§ 80.11 — Claims Secured by Fixtures, Furniture, Equipment, Appliances, Machinery, Easements, Appurtenances, Mineral Rights, Water Rights and the Debtor’s First Born

Revised: June 7, 2004

[1]

The boilerplate provisions of many form mortgages are a battlefield within which Chapter 13 debtors and mortgage holders can endlessly litigate whether the protection from modification in § 1322(b)(2) applies. Possessed to include in the collateral description every conceivable form of property, attorneys who draft mortgage instruments have copied, layered and embellished upon each others’ work to produce collateral descriptions that defy interpretation. No one in Congress in 1978 had these exaggerated property descriptions in mind when the protection from modification in § 1322(b)(2) was drafted in its simple form, “only a security interest in real property that is the debtor’s principal residence.”

[2]

Depending upon state law and the wording of the security interest, furniture, fixtures, equipment, appliances, machinery, appurtenances, mineral and water rights, and the like may be transparent attributes of the real property or separate items of collateral that forfeit the protection in § 1322(b)(2). For example, in Allied Credit Corp. v. Davis (In re Davis),1 the U.S. Court of Appeals for the Sixth Circuit concluded that language in a deed of trust conveying “the Hereditaments and Appurtenances, rents, royalties, profits and fixtures thereto appertaining” did not forfeit the protection from modification in § 1322(b)(2) because “these incidental benefits [do] not constitute additional security for purposes of § 1322(b)(2)” but are instead “items which are inextricably bound to the real property itself as part of the possessory bundle of rights.”2 In contrast, in Wilson v. Commonwealth Mortgage Corp.,3 the U.S. Court of Appeals for the Third Circuit held that a security interest in “appliances, machinery, furniture and equipment” was an interest in personal property that forfeited the protection from modification in § 1322(b)(2). Many other reported decisions analyzing sometimes identical contract language have produced no consistency across jurisdictions and even among the judges in the same district on the extent to which boilerplate interests defeat the protection from modification in § 1322(b)(2).4 These cases reengage the debate whether the security interest in other collateral must be perfected and whether the other collateral must have value (how much?) before it forfeits the protection from modification in § 1322(b)(2).5

[3]

The Supreme Court’s decision in Nobelman v. American Savings Bank6 puts an interesting spin on the boilerplate discussion. The issue before the Supreme Court in Nobelman was whether the antimodification provision in § 1322(b)(2) prohibited a Chapter 13 plan from bifurcating an undersecured home mortgage.7 The boilerplate question was not addressed by the Supreme Court. However, on the road to immortality, the district court in Nobelman considered the argument that the antimodification protection in § 1322(b)(2) was not available because the mortgage contained a security interest in property other than the debtor’s principal residence.

[4]

The deed of trust in Nobelman contained a security interest in “an undivided .67% interest in the common areas of the condominium complex, escrow funds, proceeds of hazard insurance, and rents, in addition to the residence itself.”8 The district court in Nobelman found the debtor’s argument that this language forfeited the protection from modification in § 1322(b)(2) “to be without merit.”9 The boilerplate issue disappeared somewhere between the district court and the Fifth Circuit.

[5]

Almost immediately, the courts began dissecting and construing Nobelman to make it say something (or nothing) about boilerplate and § 1322(b)(2). The issue became particularly heated in the Third Circuit. Prior to Nobelman, the Third Circuit held in Wilson v. Commonwealth Mortgage Corp.,10 that miscellaneous security interests in mortgage documents forfeited the protection from modification in § 1322(b)(2). For months after Nobelman, the bankruptcy and district courts in the Third Circuit struggled inconsistently to resolve whether Nobelman overruled the boilerplate portion of the holding in Wilson.11 The question returned to the Third Circuit in this post-Nobelman context in Hammond v. Commonwealth Mortgage Co. of America (In re Hammond).12 In Hammond, the Third Circuit reviewed Nobelman, its own holding in Wilson, and the decisions by the Fifth Circuit and the district court in Nobelman and concluded that Nobelman did not upset the alternative holding in Wilson that boilerplate security interests in property other than the principal residence forfeited the protection from modification in § 1322(b)(2). The Third Circuit explained:

The Supreme Court’s opinion in [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993)], however, did not expressly address our alternate rationale for our decisions in [Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3d Cir. 1990)] and [Sapos v. Provident Institute of Savings in the Town of Boston, 967 F.2d 918 (3d Cir. 1992)]. In those cases, we also held that a mortgagee who has an additional security interest in property other than the real estate which is the mortgagors’ primary residence cannot claim any benefit from section 1322(b)(2)’s antimodification provision and therefore such a mortgagee’s claim can be bifurcated under section 506(a). . . . Commonwealth [the mortgage company] contends, however, that Nobelman implicitly overrules our alternative holding in Wilson and Sapos because the Nobelman mortgage also had an additional security interest which the Supreme Court failed to give any effect. Commonwealth points out that the district court in Nobelman expressly held the debtors’ argument that the additional security interest took their mortgage out of the protection of the antimodification clause was “without merit.” . . . [T]he Supreme Court’s failure to address the effect of the additional security interest in the Nobelman mortgage does not imply that the Supreme Court held section 1322(b)(2) prohibits bifurcation of residential mortgages that also give the mortgagee a lien on personal property used in or about the residence. We conclude that Nobelman does not overrule our holding in Wilson or Sapos that a mortgagee who wishes to avoid bifurcation of its claim on a residential mortgage must limit its lien to the real estate.13
[6]

Hammond states the rule for the Third Circuit that a home mortgage is not protected from modification by § 1322(b)(2) if it includes boilerplate security interests in items that are not real property.14 But, it is already clear that Hammond did not put an end to this debate, even within the Third Circuit.15

[7]

Congress fueled the discussion in the Bankruptcy Reform Act of 1994. The 1994 Act amended § 1123(b)(5) to forbid Chapter 11 debtors from modifying claims that are secured “only by a security interest in real property that is the debtor’s principal residence.”16 As explained by Congressman Brooks, “This amendment conforms the treatment of residential mortgages in chapter 11 to that in chapter 13, preventing the modification of the rights of a holder of a claim secured only by a security interest in the debtor’s principal residence.”17 Although there is nothing specific to the boilerplate issue in new § 1123(b)(5), Congressman Brooks made the following observation about § 1123(b)(5): “It does not apply to a commercial property, or to any transaction in which the creditor acquired a lien on property other than real property used as the debtor’s residence. See In re Hammond, 27 F.3d 52 (3d Cir. 1994); In re Rameriz [sic], 62 B.R. 668 (Bankr.S.D.Cal. 1986).”18

[8]

The reference to Hammond in this snippet of congressional history is ammunition for Chapter 13 debtors. As discussed above, the Third Circuit held in Hammond that Nobelman did no violence to the rule that boilerplate security interests in unreal property forfeit the protection in § 1322(b)(2). Given that the language of new § 1123(b)(5) is identical to § 1322(b)(2), Congressman Brooks’s reference to Hammond supports the argument that Congress was aware that boilerplate in a mortgage contract forfeits the protection from modification in § 1322(b)(2) and anticipated that new § 1123(b)(5) would be applied accordingly.19

[9]

The boilerplate case law will remain tangled because mortgage scriveners are paid by the word and courts will never agree on the precise boundaries of “real property” for purposes of § 1322(b)(2). There is every incentive for debtors to microscopically parse the language of every mortgage instrument in search of errant appurtenances, hereditaments and other morsels of unreal collateral in hopes of upsetting the rights protected by § 1322(b)(2). Lenders must beware in this area of Chapter 13 practice: Less is more. You want dirt and only dirt—if your judge will need a dictionary to decipher the collateral description, chances are it forfeits the protection from modification.


 

1  989 F.2d 208 (6th Cir. 1993).

 

2  989 F.2d at 212–13. Accord Lievsay v. Western Fin. Sav. Bank (In re Lievsay), 199 B.R. 705, 707 n.5, 708 (B.A.P. 9th Cir. 1996) (In a Chapter 11 case interpreting identical language in §§ 1123(b)(5) and 1322(b)(5), boilerplate security interest in “improvements . . . easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures” does not forfeit the protection from modification. Citing Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208 (6th Cir. 1993), “‘the language in the case sub judice does not extend [the secured creditor’s] security interest beyond items which are inextricably bound to the real property itself as part of the possessory bundle of rights.’”); In re Duran, 271 B.R. 888, 889, 890 (Bankr. D. Wyo. 2001) (Mortgage secured by “easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures” is protected from modification by § 1322(b)(2). “The collateral list is standard mortgage language, and the enumerated collateral is associated with real property ownership and part of the bundle of real estate rights.”); In re Eastwood, 192 B.R. 96, 98 (Bankr. D.N.J. 1996) (Security interest in “all improvements now or hereafter erected on the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures now or hereafter a part of the property” does not forfeit the protection from modification in § 1322(b)(2). Cites Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208 (6th Cir. 1993), as most analogous.). But see In re Escue, 184 B.R. 287, 288, 291–92 (Bankr. M.D. Tenn. 1995) (Distinguishing Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208 (6th Cir. 1993), real estate mortgage with a security interest in personalty is not protected from modification by § 1322(b)(2). The mortgage instrument included as additional security “other property . . . installed or to be installed or to be used about the building . . . including . . . all heating, plumbing, lighting, water-heating, cooking, refrigerating, incinerating, ventilating and air conditioning equipment, storm doors and windows, shades, awnings, blinds and linoleums, and property of like nature.” “The Deed of Trust reaches beyond a description of components of the real property and purports to create a security interest in personalty which has value independent from the real estate. The Davis decision makes clear that the anti-modification protection of § 1322(b)(2) [is] available to a mortgagee only as long as the security instrument grants no interest above those which are ‘inextricably bound to the real property itself.’”).

 

3  895 F.2d 123 (3d Cir. 1990).

 

4  See GMAC Mortgage Corp. v. Marenaro (In re Marenaro), 217 B.R. 358, 359–60 (B.A.P. 1st Cir. 1998) (Applying In re French, 174 B.R. 1 (Bankr. D. Mass. 1994), mortgage is protected from modification by § 1322(b)(2) that contains a security interest in “‘all easements, rights, appurtenances, rents, royalties, mineral, oil, and gas rights and profits, water rights, and stock, and all fixtures now or hereafter a part of the property. Replacements and additions shall also be covered by this security agreement.’ . . . We find that the so-called ‘additional collateral’ in the present case is no more than an enhancement within the French rule.”); United States Rural Hous. & Cmty. Dev. Serv. v. Loper (In re Loper), 222 B.R. 431, 437–39 (D. Vt. 1998) (Security interest in “all improvements and personal property now or later attached thereto or reasonably necessary to the use thereof, including, but not limited to ranges, refrigerators, clothes washers, clothes dryers, or carpeting purchased or financed in whole or in part with loan funds,” forfeited protection from modification in § 1322(b)(2). The language of § 1322(b)(2) is “unambiguous.” “To provide protection from modification to a residential mortgagee with a claim secured by a security interest in personal as well as real property is to ignore the plain meaning of the statute.” Whether the language of the mortgage created a security interest in personal property or real estate “is a question that must be decided under Vermont law.” Vermont law would consider the items described in the mortgage to be personal property.); PNC Mortgage Co. v. Dicks (In re Dicks), 199 B.R. 674, 677–82 (N.D. Ind. 1996) (Security interest in “all buildings and improvements . . . the hereditaments and appurtenances . . . rents, issues, profits thereof, and all plumbing, heating and lighting fixtures, and equipment” is protected from modification by § 1322(b)(2). “[I]t is clear that when a home mortgage lender makes a loan on a principal residence, the lender takes a security interest in buildings and improvements erected thereon. . . . ‘[H]ereditaments’ and ‘appurtenances’ are by their very nature incidental to an interest in real property. . . . [T]his court agrees with the [In re French, 174 B.R. 1 (Bankr. D. Mass. 1994),] court that the appropriate test is whether (1) the items of collateral set forth in the mortgage instrument are merely enhancements that can be made component parts of the real property; and (2) are of little or no independent value. . . . [T]he items of collateral described in the PNC mortgage are nothing more than enhancements capable of becoming component parts of the debtor’s principal residence, and . . . such items of collateral are of little independent value relative to the residence property. . . . [T]he claim at issue here is secured only by a lien on the debtor’s principal residence. Accordingly, the appellant is entitled to the protection of § 1322(b)(2).”); Miami Valley Bank v. Lutz (In re Lutz), 192 B.R. 107, 109 (W.D. Pa. 1995) (“[T]he inclusion of the phrase ‘rents, issues and profits’ in the mortgage brings it within the ambit of the [Sapos v. Provident Institute of Savings in the Town of Boston, 967 F.2d 918 (3d Cir. 1992)] holding. . . . [S]ince rents have been held to constitute personalty, the mortgage in question does not qualify under § 1322(b)(2) and can be modified.”); Secor Bank, Fed. Sav. Bank v. Dunlap, 129 B.R. 463, 465 (E.D. La. 1991) (Section 1322(b)(2) does not prohibit modification of a mortgage that contains a security interest in “‘all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures’ as well as in all funds escrowed for payment of taxes and insurance.”); In re Reeves, 65 B.R. 898 (N.D. Ill. 1986) (Home improvement lender with a security interest in the debtor’s principal residence and in “fixtures” is not entitled to the protection of § 1322(b)(2) because not all fixtures are so attached to real estate that they constitute a part of the debtor’s principal residence.); In re Mendez, 255 B.R. 143, 147 (Bankr. D.N.J. 2000) (Security interest in fixtures, easements and condemnation awards does not forfeit protection from modification in § 1322(b)(2). “[I]n New Jersey, fixtures are realty. The court therefore concludes that its prior opinions in [In re Jones, 201 B.R. 371 (Bankr. D.N.J. 1996),] and [In re Pinto, 191 B.R. 610 (Bankr. D.N.J. 1996),] were incorrect to the extent that they held that fixtures are not part of the realty. . . . [E]asements are part of the rights, liberties and privileges referred to in N.J.S.A. 46:3-16, and as such, they do not constitute additional collateral. . . . The condemnation award is considered a substitute for the land as a matter of law. The inclusion in a mortgage of a reference to such right therefore does not constitute collateral separate from the mortgaged property.”); Rodriguez v. Mellon Bank, N.A. (In re Rodriguez), 218 B.R. 764, 774, 777 (Bankr. E.D. Pa. 1998) (Cautioning that “it is an error to read [Sapos v. Provident Institute of Savings in the Town of Boston, 967 F.2d 918 (3d Cir. 1992)] too broadly on the issue of what constitutes personal property as opposed to real estate within the meaning of § 1322(b)(2),” reference in mortgage to fixtures did not forfeit protection from modification because under Pennsylvania law “fixtures constitute real property within the meaning of section 1322(b)(2).”); Rolle v. Chase Manhattan Mortgage Corp. (In re Rolle), 218 B.R. 636, 640–41 (Bankr. S.D. Fla. 1998) (Security interest in “all gas, steam, electric, water and other heating, cooking, refrigeration, lighting, plumbing, ventilating, irrigating and power systems, machines, appliances, fixtures and appurtenances” did not forfeit protection from modification in § 1322(b)(2). Under Florida law, the debtor’s refrigerator and stove were not fixtures, the purported security interest of the mortgage holder was not perfected, “nominal or de minimus value in collateral” does not forfeit the protection from modification and “permitting the modification of Chase’s secured claim under the facts of this case undermines the obvious Congressional intent to prohibit modification of home mortgages through the provisions of 11 U.S.C. § 1322(b)(2).”); Taylor v. First Union Mortgage Co. (In re Taylor), 208 B.R. 828, 831 (Bankr. E.D. Pa. 1997) (In the fourth year of a five-year plan, § 1322(b)(2) does not prohibit bifurcation of a mortgage because it contains “the sort of broad security interest in appliances, fixtures, and machinery” that is not protected from modification under Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d 1021 (3d Cir. 1994), and Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 27 F.3d 52 (3d Cir. 1994). However, equitable considerations prohibit modification to split the claim and reallocate the previous payments under the plan to retire secured portion in full rather than curing defaults.); In re Jones, 201 B.R. 371, 375 (Bankr. D.N.J. 1996) (Security interest in “all fixtures . . . all condemnation awards and insurance proceeds” forfeits the protection in § 1322(b)(2).); In re Pinto, 191 B.R. 610, 612 (Bankr. D.N.J. 1996) (Mortgage not protected from modification that included lien on “all improvements now or hereafter erected on the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures now or hereafter a part of the property.” Lien extended to funds held in escrow for payment of taxes and hazard insurance premiums.); Brown v. Citicorp Mortgage, Inc. (In re Brown), 189 B.R. 3, 4 (Bankr. E.D. Pa. 1995) (Mortgage is protected from modification notwithstanding security interest in “all the improvements now or hereafter erected on the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures now or hereafter a part of the property. All replacements and additions shall also be covered by this Security Instrument.”); In re French, 174 B.R. 1, 2 (Bankr. D. Mass. 1994) (Security interest in “any deposits, securities . . . all furnaces, ranges, heaters, plumbing, gas and electric fixtures, screens, mantels, shades, screen doors, storm doors, and windows, oil burners, gas or electric refrigerators and all other fixtures of whatever kind and nature” does not forfeit protection from modification in § 1322(b)(2).); In re Halperin, 170 B.R. 500 (Bankr. D. Conn. 1994) (Security interest that includes “easements, rights, appurtenances, rents, royalties, minerals, oil and gas rights and profits, water rights and stock and all fixtures now or hereafter a part of the property” is not subject to modification.); In re Harris, 167 B.R. 813, 814 (Bankr. D.S.C. 1994) (“‘[S]ingular rights, members hereditaments, and appurtenances . . . rents, issues, and profits . . . all heating, plumbing, and lighting fixtures . . .’ are a part of the debtor’s principal residence and, as such, do not exclude the residence from the protection of 11 U.S.C. [§] 1322(b)(2).”) (emphasis added); In re Spano, 161 B.R. 880, 889 (Bankr. D. Conn. 1993) (Applying Connecticut law, boilerplate security interest in fixtures was “never intended to create an interest in personalty. Accordingly, . . . the granting of a security interest in fixtures does not eliminate the respondent’s protection from modification under the other than clause.”); In re Pruitte, 157 B.R. 662, 664 (Bankr. E.D. Mo. 1993) (Boilerplate in deed of trust creating a security interest in “all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures now or hereafter a part of the property” does not forfeit the protection from modification in § 1322(b)(2). “The boilerplate language . . . merely gives [the mortgage holder] security in the realty and in those interests which ‘automatically flow from the mortgage on the Debtor’s principal residence as an incident of ownership.’”); Oglesby v. Associates Nat’l Mortgage Co. (In re Oglesby), 150 B.R. 620, 625 (Bankr. E.D. Pa. 1993) (“[A] careful review of the mortgage reveals that Associates has taken a security interest in the mortgagor’s oven, dishwasher, and fan vent, as well as ‘rents, issues, and profits’. . . . Since Associates’ interest in the Home is therefore not secured only by a security interest in the Debtor’s residence, but by certain personalty owned by the Debtor as well, § 1322(b)(2) clearly does not apply. . . .”); Hernandez v. Union Nat’l Bank (In re Hernandez), 149 B.R. 441, 444, 445 (Bankr. E.D. Tex. 1993) (Prohibition against modification in § 1322(b)(2) is not forfeited by boilerplate provision for additional security interest in “profits, revenues, royalties, rights and benefits accruing under all oil, gas or mineral leases now on said property, or which may hereafter be placed thereon.” Under Texas law, the mineral estate remains part of the surface estate unless and until a severance is effected. There is no evidence that the debtors have severed their surface and subsurface estates, and the bank’s rights in the debtors’ subsurface estate is contingent on events that may never occur and “hence does not constitute the type of additional security envisioned by § 1322(b)(2).”); In re Ireland, 137 B.R. 65, 66 (Bankr. M.D. Fla. 1992) (Boilerplate granting a lien on “all improvements . . . all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits from water, water rights, and water stock, and all fixtures . . .” did not constitute an additional security interest for purposes of § 1322(b).); Taras v. Commonwealth Mortgage Corp. of Am. (In re Taras), 136 B.R. 941, 945 (Bankr. E.D. Pa. 1992) (Security interest in “all appliances, machinery, furniture and equipment (whether fixtures, or not) . . . reversions and remainders, rents, issues and profits thereof . . .” includes property that is not real property and forfeits the protection of § 1322(b)(2).); In re Jackson, 136 B.R. 797 (Bankr. N.D. Ill. 1992) (Boilerplate security interest in fixtures and insurance proceeds does not forfeit the protection of § 1322(b)(2).); Dent v. Associates Equity Servs. Co. (In re Dent), 130 B.R. 623, 629 (Bankr. S.D. Ga. 1991) (Distinguishing In re Wright, 128 B.R. 838 (Bankr. N.D. Ga. 1991), security interest in monthly escrow payments for taxes and insurance forfeited protection under § 1322(b)(2). “In this case, the addendum to the deed to secured debt granted a present security interest in the escrow payments . . . not contingent upon default. . . . The escrow account is not an incorporeal hereditament which is part of the possessory bundle of rights known as seizin in property. . . . While the obligation to pay taxes may exist from the ownership of real property, it is not a possessory right. The obligation to maintain property insurance is a covenant . . . a contractual obligation between the debtor and the lender. The cash escrow payments are separate and distinct from the real property. Therefore, the taking of a security interest in . . . the escrow payments, removed . . . the limitation of § 1322(b)(2).”); Wright v. C&S Family Credit, Inc. (In re Wright), 128 B.R. 838, 843–44 (Bankr. N.D. Ga. 1991) (Antimodification protection in § 1322(b)(2) applies notwithstanding boilerplate “security interest” in other property. “The interest which [the creditor] acquired in fixtures is an interest in property which is part of the real property. It does not represent a secured claim in property other than debtor’s principal residence. If [machinery, apparatus, equipment, fittings and fixtures] described in the security deed existed and were . . . not a fixture because . . . not actually or constructively attached to the real property . . . then no security interest in the property arose under the deed to secure debt. If no security interest arose, . . . [the creditor’s] secured claim is unperfected and therefore, unenforceable. . . . As a result, [the creditor] would not be the holder of ‘a claim secured’ by a security interest in property other than debtor’s principal residence. . . . Only properly perfected secured claims will be considered relevant in determining whether the § 1322(b)(2) exception applies. . . . The argument that a security interest in [the minerals, flowers, shrubs, crops, trees, timber and other emblements now or hereafter on said property] . . . is a security interest in something other than debtor’s residence is insupportable. An oil field, coal mine or granite quarry . . . is readily distinguishable from a homeplace around which flowers and shrubs grow, and under Georgia law, such minerals must exist or be reserved in order to be personalty.”); Equity Inv. Co. v. Moreland (In re Moreland), 124 B.R. 921, 922 (Bankr. D. Conn. 1991) (Mortgage that extends to “rents, royalties, . . . oil and gas rights and profits, . . . stock and all fixtures . . .” is protected from modification by § 1322(b)(2). “The quoted language, generally found in mortgage deeds, does not create additional collateral for the claim distinct from that normally considered incidental to ownership of realty within the contemplation of § 1322(b)(2).”); Cole v. Cenlar Fed. Sav. Bank (In re Cole), 122 B.R. 943 (Bankr. E.D. Pa. 1991); In re Williams, 109 B.R. 36, 39 (Bankr. E.D.N.Y. 1989) (Reference in home mortgage to a security interest in a refrigerator and window shades “is so nominal in value as to have no significant meaning and should not have any effect in this case.”); In re Ross, 107 B.R. 759, 762 (Bankr. W.D. Okla. 1989) (Boilerplate language “referring to insurance, rents and profits, buildings, improvements, machinery, equipment and the like, . . .” did not constitute a security interest in property other than the debtor’s principal residence and would not preclude application of § 1322(b)(2).); In re Klein, 106 B.R. 396 (Bankr. E.D. Pa. 1989) (Security interest in hazard insurance proceeds and personalty supplying heating renders § 1322(b)(2) inapplicable.); Kessler v. Homestead Sav. (In re Kessler), 99 B.R. 635, 637 (Bankr. E.D. Pa. 1989) (“[P]lumbing, cooking, hearing [sic], lighting fixtures, appliances” forfeits the protection of § 1322(b)(2).); Bender v. Commonwealth Mortgage Co. of Am. (In re Bender), 86 B.R. 809 (Bankr. E.D. Pa. 1988) (Boilerplate in security agreement that includes security interest in “appliances, machinery, furniture and equipment . . . .” creates a security interest in both real and personal property, and § 1322(b)(2) does not prevent modification.); In re Ford, 84 B.R. 40 (Bankr. E.D. Pa. 1988) (In dicta, security interest in reversions, remainders, rents, issues, and profits and a reference to “lighting fixtures or machinery” would take the loan outside the protection of § 1322(b)(2).); Caster v. United States, 77 B.R. 8 (Bankr. E.D. Pa. 1987) (FHA mortgage instrument that includes “appliances” is not protected from modification by § 1322(b)(2).); In re Crompton, 73 B.R. 800 (Bankr. E.D. Pa. 1987).

 

5  See, e.g., United States Rural Hous. & Cmty. Dev. Serv. v. Loper (In re Loper), 222 B.R. 431, 437–39 (D. Vt. 1998) (Security interest in “all improvements and personal property now or later attached thereto or reasonably necessary to the use thereof, including, but not limited to ranges, refrigerators, clothes washers, clothes dryers, or carpeting purchased or financed in whole or in part with loan funds,” forfeited protection from modification in § 1322(b)(2). Court rejected mortgage holder’s argument that its security interest in personal property was unperfected. “A valid security agreement binds a debtor and creditor irrespective of whether the creditor has filed the agreement to perfect the security interest under the Code. . . . [U]nder Vermont law, RECDS’ mortgage represents a security interest in the Lopers’ personal property as well as the real property that is the Lopers’ residence. . . . [T]he issue of whether a residential mortgagee’s claim may be bifurcated turns on the nature of the property securing the claim, not on the value of that property.”); Rolle v. Chase Manhattan Mortgage Corp. (In re Rolle), 218 B.R. 636, 640–41 (Bankr. S.D. Fla. 1998) (Security interest in “all gas, steam, electric, water and other heating, cooking, refrigeration, lighting, plumbing, ventilating, irrigating and power systems, machines, appliances, fixtures and appurtenances” did not forfeit protection from modification in § 1322(b)(2). Under Florida law, the debtor’s refrigerator and stove were not fixtures, the purported security interest of the mortgage holder was not perfected, “nominal or de minimus value in collateral” does not forfeit the protection from modification.).

 

6  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993).

 

7  See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

8  Hirsch v. Citicorp Mortgage Corp. (In re Hirsch), 166 B.R. 248, 254 (E.D. Pa. 1994) (quoting mortgage document addressed by the district court in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993).).

 

9  166 B.R. at 254.

 

10  895 F.2d 123 (3d Cir. 1990). See above in this section.

 

11  See Hutchins v. Commonwealth Mortgage Corp., 165 B.R. 401, 404 (E.D. Pa. 1994) (“The impact of [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993)] on the alternative holdings of [Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3d Cir. 1990)] and [Sapos v. Provident Institute of Savings in the Town of Boston, 967 F.2d 918 (3d Cir. 1992),] that claims secured by personalty as well as realty do not fall within § 1322(b)(2)’s anti-modification provision, is less clear. The mortgagee’s claim in Nobelman was secured by more than a security interest in real property. The district court in Nobelman found the debtors’ contention that the additional security interest removed the case from the anti-modification provision to be without merit. . . . However, neither the Court of Appeals for the Fifth Circuit nor the Supreme Court analyzed the effect of the additional security interest on § 1322(b)(2). . . . [In] Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 156 B.R. 943 (E.D. Pa. 1993) . . . Judge Reed held that, even though Nobelman clearly invalidates the Third Circuit’s first holding in Sapos and Wilson, ‘the additional security interest described in the mortgage here, which is identical to the additional security interest in the mortgage at issue in Wilson, removes [the mortgage company’s] claim from the ambit of the anti-modification clause of section 1322(b)(2).’ . . . I find Judge Reed’s reasoning sound.”); Laws v. New York Guardian (In re Laws), 163 B.R. 449, 452 (E.D. Pa. 1994) (Citing Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3d Cir. 1990) and Sapos v. Provident Institute of Savings in the Town of Boston, 967 F.2d 918 (3d Cir. 1992) because the mortgage holder took a security interest in property other than the debtor’s principal residence, the debtor can modify the creditor’s mortgage by bifurcation under § 506(a) without violating the antimodification provision of § 1322(b)(2). “Wilson involved a mortgage agreement that is very similar to the one in this case. . . . [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993)] only rejected Wilson’s first ruling and not the alternative ruling. . . . Guardian certainly took a security interest in the debtor’s other property in addition to the debtor’s residence and therefore, the protection from modification by a debtor that is contained in 11 U.S.C. § 1322(b)(2) for mortgagees who have a security interest in only the residence of the debtor is not applicable in this case.”); Hammond v. Commonwealth Mortgage Co. of Am. (In re Hammond), 156 B.R. 943, 947–48 (E.D. Pa. 1993) (“In light of [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993)], the Third Circuit’s first holding in [Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3d Cir. 1990)] and [Sapos v. Provident Institute of Savings in the Town of Boston, 967 F.2d 918 (3d Cir. 1992)]—that section 1322(b)(2) does not prohibit modification of the unsecured portion of any undersecured homestead mortgage—has clearly been invalidated. . . . [T]he affect [sic] it has on the Third Circuit’s second or alternative holding in those cases is not nearly as lucid. . . . [B]ecause the claims held by the mortgagees in Wilson and Sapos were secured not only by realty, but also by personalty, the court of appeals held that the claims did not fall within the ambit of section 1322(b)(2)’s anti-modification provision. . . . The mortgagee’s claim in Nobelman was also secured by more than a security interest in real property. . . . The district court in Nobelman ruled contrary to the Third Circuit’s holding on this issue by simply finding the debtors’ contention to be without merit. . . . [N]either the Fifth Circuit nor the Supreme Court in Nobelman chose to address this issue. . . . In view of the Supreme Court’s reticence, principles of stare decisis command this Court to follow the law as set forth by the Court of Appeals for the Third Circuit. . . . I must continue to follow the court of appeal’s second or alternative holding . . . namely, that section 1322(b)(2)’s anti-modification provision does not apply to a mortgagee’s claim that is secured by more than a security interest in the mortgagor’s principal residence. . . . Commonwealth’s claim is also secured by ‘any and all appliances, machinery, furniture and equipment (whether fixtures or not) of any nature whatsoever now or hereafter installed in or upon said premises.’ . . . This additional security provision . . . is identical to the language used . . . in the mortgage at issue in Wilson. . . . Because the Supreme Court in Nobelman did not expressly disturb this second holding in Wilson, I am constrained to find that the additional security interest described in the mortgage here . . . removes Commonwealth’s claim from the ambit of the anti-modification clause of section 1322(b)(2).”), aff’d, 27 F.3d 52 (3d Cir. 1994); Miami Valley Bank v. Lutz (In re Lutz), 164 B.R. 239, 241 (Bankr. W.D. Pa. 1994) (Applying Pennsylvania law, “‘improvements and fixtures’ . . . ‘additions or improvements’ . . . [and] ‘rents, issues, and profits’” are not security interests in property other than the debtor’s principal residence and thus such provisions do not forfeit the protection from modification in § 1322(b)(2).), rev’d, 192 B.R. 107, 109 (W.D. Pa. 1995) (Decided after Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 27 F.3d 52 (3d Cir. 1994), “the inclusion of the phrase ‘rents, issues and profits’ in the mortgage brings it within the ambit of the [Sapos v. Provident Institute of Savings in the Town of Boston, 967 F.2d 918 (3d Cir. 1992)] holding. . . . [S]ince rents have been held to constitute personalty, the mortgage in question does not qualify under § 1322(b)(2) and can be modified.”); In re Narvaez, 161 B.R. 762, 763 (Bankr. D.N.J. 1993) (Mortgage instrument that created a security interest in “rents, issues and profits . . . any and all equipment, fixtures, tools, goods and chattels now used or hereafter to be used in connection with the operation or enjoyment of the premises or any part thereof” created a security interest in personal property that would forfeit the protection from modification in § 1322(b)(2) but for a prepetition foreclosure judgment. Under New Jersey law, the mortgage merged into the foreclosure judgment and, applying Stendardo v. Federal National Mortgage Ass’n (In re Stendardo), 991 F.2d 1089 (3d Cir. 1993), there was no intention in the mortgage instruments that the mortgage holder’s security interest in personal property survive the merger. The mortgage holder’s remaining claim is protected from modification under § 1322(b)(2).) [Note: Narvaez was probably reversed by Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d 1021 (3d Cir. 1994).]; Hirsch v. Citicorp Mortgage Corp. (In re Hirsch), 155 B.R. 688 (Bankr. E.D. Pa. 1993) (Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993) did not overrule the alternative holding in Sapos v. Provident Institute of Savings in the Town of Boston, 967 F.2d 918 (3d Cir. 1992) and Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3d Cir. 1990), that mortgages that are not protected from modification by § 1322(b)(2) can be stripped down to the value of the collateral in a Chapter 13 case. Mortgage contained a security interest in “easements, rights, appurtenances, rents[,] royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures now or hereafter a part of the property.” These additional security interests are personal property and forfeit the protection from modification in § 1322(b)(2), thus enabling the debtor to use § 506(a) to “strip down” the mortgage.), rev’d, 166 B.R. 248, 253–54 (E.D. Pa. 1994) (Disagreeing with In re Hutchins, 165 B.R. 401 (E.D. Pa. 1994), In re Laws, 163 B.R. 449 (E.D. Pa. 1994), and Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 156 B.R. 943 (E.D. Pa. 1993), aff’d, 27 F.3d 52 (3d Cir. 1994), Nobelman prohibits modification of home mortgage, notwithstanding boilerplate language that extends the security interest beyond real property. “Nobelman overruled at least part of Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3d Cir. 1990), and (inferentially) Sapos v. Provident Institution of Savings, 967 F.2d 918 (3d Cir. 1992), . . . . Nobelman unquestionably overruled the Court of Appeals’ first basis for its holding that as a matter of statutory analysis a claim could be bifurcated into a secured claim and an unsecured claim, and thus the unsecured claim could be modified without offending § 1322(b)(2). Nobelman did not, however, explicitly address the Court of Appeals’ second basis for its Wilson holding that § 1322(b)(2) is inapplicable to mortgages that are secured by a security interest in property in addition to the real property of ‘the debtor’s principal residence’ itself. . . . Although the Supreme Court in Nobelman did not analyze the general issue . . . we find that Nobelman necessarily resolved the issue of whether the Nobelmans’ deed of trust fell within the purview of § 1322(b)(2). . . . [T]he District Court in Nobelman specifically considered the argument that because the deed of trust provided for ‘a security interest in an undivided .67% interest in the common areas of the condominium complex, escrow funds, proceeds of hazard insurance, and rents, in addition to the residence itself’ § 1322(b)(2) should be inapplicable, and found that contention ‘to be without merit.’ . . . We have examined all the language in the Nobelmans’ deed of trust . . . and compared it to the words of [this] mortgage. Because the language is in all material respects identical, . . . the . . . mortgage, like the Nobelmans’ deed of trust, falls within the scope of § 1322(b)(2). . . . [I]t would seem to us that Wilson’s alternative holding is hard to reconcile with the mortgage not stripped in Nobelman, which covered ‘mineral, oil and gas rights and profits.’”) [Note: The district court decision in Hirsch was reversed by the Third Circuit’s opinion in Hammond, 27 F.3d 52 (3d Cir. 1994).].

 

12  27 F.3d 52 (3d Cir. 1994).

 

13  27 F.3d at 56–57.

 

14  See Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d 1021, 1024 (3d Cir. 1994) (Undersecured mortgage is not protected from modification by § 1322(b)(2) or by Nobelman because it is secured by “any and all appliances, machinery, furniture and equipment.” That the mortgage was reduced to a foreclosure judgment before filing does not reinstate the protection from modification in § 1322(b)(2). “We have recently held in [Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond),] 27 F.3d 52 (3d Cir. 1994) that the Bankruptcy Code did not preclude bifurcation of a secured interest in a personal residence where personalty also secured the debtor’s loan. In so holding we have re-affirmed the continuing vitality of a prior holding of this Court reached in Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3d Cir. 1990).”); Taylor v. First Union Mortgage Co. (In re Taylor), 208 B.R. 828, 831 (Bankr. E.D. Pa. 1997) (In the fourth year of a five-year plan, § 1322(b)(2) does not prohibit bifurcation of a mortgage because it contains “the sort of broad security interest in appliances, fixtures, and machinery” that is not protected from modification under Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d 1021 (3d Cir. 1994), and Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 27 F.3d 52 (3d Cir. 1994).); In re Jones, 201 B.R. 371, 375–76 (Bankr. D.N.J. 1996) (Security interest in “all fixtures . . . all condemnation awards and insurance proceeds” forfeits the protection in § 1322(b)(2). Citing Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 27 F.3d 52 (3d Cir. 1994) and Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d 1021 (3d Cir. 1994), “[b]ecause the Third Circuit cases clearly show that a security interest in fixtures is considered collateral in addition to the debtor’s principal residence, Wagner’s security interest in fixtures makes § 1322(b)(2)’s anti-modification provision inapplicable. Also, . . . the similarity of condemnation awards and insurance proceeds to the ‘rents,’ ‘rights,’ ‘profits,’ and ‘escrow accounts’ that have been held to be additional collateral combined with the strict interpretation of the anti-modification provision in the Third Circuit compels this court to find that the security interest in ‘condemnation awards and insurance proceeds’ is also additional collateral.”); In re Pinto, 191 B.R. 610, 612–13 (Bankr. D.N.J. 1996) (Mortgage not protected from modification that included lien on “all improvements now or hereafter erected on the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures now or hereafter a part of the property.” Lien extended to funds held in escrow for payment of taxes and hazard insurance premiums. Citing Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 27 F.3d 52 (3d Cir. 1994) and Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d 1021 (3d Cir. 1994), “it is clear that Citicorp’s claim may be bifurcated because it has a security interest in collateral other than the debtor’s residence. . . . Citicorp’s reliance on [In re Hirsch, 166 B.R. 248 (E.D. Pa. 1994)] is misplaced because the Third Circuit’s decision in Hammond has effectively overruled Hirsch. . . . Citicorp’s contention that it did not actually take an additional security interest in the property or that the property lacks value does not negate the result. . . . [T]he subjective intent of a mortgagee to actually obtain an interest in the additional collateral is irrelevant because the language of section 1322(b)(2) is unambiguous.”); Bernhardt v. Commonwealth Mortgage Corp. of Am. (In re Bernhardt), 186 B.R. 889, 890 (Bankr. E.D. Pa. 1995) (Applying Johns and Hammond, mortgage with security interest in “range/oven . . . deemed to be [a] fixture” and in “rents, issues and profits” can be modified in a Chapter 13 case. That the debtor’s power to modify the mortgage was determined in a prior Chapter 13 case is not binding because at dismissal of the prior case § 349 defeats the res judicata effect of the order limiting the mortgage holder’s rights.); Peoples First Nat’l Bank v. Haraschak (In re Haraschak), 169 B.R. 325 (Bankr. M.D. Pa. 1994) (Applying Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 27 F.3d 52 (3d Cir. 1994), a mortgage containing a security interest in “all fixtures, appliances and equipment of any nature” is not protected from modification by § 1322(b)(2) or by Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993). That the mortgage matured by its contract terms before the filing of the Chapter 13 case and was reduced to a prepetition foreclosure judgment does not change the outcome—because the original mortgage could be modified, the judgment entered on that mortgage can also be modified. The debtor can strip down the mortgage to the value of the property and pay that value with interest over the life of the plan without regard to the original contract maturity date.).

 

15  See In re Mendez, 255 B.R. 143, 147 (Bankr. D.N.J. 2000) (Security interest in fixtures, easements and condemnation awards does not forfeit protection from modification in § 1322(b)(2). “[I]n New Jersey, fixtures are realty. The court therefore concludes that its prior opinions in [In re Jones, 201 B.R. 371 (Bankr. D.N.J. 1996),] and [In re Pinto, 191 B.R. 610 (Bankr. D.N.J. 1996),] were incorrect to the extent that they held that fixtures are not part of the realty. . . . [E]asements are part of the rights, liberties and privileges referred to in N.J.S.A. 46:3-16, and as such, they do not constitute additional collateral. . . . The condemnation award is considered a substitute for the land as a matter of law. The inclusion in a mortgage of a reference to such right therefore does not constitute collateral separate from the mortgaged property.”); Rodriguez v. Mellon Bank, N.A. (In re Rodriguez), 218 B.R. 764, 774–77 (Bankr. E.D. Pa. 1998) (Cautioning that “it is an error to read [Sapos v. Provident Institute of Savings in the Town of Boston, 967 F.2d 918 (3d Cir. 1992)] too broadly on the issue of what constitutes personal property as opposed to real estate within the meaning of § 1322(b)(2),” reference in mortgage to fixtures did not forfeit protection from modification because under Pennsylvania law “fixtures constitute real property within the meaning of section 1322(b)(2).”); In re Eastwood, 192 B.R. 96, 98 (Bankr. D.N.J. 1996) (Applying Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d 1021 (3d Cir. 1994), Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 27 F.3d 52 (3d Cir. 1994), Sapos v. Provident Institute of Savings in the Town of Boston, 967 F.2d 918 (3d Cir. 1992), and Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3d Cir. 1990), security interest in “all improvements now or hereafter erected on the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures now or hereafter a part of the property” does not forfeit the protection from modification in § 1322(b)(2). Cites Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208 (6th Cir. 1993), as most analogous.); Brown v. Citicorp Mortgage, Inc. (In re Brown), 189 B.R. 3, 4 (Bankr. E.D. Pa. 1995) (Following Citicorp Mortgage, Inc. v. Hirsch (In re Hirsch), 166 B.R. 248 (E.D. Pa. 1994), and distinguishing Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 27 F.3d 52 (3d Cir. 1994), mortgage is protected from modification notwithstanding security interest in “all the improvements now or hereafter erected on the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures now or hereafter a part of the property. All replacements and additions shall also be covered by this Security Instrument.”).

 

16  Section 1123(b)(5) reads as follows:

(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, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims; . . .

11 U.S.C. § 1123(b)(5), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 206, 108 Stat. 4106 (1994). See also § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

17  140 Cong. Rec. H10,767 (section-by-section analysis by Congressman Brooks).

 

18  140 Cong. Rec. H10,767 (section-by-section analysis by Congressman Brooks) (emphasis added).

 

19  See United States Rural Hous. & Cmty. Dev. Serv. v. Loper (In re Loper), 222 B.R. 431, 437–39 (D. Vt. 1998) (“The legislative history of Section 1123(b)(5) added to the Bankruptcy Code by the 1994 amendments clearly indicates that Congress did not intend to make bifurcation relief available to the holder of a mortgage interest in additional collateral that cannot be considered real property. By citing the Third Circuit’s decision in [Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 27 F.3d 52 (3d Cir. 1994),] Congress signalled its concurrence with the Third Circuit’s view that bifurcation protection does not extend to the holder of a residential mortgage that has given the mortgagee a lien on personal property ‘used in or about the residence.’”). But see Lievsay v. Western Fin. Sav. Bank (In re Lievsay), 199 B.R. 705, 707 n.5, 708 (B.A.P. 9th Cir. 1996) (In a Chapter 11 case interpreting identical language in §§ 1123(b)(5) and 1322(b)(5), boilerplate security interest in “improvements . . . easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures” does not forfeit the protection from modification. Citing Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208 (6th Cir. 1993), “‘the language in the case sub judice does not extend [the secured creditor’s] security interest beyond items which are inextricably bound to the real property itself as part of the possessory bundle of rights.’”).