Bernadin v. U.S. Bank Nat'l Ass'n

570 F.Supp.3d 281

Geraldine BERNADIN, Appellant,

v.U.S. BANK NATIONAL ASSOCIATION as Trustee, Successor in Interest Wachovia Bank National Association, as Trustee for Merrill Lynch Investors Trust, et al., Appellees.

CIVIL ACTION NO. 20-5364

United States District Court, E.D. Pennsylvania.

Filed May 17, 2021

Irwin Lee Trauss, Philadelphia Legal Services, Philadelphia, PA, for Appellant.

David A. Deflece, Wilson Elser Moskowitz Edelman & Dicker LLP, Philadelphia, PA, Debra Djupman Warring, Francis X. Crowley, Gregory F. Vizza, Thomas Cialino, Josef W. Mintz, Blank Rome LLP, Philadelphia, PA, for Appellees.

MEMORANDUM

EDUARDO C. ROBRENO, District Judge

I. INTRODUCTION

This is an appeal from the United States Bankruptcy Court for the Eastern District of Pennsylvania (the "Bankruptcy Court"). In the proceeding below, Appellant Geraldine Bernadin sought, inter alia, an order bifurcating Appellee U.S. Bank's claim into its allowed secured and allowed unsecured components pursuant to 11 U.S.C. § 506(a) and a determination pursuant to section 506(d) that any lien U.S. Bank has on Appellant's property is void to the extent the total claim exceeds the amount of the allowed secured claim. The Bankruptcy Court denied this request because it found it was precluded by the "anti-modification" clause of 11 U.S.C. § 1322(b)(2).

Appellant makes two principal arguments on appeal. First, she argues that the Bankruptcy Court should have bifurcated U.S. Bank's claim without regard to § 1322(b)(2). And second, she argues that even if the Bankruptcy Court was correct in considering § 1322(b)(2), the court erred in finding that it protected Appellee's claim from bifurcation.

For the reasons set forth below, the Court has no occasion to reach these arguments because the appeal is moot. It will therefore be dismissed.

II. FACTUAL AND PROCEDURAL BACKGROUND

On May 31, 2005, Appellant acquired a 49% stake in a residential property located at 1205 Stirling Street in Philadelphia, Pennsylvania (the "Property") as a tenant in common. Appellant and her co-tenants in common, Daudouin Dubuisson and Nativita Dubuisson Gregory (collectively the "Dubuissons"), collectively own the entirety of the property.

To purchase the Property, the Dubuissons executed a note in favor of GreenPoint Mortgage Funding, Inc. in the amount of $144,400.00. The terms of the note provide that the loan is payable over thirty years with a maturity date of June 1, 2035. To secure repayment of that note, Appellant and the Dubuissons executed a mortgage in favor of Mortgage Electronic System "as nominee for Lender and Lender's successors and assigns." Appellant's Br. App. 110, ECF No. 13-1. The "Lender" listed in the mortgage is GreenPoint Mortgage Funding, Inc. ("GreenPoint"). In August 2011, GreenPoint executed an assignment of the mortgage in favor of U.S. Bank.

On June 16, 2015, U.S. Bank obtained a foreclosure judgment by default against Appellant and her co-owners in the amount of $161,958.16.

On April 23, 2018, Appellant filed a voluntary Petition for Relief under Chapter 13 of the Bankruptcy Code. On June 26, 2018, U.S. Bank filed a proof of claim ("POC") asserting a claim secured by Appellant's residence for $192,536.07. The POC states that the basis of U.S. Bank's secured position is the mortgage on the Property. It also seeks payment for advances U.S. Bank made for real estate taxes and insurance premiums arising after the entry of the foreclosure judgment.

On December 4, 2018, Appellant initiated the instant adversary proceeding by filing a complaint, naming three defendants: (1) U.S. Bank; (2) Ocwen Loan Servicing, LLC, who serviced Appellant's mortgage; and (3) Phelan Hallinan Diamond and Jones, LLP ("Phelan Hallinan"), the law firm that signed and filed the POC on behalf of U.S. Bank. As relevant for the purposes of this appeal, Count III invokes 11 U.S.C. § 506(a) and (d) and seeks a determination that U.S. Bank's allowed secured claim be limited to the value of U.S. Bank's interest in the bankruptcy estate's interest in the real property serving as collateral for the claim.

Section 506(a) provides that

[a]n allowed claim of a creditor secured by a lien on property in which the state has an interest ... is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property ... and is an unsecured claim to the extent that the value of such creditor's interest ... is less than the amount of such allowed claim.

11 U.S.C. § 506(a)(1). Section 506(d) states that a lien is void to the extent that it does not secure a claim against a debtor that is an allowed secured claim. Id. at § 506(d)(2).

The complaint avers that the Bankruptcy Court's proper application of sections 506(a) and (d) would result in U.S. Bank's claim being reduced to an allowed secured claim in the amount of $45,192.04 and an allowed unsecured claim to the extent the claim exceeds that amount.

After the defendants filed motions to dismiss the complaint, the Bankruptcy Court dismissed Count III. The Bankruptcy Court first noted that Appellant's request to bifurcate U.S. Bank's claim appeared to be precluded "anti-modification" clause of 11 U.S.C. § 1322(b)(2), which provides in pertinent part that a chapter 13 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).

The court then considered Appellee's argument that the anti-modification was overridden in her case by 11 U.S.C. § 1322(c)(2), which states that

(c) Notwithstanding subsection (b)(2) and applicable bankruptcy law—

...

(2) in a case in which the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor's principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5) of this title.

11 U.S.C. § 1322(c)(2) (emphasis added). Appellant argued that because the 2015 foreclosure judgment rendered the balance of the note immediately payable, the "last payment" on the debt schedule was due before the date on which the final payment under any Chapter 13 plan would have been due. Under this line of reasoning, § 1322(c)(2) would override the anti-modification provision in § 1322(b)(2), and Appellant's request to bifurcate U.S. Bank's claim would not be precluded.

The Bankruptcy Court rejected Appellant's construction of § 1322(c)(2). The Bankruptcy Court noted that other courts had conflicting interpretations of the phrase "original payment schedule" as it appears in the statute. Compare In re Nepil, 206 B.R. 72 (Bankr. D.N.J. 1997) (finding that "original payment schedule" was ambiguous and electing to construe it broadly to include a foreclosure judgment); with In re Rowe, 239 B.R. 44 (Bankr. D.N.J. 1999) (finding that "original payment schedule" was unambiguous and referred only to mortgages that mature prior to the date of the last payment under the plan, not including foreclosure judgments that accelerate the mortgage). Finding Rowe and its progeny persuasive, the Bankruptcy Court held that the phrase "original payment schedule" unambiguously referred to the payment plan under the original note, and did not extend to the foreclosure judgment on the Property. Because Appellant's mortgage was originally set to mature in 2035, which would occur after the final payment on any Chapter 13 plan in this case, the Bankruptcy Court declined to apply § 1322(c)(2) to allow U.S. Bank's claim to be modified as requested by Count III.

After the Bankruptcy Court issued its opinion, the parties reached a resolution with respect to the remaining claims and submitted a Stipulation of Partial Settlement that, inter alia, reduced the amount of U.S. Bank's POC to $178,118.39 and provided Appellant with right to appeal the Bankruptcy Court's dismissal of Count III.¹ The Bankruptcy Court approved the stipulation, and Appellant timely filed the instant appeal.

On January 21, 2021, while this appeal was pending, Appellant filed a second amended Chapter 13 Plan (the "Second Amended Plan"). The Second Amended Plan does not provide for any payment of U.S. Bank's claim. The Bankruptcy Court confirmed the Second Amended Plan on January 22, 2021.

After the plan was confirmed, U.S. Bank filed a motion for relief from the automatic stay of the foreclosure action. On March 9, 2021, the Bankruptcy Court granted the motion and removed the automatic stay,² giving U.S. Bank the right to proceed with the foreclosure action and enforce the judgment.

III. LEGAL STANDARD

In reviewing an appeal from a bankruptcy court decision, this Court "applies a clearly erroneous standard to findings of fact, conducts plenary review of conclusions of law, and must break down mixed question[s] of law and fact, applying the appropriate standard to each component." In re Li, 249 B.R. 388, 389-90 (E.D. Pa. 2000) (quoting Meridian Bank v. Alten, 958 F.2d 1226, 1229 (3d Cir. 1992) ).

The parties agree that only the Bankruptcy Court's conclusions of law are at issue in the present appeal. However, because the Court finds that the appeal is moot, it does not reach the merits of those conclusions.

IV. DISCUSSION

Given that Appellee's Chapter 13 plan has been confirmed, that U.S. Bank's lien on the property is not provided for within that plan, and that Appellant does not argue on appeal that her plan should be modified in any way, the Court must first consider whether the appeal is moot.

A federal court has jurisdiction over an action "only if the claims before it are not moot." Gayle v. Warden Monmouth Cnty. Corr. Inst., 838 F.3d 297, 303 (3d Cir. 2016) (citing DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 341-42, 352, 126 S.Ct. 1854, 164 L.Ed.2d 589 (2006) ). A case is not moot if it presents "live" issues and the parties have " ‘a legally cognizable...