§ 85.1 — Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994

Revised: June 2, 2004

[1]

Curing default and maintaining payments on a home mortgage protected from modification by § 1322(b)(2) is available under § 1322(b)(5) only when “the last payment is due after the date on which the final payment under the plan is due.”1 Section 1322(b)(5) is intended to deal only with long-term debts.2 Chapter 13 plans are typically at least three years in length;3 thus, § 1322(b)(5) is available only for loans with remaining maturities in excess of at least three years. This limitation is not usually a problem with respect to first mortgages that have original terms of 15 to 30 years because Chapter 13 debtors are rarely in the later years of their first mortgages.

[2]

But in Chapter 13 cases filed before October 22, 1994,4 the limitation in § 1322(b)(5) is a problem for a debtor with a home mortgage protected from modification by § 1322(b)(2) that is payable on demand, that has matured or will mature during the proposed life of the plan, or that contains a balloon requiring payment in full during the plan. Arguably, the last payment is due on a demand, matured or balloon obligation on the date of demand, the date of maturity or the date the balloon must be paid. If that date is sooner than the date on which the last payment is due under the plan, then the loan does not fit § 1322(b)(5).

[3]

Many courts faced with demand, matured or balloon payment loans have held that § 1322(b)(5) is not available to cure default or maintain payments if the final payment date under the contract occurred prepetition or will occur before the last payment is due under the plan.5

[4]

Denied use of § 1322(b)(5), debtors with “short-term” mortgages, demand, matured and balloon payment notes protected from modification by § 1322(b)(2) have searched elsewhere in Chapter 13 for powers to rehabilitate a home mortgage. A substantial group of courts, led by the U.S. Court of Appeals for the Fifth Circuit, have held that the general power to provide for “the curing or waiving of any default” in § 1322(b)(3)6 includes the power to pay the balance in full of a home mortgage over the life of the plan notwithstanding § 1322(b)(2) and notwithstanding that the mortgage is payable on demand, has matured, has ballooned or will be finally due by its own terms before completion of payments under the plan.7 Some of these opinions explain that payment in full is not a modification of the rights of the mortgage holder because full payment of the matured, balloon, demand or short-term mortgage effects a curing of all defaults. Read in this way, § 1322(b)(3) complements § 1322(b)(5): (b)(3) is available to cure default with respect to home mortgages on which the last payment is due before the last payment under the plan; (b)(5) is available only when the last mortgage payment is due after the last payment under the plan.

[5]

There are problems with this expansive reading of § 1322(b)(3). The cases allowing Chapter 13 debtors to use § 1322(b)(3) to pay in full a matured, balloon, demand or short-term mortgage interpret the concept of “curing” or “waiving” to include the power to reschedule the balance of the mortgage for payment over the life of the plan. These courts have to be saying one of two things about the interaction of § 1322(b)(2) and (b)(3): (1) either the general power to cure or waive defaults in § 1322(b)(3) is not limited by the prohibition on modification in § 1322(b)(2); or (2) rescheduling a matured, demand, balloon or short-term mortgage for payment in full during the life of the plan is not a modification of the rights of the mortgage holder for purposes of § 1322(b)(2). Neither of these propositions withstands much scrutiny.

[6]

As a matter of statutory construction, § 1322(b)(3) and (b)(5) each have purpose, and neither should be rendered surplusage by interpretation of the other. If the general power to provide for the curing or waiving of any default in § 1322(b)(3) is an exception to the prohibition on modification of home mortgages in § 1322(b)(2), then why did Congress include the carefully placed “notwithstanding paragraph (2)” in § 1322(b)(5)? Why did Congress separately authorize Chapter 13 debtors to provide for the curing of default and the maintenance of payments on long-term home mortgages in § 1322(b)(5) if the general power in § 1322(b)(3) included the more specific power in (b)(5)? A less strained interpretation of the three sections is that § 1322(b)(3) is not an exception to the limitation on modification in § 1322(b)(2); rather, § 1322(b)(3) fills a gap between § 1322(b)(2) and (b)(5): when the home mortgage is protected from modification by § 1322(b)(2), but is not long term and cannot be managed under § 1322(b)(5), the debtor is permitted by § 1322(b)(3) to cure or waive defaults, reinstating the original payment terms of the (short-term) mortgage. For example, if the home mortgage is protected from modification by § 1322(b)(2) and will mature two years after the petition, the debtor could use § 1322(b)(3) to cure prepetition defaults and complete the original contract terms, including maturity two years into the plan. To accomplish confirmation, the debtor would have to prove the ability to satisfy the maturing loan during the second year of the plan.8

[7]

The second proposition above—that the rescheduling of a matured, demand, balloon or short-term mortgage for payment in full during the life of the plan is not a modification prohibited by § 1322(b)(2)—is untenable after the Supreme Court’s decision in Nobelman v. American Savings Bank.9 As discussed above,10 Nobelman held that claim splitting under § 506(a) is a prohibited modification of the rights of the holder of a claim secured only by real property that is the debtor’s principal residence. Justice Thomas described the rights that are protected from modification by § 1322(b)(2) to include all the contract and state law entitlements of the mortgage holder. Included in his list was protection of the interest rate, the monthly payment and the original term of the mortgage.

[8]

If the home mortgage is protected from modification by § 1322(b)(2) and if the contract calls for payment on demand or a balloon payment or has a short-term maturity, Nobelman requires the debtor to perform consistent with those terms. Rescheduling the demand note, the balloon amount or the contract maturity for payment in full over the life of the plan inevitably changes some or all of the payment terms in the original contract. This is exactly the sort of modification of rights addressed by Justice Thomas in Nobelman.

[9]

The ordinary meaning of “curing” is that the event of default is eliminated by doing through the plan what the debtor failed to do when performance was required. “Waiving” may mean that the default is ignored or overcome without corrective performance under the plan. In either situation, the effect of curing or waiving a default is to reinstate the original obligation. If the original obligation was a demand, balloon or matured loan, curing the default and reinstating that obligation gets the debtor nothing more than a second chance to perform the contract according to its terms, including meeting the demand, paying the balloon amount, or satisfying the loan in full consistent with its contract maturity.

[10]

This view of the interaction among § 1322(b)(2), (b)(3) and (b)(5) offers a statutory role for each subsection and allows each to function without trespass upon the others. It leaves unanswered one question of statutory construction: if Congress thought it necessary to put a “notwithstanding paragraph (2)” in § 1322(b)(5) to signal that a Chapter 13 debtor can cure default and maintain payments on a long-term mortgage, then why did Congress omit “notwithstanding paragraph (2)” in § 1322(b)(3)? This omission supports the argument that § 1322(b)(3) is not available with respect to any claim protected from modification by § 1322(b)(2). Then Chapter 13 practitioners would be left to ponder why Congress authorized management of only long-term home mortgages in § 1322(b)(5). In all likelihood, Congress simply didn’t focus on the possibility that including “notwithstanding” in § 1322(b)(5) might be interpreted as a limitation on § 1322(b)(3).

[11]

A coherent rewriting of the statute would make it clear that a Chapter 13 debtor can cure defaults and maintain payments on any home mortgage, short- or long-term, that is protected from modification by § 1322(b)(2). It is not unforgivable torture of § 1322(b)(3) to imply a power to cure or waive defaults with respect to short-term mortgages notwithstanding the absence of a “notwithstanding.” However, to read into § 1322(b)(3) the additional power to reschedule short-term home mortgages for payment in full during the life of the plan goes further than the ordinary meaning of curing defaults, stretches the canons of statutory construction very thinly, and probably offends the Supreme Court’s interpretation of modification in Nobelman.

[12]

As discussed below,11 in 1994 Congress enacted § 1322(c)(2) to empower Chapter 13 debtors to manage short-term residential mortgages through the plan. In cases filed before October 22, 1994, § 1322(c)(2) is not available, and Chapter 13 debtors are stuck with § 1322(b)(3) and (5) as the primary sources of power to manage short-term home mortgages that are protected from modification by § 1322(b)(2).12 That Congress saw the need to enact a new section of Chapter 13 to deal with short-term home mortgages is some indication that the existing provisions of § 1322 were insufficient to the task. There is nothing in the legislative history of § 1322(c)(2) to suggest that Congress was merely clarifying existing law; rather, the legislative history states (somewhat incongruously) that Congress intended § 1322(c)(2) to overrule circuit decisions that had interpreted § 1322(b)(2) to prohibit the payment in full of a prepetition foreclosure judgment over the life of a Chapter 13 plan.13

[13]

It should be noted that § 1322(b)(3) certainly has application beyond home mortgages in Chapter 13 cases. The general power to cure or waive any default is useful to Chapter 13 debtors when the contract terms are more favorable than the terms that will result at cramdown. Interpreting the absence of “notwithstanding paragraph (2)” in § 1322(b)(3) to indicate congressional intent that § 1322(b)(3) is not an exception to the antimodification provisions of § 1322(b)(2) does not render § 1322(b)(3) altogether useless.


 

1  11 U.S.C. § 1322(b)(5).

 

2  Curing default and maintaining payments under § 1322(b)(5) is available with respect to all long-term secured or unsecured debts, including home mortgages. For discussion of the use of § 1322(b)(5) with respect to debts that are secured by collateral other than real property, see § 115.1 [ Curing Default, Waiving Default, Maintaining Payments and Combinations ] § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations. For discussion of treatment of long-term unsecured claims under § 1322(b)(5), see §§ 155.2 [ Long-Term Debts ] § 88.9  Long-Term Debts and 171.1 [ Curing Default and Maintaining Payments on Unsecured Debt ] § 101.4  Curing Default and Maintaining Payments on Unsecured Debt.

 

3  See § 199.1 [ General Rule: Three Years, More or Less ] § 112.1  General Rule: Three Years, More or Less.

 

4  October 22, 1994, is the effective date for § 301 of the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994). See Pub. L. No. 103-394, § 702, 108 Stat. 4106 (1994) (effective date provisions of 1994 Act). Discussed in § 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, § 1322(c)(2) permits Chapter 13 debtors to pay a short-term residential mortgage in full through the plan consistent with § 1325(a)(5).

 

5  Western Equities, Inc. v. Harlan, 783 F.2d 839 (9th Cir. 1986); Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir. 1985); Metropolitan Mortgage & Sec. Co. v. Rubottom (In re Rubottom), 134 B.R. 641 (B.A.P. 9th Cir. 1991) (Proposal to pay mortgage in full on December 31, 1992, or at the time the property was sold was an impermissible modification of a note that would become due on July 18, 1991. Sale of the property did not except the mortgage from the antimodification provisions of § 1322(b)(2). A “cure” beyond the date on which the note matured is not available. The date of maturity of the mortgage is before the end of the plan; therefore, the § 1322(b)(5) exception to the § 1322(b)(2) prohibition against modification is not available.); Batt v. Fontaine, 27 B.R. 615 (B.A.P. 9th Cir. 1982); Dew v. Eason (In re Eason), 207 B.R. 238, 240 (N.D. Ala. 1996) (Citing Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir. 1985), debtor cannot pay a matured home mortgage in full over the life of a Chapter 13 plan. 1994 amendments to § 1322(c)(2) are not applicable, and “[e]ven if the bankruptcy court is correct that Congress was clarifying its original intent, it is erroneous to apply the statutory additions of a later Congress in determining the intent of an earlier Congress.”); Pasteur v. Burton (In re Burton), 172 B.R. 533, 535 (M.D.N.C. 1993) (Where mortgage matured on November 1, 1991, debtor could not modify the note to provide for monthly installments through December 1, 1993, with the balance payable on that date. “Mr. Burton’s plan calls for extending his payments until December of 1993 even though the parties originally contracted that the debt would be paid in full in 1991. Thus, under the reasoning of the Ninth and Third Circuits [Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir. 1985), and First Nat’l Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. 1991)], Mr. Burton’s plan is a modification of the Estate’s rights.” Court rejects debtor’s argument that the plan merely cures default under § 1322(b)(3).); Citizens Trust & Sav. Bank v. Schafer (In re Schafer), 99 B.R. 352 (W.D. Mich. 1989); In re Halley, 70 B.R. 283 (E.D. Pa. 1987); In re French, 174 B.R. 1, 8 (Bankr. D. Mass. 1994) (Power to cure default in § 1322(b)(3) and (b)(5) does not include re-amortizing a matured mortgage for payment over 30 years. “‘[C]uring’ the matured obligation to G.L.B. would require reinstatement of the original payment terms of the debt. The Debtors’ plan proposes a new payment schedule on that debt. Such a new payment schedule constitutes a modification and not a cure.”); In re Leach, 171 B.R. 58, 60 (Bankr. W.D. Ark. 1994) (Citing Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir. 1985), payment through a 58-month plan is not a “cure” under § 1322(b)(3) for note that ballooned two months before the petition. “Although a Chapter 13 debtor is allowed to ‘cure’ outstanding debts over the period of the plan, when the plan extends the time for payments beyond the time originally contemplated by a creditor who is secured only by the debtor’s residence, the creditor’s rights are being ‘modified’ in violation of 11 U.S.C. § 1322(b).”); In re Fuentes, 167 B.R. 901, 902 (Bankr. E.D. Mo. 1994) (Section 1322(b)(2) prohibits a Chapter 13 plan from paying the allowed amount of a secured claim in full over the 38-month life of the proposed plan where the underlying note matured before the filing of the petition and the claim is protected from modification by § 1322(b)(2). “Section 1322(b)(3) permits a debtor to cure or waive any default which might have accrued prior to the bankruptcy filing. . . . This concept of ‘cure’ under § 1322(b)(3) is not a ‘modification’ prohibited by § 1322(b)(2). . . . In proposing to stretch the entire balance due over a period of several years, the Debtor is blurring the distinction between curing a default and modifying a home mortgagee’s rights. . . . By allowing Chapter 13 debtors to cure prepetition defaults, the Bankruptcy Code is attempting to restore the status quo which existed but for a debtor’s failure to pay installments. Here the Debtor is not attempting to restore the status quo, but is trying to create a new payment schedule for the fully matured balance of the note. Such an action modifies the rights of the Creditor and is therefore prohibited under § 1322(b)(2).”); In re Pruitte, 157 B.R. 662, 665 (Bankr. E.D. Mo. 1993) (Section 1322(b)(2) prohibits Chapter 13 plan that would pay the entire balance due under a real estate-secured mortgage over 60 months with interest where the note is protected from modification by § 1322(b)(2) and the note matured by its own terms before the petition. “[Section] 1322(b)(3) [sic] allows a debtor to cure defaults only on claims on which the last payment is due after the date on which the final payment under the plan is due. Here, Debtors’ Note matured prepetition. . . . Thus, Debtors may not use the cure provision of 1322(b)(5) to rewrite [the mortgage holder’s] note. . . . Debtors’ proposal to ‘cure’ their mortgage debt which matured pre-petition is an attempt to create a new payment schedule which clearly modifies the rights of [the] mortgagee. . . . Modification of a secured creditor’s rights under § 1322(b)(2) may be likened to the concept of impairment under § 1124. Under § 1124(1) a claim is impaired unless the plan leaves unaltered the legal, equitable and contractual rights to which the holder of such claim is entitled. . . . By permitting the Debtors to rewrite or extend their loan . . . they inevitably alter . . . legal, equitable and contractual rights.”); In re Manocchia, 157 B.R. 45, 45–46 (Bankr. D.R.I. 1993) (“The note matured and became due in the full amount, by its own terms, on June 14, 1989. [The debtor] filed her petition on April 16, 1993, and now, four years later, seeks to restructure the note and pay the balance over the life of a five year plan. At issue is whether the Debtor, under § 1322 of the Bankruptcy Code, may ‘cure’ an unaccelerated mortgage on her principal residence, where the note has matured and where the entire balance became due prior to the Chapter 13 filing. There is a split of authority on this issue, with one line of cases denying confirmation of such plans because they propose an impermissible modification of a secured lender’s rights, . . . while other courts have approved confirmation of similar plans, finding that the debtor is merely curing a default, and not modifying the rights of the secured party. . . . We agree with the first line of cases, . . . ‘if section (b)(3) and (5) of section 1322 were construed to permit a Chapter 13 plan to “cure” a matured mortgage debt, by in effect creating a new payment schedule, such action would clearly involve “modifying” the rights of the mortgagee.’ . . . We believe these cases reflect the correct state of the law, especially in light of the recent Supreme Court decision in [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993)] . . . where the Court emphasized that section 1322(b)(2) protects the secured mortgage lender’s rights, as opposed to claims.”); In re Baxter, 155 B.R. 285, 287–88 (Bankr. D. Mass. 1993) (Debtor cannot use § 1322(b)(3) or § 1322(b)(5) to “cure” a mortgage that matured prepetition by its own terms without acceleration. “Although the language of § 1322(b)(3) authorizes a debtor to cure a default on a secured claim by repayment under a Chapter 13 plan, this right is qualified by §§ 1322(b)(2) and (5). . . . Debtor, through his proposed plan, seeks to extend the fully matured note and amortize the amount due over a fifteen year period. This is an impermissible modification, as a plan which extends the time for payment of a note beyond the time originally contemplated by the parties has been held to ‘modify’ the rights of the mortgagee in violation of § 1322(b)(2). . . . Courts which have allowed a debtor to ‘cure the default’ in a mortgage that matured prior to the Chapter 13 petition have blurred the distinction between debts that mature by acceleration and debts that mature by passage of time. . . . [T]he use of the ‘cure’ concept in the statute only applies ‘to arrearages in a transaction which has gone into default in mid-term and in which the arrearages are paid off and the pre-acceleration payment schedule is resumed.’ . . . Reinstatement of the original terms of the . . . mortgage causes the debt to become immediately due and payable. Therefore, the Debtor’s plan which provides for a long term payout of the debt cannot be confirmed.”); In re Harris, 147 B.R. 17 (Bankr. N.D. Ohio 1992) (Section 1322(b)(5) does not permit management of a home mortgage that has or will balloon or that matures by contract before completion of payments under the plan.); In re Amerson, 143 B.R. 413 (Bankr. S.D. Miss. 1992) (Debt that fully matured prior to filing and that cannot be modified under § 1322(b)(2) cannot be managed under § 1322(b)(5).); In re Weber, 140 B.R. 707 (Bankr. S.D. Ohio 1992) (Section 1322(b)(5) is not available when the original contract term of 60 months will expire before the completion of payments under the plan.); Linzmeier v. Bull’s Eye Credit Union (In re Linzmeier), 138 B.R. 59, 62 (Bankr. W.D. Wis. 1991) (In dicta, debtor cannot use § 1322(b)(5) because mortgage matured and had a balloon payment prior to the petition. “The debtor is thus precluded from applying § 1322(b)(5) to cure and reinstate . . . and instead would have to treat the entire amount of [the mortgage holder’s] claim in his plan.”); In re Molitor, 133 B.R. 1020 (Bankr. D.N.D. 1991) (Section 1322(b)(5) is not available when contract for deed calls for a final payment before the final payment would be due under the plan.); In re La Brada, 132 B.R. 512 (Bankr. E.D.N.Y. 1991) (Disapproving of In re Williams, 109 B.R. 36 (Bankr. E.D.N.Y. 1989), Chapter 13 debtor cannot use § 1322(b)(3) to “cure his default” on a mortgage with payments through a Chapter 13 plan when the mortgage ballooned, matured, and became payable in full before the filing of the Chapter 13 case. The power to cure default in § 1322(b)(3) is limited by § 1322(b)(5) and (b)(2). Section 1322(b)(5) limits the power to cure default such that only secured claims on which the last payment is due after the date on which the final payment is due under the plan can be cured. It is an impermissible modification under § 1322(b)(2) to propose to use § 1322(b)(3) to reschedule the matured principal for payment over time through the plan); Cole v. Cenlar Fed. Sav. Bank (In re Cole), 122 B.R. 943 (Bankr. E.D. Pa. 1991) (Debtor cannot use § 1322(b)(3) to sidestep § 1322(b)(5). Once a debtor has chosen to cure arrearages on a mortgage on which the last payment is due after the last payment under plan, debtor must cure all defaults in a reasonable time and maintain current payments. Section 1322(b)(3) is only applicable in situations not within the scope of § 1322(b)(5)—§ 1322(b)(3) applies only to claims based upon obligations on which the last payment is due before the final payment is due under the plan.); Equitable Bank, N.A. v. Witomski (In re Witomski), 126 B.R. 205 (Bankr. D. Md. 1990) (Section 1322(b)(3) and (b)(5) are not available when the secured debt fully matures without acceleration before the last payment is due under the plan. Debtor’s “indemnity deed of trust” matured one month after filing Chapter 13 case and could not be modified for any treatment other than immediate full payment.); In re Lumsden, 112 B.R. 978 (Bankr. W.D. Mo. 1990) (It is an impermissible modification under § 1322(b)(2) to pay a balloon mortgage over 60-month life of plan.); In re Hundley, 99 B.R. 306 (Bankr. E.D. Va. 1989) (A prepetition demand coupled with discharge in a prior Chapter 7 case and failure to reaffirm convert creditor’s long-term mortgage into a demand obligation that cannot be modified in a subsequent Chapter 13 case.); In re Cooper, 98 B.R. 294 (Bankr. W.D. Mich. 1989) (Balloon payment provision in land sale contract is protected from modification by § 1322(b)(2); debtor cannot delay making the required payment or otherwise modify the obligation.); In re Nguyen, 96 B.R. 185 (Bankr. E.D. Ark. 1988); In re Davis, 91 B.R. 477 (Bankr. N.D. Ill. 1988) (Section 1322(b)(5) is a limited exception to the prohibition against modification of home mortgages in § 1322(b)(2). Mortgage lien that matures by its own terms during the life of the Chapter 13 plan cannot be extended to pay the mortgage balance in full with interest during the life of the plan. Extension beyond the maturity date in the original contract is not a permitted cure under § 1322(b)(5) and is a prohibited modification under § 1322(b)(2). The general language of § 1322(b)(3) cannot be applied to negate the express language in § 1322(b)(2) and (b)(5).); In re Sennhenn, 80 B.R. 89 (Bankr. N.D. Ohio), aff’d, 80 B.R. 93 (N.D. Ohio 1987) (Land installment contract is a claim secured only by a security interest in real property that is the debtor’s principal residence, and balloon payment required by contract cannot be modified to be paid in full during proposed Chapter 13 plan.); In re Johnson, 75 B.R. 927 (Bankr. N.D. Ohio 1987); In re Hemsing, 75 B.R. 689 (Bankr. D. Mont. 1987); In re Schilling, 64 B.R. 319 (Bankr. D. Nev. 1986); Knez v. Bosteder (In re Bosteder), 59 B.R. 878 (Bankr. S.D. Ohio 1986); In re Palazzolo, 55 B.R. 17 (Bankr. E.D.N.Y. 1985); In re Hamilton, 51 B.R. 550 (Bankr. M.D. Fla. 1985); White v. Luton (In re White), 47 B.R. 98 (Bankr. S.D. Tex. 1985) (Houston, J., by designation); In re Maloney, 36 B.R. 876 (Bankr. D.N.H. 1984).

 

6  11 U.S.C. § 1322(b)(3), discussed further in § 115.1 [ Curing Default, Waiving Default, Maintaining Payments and Combinations ] § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations.

 

7  Grubbs v. Houston First Am. Sav. Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc) (Debtor is permitted to cure the default and make payments on a home mortgage that was both accelerated prepetition and matured by its own terms during the proposed life of the plan. Section 1322(b)(3) has vitality independent of (b)(5).); In re Endicott, 157 B.R. 255, 261 (W.D. Va. 1993) (Mortgage secured by lien on mobile home, whether or not it is protected from modification by § 1322(b)(2), can be dealt with under § 1322(b)(3) by curing the default over the life of the plan. Original loan called for 11.82% interest and monthly payments of $520.84 with a balloon payment on August 29, 1993. Confirmed plan required the debtors to pay $531.57 each month at 10% annual interest for five years with a balloon payment of $31,864.34. Bankruptcy court held that § 1322(b)(2) does not protect the mobile home-secured loan from modification because a mobile home is not “‘a classic home mortgage real estate first deed of trust.’” District court affirms on other grounds: “The provision of § 1322 that provides for the curing or waiving of arrearage is (b)(3), and not (b)(2). . . . § 1322(b)(2) deals with the modification of claims; ‘modification’ must be distinguished from ‘curing or waiving.’ . . . § 1322(b)(3) stands in sharp contrast from § 1322(b)(2) in the lack of restrictions it places on debtors who seek to cure or waive an arrearage. While § 1322(b)(2) bans modification of claims secured by the debtors’ real property that is also his or her principal residence, § 1322(b)(3) permits the curing or waiving of ‘any default.’ Section 1322(b)(3) permits the curing or waiving of any arrearage without regard to the security involved. . . . [T]hus, the restrictions of § 1322(b)(2) do not apply to this case, regardless of how the debtors’ security is defined.”); Blinde v. Spader (In re Spader), 66 B.R. 618 (W.D. Mo. 1986) (Curing default of a short-term mortgage loan fully matured prior to the petition secured only by debtor’s principal residence is not an impermissible modification within the meaning of § 1322(b)(2). Power to provide for cure of home mortgage defaults is not limited to the language of § 1322(b)(5) but includes the power to reschedule a matured residential mortgage that would have been payable within the term of the plan.); Larkins v. Commercial Bank of Dawson, 50 B.R. 984, 987 (W.D. Ky. 1985) (Debtor is permitted to cure default and to pay mortgage over life of plan when mortgage matured and foreclosure judgment and order of sale were entered prior to filing. The court cites Grubbs v. Houston First American Savings Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc) for proposition that even though debtor cannot modify mortgage, debtor can “provide for the payment from future income of previously non-accelerated matured amounts that had become due prior to the filing of the Chapter 13 petition.”); In re Lobue, 189 B.R. 216, 218–19 (Bankr. S.D. Fla. 1995) (In a Chapter 11 case filed before October 22, 1994, and converted to Chapter 13 on July 26, 1995, debtor can pay oversecured mortgage in full with contract interest during the 53 months of plan notwithstanding that mortgage matured 16 months before the Chapter 11 petition. Observing that new § 1322(c)(2) “overrules the holding made in [Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir. 1985)],” court then seems to use the new section as if it were applicable. “The Debtor’s plan as proposed provides not only for the full retention of all lien rights of the first mortgage holder, but also provides payment in full of all monies owed equivalent to the full value of the first mortgage at an interest rate higher than market. . . . In this case, NationsCredit is not harmed because: (1) it is over-secured by real property . . . (2) the 10% interest it will receive under the plan is well above current market rates; and (3) it is NationsCredit’s business to make loans and earn interest on the loans. The Court is very concerned about the potential for abuse and misuse of Section 1322(c)(2) and the possible resulting unfair burden on lenders. Had the lender in this case been an individual who relied upon timely receipt of the balloon payment, it would have been grossly unfair to allow the Debtor to force the lender to make what amounts to a new loan that the lender never intended to make and which the lender possibly could not afford to make. Likewise, had the original loan been for a period of one year with a sizable balloon at the end of that year, by employing Section 1322(c)(2), a debtor could conceivably force the lender to make a loan it would never have made otherwise. In such a situation, the Court might consider it grossly unfair to blindly apply Section 1322(c)(2).”); In re Hart, 184 B.R. 849, 854 (Bankr. M.D. Fla. 1995) (Debtor can use § 1322(b)(3) to pay in full a mortgage that matured prior to the petition. “Section 1322(b)(3) provides that a plan may provide for the curing of any default. The home mortgage loan matured and was not paid—it is in default. . . . This Court agrees with the cases which hold that the payment of a matured home mortgage through a Chapter 13 plan does not constitute an impermissible modification of the rights of the mortgagee, but is a permissible cure of a default.”); In re Eason, 181 B.R. 127, 134 (Bankr. N.D. Ala. 1995) (Debtor can cure default with respect to a mortgage that ballooned before the petition by paying balloon in full in installments with interest under § 1322(b)(3). “Given . . . the recent Congressional interpretation of its intent in section 1322(b), the Court of Appeals for the Eleventh Circuit’s recognition [in Green Tree Acceptance, Inc. v. Hoggle (In re Hoggle), 12 F.3d 1008 (11th Cir. 1994),] of the Bankruptcy Code’s appreciation of the desire of homeowners to save their homes through Chapter 13 and the clear split of authority . . . this Court . . . finds that the Debtor’s failure to make her final mortgage payment was a default in the payment of her mortgage and that she should be allowed, pursuant to 11 U.S.C. § 1322(b)(3), to cure that default through her chapter 13 plan. . . . [A]s long as the Movant is allowed, pursuant to section 1325(a)(5)(B), to maintain her lien and is fully compensated through the Chapter 13 plan with the full value of her claim, with interest, . . . there is no impermissible modification of the secured creditor’s rights under section 1322(b)(2) and (b)(5).”), rev’d, 207 B.R. 238 (N.D. Ala. 1996); In re East, 172 B.R. 861, 866–67 (Bankr. S.D. Tex. 1994) (Grubbs v. Houston First Am. Sav. Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc) permits debtor to maintain the regular monthly payment on a mortgage that will mature before the completion of payments under the plan and to cure the prepetition arrearages under § 1322(b)(3) over a period that extends beyond the maturity of the note. “Congress could not have intended the ‘cure’ provisions of section 1322(b)(3) to fall within the grasp of section 1322(b)(2)’s ‘modification’ prohibition. . . . Thus, while subsection (b)(2) of section 1322 generally prohibits the modification of a home mortgagee’s rights, such proscription does not affect a debtor’s ability to cure either ‘long-term’ mortgage debts, § 1322(b)(5), or ‘short-term’ mortgage debts, § 1322(b)(3). This still leaves the question of whether the curative period may extend beyond the underlying indebtedness’ maturity. Nowhere in the Bankruptcy Code is there any indication as to the time limitations for a cure under subsection (b)(3). . . . I believe that the outcome in Grubbs supports Debtor’s position. The Fifth Circuit in Grubbs permitted the debtor to provide for payment of the loan’s remaining principal over the life of the plan, notwithstanding the underlying note’s maturity within the plan’s term. In the situation before me, Debtor proposes to complete payments on the Note’s remaining principal by the time of the Note’s maturity in 1996. Only the arrearages would be subject to final cure after the Note’s maturity. Thus, Mellon will actually receive better treatment than the creditor in Grubbs did.”); Peoples First Nat’l Bank v. Haraschak (In re Haraschak), 169 B.R. 325 (Bankr. M.D. Pa. 1994) (Chapter 13 debtor can pay the matured amount of a mortgage in full with interest during the life of the plan where the mortgage was subject to modification, notwithstanding that the fully matured mortgage was reduced to a prepetition foreclosure judgment. The power to modify in § 1322(b)(2) includes the power to strip down the mortgage to the value of the collateral, and the debtor can then pay that value with interest over the life of the plan without regard to the original maturity date.); In re Dixon, 151 B.R. 388, 390–93 (Bankr. S.D. Miss. 1993) (Chapter 13 debtor can use § 1322(b)(3) to pay a home mortgage that matured before the petition in full with interest through a 60-month plan. “[T]he Fifth Circuit Court of Appeals held in [Grubbs v. Houston First Am. Sav. Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc)] . . . that, in addition to subsection (b)(5), subsection (b)(3) may be used to cure a default on a home mortgage. . . . [I]n this judicial circuit the issue is settled that subsection (b)(3) may be used to cure a default on a short term home mortgage. . . . There is substantial authority, led by the Ninth Circuit Court of Appeals, that the power to cure a home mortgage under subsection (b)(3) is limited to the power to decelerate the debt and to reinstate its original payment terms, and that a modification of rights, prohibited by subsection (b)(2), occurs when the final date for payment of a home mortgage is extended under a chapter 13 plan. . . . As this Court understands [Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir. 1985)] and those cases which follow Seidel, the distinction between curing a default on a long term home mortgage by payments through a chapter 13 plan and curing a default on a mortgage that has fully matured prepetition by payments through a chapter 13 plan, is that the latter modifies the creditor’s rights by extending the final payment date. . . . Grubbs did not link the time limit for cure of prepetition matured amounts to the payment schedule under the original obligation, but instead held that the cure of default could be made over a 36 month plan. Similarly, this Court is of the opinion that the Debtor in the present case may cure his default by making 60 even payments over the life of this chapter 13 plan equal to the full amount of [the bank’s] claim with interest accruing at the contract rate. The only difference in Grubbs and the present case is the percentage of the total claim in default at the time the respective cases were commenced, and that the present Debtor does not have regular monthly payments to maintain postpetition.”); In re Aguirre, 150 B.R. 922, 924–25 (Bankr. N.D. Tex. 1993) (Applying Grubbs v. Houston First Am. Sav. Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc), and rejecting the contrary decision of the Ninth Circuit in Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir. 1985), debtor is permitted to cure default and pay in full consistent with § 1322(b)(3) a homestead secured loan that matured by its terms prior to the filing of the bankruptcy case. “The Grubbs court determined that a Debtor’s right to cure a default during a Chapter 13 Plan as contained in § 1322(b)(3) was not limited by the provisions of § 1322(b)(2) or (5). . . . In Seidel, the Ninth Circuit sought to distinguish Grubbs and similar cases by pointing out that those cases related to notes which matured as a result of acceleration rather than notes which matured by their terms. The Seidel court acknowledged that its decision conflicted with Grubbs. . . . This court, being situated in the Fifth Circuit, must follow the Fifth Circuit’s direction. . . . This court located only one Fifth Circuit case decided subsequent to Grubbs which addresses these issues: In re Amerson, 143 B.R. 413 (Bankr. S.D. Miss. 1992). The Amerson court, without analysis and without citing Grubbs, followed Seidel. . . . [T]his court respectfully disagrees.”); In re Govan, 139 B.R. 1017 (Bankr. N.D. Ala. 1992) (After discharge of the debtor’s personal liability in a prior Chapter 7 case and claim splitting under § 506(a), debtor can pay the allowed amount of the secured portion of the mortgage holder’s lien in full during the life of the Chapter 13 plan at the same interest rate and monthly payment called for in the original contract notwithstanding that the mortgage itself would mature before payments will be completed to all creditors under the plan. Payment in full of the secured portion of the mortgage holder’s lien at the contract interest rate and monthly payment is not a modification for purposes of § 1322(b)(2), and because the allowed secured claim will be paid in full during the term of the plan, § 1322(b)(5) does not apply.); Equity Inv. Co. v. Moreland (In re Moreland), 124 B.R. 921 (Bankr. D. Conn. 1991) (Chapter 13 debtor can provide for full payment of a home mortgage that matured prepetition and was reduced to a prepetition judgment in state court. “In re Taddeo, 685 F.2d 24 (2d Cir. 1982) . . . stated that ‘the ban on “modification” in § 1322(b)(2) does not limit [the debtors’] exercise of their curative powers under . . . § 1322(b)(3).’ . . . [S]ince a debtor in this circuit can use a Chapter 13 plan to pay off the matured defaulted payments of a mortgage, it is but a modest extension to permit a good faith Chapter 13 debtor to pay off the entire matured debt.”); In re Moran, 121 B.R. 879 (Bankr. E.D. Okla. 1990) (Monthly payments over the 60-month term of the plan with a balloon payment at the end for the balance is not necessarily a modification prohibited by 11 U.S.C. § 1322(b)(2), depending upon the terms of the mortgage. If the mortgage contract allows prepayment, then the debtors may exercise this right in the form of a balloon payment. However, if a penalty is provided under the note, the debtor must make provision for the penalty as well.); In re Braylock, 120 B.R. 61 (Bankr. N.D. Miss. 1990) (Although second mortgage is protected from modification by § 1322(b)(2), the debtor can cure the default and pay the full amount of the mortgage at the contract interest rate over the 60-month term of the Chapter 13 plan under § 1322(b)(3). Full payment at the contract rate over the life of the plan is a curing of default, not a modification, citing Grubbs v. Houston First Am. Sav. Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc).); In re Williams, 109 B.R. 36 (Bankr. E.D.N.Y. 1989) (Citing Grubbs v. Houston First Am. Sav. Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc), § 1322(b)(3) permits Chapter 13 debtor to pay a non-purchase money secured claim holder that has a prepetition judgment of foreclosure on the debtor’s principal residence the present value of its debt over the life of the plan. Full payment through the plan constitutes curing default and is not a modification of the secured claim holder’s rights under § 1322(b)(2) or (b)(5).); In re Bolden, 101 B.R. 582 (Bankr. E.D. Mo. 1989) (The limitation in § 1322(b)(2) must be balanced against the congressional grant in § 1322(b)(3). Chapter 13 plan can propose to pay the holder of a second deed of trust the present value of its claim over the life of the plan notwithstanding that the deed of trust matured by its own terms prior to commencement of the Chapter 13 case.); In re Dochniak, 96 B.R. 100 (Bankr. W.D. Ky. 1988) (Applying Larkins v. Commercial Bank of Dawson (In re Larkins), 50 B.R. 984 (W.D. Ky. 1985), Chapter 13 debtor is permitted by § 1322(b)(3) to “cure the default” in a mortgage that matured prior to the Chapter 13 petition. Grubbs v. Houston First American Savings Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc) did not make a distinction between debts that mature by acceleration and debts that mature by passage of time, thus defaults under both types of debts can be cured under § 1322(b). However, curing default for a fully matured loan means that the debtors must provide for payment in full of the unpaid principal balance plus accrued interest in monthly amortized installments over the life of the plan.); In re Taylor, 95 B.R. 48 (Bankr. N.D. Miss. 1988) (Applying Grubbs v. Houston First American Savings Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc), § 1322(b)(3) permits Chapter 13 debtor to cure the default caused by the debtor’s failure to pay a $25,000 judgment secured by the debtor’s principal residence. Debtors can pay the $25,000 judgment over the life of the plan with interest notwithstanding that the debt does not fit within § 1322(b)(5).); In re Wilson, 91 B.R. 74 (Bankr. W.D. Mo. 1988) (Creditor’s second mortgage, which would mature during the life of the Chapter 13 plan, can be modified and extended for payment in full during the life of the plan with contract interest on principal and a lower interest rate on the arrearage.); In re Shaffer, 84 B.R. 63 (Bankr. W.D. Va. 1988) (Section 1322(b)(2) does not prohibit a debtor from rewriting a junior mortgage on the debtor’s principal residence to provide for payments over 10 years instead of 6. It is not altogether clear, but original 6-year maturity and proposed 10-year maturity appear to fall during life of proposed plan.); In re Ford, 84 B.R. 40 (Bankr. E.D. Pa. 1988) (Pre- and postpetition defaults in a second mortgage that matures by its original terms before the last payment is due under the plan can be cured under § 1322(b)(3). The broad language of § 1322(b)(3) is not limited by § 1322(b)(2) or by § 1322(b)(5) when the last payment on the home mortgage is due prior to the last payment under the plan.); In re Minick, 63 B.R. 440, 445 (Bankr. D.D.C. 1986) (Citing Grubbs v. Houston First American Savings Ass’n, 730 F.2d 236 (5th Cir. 1984) (en banc) for the proposition that “defaults in a mortgage which has matured by passage of time are curable under § 1322(b)(3)”; rejecting Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir. 1985).). See also In re McSorley, 24 B.R. 795 (Bankr. D.N.J. 1982); In re Simpkins, 16 B.R. 956 (Bankr. E.D. Tenn. 1982).

 

8  The feasibility of such a plan is discussed in § 198.1 [ Able to Make Payments and Comply with Plan ] § 111.1  Able to Make Payments and Comply with Plan. In a case filed after October 22, 1994, the debtor would use § 1322(c)(2) to pay the balance of the maturing 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.

 

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

 

10  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.

 

11  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.

 

12  But see In re Lobue, 189 B.R. 216, 218–19 (Bankr. S.D. Fla. 1995) (In a Chapter 11 case filed before October 22, 1994, and converted to Chapter 13 on July 26, 1995, debtor can pay oversecured mortgage in full with contract interest during the 53 months of plan notwithstanding that mortgage matured 16 months before the Chapter 11 petition. Observing that new § 1322(c)(2) “overrules the holding made in [Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir. 1985)],” court then seems to use § 1322(c)(2) as if it were applicable. “The Debtor’s plan as proposed provides not only for the full retention of all lien rights of the first mortgage holder, but also provides payment in full of all monies owed equivalent to the full value of the first mortgage at an interest rate higher than market. . . . In this case, NationsCredit is not harmed because: (1) it is over-secured by real property . . . (2) the 10% interest it will receive under the plan is well above current market rates; and (3) it is NationsCredit’s business to make loans and earn interest on the loans. The Court is very concerned about the potential for abuse and misuse of Section 1322(c)(2) and the possible resulting unfair burden on lenders. Had the lender in this case been an individual who relied upon timely receipt of the balloon payment, it would have been grossly unfair to allow the Debtor to force the lender to make what amounts to a new loan that the lender never intended to make and which the lender possibly could not afford to make. Likewise, had the original loan been for a period of one year with a sizable balloon at the end of that year, by employing Section 1322(c)(2), a debtor could conceivably force the lender to make a loan it would never have made otherwise. In such a situation, the Court might consider it grossly unfair to blindly apply Section 1322(c)(2).”).

 

13  See 140 Cong. Rec. H10,769 (section-by-section analysis by Congressman Brooks) (“The changes made by this section . . . overrule the result in First National Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. 1991) with respect to mortgages on which the last payment on the original payment schedule is due before the date on which the final payment under the plan is due. In that case, the Third Circuit held that subsequent to foreclosure judgment, a chapter 13 debtor cannot provide for a mortgage debt by paying the full amount of the allowed secured claim in accordance with Bankruptcy Code section 1325(a)(5), because doing so would constitute an impermissible modification of the mortgage holder’s right to immediate payment under section 1322(b)(2) of the Bankruptcy Code.”). 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.