UNITED STATES BANKRUPTCY COURT FOR
EASTERN DISTRICT OF KENTUCKY
DEBTOR CASE NO. 04-53166
United Bank & Trust Company (“United”) is before the court on the Motion for Relief from Stay and Order Abandoning Property that it filed in this case on October 14, 2004. In addition, Sarah Schor (the “Debtor”) is before the court on the Objection to United Bank and Trust Company’s Proof of Claim that she filed on October 27, 2004. Having considered the motion and the Debtor’s objection thereto, the objection to United’s claim and the response thereto, and the briefs and arguments of counsel, the court concludes that United’s motion must be overruled and the Debtor’s objection must be sustained.
Factual and Procedural Background
The facts pertinent to this matter are undisputed. On or about December 19, 1997 Joyce Schoenberg, the Debtor’s mother, executed a mortgage (the “Mortgage”) in favor of United with respect to property located at 210 Setti Place, Versailles, Kentucky (the “Property”). The Mortgage was duly recorded on December 22, 1997. Paragraph 11 of the Mortgage provides, in pertinent part:
If all or any part of the Property or any interest therein is sold or transferred by the Mortgagor without Mortgagee’s prior written consent . . ., Mortgagee may, at the Mortgagee’s option, declare all the sums secured by this mortgage to be immediately due and payable and may forthwith proceed to collect the same and to enforce this mortgage by suit or otherwise.
Paragraph 8 of the Mortgage provides that United may also accelerate the indebtedness if the mortgagor is adjudged a bankrupt. The Mortgage also stated that “THE covenants herein contained shall bind, and the benefits and advantages shall inure to, the respective heirs, executors, administrators, successors and assigns of the parties hereto.”
On or about December 23, 2002 Ms. Schoenberg conveyed the property to herself and the Debtor jointly with survivorship rights for a “nominal” consideration. Apparently, she did not have United’s prior written consent. Moreover, in 2003 Ms. Schoenberg filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Florida, and received a discharge on March 26, 2004. She did not reaffirm the indebtedness to United. The record does not indicate whether United accelerated the indebtedness secured by the Mortgage or, if so, when.
On September 24, 2004 the Debtor filed a voluntary petition for relief under Chapter 13 of the Code, commencing this case. The proposed Amended Chapter 13 Plan (the “Plan”) provides for the arrearages on the Mortgage and on a second mortgage on the Property to be paid through the Trustee’s office, with ongoing maintenance payments to be made directly to the mortgagees. As mentioned above, on October 14, 2004 United filed its motion for relief from the automatic stay, contending that “[t]he Movant lacks adequate protection because the Debtor and Ms. Schoenberg continue to use and enjoy the collateral without any personal liability for the underlying debt. Additionally, the Movant lacks adequate protection because there exist both prepetition and postpetition payment arrearages.” According to the motion, the Debtor had paid $700.00 of the single $742.78 payment that had come due postpetition and prior to the filing of the motion. As also mentioned above, on October 27, 2004 the Debtor filed her objection to the allowance of United’s claim, disputing the assertion in United’s proof of claim that the entire debt constitutes an arrearage, while the proof of claim acknowledged that the amount needed to cure the default is $3,346.74. Neither United nor the Trustee nor any other party in interest has filed an objection to confirmation of the Plan.
United takes the position that it is entitled to relief from the automatic stay for cause, including a lack of adequate protection of its interest in the Property. 11 U.S.C. § 362(d)(1). The Debtor responds that, under applicable Supreme Court authority, she may reinstate the Mortgage under § 1322(b)(5) of the Bankruptcy Code even though the Debtor is not personally liable for the debt.
The Debtor relies on Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150 (1991). In that case, the mortgagor discharged his personal liability in a Chapter 7 case then, when the mortgagee obtained a judgment of foreclosure, the mortgagor filed a Chapter 13 petition and provided for the mortgage in the plan. Id., 501 U.S. at 80-81. The Court held that the in rem obligation remaining after the discharge of personal liability on a mortgage debt is a “claim” that may be addressed in a Chapter 13 plan. Id. at 83-86. More broadly, the Supreme Court held that Congress “chose general language broad enough to encompass . . . all interests having the relevant attributes of nonrecourse obligations regardless of how those interests come into existence.” Id. at 86-87. Thus, if Ms. Schoenberg was the debtor in this case, Johnson v. Home State Bank would control.
Most courts addressing the issue since Johnson was decided extend the decision to situations where the current debtor is a transferee from the original mortgagor. E.g., In re Foxcroft Square Co., 184 B.R. 671, 676-77 (E.D. Pa. 1995); In re Curinton, 300 B.R. 78, 80-85 (Bankr. M.D. Fla. 2003); In re Garcia, 276 B.R. 627, 630-33 (Bankr. D. Ariz. 2002); In re Trapp, 260 B.R. 267, 270-71(Bankr. D.S.C. 2001); In re Rutledge, 208 B.R. 624, 627-29 (Bankr. E.D.N.Y. 1997); In re Allston, 206 B.R. 297, 298-99 (Bankr. E.D.N.Y. 1997); In re Wilcox, 209 B.R. 181, 182 (Bankr. E.D.N.Y. 1996); In re Jordan, 199 B.R. 68, 69-70 (Bankr. S.D. Fla. 1996); In re Hutcherson, 186 B.R. 546, 548-50 (Bankr. N.D. Ga. 1995); In re Lyrek, Nos. 94-11572-12, 94011573-12, 1994 WL 16005187, at *2-*4 (Bankr. W.D. Wis. Oct. 31, 1994); In re Lumpkin, 144 B.R. 240, 241-42 (Bankr. D. Conn. 1992). A few other courts have reached a contrary conclusion, holding that Johnson does not apply unless there is privity of contract between the debtor and the mortgagee. E.g., In re Allen, 300 B.R. 105, 117-20 (Bankr. D.D.C. 2003); Ulster Sav. Bank v. Kizelnik (In re Kizelnik), 190 B.R. 171, 178-79 (Bankr. S.D.N.Y. 1995); In re Mitchell, 184 B.R. 757 (Bankr. C.D. Ill. 1994); In re Threats, 159 B.R. 241, 242-43 (Bankr. N.D. Ill. 1993).
While the court is reluctant effectively to compel a lender to extend credit to a new borrower, “I am bound by the wording of the Code and the Supreme Court’s interpretation of that wording. That, rather than some perception of the Code’s spirit, must prevail.” In re Foxcroft Square Co., 184 B.R. at 677. The Supreme Court stated that “claims” that may be addressed in a Chapter 13 plan include rights enforceable only against property of the debtor, “regardless of how those interests come into existence.” Johnson v. Home State Bank, 501 U.S. at 87. United’s rights against the Property in this case clearly fall within that category. Accordingly, its assertion that it lacks adequate protection by virtue of the fact that the Debtor has no personal liability for the Mortgage obligation is without merit. As for the contention that the existence of prepetition and postpetition arrearages results in a lack of adequate protection, the prepetition arrearage is addressed in the Plan and, according to United’s motion, the Mortgage was essentially current postpetition as of the time the motion was filed.
For the foregoing reasons, the court will enter a separate order overruling United’s motion for relief from the automatic stay, without prejudice to its right to renew the motion in the event that the Debtor becomes delinquent in the payments to United or to the Trustee required by the Plan. In addition, because the Mortgage is not in default by virtue of the conveyance of the Property to the Debtor and the Plan provides for the cure of the payment default, the court’s order will also sustain the Debtor’s objection to United’s claim.
Joseph M. Hoffman, Esq.
J. D. Kermode, Esq.
Beverly M. Burden, Trustee
Beverly M. Burden, the trustee of the Debtor’s estate (the “Trustee”), filed an objection to United’s motion on October 26, 2004, but orally withdrew the objection at the hearing thereon.
While Ms. Schoenberg remains a co-owner of the Property, counsel for the parties agreed at the hearing in this matter that only the Debtor resides there.
Allen and Threats are distinguishable because the decisions were based on § 1322(b)(5) of the Bankruptcy Code, holding that a default cannot be “cured” within the meaning of that provision without revesting title in transferor/mortgagor. Here, United has not objected to confirmation of the Plan. Likewise, Kizelnik may be distinguished because, in that case, the debtor was not the original mortgagor’s child, and more significantly, the debtor did not own the property in question but held, at most, an option to purchase it. The Mitchell case’s analysis relies on pre-1991 case law, not even mentioning Johnson v. Home State Bank.
Here, the court’s concerns are allayed somewhat by the fact that the due-on-sale clause in the Mortgage is unenforceable under the circumstances of this case as a matter of federal law: “With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, . . . a lender may not exercise its option pursuant to a due-on-sale clause upon . . . a transfer where the spouse or children of the borrower become an owner of the property.” 12 U.S.C. § 1701j-3(d)(6); see In re Jordan, 199 B.R. at 70; In re Lumpkin, 144 B.R. at 241.