Beam v. Chase Home Fin., LLC (In re Beam)

510 B.R. 399

In the Matter of Stephen Wesley BEAM, Melissa Copeland Beam, Debtors.Stephen Wesley Beam, Melissa Copeland Beam, Movants.

v.Chase Home Finance, LLC, Respondent.

No. 10–12184–WHD.

United States Bankruptcy Court,

N.D. Georgia,

Newnan Division.

Signed March 27, 2014.

Craig Z. Black, Robert J. Semrad & Associates, LLC, Atlanta, GA, John T. Dufour, Van Pelt & Dufour, Carrollton, GA, for Debtors.

Adam M. Goodman, Atlanta, GA, Trustee.

ORDER

W. HOMER DRAKE, Bankruptcy Judge.

Before the Court is the Debtors' Motion to Strip the Second Mortgage held by Chase Home Finance, LLC as unsecured (hereinafter the “Motion to Strip”), pursuant to 11 U.S.C. §§ 506(a) & (d), 11 U.S.C. § 1322(b)(2), and Fed. R. Bankr.P. 3012 and 9014. The Debtors also filed a Motion to Compel the Chapter 13 Trustee (hereinafter the “Motion to Compel”) to sign an Order granting the Motion to Strip. Additionally, the Debtors filed a correlating Post Confirmation Modification of their Chapter 13 Plan (hereinafter the “Plan Modification”) to reflect the second mortgageheld by Chase Home Finance, LLC (hereinafter “Chase”) as unsecured.

The Motion to Strip and the Plan Modification came before the Court for hearing on December 19, 2013. The Chapter 13 Trustee (hereinafter the “Trustee”) objected to both. The Debtors contend that a Chapter 13 debtor is allowed to utilize the “lien-strip” process enunciated by the Eleventh Circuit in Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1360 (11th Cir.2000) to change the secured status of a secured creditor after confirmation of the plan. The Chapter 13 Trustee rejects the Debtors' argument and believes that the res judicata effect of a confirmed Chapter 13 Plan prevents the Debtors, now, from stripping the lien. The Court now addresses the issues presented in the Motion to Strip and the Plan Modification. This is a core proceeding under 28 U.S.C. § 157(b)(2) and jurisdiction and venue are proper. See28 U.S.C. §§ 157(a); & (b)(1); & 1334(b), and 1408–1409.

Findings of Fact

Stephen Wesley Beam and Melissa Copeland Beam (hereinafter the Debtors) filed a voluntary petition for relief under Chapter 13 of the United States Bankruptcy Code ¹ on June 7, 2010. By Order, the Court confirmed the Debtors' Chapter 13 Plan on August 26, 2010. According to the schedules, the Debtors own real property located at 315 Hidden Lakes Drive valued at $376,000.00. The Debtors indicated in their schedules that the property is subject to a first priority security deed held by Suntrust Mortgage Inc. (hereinafter “Suntrust”) in the amount of $384,217.87. The property is also subject to a second priority security deed held by Chase in the amount of $91,316.22.

Suntrust Mortgage Inc. filed its first priority secured claim on June 15, 2010 in the amount of $386,434.07. See Proof of Claim 3–1. Chase filed its second priority secured claim on July 15, 2010 in the amount of $92,031.61. See Proof of Claim 8–1. The plan, as initially confirmed, provided a 100% dividend to unsecured creditors. The plan, as modified since confirmation, currently provides for payments of $2,130.00 per month and a dividend of forty-five percent to be paid to unsecured creditors. The Debtors' Chapter 13 plan at confirmation also acknowledged both Suntrust and Chase as secured creditors, provided that the Debtors were current on their monthly payments to Chase, and obliged themselves to continue making contractual payments to Chase as such payments come due under its note.

On May 16, 2013, nearly three years after confirmation, the Debtors filed this Motion to Strip and scheduled a hearing for June 20, 2013. The Debtors properly served Chase with the Motion to Strip by both regular and certified mail. Nevertheless, Chase failed to appear in opposition. No party voiced opposition to the Motion to Strip, and the clerk directed the Debtors to submit their order for the Court's Approval. However, the Court procedurally requires the Chapter 13 Trustee's signature indicating no opposition before it accepts such an order, and the Trustee and the Debtor failed to reach an accord. Though the Trustee did not voice opposition at the hearing, he believes the Debtors' Motion to Strip to be improper and, thus, refuses to endorse the order. Believing the Trustee's initial silence to be determinative of his position and the clerk's directive to be final, the Debtors subsequently filed a Motion to Compel the Chapter 13 Trustee to withdraw his opposition to the Debtors' Motion to Strip. The Motion to Strip and the Motion to Compel came before the Court on December 19, 2013.

Additionally, the Debtors filed the Plan Modification (Doc. No. 89), which reasserts that Chase's second priority lien is completely unsecured, as the unpaid balance owed to the first position lien holder exceeds the value of the Debtors' residence. The Plan Modification indicates that the Debtors will seek an order “stripping” Chase's second lien and directs the Trustee to treat any claim filed by Chase as unsecured. The Plan Modification was also set for hearing on December 19, 2013.

At the hearing, the Court directed both parties to submit briefs on the issue as to whether the Code permits a Chapter 13 debtor to change the secured status of a secondary lien in accordance with In re Tanner after the confirmation of a Chapter 13 Plan. The Court took the matter under advisement.

Conclusions of Law

Through the Motion to Strip and the Plan Modification, the Debtors are attempting to void the second priority lien held by Chase, designate Chase's claim as unsecured, and have it discharged after the successful conclusion of this bankruptcy case. The Debtors cite 11 U.S.C. § 506(a) & (d) as the legal authority for determining that the value of the property is less than the claim held by Suntrust, thereby rendering Chase's claim, as second in priority, unsecured.

In a Chapter 13 case, section 1322(b)(2) provides special treatment for creditors with a mortgage on the debtor's home. Specifically, section 1322(b)(2) permits a debtor's Chapter 13 plan to “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). The Supreme Court held in Nobleman v. Am. Savings Bank that section 1322(b)(2) protects from modification only an unsecured portion of a partially secured claim (on a debtor's primary residence) determined under section 506² of the Bankruptcy Code. In re Berrouet, 469 B.R. 393, 396 (Bankr.N.D.Ga.2012) (Diehl, B.J.) (citing Nobleman v. Am. Savings Bank, 508 U.S. 324, 113 S.Ct. 2106, 2111, 124 L.Ed.2d 228 (1993)). However, Eleventh Circuit precedent does not limit a debtor's ability under section 1322(b)(2) to use section 506 to value collateral, determine the secured portion of a secured residential mortgage, and modify said mortgage, when the junior lien is wholly unsecured. Id. (citing Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1360 (11th Cir.2000)).

The Debtors are correct in their analysis of sections 506 and 1322, that a lien strip is proper based upon the facts as set forth by the Debtors. Specifically, the fair market value of the Debtors' residence was $376,000.00 on the petition date, Suntrust's first priority security deed was $384.217.87, and the second priority security deed held by Chase was $91,316.22. Based on those values, Chase's claim is wholly unsecured and subject to being stripped in accordance with In re Tanner. See generally In re Tanner, 217 F.3d 1357 (11th Cir.2000). However, the fundamentalsof Tanner are not the questions before the Court.

The central issue before the Court is whether the Debtors may strip the lien of Chase through the Motion to Strip and the Plan Modification after the confirmation of the Chapter 13 plan. The Debtors argue that a secondary lien may be stripped using the “lien-strip” method approved in In re Tanner after confirmation of a Chapter 13 plan in accordance with section 502(j) of the Bankruptcy Code and Rule 3008 of the Federal Rules of Bankruptcy Procedure. Specifically, the Debtors argue that section 1329, which governs modification of a Chapter 13 plan, should be applied in the same manner as section 502(j) and Rule 3008. The Court will address the argument presented by the Debtors.

I. Res Judicata effect of the Chapter 13 Plan Confirmation

As an initial matter, the Court recognizes the res judicata effect that the confirmation of the Chapter 13 Plan bestows in the instant case. Section 1327 provides that “[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not such creditor has objected to, has accepted, or has rejected the plan.” 11 U.S.C. § 1327 (emphasis added). The finality of the confirmation order extends to both the debtor and the creditor as, upon entry of said order and absent a timely appeal or proceeding to revoke confirmation, both sides are protected from having to relitigate issues that were or could have been decided prior to confirmation. In re Bernard, 189 B.R. 1017, 1019 (Bankr.N.D.Ga.1996) (Drake, B.J.). “Confirmation of a Chapter 13 plan is essentially an adjudication of litigation over the issues of the classification and treatment of claims provided for in a proposed chapter 13 plan, and is res judicata on those issues.” In re Berrouet, 469 B.R. 393, 396 (Bankr.N.D.Ga.2012) (Diehl, B.J.) (citing Ford Motor Credit Co. v. Parmenter (In re Parmenter), 527 F.3d 606, 609 (6th Cir.2008); In re Stevens, 130 F.3d 1027, 1029 (11th Cir.1997)). Accordingly, the confirmation of the Debtors' Chapter 13 plan binds the Debtors and Chase to its terms.

The Debtors provided for Chase as a secured creditor in their plan and in a subsequent plan modification. Now, the Debtors contend that, as of the filing of the petition, the fair market value of the house was less than the balance owed on the first priority lien, acknowledge that Chase's...