Birmingham v. PNC Bank, N.A. (In Re Birmingham)
846 F.3d 88
| 4th Cir. | 2017Background
- Appellant Gregory Birmingham filed Chapter 13; PNC Bank held a deed of trust securing Birmingham’s principal residence and resisted cram-down of its claim.
- Birmingham’s plan valued the property below the mortgage balance and sought declaratory relief that PNC’s claim could be bifurcated as partially unsecured under 11 U.S.C. § 506(a).
- Birmingham argued that Deed of Trust provisions for escrow funds (§3), insurance proceeds (§5), and miscellaneous proceeds (§11) constituted additional collateral, removing the mortgage from § 1322(b)(2)’s anti-modification protection.
- Bankruptcy and district courts dismissed Birmingham’s adversary complaint, holding those items are "incidental property" to the principal residence and do not create separate collateral for § 1322(b)(2).
- The Fourth Circuit affirmed, concluding the Deed of Trust secured only the principal residence; escrow, insurance, and miscellaneous proceeds are incidental and do not permit cram-down.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether escrow funds in the Deed of Trust constitute separate collateral beyond the principal residence | Escrow provisions create additional security subject to modification | Escrow funds are incidental to the residence and protect the lender’s interest in the real property | Escrow funds are incidental property; no separate collateral — anti-modification applies |
| Whether assigned insurance proceeds are separate collateral | Assignment of insurance proceeds grants an independent security interest | Insurance proceeds are contingent, tied to the property, and incidental to the residence | Insurance proceeds are incidental; do not strip § 1322(b)(2) protection |
| Whether miscellaneous proceeds (condemnation, third-party awards) are separate collateral | Miscellaneous proceeds assigned to lender create additional security | Miscellaneous proceeds are meant to preserve lender’s security in the real property and are incidental | Miscellaneous proceeds are incidental; not separate collateral |
| Whether state-law characterization alters the Bankruptcy Code analysis | Maryland law could recognize these items as property interests altering the result | Bankruptcy Code expressly defines "incidental property"; federal law governs; state law subordinate | Federal statutory definition controls; state-law inquiry unnecessary and would not change outcome |
Key Cases Cited
- Nobelman v. American Savings Bank, 508 U.S. 324 (U.S. 1993) (§1322(b)(2) bars bifurcation of a claim secured only by debtor’s principal residence)
- Allied Credit Corp. v. Davis, 989 F.2d 208 (6th Cir. 1993) (insurance and other contingent interests tied to property are not additional collateral for §1322(b)(2))
- In re Ferandos, 402 F.3d 147 (3d Cir. 2005) (escrow funds exist to pay property-related costs and are incidental to the real property)
- Ennis v. Green Tree Servicing, LLC (In re Ennis), 558 F.3d 343 (4th Cir. 2009) (distinguishing security in personal property/mobile homes from principal-residence protections)
- Hammond v. Commonwealth Mortgage Corp. of America, 27 F.3d 52 (3d Cir. 1994) (supplemental collateral language that expressly covers non-residential items removes §1322(b)(2) protection)
- Scarborough v. Chase Manhattan Mortgage Corp., 461 F.3d 406 (3d Cir. 2006) (lender’s interest that includes income-producing property may fall outside §1322(b)(2))