In re Emory R. Wofford And Jill A. Wofford, 10–12848–13.

449 B.R. 362

In re Emory R. WOFFORD and Jill A. Wofford, Debtors.

No. 10–12848–13.

United States Bankruptcy Court, W.D. Wisconsin.

May 23, 2011.

Joseph A, Skokan, Piletich & Skokan, P.A., Stillwater, MN, for Debtors.Scott D. Nabke, Blommer Peterman, S.C., Brookfield, WI, for Creditor Bank of America, N.A.

DECISION AND ORDER

THOMAS S. UTSCHIG, Bankruptcy Judge.

On April 12, 2011, Bank of America, N.A., filed a motion requesting that the Court enter an order approving a loan modification agreement between the debtors and Bank of America, N.A., with respect to property owned by the debtors at 412 3rd Avenue, Osceola, Wisconsin. The loan modification is dated September 11, 2010 (and was signed by one of the debtors on September 24). It describes an “unpaid principal balance” of $165,975.82 and indicates that the borrower (identified as Jill Wofford) promises to pay that balance, plus interest (initially at 2% per year but increasing each year to a maximum of 5% in 2013). While it is signed by Jill Wofford, the copy of the agreement attached to the motion does not appear to have been executed by the creditor. The question for the Court is whether an order approving the agreement is necessary, or even appropriate.

This is a chapter 13 case. The debtors proposed a plan and the Court entered an order confirming it in February. In their plan, the only reference to a home mortgage was in paragraph 6, in which they indicated that they would make direct payments to the Bank of New York Mellon in the amount of $137,962.00 to be paid at an interest rate of 7%. The monthly payments on the loan, which was secured by the Osceola residence, were to be $1,260.00. The plan further provided that the bank's claim included a delinquent amount and that the bank “shall incorporate the delinquency into a modification of the loan secured by the mortgage and shall treat that loan as current as of the effective date of the modification.” See paragraph 13 of the debtor's amended chapter 13 plan (filed on February 15, 2011, and confirmed by order dated February 28, 2011).

The claims register indicates that The Bank of New York Mellon filed a proof of claim on January 4, 2011. In it, the bank alleged an arrearage claim of $24,738.45 and a total indebtedness of $151,502.87. The proof of claim indicates that notices should be sent to BAC Home Loan Servicing, LP. Notably, no proof of claim was filed by Bank of America, N.A., nor was any documentation supplied regarding the transfer of the claim.¹ Neither the mortgage modification agreement nor the motion clearly articulate the ownership history of the loan. Further, the Court notes that the loan modification agreement attached to the motion is between BAC Home Loans Servicing, LP, and Jill Wofford alone. There is no reference to Emory Wofford, although the motion requests that the Court approve the agreement as between the debtors (plural) and Bank of America, N.A., not BAC Home Loans Servicing, LP, the entity identified as the “lender” in the agreement. The modification agreement also references different terms than those contained in the debtors' chapter 13 plan. For example, the agreement provides that the amount of the bank's claim is $165,975.82 and that it will accrue interest on a modified schedule (starting at 2% and gradually increasing to 5%). The plan referenced a home mortgage of $137,962.00 and an interest rate of 7%, along with an arrearage claim of $24,738.45.²

Under 11 U.S.C. § 1322(b)(2), a chapter 13 plan may not modify the rights of the holder of a secured claim which is “secured only by a security interest in real property that is the debtor's principal residence.” This anti-modification provision precludes debtors from proposing plan provisions which would unilaterally rewrite the terms of a home loan—for example, by reducing the principal balance to the current value of the home, lowering the interest rate, or providing for a new amortization schedule. But the fact that a debtor cannot propose a plan which modifies the bank's claim does not mean that the parties cannot agree to new terms. See 11 U.S.C. § 1325(a)(5)(A) (one of three options for confirmation with respect to an allowed secured claim is that “the holder of such claim has accepted the plan”); In re Smith, 409 B.R. 1, 4 (Bankr.D.N.H.2009) (“[N]othing prevents a secured creditor from consenting to the modification of its claim”); Flynn v. Bankowski (In re Flynn), 402 B.R. 437, 443 (1st Cir. BAP 2009) (plan that did not satisfy requirements of code could be confirmed if secured creditor has accepted the plan).

The precise mechanics of how such an agreement may be memorialized (especially in the context of a request for court approval) is open to some discussion. In Smith, the court noted that a loan modification could be reviewed (and approved) by a court in the context of plan confirmation, or as a resolution of an actual dispute (such as a motion for relief from the stay). 409 B.R. at 4. At the same time, there does not appear to be any applicable law or rule that requires judicial approval of the terms of the loan modification itself. Id. at 3. Admittedly, other courts have considered a loan modification agreement to be a reaffirmation agreement. See In re Roderick, 425 B.R. 556, 563 (Bankr.E.D.Cal.2010) (“A mortgage modification appears to be a reaffirmation agreement to the extent that it affects a debtor's personal liability. There is no sound basis to distinguish mortgage modifications from other negotiated reaffirmation agreements.”); In re Pope, No. 10–19688, 2011 WL 671972, at *1 (Bankr.E.D.Va. Feb.17, 2011) (“After the parties have come to an agreement on the loan modification, the modified loan may be approved by the court through a reaffirmation agreement.”).

Whether the mortgage modification should be regarded as a reaffirmation agreement is not an issue presently before the Court.³ But if it were, the Court would not enter an order approving it. It has long been this Court's interpretation of 11 U.S.C. §§ 524(c)(6) and 524(d) that unless the Court schedules a discharge hearing, reaffirmation agreements secured by real property do not require either a hearing or court approval. As provided in the disclosures which debtors are statutorily required to receive from the creditor in connection with a reaffirmation agreement, court approval is not required if the obligation is secured by real property. See 11 U.S.C. § 524(k)(3)(J)(i)(7). Further, 11 U.S.C. § 524(d) provides that the court “may” hold a discharge hearing at which the debtor shall appear in person; the section goes on to indicate that if a discharge has been granted at such a hearing, the court must inform the debtor of the legal effect and consequences of a reaffirmation agreement. This Court does not hold discharge hearings. Put simply, if the agreement relates to real property, “no court approval necessary, no...