UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
IN RE: CHAPTER 13
SANDRA K. GEARHEART CASE NO. 07-70232
MEMORANDUM OPINION AND ORDER
This matter having come before the Court on confirmation of debtor Sandra K. Gearheart’s (“debtor”)’s Chapter 13 plan (Doc 2), and on the objection to the plan of creditor Mortgage Electronic Registration Systems, Inc. (“MERS”) (Doc 8). The debtor’s plan proposes to treat MERS’ collateral (13 acres and a mobile home) with a secured value of $12,700.00. MERS objects to the plan arguing that the debtor is attempting an impermissible cram down under 11 U.S.C. § 1322(b)(2). Debtor filed a response to the objection (Doc 12) contending that she is entitled to cram down MERS’ lien as the mobile home is personal property that has not been effectively converted to realty under Kentucky law.
The Court took the matter under advisement following the September 12, 2007, hearing on the matter (Doc 19).
The Trustee subsequently filed a response (Doc 25) arguing that the claim of MERS may be bifurcated and treated as secured to the extent of the value of the real property only, with any remaining part of MERS’ claim treated as a general unsecured claim because (1) a mobile home is classified as personal property under Kentucky law unless specific filing requirements are followed to convert it to real property; (2) MERS’ lien only encumbers the real property and does not encumber the mobile home; (3) and the anti-modification rule of 11 U.S.C. § 1322(b)(2) does not apply because the mobile home is not real property. MERS then responded to the trustee (Doc 26) arguing that the mobile home was part of the real property because they were taxed together, and that the BAPCPA amendments to 11 U.S.C. § 101(13A) preempt state law analysis of whether a mobile home is a residence and thus subject to the anti-modification language of 11 U.S.C. § 1322(b).
The trustee replied (Doc 27) by contending that the definition of debtor’s principal residence under 11 U.S.C. § 1322(b)(2) does not alter the definition of real property in 11 U.S.C. § 1322(b)(2). After reviewing all of the applicable pleadings filed in the case, the Court issues this Memorandum Opinion and Order.
This matter is submitted to the court on the following two issues. First, does MERS have a security interest in the mobile home?
Second, does the addition of 11 U.S.C. § 101(13A) by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), in light of 11 U.S.C. § 1322(b)(2) prohibit a debtor from modifying a claim that is secured only by a security interest in real property when a mobile home sits on that real property and that mobile home is the debtor’s principal residence?
On November 16, 1983, debtor Sandra K. Gearhart acquired an interest in certain real property in Floyd County, Kentucky. In 1998, debtor received a property tax bill from Floyd County that referenced a 1985 mobile home and 14 acres assessed at $36,000.00. On February 28, 2000, debtor executed a promissory note and mortgage with the CIT Group for $15,234.00. On September 28, 2005, a certificate of title was issued in the name of the debtor but there is no notation of a lien on the certificate of title.
This Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2).
Does MERS have a security interest in the mobile home? MERS argues that the mobile home and real property were taxed together which indicates that the local county clerk’s office treated the mobile home as real estate. Thus MERS argues that it has a real property lien on the mobile home as the mobile home is part of the real estate. MERS apparently does not argue that it has a personal property lien on the mobile home as it does not argue that it has a lien noted on the certificate of title. However, MERS argument that it has a real property lien on the mobile home must fail because the only way to achieve a real property lien on a mobile home pursuant to KRS 186A is by surrendering a certificate of title to the county clerk and filing an affidavit stating that the mobile home has been converted to real estate. MERS has not done this and therefore MERS does not have a security interest in the mobile home.
Does the addition of 11 U.S.C. § 101(13A) by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), in view of 11 U.S.C. § 1322(b)(2), prohibit a debtor from modifying a claim that is secured only by a security interest in real property when a mobile home sits on that real property and that mobile home is the debtor’s principal residence?
Chief Judge Scott, of this district, addressed the Code’s anti-modification provision when he answered in the negative the question of whether the holder of a claim secured by real property, upon which a mobile home that is the Debtor’s principal residence sits, may be the beneficiary of the protection provided by 11 U.S.C. § 1322(b)(2). In a 2003 opinion entered in the bankruptcy case of James S. Wilson (EDKY 02-34305 Doc 45), he found the lender with a claim secured only by the debtor’s real estate could not benefit from the anti-modification protection of 11 U.S.C. § 1322(b)(2) because the statutory authority required security in real property that was also the debtor’s principal residence. Debtor Wilson owned a mobile home, which was not permanently affixed to the land, and upon which the creditor had failed to perfect its security interest. In the absence of a controlling federal rule, Judge Scott observed that state law determines the property rights of a debtor, and following a brief summary of state law, held that the mobile home where the debtor resided was personal property. It followed that the creditor’s claim, secured only by real estate, was not secured by the debtor’s principal residence which was personal property and therefore was not permitted the exception to modification afforded to 11 U.S.C. § 1322(b)(2). This Court agrees with Judge Scott’s reasoning in the Wilson case.
However, the matter before the Court today comes after the definition of debtor’s principal residence was added by BAPCPA as section 101(13A) of the Bankruptcy Code effective in 2005.
MERS frames its argument against modification of its claim around three sections of the Bankruptcy Code – Sections 101(13A), 101(27B) and 1322(b)(2).
“The term debtor’s principal residence – (A) means a residential structure, including incidental property, without regard to whether that structure is attached to real property; and (B) includes an individual condominium or cooperative unit, a mobile home or manufactured home, or trailer.” 11 U.S.C. § 101(13A).
“The term incidental property means, with respect to a debtor’s principal residence – (A) property commonly conveyed with a principal residence in the area where the real property is located; (B) all easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil or gas rights or profits, water rights, escrow funds, or insurance proceeds; and (C) all replacements or additions.” 11 U.S.C. § 101(27B).
“Subject to subsections (a) and (c) of this section, the plan may – modify the rights of holders and secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or holders of unsecured claims, or leave unaffected the rights of holders of any class of claims;” 11 U.S.C. § 1322(b)(2).
MERS argues that the new definitions added by BAPCPA demonstrates Congressional intent to broaden the scope of the anti-modification provision found in 11 U.S.C. § 1322(b)(2). This Court disagrees.
Kentucky law clearly establishes a mobile home or manufactured home is personal property, unless or until, steps are taken to convert it to real property. K.R.S. Chapter 186A et seq. “In 2000, the Kentucky legislature modified K.R.S. § 186A.297 to allow for a manufactured home to become part of the permanent real estate. By filing an affidavit of conversion to real estate and surrendering the Kentucky certificate of title, the manufactured home would be deemed an improvement to the real estate upon which it is located. K.R.S. § 186A.297. The legal effect of conversion would be to treat the manufactured home as real property, apparently no longer governed by or subject to the certificate of title requirements in KRS § 186A.190(1).” PHH Mortg. Services v. Higgason, 345 B.R. 584, 586-587 (E.D. Ky. 2006). “Property interests are created and defined by state law.” Butner v. United States, 99 S.Ct. 914, 918 (1979). In Kentucky, mobile homes are personal property unless the owner takes affirmative steps to convert the home to real property. None of those steps were taken in the present case.
Judge Scott recently ruled in the bankruptcy case of Eva Mae Belcher and Guice Belcher (EDKY 07-60382 Doc 43)(1) that state law governs the nature of the property interest and application of the 11 U.S.C. § 1322(b)(2) anti-modification provision requires an interest secured only by real property that is the Debtor’s principal residence; and (2) that the addition of 11 U.S.C. § 101(13A) by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), in view of 11 U.S.C. § 1322(b)(2) does not prohibit a debtor from modifying a claim that is secured only by a security interest in a mobile home when that mobile home is the debtor’s principal residence, but is located on real property in which the debtor has no ownership interest and against which the creditor has no perfected lien.
Judge Scott adopted the reasoning of the United States District Court for the Southern District of Alabama in In re Moss, 2007 WL 2807355 (S.D. Ala.).
Green Tree has a properly perfected security interest
in a mobile home purchased by the debtor, which she uses
as her residence. Under Alabama law, the mobile home is
deemed to be personal property, not real property. . .
The no-modification provision of Section 1322(b)(2)
requires that the creditor’s security interest be in real property and that the real property be the debtor’s
principal residence. Green Tree acknowledges that courts
have “consistently required a security interest to exist
in real property before the provision would apply.” It
also acknowledges that whether a mobile home constitutes
“real property” under this section has consistently been determined by resort to state law. . . Green Tree argues, however, that a 2005 amendment introducing a statutory
definition of “debtor’s principal residence”
eliminates the “real property” requirement. . .
... Green Tree argues that, because a mobile home
constitutes a debtor’s principal residence even if it is
not attached to real property (and thus is not real
property under the laws of most if not all states), “ALL
mobile homes, regardless of their state law classification
as real or personal property, are protected by the antimodification provision of section 1322(b)(2)”. . .
The trouble with this argument is that Section
1322(b)(2) on its face carries two qualifications: first,
that the security interest be in real property, and
second, that the real property at issue be the debtor’s
principal residence. By defining debtor’s principal
residence, Congress addressed the second requirement, but
it left the first intact. Thus, however debtor’s principal residence is defined, it must still constitute “real property” in order for the no-modification provision to
apply. Green Tree devotes the bulk of its briefs to
avoiding this result.
“The first rule in statutory construction is to
determine whether the language at issue has a plain and unambiguous meaning with regard to the particular dispute.
If one statute’s meaning is plain and unambiguous, there
is no need for further inquiry” (Citation omitted). . .
Green Tree first argues that the statutory language unambiguously eliminates the “real property”
requirement. . . That is manifestly impossible because, by
its terms, the 2005 amendment addresses only the
definition of “debtor’s principal residence,” leaving the explicit “real property” element untouched. . . The
express “real property” requirement cannot be ignored, and
it dooms Green Tree’s argument.
Green Tree next argues that Section 1322(b)(2) is
ambiguous in light of Section 101(13A), opening the door
to examination of the legislative history. . . It suggests
that the Court in In re: Shepherd, 354 B.R. 505 (Bankr.E.D.Tenn.2006), found such an ambiguity. The
Shepherd Court, however, did not purport to find any
ambiguity in the statutory language; instead, it concluded that “the statutes cannot logically be read together” and
thus “result in an absurdity.” Id. at 511. The Court is
aware of no court finding any ambiguity in the statutes,
and the Court finds none.
Nor can the Court agree with the Shepherd Court’s conclusion. Imposing the definition of “debtor’s principal residence” on Section 1322(b)(2) results only in the
unstartling proposition that property can be a debtor’s
principal residence even if it is personalty, but it
cannot be subject to the no-modification provision unless
it is realty. There is nothing absurd or illogical about
such a state of affairs. Indeed, it is precisely the
result cases reached before the insertion of Section
101(13A). In Re Moss, 2007 WL 2807355 (S.D. Ala.).
This Court holds that the addition of 11 U.S.C. § 101(13A) by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), in light of 11 U.S.C. § 1322(b)(2) does not prohibit a debtor from modifying a claim that is secured only by a security interest in real property when a mobile home sits on that real property and that mobile home is the debtor’s principal residence.
The above constitutes the Court’s findings of fact and conclusions of law. For the above reasons, IT IS HEREBY ORDERED that the objection of MERS is OVERRULED, and that the confirmation hearing shall be rescheduled by the Trustee.
Beverly Burden, Esq., Chapter 13 Trustee
Jessica Newman, Esq.
Franklen K. Belhasen, Esq.