Warren v. PNC Bank, Inc. (In re Warren)

499 B.R. 914

In the matter of Charles D. WARREN, Jr., Melissa S. Warren, Debtors.Charles D. Warren, Jr., Melissa S. Warren, Plaintiffs

v.PNC Bank, Inc., and its subsidiaries and assigns, Defendant.

Bankruptcy No. 08–41518.

Adversary No. 13–4015.

United States Bankruptcy Court,

S.D. Georgia,

Savannah Division.

Oct. 4, 2013.

Judson C. Hill, Judson C. Hill–PJB, Gastin & Hill, Savannah, GA, for Plaintiff.

John Dale Andrle, McCurdy & Candler, Atlanta, GA, Mark Bulovic, Bulovic Law Firm, LLC, Savannah, GA, for Defendant.

OPINION AND ORDER ON MOTION FOR SUMMARY JUDGMENT

LAMAR W. DAVIS, JR., Bankruptcy Judge.

Charles D. Warren, Jr. and Melissa S. Warren (“Debtors”) filed their Chapter 13 case on August 20, 2008. Dckt. No. 1.¹ On February 26, 2013, Debtors initiated this adversary proceeding by filing a Complaint to Determine Dischargeability of debt. A.P. Dckt. No. 1. Currently pending before the Court is Defendant PNC Bank, Inc.'s (“PNC”) Motion for Judgment on the Pleadings or for Summary Judgment. A.P. Dckt. No. 12.

FINDINGS OF FACT

Debtors own residential property located in Chatham County, Georgia (the “Property”). Dckt. No. 1. The Property is encumbered by two security deeds held by PNC as successor by merger to the original owner National City Mortgage (“National City”). Dckt. Nos. 1, 95. In Schedule D of the petition, Debtors scheduled National City's first mortgage in the amount of $342,000.00 and its second mortgage at $147,000.00, $39,000.00 of which was denominated as unsecured. Dckt. No. 1. Debtors' Chapter 13 plan (the “Plan”) filed on August 20, 2008, and confirmed on October 30, 2008, scheduled Debtors to pay National City $1,188.00 per month on the secured amount of the second mortgage. Dckt. Nos. 4, 25.

Debtors filed this Adversary Proceeding on February 26, 2013, some four years after confirmation, seeking to discharge the second lien. A.P. Dckt. No. 1. Debtors contend that the Property has declined in value from $450,000.00 to $330,000.00 leaving no equity to secure the second lien; therefore, the wholly unsecured debt is dischargeable in Chapter 13. Id.

PNC filed its Motion for Judgment on the Pleadings or for Summary Judgment on July 19, 2013. A.P. Dckt. No. 12. The Clerk of Court sent a Notice to Debtors regarding Plaintiffs Motion for Summary Judgment on July 22, 2013. A.P. Dckt. No. 13. This Notice stated in bold, capitalized text, “If you do not respond as directed in this notice, the Court may enter a final judgment against you without a full trial or any other proceedings.” Id. It also stated, “If you do not timely respond to this motion for summary judgment, the consequence may be that the Court will deem the motion unopposed, and the Court may enter judgment against you.” Id.

Debtors did not file a response to PNC's Motion for Summary Judgment.

CONCLUSIONS OF LAW

Federal Rule of Civil Procedure 56, made applicable to adversary proceedings by Bankruptcy Rule 7056, governs motions for summary judgment. The moving party bears the burden to prove that “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.Proc. 56(a). “If a party fails ... to properly address another party's assertion of fact ..., the Court may: ... (2) consider the fact undisputed for purposes of the motion; [or] (3) grant summary judgment if the motion and supporting materials—including the facts considered undisputed—show that the movant is entitled to it” Fed.R.Civ.Proc. 56(e).

Local Rule 56.1 of the United States District Court for the Southern District of Georgia, which has been made applicable to bankruptcy cases and proceedings by the “Uniformity of Practice” preamble to our local bankruptcy rules, states:

Upon any motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, in addition to the brief, there shall be annexed to the motion a separate, short, concise statement of the material facts as to which it is contended there exists no genuine issue to be tried as well as any conclusions of law thereof. Each statement of material fact shall be supported by a citation to the record. All material facts set forth in the statement required to be served by the moving party will be deemed to be admitted unless controverted by a statement served by the opposing party. Response to a motion for summary judgment shall be made within twenty (20) days of service of the motion.

S.D. Ga. LR 56 (emphasis added). Furthermore, as noted supra, the Notice of PNC's Summary Judgment Motion sent to Debtors clearly explained that the Debtors' failure to respond to PNC's Motion could result in the Court entering a judgment against them.

Debtors nonetheless failed to respond to PNC's Motion for Summary Judgment. All material facts set forth in PNC's statement, therefore, will be deemed admitted for purposes of this Order. Accordingly, this Court finds that no genuine dispute of material fact exists in this matter.

Summary judgment may only be granted, however, when the moving party, in addition to showing there is no genuine dispute of material fact, shows the movant is entitled to judgment as a matter of law. Fed.R.Civ.Proc. 56(a). Therefore, in the interest of justice I proceed to examine the record and assess whether a case has been made on the merits. I conclude that the allegations and facts in PNC's Motion are sufficient to support a grant of summary judgment.

PNC argues that a Chapter 13 plan, as a matter of law, may not be amended after confirmation to strip a residential lender's lien. 11 U.S.C. § 1322(b)(2) allows the Chapter 13 debtor's 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....” The Supreme Court read the exception of § 1322(b)(2) broadly in Nobelman v. American Savings Bank, 508 U.S. 324, 328, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), focusing on the fact that what is prohibited is a modification of the lender's “rights,” not merely the status of its claim. There, the debtors attempted to “strip down” the lender's secured claim in their plan to the fair market value of the residence and treat the remaining portion of the bank's claim as unsecured pursuant to 11 U.S.C. § 506(a).²Id. at 326, 113 S.Ct. 2106. The Court held that the debtors “were correct in looking to § 506(a) for a judicial valuation of the collateral to determine the status of the bank's secured claim,” but even accepting the debtors' valuation, “the bank is still the ‘holder’ of a ‘secured claim,’ ” because the debtors' home retained some value as collateral. Id. at 328–29, 113 S.Ct. 2106. Therefore, the bank's “rights” as the holder of a secured claim remained protected by § 1322(b) and were not necessarily “limited by the valuation of its secured claim.” Id. at 329, 113 S.Ct. 2106. The Court held that these “rights” are determined by the relevant mortgage instruments which are enforced under state law. Id.

The Eleventh Circuit interpreted Nobelman as protecting only a lender's secured claim in the debtor's residence under § 1322(b) that retains some value as collateral and not a wholly unsecured claim. Tanner v. FirstPlus Financial, Inc. (In re Tanner), 217 F.3d 1357 (11th Cir.2000). It held “that the only reading of both sections 506(a) and 1322(b)(2) that renders neither a nullity is one that first requires bankruptcy courts to determine the value of the homestead lender's secured claim under section 506(a) and then to protect from modification any claim that is secured by any amount of collateral in the residence.” Id. at 1360.

Here, Debtors listed the second lien on Schedule D of their petition in the amount of $147,000.00, $39,000.00 of which was denominated as unsecured. The Court confirmed Debtors' Plan to pay $1188.00 per month on the second lien based on Debtors' valuation. Because the second lien had value at confirmation, as Tanner held, the secured claim was protected from modification under § 1322(b) at confirmation.

This leaves the question of whether Debtors can strip the lien after confirmation via a modification of the Plan under § 1329(a) or reconsideration of the claim under § 502(j). 11 U.S.C. § 1329(a) states in relevant part:

At any time after confirmation of the plan but before the completion of paymentsunder such plan, the plan may be modified ... to—

(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan;

(2) extend or reduce the time for such payments;

(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan; or

(4) reduce amounts to be paid under the plan by the actual amount expended by the debtor to purchase health insurance

While courts are split on whether a plan can be modified to reclassify a secured creditor to unsecured status, in In re Coleman, 231 B.R. 397, 401 (Bankr.S.D.Ga.1999)(Davis, J.), this Court adopted the majority view in finding that “[§ 1329(a) ] does not expressly permit revaluation of collateral or reclassification of claims. Since Section 1329(a) is the gate through which all post-confirmation modifications must pass, the cramdown of a secured claim ... is proscribed post-confirmation....” Accord Chrysler Financial Corp. v. Nolan (In re Nolan), 232 F.3d 528, 532–33 (6th Cir.2000). Moreover, “Valuation of secured claims is adjudicated by the order of confirmation. A debtor's confirmed plan is res judicata as to claims determination.” Coleman, 231 B.R. at 399 ( quoting In re Banks, 161 B.R. 375, 378 (Bankr.S.D.Miss.1993)).

While Coleman dealt specifically with a secured lien on the debtor's car rather than his residence, other courts have applied the same reasoning in the real estate context with facts similar to this case. See In re Rutt, 457 B.R. 97, 101 (Bankr.D.Colo.2010)(denying the...