IN RE:
JAMES S. WILSON CASE
NO. 02-34305
UNITED STATES
BANKRUPTCY COURT
EASTERN
DISTRICT OF KENTUCKY
FRANKFORT
IN RE:
JAMES
S. WILSON CASE
NO. 02-34305
DEBTOR CHAPTER
13
ORDER
AND OPINION
This matter having
come before the court on April 16, 2003 for confirmation of the Chapter 13 Plan
and an Objection to Confirmation by IMC Mortgage Company, a Florida
Corporation, as successor by merger to Industry Mortgage Company, L.P., A
Delaware Limited Partnership c/o Fairbanks Capital Corporation (“IMC”). The court heard arguments of counsel at the
hearing, H. Bradley Smith representing the debtor and Amy Morgan representing
creditor IMC, and having taken the matter under submission, makes the following
findings of fact and issues the following conclusion of law.
Findings of
Fact
The material facts in this matter are not
in dispute, and are, as found in the record and as recited in debtor’s response
to IMC’s Objection to Confirmation, as follows:
1.
The debtor filed for
relief under Chapter 13 of the Bankruptcy Code on November 26, 2002. At the time of filing the petition debtor
owned 1.6 acres and a 1995 Clayton mobile home placed thereon located at 130
Old Sheep Pen Road, Frankfort, Franklin County, Kentucky.
2.
In order to finance the
mobile home, debtor executed a promissory note to IMC and granted a mortgage on
the realty on May 22, 1998.
3.
IMC filed the mortgage
on June 3, 1998 with the clerk of the Franklin County court.
4.
IMC did not submit a
title lien statement to the clerk regarding the mobile home.
5.
Fairbanks Capital
Corporation, P.O. Box 9001710, Louisville, Kentucky, 40290-1710 was among the
creditors listed in debtor’s mailing list matrix.
6.
Trustee filed a report
and recommendation as to confirmation on February 27, 2003. In the report the Trustee noted “IMC Mortgage
Company has a non-perfected lien on a mobile home and a valid mortgage on the
land on which the mobile home sits.”
7.
Debtor filed his First
Amended Plan on March 18, 2003 following the Trustee’s recommendation in which
IMC was treated as a secured creditor paid inside the plan to the extent of the
value of the land.
8.
IMC filed its objection
to confirmation of debtor’s plan on March 21, 2003.
9.
The mobile home sits
upon the real property.
10. The mobile home is the debtors’ principal residence.
Issue
IMC’s objection
presents the question to the court of whether the holder of a claim secured by
real property, upon which a mobile home that is the debtors’ residence sits, is
a beneficiary of the anti-modification protection provided by 11 U.S.C. §
1322(b)(2).
11 U.S.C. Section 1322
(b)(2) provides that the debtor’s plan may
“modify the rights of holders of secured claims,
other than a claim secured only by a security interest in real
property that is the debtor’s principal residence...” 11 U.S.C. § 1322(b)(2) (emphasis added).
In order for IMC to avoid
a modification of its rights as to the real property and the mobile
home, IMC’s claim must be a claim secured only by a security interest in real
property that is the debtor’s principal residence. In the case at hand IMC and the debtors
contemplated securing the mortgage of IMC by granting a security interest in
both the real property and the mobile home situated thereon. Nobelman v. American Savings Bank,
113 S. Ct. 2106, 2110 (1993) provides
“In the absence of a controlling federal rule, we
generally assume that Congress has “left the determination of property rights
in the assets of a bankrupt’s estate to state law,” since such “[p]roperty
interests are created and defined by state law.” quoting Butner v. United
States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979).
In its Supplemental
Memorandum, IMC argues that the issue presented in this matter is solely an
issue of federal law. The court
disagrees. Kentucky law dictates the
determination of IMC’s rights as to the property in question – be it
real property or personal property.
Applicable Kentucky law requires owners of mobile homes to obtain a
certificate of title and the perfection of any security interest in the mobile
home to be perfected by a notation on the certificate of title. KRS 186.650, 186A.070, 186A.190. The sole means of perfecting a
security interest in any property for which has been issued a Kentucky
certificate of title shall be by notation on the certificate of title
notwithstanding the existence of any financing statement filed under the
provisions of KRS Chapter 355. KRS
186A.190(1), (2) (emphasis added). See
also Hiers v. Bank One, West Virginia, Williamson, 946 S.W.2d 196, (Ky.
App. 1996) (submission of certificate of title and title lien statement to
county clerk only means of perfecting security interest in mobile home in
Kentucky).
It is undisputed that IMC
did not submit a title lien statement to the county clerk regarding the mobile
home. Thus IMC is not perfected as to
the mobile home and has no rights thereto under Kentucky law.
Neither debtors nor the
Trustee dispute IMC’s claim of a perfected security interest in the real
property.
IMC would have the court
determine in spite of IMC’s failure to perfect the security interest in the
mobile home, IMC’s claim is protected from modification due to the valid
mortgage on the real property. IMC’s
argument is that the real property constitutes the debtors’ personal residence
thus providing IMC with the protection of § 1322(b)(2). To follow this argument the court then must
make a determination that the real property encumbered by IMC’s mortgage is the
equivalent of the debtors’ residence.
In KRS 186.650 Kentucky law provides a definition of “manufactured home”
or a mobile home as a structure that may inter alia “be used as a place
of residence…” KRS 186.659(3)(f). The
debtors live in the mobile home and mobile homes in the commonwealth of
Kentucky must have a certificate of title.
KRS 186A. Certificates of title
are required for certain personal property within the state. It follows that the mobile home in which
debtors reside is not real property but personal property as defined by state
law. The real property in this matter is
the land on which the mobile home sits and on which IMC has a perfected
security interest.
Returning to the statutory
basis of IMC’s objection to debtors’ plan the court must conclude that the
anti-modification protection of § 1322(b)(2) applies only if IMC’s claim is
secured only by a security interest in real property that is the debtors’
principal residence. Based on the
foregoing, IMC’s mortgage is indeed secured only by a security interest in real
property, however, the real property does not, under relevant Kentucky law,
constitute the debtors’ principal residence.
Debtors reside in the mobile home that is personal property on which IMC
is unperfected. Thus IMC’s claim is not
permitted the exception to modification afforded by 11 U.S.C. §
1322(b)(2).
Order
Based on the record in
this case and the arguments of counsel, the court hereby finds creditor IMC
Mortgage Company, L.P.’s objection to confirmation of debtor’s plan should be
and is hereby OVERRULED. Confirmation hearing before this court to be continued at
the discretion of the Trustee.
Copies to:
Debtor
H. Bradley Smith, Esq.
Shannon O’Connell Egan, Esq.
Beverly M. Burden, Trustee
U.S. Trustee