Modifying the home loan
Posted: Mon Apr 07, 2014 10:16 am
This holding follows theBAP's confusing dicta in Abelgadir distinguishing Scarborough and the dissent is following Scarborough.
Law Office of Peter M. Lively * Personal Financial Law Center I
11268 Washington Boulevard, Suite 203, Culver City, California 90230-4647
Telephone: (310) 391-2400* Toll Free: (800) 307-3328 * Fax: (310) 391-2462
On Monday, April 7, 2014 9:43 AM, "jhayes@hayesbklaw.com" wrote:
Wages v. JP
Morgan Chase Bank (In re Wages), -------------- B.R. --------- (9th Cir. BAP
March, 2014)
Issue: Where the debtor operates a business in his home, may the
loan on his home be modified in chapter 11? Holding:
Judge Jim Pappas,
Idaho
Jury, Kirscher, Kurtz
Opinion by Jury, Dissent by Kurtz
The chapter 11 debtors
here filed a plan proposing to modify their loan on real property that included
their home. "In 1999, debtors
purchased property consisting of a house, buildings and eleven acres near
Heyburn, Idaho (property). Initially,
they used approximately four acres for raising feed or crops, five acres for
pasturing livestock and two acres for residential purposes." Later they stopped using the property for the
livestock, feed and crops business and started a small trucking business.portion of the property to operate the business, including a small office in
the house and enough adjoining space to park two truck tractors and up to three
trailers." The bank objected to the
plan and the court sustained the objection.
The BAP affirmed,
2-1.
"According to its plain language, the prohibition against
modification of the rights of the holders of secured claims in 1123(b)(5) has
three distinct requirements: first, the security interest must be in real
property; second, the real property must be the only security for the debt; and
third, the real property must be the debtors principal residence. requirements have been met. Creditors
claim is secured by debtors real property and debtors do not assert that
anything other than the real property secures the claim. Therefore, our focus is on the last
requirement whether the real property is debtors principal residence. If it is, debtors may not modify the claim
secured by their property."
The BAP looked to
the definition of "debtor's principle residence" in section 101 and
said it "does not equate the term 'real property' with 'debtors principal
residence.' In other words, residence
can clearly be personal property as well as real property. Similarly, the BAP says the intention of the
parties is not relevant. It then
discussed the "bright line approach," that is, if the debtor lives
there, the loan cannot be modified. "We
agree with the bankruptcy courts assessment that there is nothing in the
bankruptcy code indicating that, once a commercial use of a property becomes
sufficiently 'significant,' that property ceases being the debtors principal
residence either a property is a debtors principal residence or it is not." The dissent stated, "In my view, the
majority takes the statutory phrase 'claim secured only by a security interest
in real property that is the debtors principal residence'
and recasts it as if the phrase actually read claim secured only by a security
interest in real property that includes the debtors principal
residence.
The post was migrated from Yahoo.