§ 80.2 — Statutory Liens and Judgment Liens, Including Foreclosure Judgments

Revised: May 10, 2011

[1]

Section 1322(b)(2) protects from modification only claims that are secured by a security interest in real property that is the debtor’s principal residence. Security interest is a term of art precisely defined by the Bankruptcy Code as a “lien created by an agreement.”1 This definition was not changed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).2

[2]

Creditors come to have liens on real property that is the debtor’s principal residence in many ways other than by agreement. For example, many liens on real property arise by statute without the consent (in fact, downright against the wishes) of the landowner. It has been held that a statutory lien—for example, the lien acquired by a taxing authority through registration of a notice of deficiency—is not a security interest, and thus the lienholder’s rights can be modified in a Chapter 13 plan.3 A mechanic’s lien to secure the debtor’s failure to pay for home improvements is a lien on real property that is the debtor’s principal residence, but because the lien arises by statute and not by agreement, it can be modified without violating § 1322(b)(2).4 A judicial lien on a debtor’s residence is not a consensual security interest and is not protected from modification by § 1322(b)(2).5

[3]

Probably the most common form of prepetition lien on a principal residence that is not created by an agreement is the lien that arises upon entry of a foreclosure judgment. In many states, either by common law merger or by statute, upon entry of a judgment of foreclosure, the contractual mortgage ceases to exist and is replaced by a judgment lien in favor of the creditor.6 Although it cannot be said that a foreclosure judgment is a lien “created by an agreement” for purposes of § 1322(b)(2), a majority of courts have concluded that a mortgage reduced to a prepetition foreclosure judgment remains protected from modification by § 1322(b)(2).7 As explained by the U.S. Court of Appeals for the Third Circuit in First National Fidelity Corp. v. Perry,8 even though a foreclosure judgment extinguishes the mortgage under state law, “[W]e think it highly unlikely that Congress intended the protection afforded home mortgage lenders by § 1322(b)(2) to terminate at the point of foreclosure. Thus, we hold that a New Jersey home mortgage lender retains a security interest for the purpose of § 1322(b)(2) following the entry of a foreclosure judgment.”

[4]

A minority of courts have read the Bankruptcy Code more precisely to deny the protection from modification in § 1322(b)(2) when the creditor’s interest in the debtor’s homestead is the lien of a foreclosure judgment rather than a lien by agreement.9 The decisions split similarly when the mortgage holder sued separately on its note and recorded that judgment but never foreclosed—some courts hold that the judgment lien is not protected from modification by § 1322(b)(2);10 other courts follow the logic of Perry and conclude that the mortgage lien survives and is protected from modification by § 1322(b)(2).11

[5]

At first blush it might seem unfair to punish the diligent mortgage holder that prosecutes a foreclosure through judgment before the petition by declaring a forfeiture of the protection from modification in § 1322(b)(2). On the other hand, a nonconsensual foreclosure judgment is not a security interest under the clear definitions of the Bankruptcy Code. The Third Circuit in Perry ascribes to Congress an intent to protect from modification the mortgage holder that acted in self interest before the petition to substitute a foreclosure judgment for its contract with the debtor. It is at least equally plausible that Congress used the term of art security interest to reward with the special protection from modification in § 1322(b)(2) only the mortgage holder that acted with self-restraint during the debtor’s difficult financial period preceding the filing of the Chapter 13 case.

[6]

Even the Third Circuit has refused to allow a prepetition foreclosure judgment to improve a mortgage holder’s position with respect to the antimodification protection in § 1322(b)(2). In Johns v. Rousseau Mortgage Corp. (In re Johns),12 the Third Circuit considered a mortgage contract that included a security interest in personal property. Applying its holding in Wilson v. Commonwealth Mortgage Corp.,13 the contractual security interest in personal property would forfeit the protection from modification in § 1322(b)(2). However, prior to the filing of the Chapter 13 petition in Johns, the mortgage holder had realized a foreclosure judgment. The mortgage company argued that the lien of the foreclosure judgment attached only to the real property under state law and thus was protected from modification by § 1322(b)(2).

[7]

The Third Circuit rejected this argument, reasoning that a prepetition foreclosure judgment could not create entitlement to the protection from modification in § 1322(b)(2) when the original mortgage contract included a disabling security interest in personal property. The Third Circuit explained:

[I]n determining whether the protections of § 1322(b)(2) attach, we require that the security interest created by the parties be analyzed. . . . Rousseau cannot now escape from [the exception in § 1322(b)(2)] by relying on its status as the holder of a non-consensual judgment and thereby gain the protection that had originally been given up when a security interest in both real and personal property had been sought and taken. Nor can it obtain that protection by now foregoing part of the security, i.e., the personalty, which it originally required. . . . Thus, although the foreclosure judgment terminated the mortgage, . . . the security interest taken by Rousseau survives in toto and that interest must . . . include Rousseau’s security interest in . . . personalty. This being so, § 1322(b)(2) operates to permit modification.14
[8]

Ironically, the 1994 amendments may have created a special circumstance in which Chapter 13 debtors will welcome a prepetition foreclosure judgment. Discussed in detail elsewhere,15 in 1994 Congress added § 1322(c)(2) to the Code:

(c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law—
. . . .
(2) in a case in which the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor’s principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5) of this title.16
[9]

The “notwithstanding subsection (b)(2)” at the beginning of new § 1322(c)(2) has been interpreted by some courts to authorize modification of a claim secured only by the debtor’s principal residence when the original payment schedule called for a last payment before the final payment under the plan.17 A few courts have taken this interpretation the obvious next step: a home mortgage that has been reduced to a prepetition foreclosure judgment falls within new § 1322(c)(2) and can be modified because “the last payment on the original payment schedule” is the mortgagee’s right to immediate payment in full.18


 

1  11 U.S.C. § 101(51).

 

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

 

3  In re Venable, 48 B.R. 853 (Bankr. S.D.N.Y. Apr. 19, 1985) (Schwartzberg) (Taxing authority with a statutory lien does not hold a “security interest” within the meaning of § 1322(b)(2), and its claim can be modified.). Accord Malec v. Cook Cnty. Clerk (In re Malec), 442 B.R. 130 (Bankr. N.D. Ill. Jan. 4, 2011) (Cox) (Property tax lien is not security interest under § 101(51) and is not protected from modification by § 1322(b)(2).); In re Davis, 352 B.R. 651, 654 n.5 (Bankr. N.D. Tex. Aug. 30, 2006) (Lynn) (Claim of creditor that paid ad valorem property taxes and received transfer of tax lien on debtors’ home could be modified under § 1322(b)(2) because tax lien was not a security interest created by agreement; new § 511 applied to require debtor to pay contract interest and attorney’s fees. “[Section] 1322(b)(2) excepts from its scope exclusively those claims secured only by a security interest in the debtor’s principal residence. The Code defines a security interest as a ‘lien created by agreement.’ . . . Being a tax lien, the lien securing Genesis’ claim on Debtors’ residence, though it was transferred to Genesis by agreement, was created by operation of law and is thus subject to modification under section 1322(b)(2).”); In re Williams, 273 B.R. 834 (Bankr. S.D. Cal. Feb. 20, 2002) (Hargrove) (Tax lien is not a security interest under § 101(51) and thus is not protected from modification by § 1322(b)(2).); In re DeMaggio, 175 B.R. 144 (Bankr. D.N.H. Nov. 3, 1994) (Yacos) (Statutory lien for property taxes is not a consensual “security interest” and is not protected from modification by § 1322(b)(2).); DeSarno v. Allegheny (In re DeSarno), 169 B.R. 329, 333 (Bankr. W.D. Pa. May 13, 1994) (Cosetti) (Real estate taxes are secured by statutory liens, are not consensual, and thus are not protected from modification by § 1322(b)(2). “The Claimants in this case possess claims, or rights to payment, which are secured against the Debtors’ principal residence by virtue of statutory liens. Based on the language of § 1322(b)(2) and the definition of ‘security interest,’ ‘claim’ and ‘statutory lien,’ it is determined that for the purposes of § 1322(b)(2), the Claimants’ secured claims can be modified by the Debtors’ Chapter 13 plan because they do not possess security interests in the Debtors’ real property. The Claimants possess liens that create secured claims against the property, not security interests, and such claims are not protected by § 1322(b)(2).” The debtors can modify the interest rate with respect to tax liens and claims notwithstanding that the claims are oversecured for purposes of § 506(b) and Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (June 7, 1993).), aff’d in part, rev’d in part, 89 F.3d 1123, 1127 (3d Cir. July 30, 1996) (Becker, Sarokin, Wellford) (“Because plaintiffs’ tax liens arose under state statute, and not from a consensual or voluntary agreement with the taxpayer defendants, we concur in the bankruptcy court’s ruling that those liens are not ‘security interests’ for purposes of § 1322(b)(2).”); In re Sabec, 137 B.R. 659 (Bankr. W.D. Mich. Feb. 25, 1992) (Gregg) (A tax sale purchaser’s interest in real property pursuant to the Michigan Tax Act is not a security interest and is not protected from modification by § 1322(b)(2).). See also Hammond v. Allegheny Cnty. Treasurer (In re Hammond), 420 B.R. 633 (Bankr. W.D. Pa. Dec. 15, 2009) (Fitzgerald) (Property sold at prepetition tax sale can be redeemed with installment payments over life of plan when petition was filed before redemption period expired. If property has value less than amount of tax lien, under § 506, tax purchaser may not recover more than property’s value. If lien is stripped and debtor fails to complete redemption payments, applicable law on dismissal or conversion of case would determine effect on lienholder. Further hearing is necessary to determine value of property to fix amount of lien.).

 

4  Seel v. Topeka Lumber Co., 22 B.R. 692 (Bankr. D. Kan. Aug. 24, 1982) (Pusateri). Accord In re Kilduff, No. 03-10368, 2003 WL 21498892 (Bankr. D. Vt. June 20, 2003) (unpublished) (Brown) (Because mechanic’s lien is a statutory lien under Vermont law, not a security interest, it is not protected from modification by § 1322(b)(2) but can be crammed down like any undersecured claim.). But see In re Johnson, 160 B.R. 800 (S.D. Ohio Nov. 10, 1993) (Rubin) (Without discussion, a mechanic’s lien is a security interest in real property that is protected from modification by § 1322(b)(2) after Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993).). See also Bice v. Ewing (In re Bice), No. 06-50505(BLS), 2008 WL 3285803 (Bankr. D. Del. Aug. 8, 2008) (unpublished) (Shannon) (Home fully secures contractor’s mechanic’s lien notwithstanding debtor’s allegations that contractor defaulted and built defective home.).

 

5  In re Allard, 196 B.R. 402, 412 (Bankr. N.D. Ill. May 9, 1996) (Squires) (Judgment creditor not protected from modification by § 1322(b)(2) because it does not hold a “security interest” and judgment lien is avoidable under § 522(f). “[T]he court holds that Great Southern’s § 1322(b)(2) objection is not well founded and is overruled because it does not hold a ‘security interest’ in the Property as defined by § 101(51). Great Southern holds a non-consensual judgment lien encumbering the Property, not a lien created by an agreement like a mortgage or trust deed. Section 1322(b)(2) provides special protection from Chapter 13 plan cram downs on house mortgage lenders, not judgment lien creditors like Great Southern. Moreover, as a result of the Court granting the Debtor’s lien avoidance motion . . . Great Southern’s claim is no longer secured vis a vis the Property.”), aff’d, 202 B.R. 938 (N.D. Ill. Dec. 9, 1996) (Shadur); In re Williams, 166 B.R. 615, 618 (Bankr. E.D. Va. Apr. 22, 1994) (Adams) (In an alternative holding, judicial lien on debtor’s residence 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 (June 1, 1993) because a judicial lien is not a security interest. “The claim at issue in the instant case . . . is a judgment lien against the debtor’s principal residence. Section 101(36) of the Bankruptcy Code defines a ‘judicial lien’ as a ‘lien obtained by judgement, levy, sequestration, or other legal or equitable process or proceeding,’ as opposed to Section 101(51) which defines a ‘security interest’ as a ‘lien created by an agreement.’ . . . Nobelman and its progeny all relate to the protection of consensual mortgage security interests, not liens resulting from judicial proceedings. NationsBank’s lien was obtained through judicial process rather than by agreement with the debtor, in addition, its claim is wholly unsecured. As such, the NationsBank claim does not contain all of the rights of a consensual lien and falls outside the protection of § 1322(b)(2) and is not governed by the Supreme Court’s holding in Nobelman. . . . The debtor, therefore, is permitted to classify NationsBank’s claim as fully unsecured, pursuant to § 506(a), and modify the rights of the lienholder under § 1322(b)(2).”); McDonough v. Plaistow Coop. Bank (In re McDonough), 166 B.R. 9, 12 (Bankr. D. Mass. Mar. 29, 1994) (Boroff) (In dicta, the protection from modification in § 1322(b)(2) is not available to a judgment lienholder because a judgment lien is not a “security interest” for purposes of § 1322(b)(2). “The narrow exclusion of [§ 1322(b)(2)] applies to ‘only . . . a security interest.’ The Bankruptcy Code defines a ‘security interest’ as a ‘lien created by an agreement.’ 11 U.S.C. § 101(51). A judicial lien is not a lien created by an agreement. It is a lien created by court action. Therefore, a judicial lien does not fall within § 1322(b)(2)’s exclusion and the [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993)] decision does not apply.”).

 

6  Under merger theory, the creditor’s claim may be limited to the amount of the foreclosure judgment. See, e.g., In re Miles, 400 B.R. 441 (Bankr. E.D. Pa. Oct. 15, 2008) (Sigmund) (Under Pennsylvania law, prepetition foreclosure judgment merged mortgage into judgment, and under Stendardo v. Federal National Mortgage Ass’n (In re Stendardo), 991 F.2d 1089 (3d Cir. June 21, 1993) (Mansmann, Hutchinson, Garth), judgment not mortgage controls ongoing obligations. Post-judgment taxes and insurance premiums are not allowable claims after merger. “Stendardo closes the door to reliance on the doctrine of unjust enrichment as an exception to the merger doctrine.”). See also §§ 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)?.

 

7  First Nat’l Fidelity Corp. v. Perry, 945 F.2d 61, 65 (3d Cir. Oct. 8, 1991) (Stapleton, Greenberg, Higginbotham) (Mortgage lender continues to have a “security interest” notwithstanding that the lender also has a foreclosure judgment lien. “[W]e think it highly unlikely that Congress intended the protection afforded home mortgage lenders by § 1322(b)(2) to terminate at the point of foreclosure. Thus, we hold that a New Jersey home mortgage lender retains a security interest for the purposes of § 1322(b)(2) following the entry of a foreclosure judgment.”). Accord Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d 1021 (3d Cir. Oct. 20, 1994) (Becker, Cowen, Garth) (Distinguishing Stendardo v. Federal Nat’l Mortgage Ass’n, 991 F.2d 1089 (3d Cir. June 21, 1993) (Mansmann, Hutchinson, Garth), and reaffirming the principles stated in First Nat’l Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. Oct. 8, 1991) (Stapleton, Greenberg, Higginbotham), a prepetition foreclosure judgment does not forfeit the protection from modification in § 1322(b)(2) as described by the Supreme Court in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), and does not enable the mortgage holder to realize that protection if it was not so entitled before entry of the foreclosure judgment.); Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir. Jan. 29, 1985) (Skopil, Farris, Beezer); Laws v. New York Guardian (In re Laws), 163 B.R. 449, 452 (E.D. Pa. Feb. 2, 1994) (Buckwalter) (“[D]ebtor is not allowed to use the fact that a foreclosure judgment has been entered to deny a mortgagee the protection of [§] 1322(b)(2).”); First Fin. Sav. & Loan Ass’n v. Winkler, 29 B.R. 771 (N.D. Ill. Apr. 15, 1983) (Shadur); In re Carr, 318 B.R. 517, 519 (Bankr. W.D. Wis. Nov. 30, 2004) (Martin) (Prepetition foreclosure judgment does not forfeit protection from modification in § 1322(b)(2), notwithstanding that under Wisconsin law, the contractual mortgage ceased to exist and was replaced by a judgment lien. “Although a judgment lien is not a ‘lien created by an agreement’ . . . a majority of courts has concluded that a mortgage reduced to a prepetition foreclosure judgment is a security interest, and remains protected from modification by § 1322(b)(2).”); In re Bookout, 231 B.R. 306, 308–09 (Bankr. E.D. Ark. Mar. 18, 1999) (Mixon) (Judicial lien arising from entry of foreclosure judgment does not forfeit the protection from modification in § 1322(b)(2). “Although a judicial lien arises out of a foreclosure judgment, under the law of some states, many courts hold that the existence of such a lien does not result in the forfeiture of anti-modification protection that otherwise would have been available to a mortgagee had a foreclosure decree not been entered. . . . This Court finds persuasive the view that a security interest survives a foreclosure judgment for purposes of anti-modification prohibition, even if the foreclosure judgment grants a lien in the same property by operation of law.” That the judicial lien also encumbers a 60-acre tract across the street from the debtor’s principal residence does forfeit the protection from modification in § 1322(b)(2).); In re Winogora, 209 B.R. 632, 635 (Bankr. D.N.J. June 25, 1997) (Stripp) (Citing Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d 1021 (3d Cir. Oct. 20, 1994) (Becker, Cowen, Garth), and First Nat’l Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. Oct. 8, 1991) (Stapleton, Greenberg, Higginbotham), “[a] foreclosure judgment is a security interest within the meaning of Code § 101(51).”); Peoples First Nat’l Bank v. Haraschak (In re Haraschak), 169 B.R. 325 (Bankr. M.D. Pa. June 29, 1994) (Thomas) (Applying First Nat’l Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. Oct. 8, 1991) (Stapleton, Greenberg, Higginbotham), a prepetition foreclosure judgment is entitled to the same protection from modification as the original mortgage.); In re Brunson, 87 B.R. 304 (Bankr. D.N.J. Jan. 28, 1988) (Wizmur); In re McKeon, 86 B.R. 350 (Bankr. D.N.J. Feb. 17, 1988) (Gambardella); In re Ivory, 32 B.R. 788 (Bankr. D. Or. Aug. 19, 1983) (Hess).

 

8  945 F.2d 61, 65 (3d Cir. Oct. 8, 1991) (Stapleton, Greenberg, Higginbotham).

 

9  In re McCann, 27 B.R. 678 (Bankr. S.D. Ohio Dec. 7, 1982) (Herbert) (Mortgage company with prepetition foreclosure judgment is not secured “only by a security interest in real property that is the debtor’s principal residence.”). Accord In re Arnold, 40 B.R. 144 (Bankr. N.D. Ga. June 13, 1984) (Drake); In re Garner, 13 B.R. 799 (Bankr. S.D.N.Y. Aug. 28, 1981) (Schwartzberg).

 

10  See, e.g., In re Daraee, 279 B.R. 853 (Bankr. D. Or. Apr. 15, 2002) (Brown) (Judgment lien is not protected from modification by § 1322(b)(2) because mortgagee elected to sue on its note rather than foreclose its deed of trust—the resulting judgment lien is not “created by agreement” under § 101(51), and § 1322(b)(2) is not applicable.).

 

11  See, e.g., Bache-Wiig v. Fournier (In re Bache-Wiig), 299 B.R. 245, 250 (Bankr. D. Me. Sept. 17, 2003) (Kornreich) (Although mortgage holder’s judgment lien is avoidable because it impairs the debtor’s homestead exemption under § 522(f), mortgage holder is still secured by mortgage lien. Mortgage holder sued separately on note, took judgment and recorded a judgment lien but never commenced a foreclosure. “[O]n the date of bankruptcy, the Defendant’s claim was secured by both the mortgage and the judgment lien. . . . [T]he judgment lien is avoidable; and, were it not for the mortgage, the Defendant’s claim would be entirely unsecured.”).

 

12  37 F.3d 1021 (3d Cir. Oct. 20, 1994) (Becker, Cowen, Garth).

 

13  895 F.2d 123 (3d Cir. Feb. 9, 1990) (Sloviter, Hutchinson, Cowen).

 

14  Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d at 1025. Accord Laws v. New York Guardian (In re Laws), 163 B.R. 449, 452–53 (E.D. Pa. Feb. 2, 1994) (Buckwalter) (A prepetition foreclosure judgment does not resurrect the protection from modification in § 1322(b)(2) where the mortgage instrument contains a security interest in personal property that would, under Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3d Cir. Feb. 9, 1990) (Sloviter, Hutchinson, Cowen), forfeit the antimodification protection in § 1322(b)(2). “The bankruptcy court correctly held that the status of the mortgagee and the security interest in the debtor’s real and personal property is unchanged by a foreclosure judgment. . . . In . . . [First Nat’l Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. Oct. 8, 1991) (Stapleton, Greenberg, Higginbotham)], . . . the court held, although in a different context, that a mortgagee’s security interest was not changed by a foreclosure judgment. . . . Thus, debtor is not allowed to use the fact that a foreclosure judgment has been entered to deny a mortgagee the protection of 1322(b)(2), which it was entitled to before the foreclosure judgment. At the same time, a mortgagee who is not entitled to the 1322(b)(2) protection before the existence of a foreclosure judgment, should not be able to use a foreclosure judgment as a means of obtaining such protection. In other words, the entry of a foreclosure judgment does not change the fact that New York Guardian took a security interest in more than just the debtor’s residence and therefore, cannot get the protection of 1322(b)(2).”); In re Pinto, 191 B.R. 610, 614–15 (Bankr. D.N.J. 1996) (Applying Johns v. Rousseau Mortgage Corp. (In re Johns), 37 F.3d 1021 (3d Cir. Oct. 20, 1994) (Becker, Cowen, Garth), prepetition foreclosure judgment does not preclude curing defaults through a Chapter 13 plan. Debtor argued that mortgage was subject to modification because of boilerplate security interests in personal property. Citicorp defended that its prepetition foreclosure judgment merged into the contract and thus extinguished security interests in other property. “Based on the Third Circuit’s opinion in Johns, the court must conclude that, although Citicorp’s mortgage ‘merged’ into the foreclosure judgment, its security interest in the debtor’s home and additional collateral survives the judgment. Thus, Citicorp’s claim may be bifurcated into secured and unsecured claims under Code sections 1322(b)(2) and 506(a).”); Peoples First Nat’l Bank v. Haraschak (In re Haraschak), 169 B.R. 325, 327 (Bankr. M.D. Pa. June 29, 1994) (Thomas) (Although under First National Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. Oct. 8, 1991) (Stapleton, Greenberg, Higginbotham), a prepetition foreclosure judgment is entitled to the same protection from modification as the original mortgage, where the original mortgage contained a security interest in “all fixtures, appliances, and equipment of any nature . . . ,” the Third Circuit’s analysis in Hammond v. Commonwealth Mortgage Corp. of America (In re Hammond), 27 F.3d 52 (3d Cir. July 7, 1994) (Becker, Hutchinson, Cowen), would allow the debtor to modify the original mortgage, and thus the debtor can modify the prepetition foreclosure judgment as well. The debtor can strip down the mortgage holder to the value of the collateral and can pay that value in full during the life of the plan, notwithstanding that the original mortgage matured and was payable in full by its contract terms prior to the filing of the Chapter 13 case.). Contra In re Narvaez, 161 B.R. 762, 763 (Bankr. D.N.J. Dec. 22, 1993) (Stripp) (Mortgage instrument that created a security interest in “rents, issues and profits . . . and . . . 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. June 21, 1993) (Mansmann, Hutchinson, Garth), 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. Oct. 20, 1994) (Becker, Cowen, Garth).]

 

15  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)?.

 

16  11 U.S.C. § 1322(c)(2).

 

17  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. See, e.g., First Union Mortgage Corp. v. Eubanks (In re Eubanks), 219 B.R. 468 (B.A.P. 6th Cir. May 12, 1998) (Baxter, Lundin, Stosberg) (Section 1322(c)(2) creates a statutory exception to the protection from modification for “short term” home mortgages in Chapter 13 cases; debtor can bifurcate undersecured second mortgage and pay allowable secured portion in full with interest consistent with § 1325(a)(5), while paying unsecured portion the 10% provided for all unsecured claims.).

 

18  See § 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., In re Nepil, 206 B.R. 72, 74–77 (Bankr. D.N.J. Mar. 18, 1997) (Winfield) (New § 1322(c)(2) permits Chapter 13 debtor to pay in full during the life of the plan a mortgage that was accelerated and reduced to a prepetition foreclosure judgment notwithstanding that the original amortization schedule would extend beyond the life of the plan. “The key phrase ‘original payment schedule’ is not defined in the Bankruptcy Code . . . . [T]he phrase can be understood merely to refer to the amortization schedule under which the note is satisfied. On the other hand, the phrase can be read to reach the entirety of the mortgagee’s right to payment, including the fully accelerated payment reflected in the foreclosure judgment. . . . [T]he language of the statute is not clear and plain . . . . [T]his Court finds the language of § 1322(c)(2) is sufficiently broad so as to apply with equal force and result to a foreclosure judgment. As a practical matter this Court can discern no difference among a fully matured mortgage debt, a mortgage on which the balloon payment is due, and a foreclosure judgment. In each circumstance the holder of the obligation is entitled to immediate full payment. Given the overall objectives of Chapter 13, the fact that the 1994 Amendments express a particular concern that debtors be afforded opportunity to save their homes, and that no practical difference exists between the rights of holders of matured mortgage obligations and holders of foreclosure judgments, the Court construes the language of § 1322(c)(2) to include foreclosure judgments. . . .  A confirmable Chapter 13 plan must still pay judgment holders their claim over the life of the plan.”).