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In re: JOHN MICHAEL PEDICONE, Debtor.
JOHN MICHAEL PEDICONE, Plaintiff,
v.
AJAX MORTGAGE LOAN TRUST 2018-F, MORTGAGE-BACKED SECURITIES, SERIES 2018-F, BY U.S. BANK NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE Defendant.
United States Bankruptcy Court, D. Delaware
November 23, 2021
Cynthia L. Carroll, Esquire Counsel for Debtor
Catherine Di Lorenzo, Esquire Stern & Eisenberg Mid-Atlantic, Counsel for Defendant
OPINION [1] RE: ADV. DOCKET NOS. 1, 6, 8, 11, 12, 13
Brendan Linehan Shannon, United States Bankruptcy Judge
Before the Court are a cross-motions for summary judgment. The issue is whether the Debtor's mortgage can be crammed down, or whether cram-down is barred by § 1322(b) of the Bankruptcy Code. For the reasons that follow, the Court rules that the Creditor's claim is secured by the Debtor's primary residence, and thus cannot be crammed down.
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BACKGROUND
This is the Debtor's third bankruptcy case.[2] The current case was filed on February 8, 2021 (the "Petition Date"). The Debtor owns real property located at 301 River Road, Wilmington, Delaware 19809 (the "Property").
The Debtor entered into a home construction loan agreement (the "Loan Agreement") with First Horizon Home Loan Corporation to construct a home on the Property on December 21, 2006. As a condition to the Loan Agreement, the Debtor entered into a promissory note (the "Note") secured by a mortgage in the original principal amount of $229, 244. The mortgage includes a Residential Construction Loan Rider (the "Mortgage Rider"). The Loan Agreement was later acquired by Ajax Mortgage Loan Trust 2018-F, Mortgage-Backed Securities, Series 2018-F, by U.S. Bank National Association, as Indenture Trustee (hereinafter, the "AJAX Trust" or "Creditor"). The record reflects that construction on the Debtor's Property was completed long ago. Nothing in the record suggests there is a business being conducted on the Property. It is undisputed that the Property is the Debtor's primary residence.
The Debtor commenced this adversary proceeding and asserts that the Property is worth $170, 000, which is substantially less than the mortgage amount. The Debtor filed a plan to strip the mortgage down to the value of the collateral under § 506 of the Bankruptcy Code and the Creditor has objected to the plan.
PARTIES' POSITIONS
The Debtor contends that, the Mortgage Rider secures more than the residence, since the Mortgage Rider indicates that the collateral for the mortgage includes both real and personal
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property. According to the Debtor, the Third Circuit's decision in In re Scarborough[3] provides guidance for bifurcating a partially unsecured mortgage lien or cramming down a mortgage to the value of the property where a mortgagee's claim is secured by collateral beyond a debtor's residence.
The Creditor responds that, to the extent the collateral described in the Mortgage Rider goes beyond the primary residence, it falls within the definition of "incidental property." Defendant argues that the Debtor's reliance on Scarborough is misguided because that case was commenced four years prior to the effective date of the broader statutory definitions for "incidental property" found under 11 U.S.C. §§ 101(13A) and 101(27B). Thus, the Creditor contends that this is a mortgage secured by the Debtor's primary residence and cannot be crammed down due to the statutory prohibition contained in 11 U.S.C. § 1322(b).
JURISDICTION AND VENUE
The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157(b)(1). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. Consideration of the Motion constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (O).
LEGAL STANDARD
Federal Rule of Civil Procedure 56(a), made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."[4] An issue of material fact is genuine only "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."[5]
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The purpose of summary judgment is "to isolate and dispose of factually unsupported claims or defenses."[6] The movant bears the burden of establishing the absence of a genuine issue of material fact.[7] If the movant is successful, the burden then shifts to the respondent to establish that summary judgment is not warranted.[8] The opposing party must produce specific facts that establish the existence of a genuine dispute.[9] It is not sufficient to defeat a motion for summary judgment for the respondent to merely allege a factual dispute.[10]
Further, the Court must view all facts and draw all inferences in favor of the respondent.[11] A motion for summary judgment may only be denied "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party."[12] Therefore, the Third Circuit Court of Appeals has held that "in all cases summary judgment should be granted if, after drawing all reasonable inferences from the underlying facts in the light most favorable to the nonmoving party, the court concludes that there is no genuine issue of material fact to be resolved at trial and the moving party is entitled to judgment as a matter of law."[13]
DISCUSSION
The question before the Court is whether the mortgage is secured by the Debtor's primary residence or by collateral beyond the primary residence.[14] Pursuant to 11 U.S.C. § 506(a), the general rule in bankruptcy is that "a claim that is secured by a lien on property is treated as a
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secured claim 'only to the extent of the value of the property on which the lien is fixed.'" [15] The remainder of that lien is considered unsecured.[16] "[A] claim that is not fully collateralized can be modified, and the creditor said to be 'crammed down' to the value of the collateral."[17]
Section 1322(b)(2) of the Bankruptcy Code, however, provides an exception to this general rule. Under § 1322(b)(2), a debtor in a Chapter 13 case is permitted 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, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims."[18]
In other words, "a debtor cannot change the terms of a mortgagee's rights where those rights are secured only by the debtor's principal residence."[19] The mortgagee's rights apply to both the secured and unsecured portions of the debt, therefore "a debtor 'cannot modify the payment and interest terms for the unsecured component . . . without also modifying the terms of the secured components.'"[20] "[T]he real property that secures the mortgage must be only the debtor's principal residence in order for the anti-modification provision to apply."[21]
This analysis boils down to the terms of the Mortgage Rider, which provides in relevant part as follows:
Any and all buildings, Improvements (provided in the Loan Agreement or otherwise), and tenements now or hereafter erected on the Property; any and all heretofore and hereafter vacated alleys and streets abutting the Property; easements rights, appurtenances, rents (subject however to any assignment of rents to Lender), leases, royalties, mineral oil and gas rights and profits, water, water rights and
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water stock appurtenant to the Property (to the extent they are included in Borrower's fee simple title); any and all fixtures, machinery, equipment, building materials appliances, and goods of every nature whatsoever now or hereafter located in, or on, or used, or intended to be used in connection with the Property and all replacements and accessions of them, including, but not limited to, the following items, which are hereby recognized by the parties to this instrument as fixtures: appliances for the purpose of supplying or distributing heating, cooling, electricity, gas water, air and light; security and access control apparatus; plumbing and plumbing fixtures; refrigerating, cooking and laundry equipment; carpet, floor coverings and interior and exterior window treatments; furniture and cabinets; interior and exterior sprinkler plant and lawn maintenance equipment; fire prevention and extinguishing apparatus and equipment, water tanks, swimming pool, compressor, vacuum cleaning system, disposal, dishwasher, range, and oven, any shrubbery and landscaping; any and all plans and specifications for development of or construction of Improvements upon the Property; any and all contracts and subcontracts relating to the Property; any and all accounts, contract rights, instruments, documents, general intangibles, and chattel paper arising from or by virtue of any transactions related to the Property; any and all permits, licenses, franchises, certifications, and other rights and privileges obtained in connection with the Property; any and all products and proceeds arising from or by virtue of the sale, lease, or other disposition of any of the Property; any and all proceeds payable or to be payable under each policy of insurance relating to the Property; any and all proceeds arising from the taking of all or part of the Property for any public or quasi-public use under any law, or by right of eminent domain, or by private or other purchase in lieu thereof; all building permits, certificates of occupancy, certificates of compliance, any right to use utilities of any kind including water, sewage, drainage and any other utility rights, however arising whether private or public, present or...
