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,[1] 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[2] 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.


Legal Discussion

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).[3]

While the court is reluctant effectively to compel a lender to extend credit to a new borrower,[4] “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.


Copies to:


Joseph M. Hoffman, Esq.

J. D. Kermode, Esq.

Beverly M. Burden, Trustee

[1]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.

[2]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.

[3]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.

[4]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.