 13 debtors rarely invoke § 506(d) to accomplish lien voiding; rather, Chapter 13 debtors use the special powers to manage secured claims available only in Chapter 13 cases under §§ 1322(b)(2), (b)(3), (b)(5), 1325(a)(5) and 1327. Chapter 13 debtors do not need to void “unsecured” liens under § 506(d); instead, after splitting the claim into its secured and unsecured components under § 506(a), the Chapter 13 debtor will make separate provisions in the plan for payment of the secured portion of the claim and payment of (all or part of) the unsecured portion of the claim. Recognizing that nothing in Dewsnup directly addressed whether Chapter 13 debtors could use §§ 1322 and 1325 to separately manage the payment of the secured and unsecured portions of an undersecured mortgage, other courts limited Dewsnup to its Chapter 7 context and held that Dewsnup had no effect on the interaction of §§ 506(a) and 1322(b)(2) in Chapter 13 cases. See, e.g., Lomas Mortgage USA v. Wiese (In re Wiese), 980 F.2d 1279, 1282 (9th Cir. Dec. 4, 1992) (Hug, D.W. Nelson, T.G. Nelson) (“[Hougland v. Lomas & Nettleton Co. (In re Hougland), 886 F.2d 1182 (9th Cir. Oct. 4, 1989) (Pregerson, Trott, Fernandez)] was correctly decided and we find no reason to upset its holding. . . . Dewsnup . . . does not affect our decision in Hougland. . . . [N]owhere does Dewsnup suggest that its discussion of ‘lien stripping’ has any impact on the bifurcation of secured claims from unsecured claims for the purposes of Chapter 13.”); Sapos v. Provident Inst. of Sav. (In re Sapos), 967 F.2d 918 (3d Cir. June 26, 1992) (Stapleton, Alito, Aldisert) (A Chapter 13 debtor with an undersecured home mortgage can use bifurcation under § 506(a) without offending § 1322(b)(2); the Supreme Court’s Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992) opinion does not change this result for the reasons stated by the Second Circuit in Bellamy v. Federal Home Loan Mortgage Corp. (In re Bellamy), 962 F.2d 176 (2d Cir. Apr. 21, 1992) (Kaufman, Cardamone, Miner).); Bellamy v. Federal Home Loan Mortgage Corp. (In re Bellamy), 962 F.2d 176, 182–84 (2d Cir. Apr. 21, 1992) (Kaufman, Cardamone, Miner) (“[Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992)] did not hold that ‘secured claim’ in other provisions of the Code was never to be construed as it was in § 506(a). Its analysis was limited to § 506(d) and the facts before it. . . . [T]he Code expressly contemplates that a Chapter 13 debtor’s plan of reorganization may today, contrary to pre-Code practice, deal with creditors whose claims are secured by real property. . . . As a result, applying § 1322(b)(2) in light of § 506(a) does not alter well-settled bankruptcy principles.”); Union Planters Nat’l Bank v. Sainz-Dean (In re Sainz-Dean), 143 B.R. 784 (D. Colo. 1992) (Adopting the reasoning in Bellamy v. Federal Home Loan Mortgage Corp. (In re Bellamy), 962 F.2d 176 (2d Cir. Apr. 21, 1992) (Kaufman, Cardamone, Miner), Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992) does not overrule Eastland Mortgage Co. v. Hart (In re Hart), 923 F.2d 1410 (10th Cir. Feb. 26, 1991) (Moore, Tacha, Brorby).); In re Cardinale, 142 B.R. 42 (Bankr. D.R.I. 1992) (Chapter 13 debtor can treat a second mortgage as an unsecured claim when the value of the property is insufficient to secure any portion of the second mortgage. Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992) does not change this result.); Union Mortgage Co. v. Avret (In re Avret), 146 B.R. 47 (Bankr. S.D. Ga. Oct. 6, 1992) (Dalis) (Only the secured portion of a mortgage holder’s claim is protected from modification by § 1322(b)(2). Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992) does not change this result because the Supreme Court did not address § 1322(b)(2).); In re Dinsmore, 141 B.R. 499 (Bankr. W.D. Mich. June 26, 1992) (Howard) (Nothing in Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992) precludes a Chapter 13 debtor from modifying the rights of a secured claim holder to split the claim into its secured and unsecured components, paying the secured component consistent with § 1325(a)(5)(B) and paying the unsecured component along with other unsecured claim holders. “[Section] 1322(b)(2) and § 1325(a)(5)(B) expressly permit the bifurcation and modification of the creditor’s claim in a plan of reorganization.”); In re Weber, 140 B.R. 707, 712 (Bankr. S.D. Ohio Apr. 7, 1992) (Sellers) (“Bifurcation of an undersecured creditor’s claim is a basic premise of the Bankruptcy Code. The language of § 1322(b)(2), which prohibits modification of the rights of a holder of a secured claim . . . presupposes allowance of the secured claim pursuant to § 506(a). Had Congress intended to prohibit modification of the rights of holders of debts secured either wholly or partially by the debtors’ residential real estate, the provision would have been so drafted. That is not the language which appears in the statute. It is the secured claim, not the entire claim, that may not be modified.” Nothing in Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992) requires a different outcome.).

 

20  See § 140.1 [ Calculating Plan Payments to Cure Default on Mortgages before October 22, 1994 ] § 84.2  Calculating Plan Payments to Cure Default on Mortgages before October 22, 1994.

 

21  508 U.S. at 329.

 

22  508 U.S. at 329.

 

23  508 U.S. at 332.

 

24  See § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

25  See §§ 101.1 [ General Rules ] § 74.1  General Rules before BAPCPA and 148.2 [ What Claims Are Unsecured Claims? ] § 86.3  What Claims Are Unsecured Claims?.

 

26  See § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA. See, e.g., United States v. Davis, No. 5:08CV00021 JMM, 2008 WL 1930546, at *2 (E.D. Ark. Apr. 28, 2008) (unpublished) (Moody) (In foreclosure action removed to district court after debtor received discharge, mortgage lien survived discharge, even though bankruptcy court sustained debtor’s objection to claim and bifurcated secured claim. Section 1322(b)(2) prohibited modification of mortgage lien on debtor’s residence. “Because defendant cannot reduce the value of plaintiff’s claim secured by a mortgage on her residence, the bankruptcy court’s order sustaining defendant’s objection [to claim] is res judicata only to the amount of the claim allowance, not to the amount of the debt liability.”); In re Hughes, 402 B.R. 325 (Bankr. D. Minn. Mar. 16, 2009) (O’Brien) (Second mortgage was supported by value based on tax valuation; even if homestead had no equity to cover lien, under Nobelman v. American Savings Bank, 508 U.S. 324, 329–32, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), lien is secured only by a security interest in the debtor’s principal residence and may not be stripped.).

 

27  508 U.S. at 329.

 

28  When the debtor proposes to cure default and maintain payments consistent with § 1322(b)(5), the debtor’s personal liability will not be discharged upon completion of payments to other creditors because of the exception to discharge in 11 U.S.C. § 1328(a)(1). See § 351.1 [ Long-Term Debts ] § 158.7  Long-Term Debts. If state law or the mortgage contract excuses the debtor from personal liability for the deficiency after foreclosure, then a plan consistent with that state law would be confirmable without violating § 1322(b)(2). “Short term” mortgages that can be provided for under § 1322(c)(2) are discussed in §§ 142.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 ] § 85.1  Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 and 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

29  See §§ 102.1 [ Surrender or Sale of Collateral ] § 74.5  Surrender or Sale of Collateral before BAPCPA and 446.1 [ Surrender of Collateral ] § 74.6  Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA.

 

30  See §§ 102.1 [ Surrender or Sale of Collateral ] § 74.5  Surrender or Sale of Collateral before BAPCPA and 446.1 [ Surrender of Collateral ] § 74.6  Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA. But see In re Cartwright, No. 06-40787, 2007 WL 913881 (Bankr. W.D. Ky. Mar. 23, 2007) (unpublished) (Stosberg) (Home mortgage secured by two tracts could not be modified by debtor’s proposal to surrender home and retain one tract.).

 

31  See In re Hale, 359 B.R. 310, 315, 316, 317 (Bankr. E.D. Wash. Jan. 24, 2007) (Williams) (Home mortgage could not be modified to create a right to deficiency that was not available under state law. Plan provided for surrender and “[t]o the extent the collateral does not satisfy such creditor’s claim, the creditor shall be treated as the holder of an unsecured claim and paid as provided in . . . section III.A8 (Unsecured Claims).” Notwithstanding this provision, court found “no specific plan language which modifies or alters the effect of § 1322(b) or allows Origen an unsecured claim.”).

 

32  See, e.g., In re Wilcox, 438 B.R. 428, 431–32 (Bankr. D. Colo. Sept. 7, 2010) (Tallman) (When credit union voluntarily agreed to reduce debt and monthly payments in settlement of debtor’s motion to strip off lien, trustee cannot upset settlement with argument that § 1322(b)(2) prohibits modification. “By choosing to voluntarily modify its claim for purposes of the Debtors’ Amended Plan, the Credit Union has voluntarily and knowingly waived any protection of its interests afforded by § 1322(b)(2). . . . In the end, bankruptcy is about solutions and the Trustee’s position sets up an artificial—and legally unsound—barrier to the efforts of the interested parties to reach a solution that works for both sides. Sound public policy encourages the voluntary settlement of disputes.”).

 

33  See also § 118.2 [ “Best Practices” and the Protection from Modification in § 1322(b)(2) ] § 79.3  “Best Practices” and the Protection from Modification in § 1322(b)(2).

 

34  In re Daniels, 102 B.R. 680 (N.D. Ill. July 7, 1989) (Moran) (After judgment of foreclosure in federal district court, mortgagee is entitled to federal statutory interest rate. Plan proposing payment of foreclosure judgment with interest based on state interest rate impermissibly modifies rights of mortgagee under § 1322(b).); In re Gianguzzi, 145 B.R. 792 (Bankr. S.D.N.Y. Oct. 2, 1992) (Schwartzberg) (Reduction in interest rate from 21% to 8.5% is an impermissible modification of a home mortgage under § 1322(b)(2) even when the debtor’s proposal is to pay the mortgage in full during the life of the plan.); In re Groff, 131 B.R. 703 (Bankr. E.D. Wis. Aug. 23, 1991) (Shapiro) (A change in interest rate clearly is a modification; however, a change in interest rate is permitted if the mortgage is not protected from modification under § 1322(b)(2), because the mortgage holder has a security interest in real property other than the debtor’s principal residence.); In re Allen, 75 B.R. 344 (Bankr. S.D. Ohio Apr. 21, 1987) (Sellers); In re Shaver, 58 B.R. 166 (Bankr. S.D. Ohio June 26, 1985) (Pettigrew); In re Wilson, 58 B.R. 164 (Bankr. S.D. Ohio June 26, 1985) (Pettigrew); In re Rorie, 58 B.R. 162 (Bankr. S.D. Ohio Mar. 11, 1985) (Pettigrew). But see In re Turner-Mayo, No. 05-44726, 2007 WL 484614 (Bankr. S.D. Tex. Feb. 8, 2007) (unpublished) (Isgur) (Distinguishing Sun Finance Co. v. Howard (In re Howard), 972 F.2d 639 (5th Cir. Sept. 8, 1992) (Higginbotham, Duhé, Hunter), plan did not affect validity of Chase Home Finance LLC’s lien or its claim amount; rather, plan altered interest rate and Chase failed to object after proper notice.). See also §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors and 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation for discussion of the effects of confirmation on claim allowance.

 

35  If the Chapter 13 plan cures defaults under § 1322(b)(3) or (b)(5), it can certainly be argued that the effects of any prepetition default, including a higher default interest rate, are cured as well. See In re Entz-White Lumber & Supply, Inc., 850 F.2d 1338 (9th Cir. June 28, 1988) (Choy, Sneed, Hug) (Chapter 11 plan that pays arrearages and cures defaults consistent with 11 U.S.C. § 1123(a)(5)(G) cures the triggering event and returns the parties to predefault conditions, including avoidance of default penalties such as higher interest rates.).

 

36  In re Rathe, 114 B.R. 253 (Bankr. D. Idaho May 4, 1990) (Hagan).

 

37  See In re Good, 207 B.R. 686, 688, 690–92 (Bankr. D. Idaho Apr. 14, 1997) (Pappas) (Impermissible modification to provide that arrearage payments will be applied first to principal and then to interest when underlying note and deed of trust require a different application; new § 1322(e) does not change this result. “[M]ost terms of a home mortgage loan may not be modified in a Chapter 13 plan, but such a plan may propose to cure a default on the mortgage debt over a reasonable period of time, while the debtor maintains the current payments. However, the right to cure a default does not include the power to alter other contract provisions concerning how payments on the mortgage should be applied. . . . Debtor’s plan requiring default payments be applied by Creditor first to the principal balance, then to accrued interest, violates Section 1322(b)(2). . . . [Section 1322(e)] does not address how a debtor’s payments are to be applied in curing a default. If anything, this new provision highlights Congress’ intent that except where specifically authorized by the Bankruptcy Code, the contracts, not the Code, should govern the rights of parties to a home mortgage loan in Chapter 13. . . . The note and trust deed are consistent in requiring that accrued interest is payable before application of payments to principal. Therefore, Creditor’s right to insist upon interest before principal may not be modified under Debtor’s Chapter 13 plan.”). See also § 118.2 [ “Best Practices” and the Protection from Modification in § 1322(b)(2) ] § 79.3  “Best Practices” and the Protection from Modification in § 1322(b)(2) for discussion of “best practices” plan provisions with respect to management of home mortgages.

 

38  In re Eynetich, 98 B.R. 966 (Bankr. D. Neb. Dec. 29, 1988) (Minahan). Accord In re Gebo, 290 B.R. 168 (Bankr. M.D. Fla. Dec. 18, 2002) (Paskay) (Plan that pays mortgage arrearages of $3,656 violates the antimodification provision of § 1322(b)(2) when mortgage holder has allowed claim for arrearages of $5,324.34.). But see In re Brown, 121 B.R. 768 (Bankr. S.D. Ohio Oct. 26, 1990) (Clark) (Although § 1322(b)(2) prohibits modification of mortgage holder’s rights, a modification that results solely from the mortgage holder’s conduct is not prohibited. Debtor’s plan proposed to cure mortgage arrearages in full. Creditor mistakenly filed an arrearage claim for $1,800 rather than $2,800. Full payment of the $1,800 allowed claim brought the mortgage current as of discharge and closing of the Chapter 13 case. As a result of the mortgage holder’s incorrect proof of claim, the regularly scheduled mortgage payments were extended for a slight period to allow the creditor to receive payment of the additional $1,000 arrearage after payment of the rest of the mortgage debt. This slight rescheduling of the mortgage was not an impermissible modification because the rescheduling did not result from the plan but rather from the mortgage holder’s mistaken proof of claim.).

 

39  In re Harris, 107 B.R. 204 (Bankr. D. Neb. June 21, 1989) (Minahan). But see §§ 103.2 [ Direct Payment of Secured Claims by Debtor ] § 74.8  Direct Payment of Secured Claims by Debtor before BAPCPA, 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA. See also § 118.2 [ “Best Practices” and the Protection from Modification in § 1322(b)(2) ] § 79.3  “Best Practices” and the Protection from Modification in § 1322(b)(2) for discussion of “best practices” plan provisions that manage the payment of home mortgages.

 

40  See, e.g., In re Risius, No. 09-83687, 2010 WL 2891670, at *1 (Bankr. C.D. Ill. July 21, 2010) (unpublished) (Perkins) (Mortgage paid “outside” confirmed plan that is protected from modification by § 1322(b)(2) cannot be indirectly stripped down by contesting debt through claim objection. “Even if the Debtor believes that the claim amount of $121,055.83 is incorrect as a matter of contract, that dispute is not one for the bankruptcy court since its resolution cannot possibly have any effect on the Debtor’s performance under the Plan or on the administration of the estate by the Trustee.”).

 

41  Allen v. Jim Walter Homes, Inc. (In re Hartley), 75 B.R. 394 (S.D. Ala. June 7, 1987) (Hand). See also In re Dunn, 399 B.R. 909 (Bankr. W.D. Wash. Jan. 23, 2009) (Brandt) (Distinguishing Philadelphia Life Insurance Co. v. Proudfoot (In re Proudfoot), 144 B.R. 876 (B.A.P. 9th Cir. Sept. 14, 1992) (Jones, Russell, Ashland), plan is confirmed that grants stay relief but gives debtors time to sell property; debtors will not be making payments to mortgage creditor but time allowed for sale is less than minimum 120 days required to foreclose under Washington law. “The Plan here neither creates a default, nor does it impermissibly modify U.S. Bank’s rights: upon confirmation, it is free to start the foreclosure process. Section 1322(b)(2) does not require the maintenance of payments; rather, plans ‘may’ so provide[.]” In Proudfoot, debtor proposed indefinite period of withholding payments, which was unreasonable.).

 

42  See § 142.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 ] § 85.1  Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994. Section 301 of the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994), amended § 1322(c)(2) to permit Chapter 13 debtors to pay a “short-term” home mortgage in full during the life of the plan consistent with § 1325(a)(5). See § 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

43  See, e.g., In re Miller, 53 B.R. 100 (Bankr. S.D. Ohio Sept. 25, 1985) (Pettigrew) (Real estate-secured debt arising from divorce decree must be paid consistent with the terms of the decree and cannot be modified to be paid over the life of the Chapter 13 plan.). But see § 119.2 [ Statutory Liens and Judgment Liens, Including Foreclosure Judgments ] § 80.2  Statutory Liens and Judgment Liens, Including Foreclosure Judgments.

 

44  See § 138.1 [ Late Charges, Attorneys' Fees, Costs and Other Charges ] § 83.6  Late Charges, Attorneys' Fees, Costs and Other Charges. See, e.g., In re Lee, 167 B.R. 417, 428–29 (Bankr. S.D. Miss. Oct. 30, 1992) (Ellington), aff’d sub nom., 22 F.3d 1094 (5th Cir. May 4, 1994) (Davis, Jones, Duhé) (Court rejects the argument that payments by the Chapter 13 trustee on a day of the month different from the due date required by contract constitute an impermissible modification of rights under § 1322(b)(2). Citing the Fifth Circuit’s opinion in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), “the Trustee’s office disburses between 10,000 and 15,000 checks to creditors each month. It would be extremely burdensome for the Chapter 13 Trustee to review every contract involving a home mortgage, determine the due date, and pay each individual creditor in accordance with its particular contract. If Green Tree’s argument were accepted by this Court, then the only way a debtor could comply with the Bankruptcy Code would be to pay any secured creditor protected from modification of its rights under § 1322(b)(2) outside of the plan. Such a result is not mandated by § 1322(b)(2).”). See also § 118.2 [ “Best Practices” and the Protection from Modification in § 1322(b)(2) ] § 79.3  “Best Practices” and the Protection from Modification in § 1322(b)(2) for discussion of “best practices” plan provisions that time the payment of home mortgages to avoid late charges.

 

45  See § 132.1 [ Nonmonetary Defaults ] § 82.3  Nonmonetary Defaults for discussion of curing nonmonetary defaults under 11 U.S.C. § 1322(b)(3) or (b)(5). See § 173.1 [ Debtor Must Cure Defaults and Assure Future Performance ] § 102.2  Debtor Must Cure Defaults and Assure Future Performance for discussion of curing nonmonetary defaults in a lease or executory contract. See § 146.1 [ Debts Discharged in Prior Bankruptcy and Nonrecourse Debts ] § 85.5  Debts Discharged in Prior Bankruptcy and Nonrecourse Debts for discussion of due-on-sale clauses. See, e.g., In re Mullin, 433 B.R. 1, 13 (Bankr. S.D. Tex. July 2, 2010) (Bohm) (Protection from modification in § 1322(b)(2) precludes plan that would retain home that had been conveyed by borrower to debtor in violation of due-on-sale clause. Treatment of mortgage in plan would stretch “‘the language of § 1322(b)(2) past the breaking point.’”).

 

46  See, e.g., In re Martinez, No. 09-40589-JDP, 2010 WL 2103556 (Bankr. D. Idaho May 25, 2010) (unpublished) (Pappas) (Valuation of home established equity to secure second mortgage that may not be stripped in plan.); Pringle v. Scott Street Invs., L.L.C. (In re Pringle), No. 09-6017, 2010 WL 1424365 (Bankr. D. Kan. Apr. 1, 2010) (unpublished) (Berger) (Second mortgage was supported by some value and could not be stripped.); In re Aubuchon, No. 09-56881-MM, 2010 WL 744806 (Bankr. N.D. Cal. Mar. 4, 2010) (unpublished) (Morgan) (Junior mortgage was not subject to modification because equity partially secured debt.); In re Clardy, No. 06-71703-CMS-13, 2007 WL 1697007 (Bankr. N.D. Ala. June 12, 2007) (unpublished) (Stilson) (After valuation hearing, residential property has $1,200 of equity for second mortgage, and claim cannot be modified.); Trosky v. M & T Mortgage Corp. (In re Trosky), 371 B.R. 701, 707 (Bankr. M.D. Pa. Sept. 7, 2006) (Thomas) (Equitable mortgage was protected from modification by § 1322(b)(2). Though mortgage lost its priority to subsequently recorded mortgages, it had equity based upon court’s valuation of property, and “the Court has found the lien to be secured at least with respect to the Debtors.”). See also § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

47  See § 121.1 [ Timing Issues: Lien Waiver, Surrender or Avoidance ] § 80.4  Timing Issues: Lien Waiver, Surrender or Avoidance.

 

48  See § 121.2 [ Timing Issues: Prepetition Changes in Collateral or Use ] § 80.5  Timing Issues: Prepetition Changes in Collateral or Use.

 

49  368 B.R. 913 (Bankr. S.D. Fla. May 14, 2007) (Isicoff).

 

50  The “Chapter 20” phenomenon. See § 146.1 [ Debts Discharged in Prior Bankruptcy and Nonrecourse Debts ] § 85.5  Debts Discharged in Prior Bankruptcy and Nonrecourse Debts.

 

51  See § 128.3 [ Unsecured Home Mortgages after BAPCPA ] § 80.15  Unsecured Home Mortgages after BAPCPA for discussion of lien stripping of a wholly unsecured mortgage when debtor is not eligible for Chapter 13 discharge.

 

52  See Parker v. Federal Home Loan Mortgage Corp. (In re Parker), 179 B.R. 492, 495 (E.D. La. Mar. 8, 1995) (Vance) (Citing In re Dydo, 163 B.R. 663 (Bankr. D. Conn. Feb. 7, 1994) (Krechevsky), “[t]here is simply no support for the debtor’s argument that the discharge of his personal liability, if it in fact occurred, allows him to reduce the mortgagee’s claim to the fair market value of the property.”); In re Dydo, 163 B.R. 663, 664 (Bankr. D. Conn. Feb. 7, 1994) (Krechevsky) (Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993) and § 1322(b)(2) prohibit stripdown of a home mortgage notwithstanding that the debtor discharged personal liability in a prior Chapter 7 case. “A careful review [of Nobelman] discloses no mention by the Court of distinctions based upon whether the debtors are personally liable on the mortgage debt. . . . [Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991),] contains no reference to § 1322(b)(2), and I find that holding inapposite in the present proceeding.”); In re Threats, 159 B.R. 241, 243 (Bankr. N.D. Ill. Oct. 5, 1993) (Katz) (Chapter 13 debtors who are not personally liable on mortgage but who own underlying property pursuant to a quitclaim deed are prohibited by § 1322(b)(2) and Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993) from curing defaults and maintaining payments with respect to the mortgage. Real property subject to a mortgage was conveyed to the debtors prepetition. The debtors did not assume the underlying mortgage, and the mortgage contained a due-on-sale clause and a clause permitting the mortgage holder to approve any proposed assumption of the mortgage. The court acknowledged that the lien on the debtors’ real property was a claim that could be managed through the Chapter 13 plan; however, citing Nobelman and Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992), the “rights” protected from modification by § 1322(b)(2) include the mortgagor’s contractual due-on-sale clause. The debtors’ proposed plan would be in effect an assumption of the mortgage to which the debtors were not parties. The debtors’ plan would “eviscerate the due-on-sale clause” and would avoid the right of the mortgagor to approve any proposed assumption of the mortgage. “These rights may not be modified in a Chapter 13 plan.”). Compare In re Donahue, 221 B.R. 105 (Bankr. D. Vt. May 27, 1998) (Conrad) (Although debtor discharged personal liability in Chapter 7 case, Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993) and § 1322(b)(2) would ordinarily prohibit the debtor from modifying the lien rights of the creditor that survived discharge; however, because creditor’s lien extends to three undeveloped 10-acre parcels contiguous to the lot occupied by the debtor as a principal residence, the protection from modification in § 1322(b)(2) is not available, and the plan can surrender three of the 10-acre parcels and pay for the fourth with interest.), rev’d on other grounds, 232 B.R. 610 (D. Vt. Apr. 8, 1999) (Sessions).

 

53  See Independence One Mortgage Corp. v. Wicks (In re Wicks), 5 F.3d 1372, 1373 (10th Cir. Sept. 28, 1993) (Anderson, Barrett, Tacha) (Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993) applies to confirmation of a Chapter 13 plan on appeal at the time of the Supreme Court’s decision. “‘It is now settled that “once retroactive application is chosen for any asserted new rule, it is chosen for all others who might seek its prospective application.”’ . . . The Supreme Court applied the holding of Nobelman to the facts of that case; Nobelman therefore applies to this case.”). Compare Adebanjo v. Dime Sav. Bank (In re Adebanjo), 165 B.R. 98, 100–02 (Bankr. D. Conn. Mar. 30, 1994) (Shiff) (Nobelman does not prohibit modification of a mortgage holder’s claim where peculiar stipulation on appeal of the bifurcation issue rested on the outcome of Bellamy v. Federal Home Loan Mortgage Corp. (In re Bellamy), 962 F.2d 176 (2d Cir. Apr. 21, 1992) (Kaufman, Cardamone, Miner) in the Second Circuit and not on the Supreme Court’s later decision in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993). “[T]his court entered a judgment against [the bank] . . . bifurcating its claim and voiding its lien to the extent it exceeded the property’s value. The [bank] filed a notice of appeal. . . . [T]he [bank] and the debtors entered into . . . a Stipulation. [T]he Stipulation provided: ‘Following the exhaustion of all appeals, if the Bellamy judgment is reversed by the Second Circuit or the Supreme Court of the United States, the Judgment entered in this adversary proceeding shall be vacated.’ . . . [T]he Second Circuit affirmed . . . Bellamy, 962 F.2d 176 (2d Cir. [Apr. 21, 1992) (Kaufman, Cardamone, Miner)]. . . . On June 1, 1993, the Supreme Court affirmed Nobelman. . . . [T]he [bank] filed the instant motion seeking to vacate the bifurcation judgment based on the Stipulation. . . . While the Supreme Court did overrule Bellamy, in part, some two years after the Stipulation was entered into, its unambiguous language refers to the reversal of Bellamy on direct appeal. . . . Unlike reversal, overruling deprives a judgment of only its stare decisis, not its res judicata, effect.”).

 

54  See Margaret Howard, Nobelman v. American Sav. Bank: Of Literalism, Retroactivity and Discharge, 9 Norton Bankr. L. Adviser 1 (1993). See, e.g., Lumbermen’s Inv. Corp. v. Moretti (In re Moretti), 172 B.R. 984, 986–88 (Bankr. W.D. Okla. Oct. 12, 1994) (Lindsey) (Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993) does not apply retroactively to undo claim splitting in a case in which final appeal to the Tenth Circuit was completed without a petition for writ of certiorari before the Supreme Court decided Nobelman. “[Harper v. Virginia Dep’t of Taxation, 509 U.S. 86, 113 S. Ct. 2510, 125 L. Ed. 2d 74 (June 18, 1993),] would require this court to apply Nobelman to the issues raised in this adversary proceeding at this time only if the court first found that the issues decided by this court in November 1989 and May 1990, were ‘still open on direct review.’ . . . The decisions of this court . . . have been final and not open on direct review, since March 1991. . . . These debtors . . . have completed their plan and obtained their discharge under § 1328(a). To apply Nobelman at this late date is not required, and would be improper and highly inequitable. . . . The contention of LIC, that its lien remains viable and enforceable because this court has never definitively ruled upon the issue of lien avoidance, is at best disingenuous. . . . [T]he avoidance of a lien such as LIC’s in this jurisdiction, at least until Nobelman, was accomplished by operation of law pursuant to § 506(d). No action by this court was necessary, or appropriate. . . . Section 506(d) simply states that a lien such as is described therein is void. LIC’s lien, to the extent that it secured LIC’s claim . . . was rendered void by § 506(d) when LIC’s objections were overruled and debtors’ Chapter 13 plan, calling for bifurcation and lien stripping, was confirmed by this court. . . . [Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992)] is simply inapposite to the issues presented here.”); Lee Servicing Co. v. Wolf (In re Wolf), 162 B.R. 98, 105 n.8 (Bankr. D.N.J. Dec. 10, 1993) (Stripp) (Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993) does not apply “retroactively” to overcome bifurcation and stripdown of a home mortgage where Chapter 13 plan was confirmed in November of 1992 and mortgage holder did not appeal confirmation. “This court confirmed the chapter 13 plan based on the then current law of the Third Circuit allowing cram down and lien stripping in chapter 13 cases. . . . The Supreme Court did not hold that the Nobelman decision was to be applied retroactively. . . . [R]etroactivity is limited by finality. . . . [T]he Nobelman decision does not apply retroactively where a final order of confirmation has previously approved lien stripping under a plan.” In a footnote the court observed, “The time for appeal of the confirmation order has passed. If [the mortgage holder] had raised retroactivity in the context of a timely appeal from the order of confirmation, Nobelman would have been applied.”). See also § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors for discussion of the binding effect of confirmation and the Supreme Court’s decision in United Student Aid Funds, Inc. v. Espinosa, __ U.S. __, 130 S. Ct. 1367, 176 L. Ed. 2d 158 (Mar. 23, 2010).

 

55  See discussion of modification after confirmation beginning at § 126.1  Standing, Timing and Procedure. See, e.g., In re Klus, 173 B.R. 51, 54–61 (Bankr. D. Conn. Oct. 13, 1994) (Shiff) (Undersecured mortgage holder with a claim that was bifurcated under § 506(a) and stripped down in a Chapter 13 plan confirmed before the Supreme Court’s decision in Nobelman cannot amend the plan after confirmation under § 1329 to eliminate the unsecured portion of its claim and realize the protection from modification declared in Nobelman. “It is well settled that ‘under § 1327, a confirmation order is res judicata as to all issues decided or which could have been decided at the hearing on confirmation.’ . . . Keycorp’s motion is merely an attempt to relitigate the status of its claim after a change in the law occurring after the Confirmation Order. . . . Keycorp is . . . barred by the doctrine of res judicata from receiving the benefits achieved by the Nobelman appellee who successfully challenged the legal principle enunciated in [Bellamy v. Federal Home Loan Mortgage Corp. (In re Bellamy), 962 F.2d 176 (2d Cir. Apr. 21, 1992) (Kaufman, Cardamone, Miner)]. . . . In Harper v. Virginia Dep’t of Taxation, 509 U.S. 86, 113 S. Ct. 2510, 2517, 125 L. Ed. 2d 74 ([June 18,] 1993), a majority of the court clarified the rule in [James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 111 S. Ct. 2439, 115 L. Ed. 2d 481 (June 20, 1991)]: ‘When this Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review . . . .’ . . . Accordingly, the Nobelman decision applies only to cases still open on direct review. Because the Confirmation Order is final, this case is not open on direct review. . . . The modification should be strictly limited to the enabling provisions of § 1329(a). . . . If those criteria are met, the court may, after notice and a hearing, still disapprove that modification . . . and in the exercise of that discretion, must disapprove the modification if it is determined that res judicata applies. . . . [W]hile I agree with the [Perkins v. Albemarle County, 214 Va. 240, 198 S.E.2d 626, aff’d and modified on reh’g, 214 Va. 416, 200 S.E.2d 566 (Nov. 26, 1973),] line of cases that a substantial, unanticipated change of circumstances is not a threshold requirement for modification under § 1329(a), the absence of such a change should be a factor in the exercise of the court’s discretion. . . . In the final analysis, I conclude that the court should only allow modification if the change of circumstances is unanticipated and substantial. . . . The instant motion must fail because it does not fit within any of the three categories of § 1329(a) and because in any event res judicata would prohibit the requested modification.”).

 

56  See discussion of curing default beginning at § 81.1  Overview: General Rules for Saving Debtor’s Home.

 

57  See 11 U.S.C. § 1322(c)(1), discussed in §§ 130.1 [ Prepetition Defaults ] § 82.1  Prepetition Defaults—When is Property “Sold” at Foreclosure? and 144.1 [ Prepetition Foreclosure Judgment: Curing Default, Payment in Full or Modification under § 1322(c)(2)? ] § 85.3  Prepetition Foreclosure Judgment: Curing Default, Payment in Full or Modification under § 1322(c)(2)?. See, e.g., Miller v. Malehorn (In re Miller), No. 1:07-ap-00167, 2009 WL 976506 (Bankr. M.D. Pa. Apr. 2, 2009) (unpublished) (France) (Under Pennsylvania law, since debtor did not timely appeal state court judgment that debtor had no interest in property, debtor may not modify or treat purported claim against residence in Chapter 13 plan; former creditor now holds title to property, rather than secured claim.).

 

58  11 U.S.C. § 1322(c)(2). See § 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

59  See §§ 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 and 144.1 [ Prepetition Foreclosure Judgment: Curing Default, Payment in Full or Modification under § 1322(c)(2)? ] § 85.3  Prepetition Foreclosure Judgment: Curing Default, Payment in Full or Modification under § 1322(c)(2)?.

 

60  See § 118.2 [ “Best Practices” and the Protection from Modification in § 1322(b)(2) ] § 79.3  “Best Practices” and the Protection from Modification in § 1322(b)(2). See, e.g., Greenpoint Mortgage Funding, Inc. v. Herrera (In re Herrera), 422 B.R. 698, 711–23 (B.A.P. 9th Cir. Jan. 5, 2010) (Pappas, Hollowell, Dunn) (“Best practices” requirements in optional addendum to form Chapter 13 plan for Central District of California are not preempted by RESPA and do not violate protection from modification in § 1322(b)(2). “The introductory sections of RESPA express in unambiguous terms Congress’s intent that RESPA be viewed as a consumer protection statute promoting the flow of ‘greater and more timely information’ between mortgage creditors and debtors . . . . This congressional intent does not conflict, but instead is consistent, with the rationale expressed in the Joint Memorandum for approving the inclusion of the Addendum provisions in the debtors’ confirmed plans: . . . ‘preventing a secured creditor from springing additional fees and costs on the debtor at the conclusion of the bankruptcy case that had not been communicated to the debtor or approved by the court. . . . [O]ur own review of the mortgage instruments in all four bankruptcy cases confirms there is no provision that grants the creditors a ‘right’ to decline to provide accountings and reports to the debtors or a trustee beyond those prescribed by the mortgage contracts . . . . [W]hile the mortgage creditors’ contracts impose a duty upon them concerning account reporting, it is not a right, and consequently, § 1322(b)(2)’s anti-modification provision is not applicable in this dispute. . . . [Various provisions] of the Addendum are all designed to provide necessary information concerning the status of, and any additional charges to, the debtors’ mortgage loans during the term of their plan. The basis for inclusion of such provisions in the plans is justified by the need for chapter 13 debtors to emerge from bankruptcy with their mortgage loans current, a laudable goal which is completely consistent with the fresh start policies of the Code. While mortgage loan account reporting requirements may be enhanced by these plan provisions, they do not modify any of the basic rights of the mortgage creditors. A plan’s inclusion of the enhanced reporting requirements is authorized by § 1322(b)(11), and such provisions do not violate § 1322(b)(2).”).