In re Abrego, 506 B.R. 509

Debtors Rosa and Eloy Abrego seek confirmation of their Chapter 13 plan, with TCF National Bank opposing the plan on the theory that its first mortgage cannot be modified under §1322(b)(2).
The 24th Place Property at 4219 West 24th Place, Chicago, is the Debtors’ principal residence and is owned in tenancy by the entirety.
The Debtors claimed the homestead exemption on the 24th Place Property and reported rental income of $600 on Schedule I arising from that property.
TCF argues under Illinois law the term “principal residence” includes multi-unit buildings and that the property’s rental use falls outside §1322(b)(2)’s protection.
The Debtors contend the property is a multi-unit dwelling but not exclusively the principal residence, and they track the mortgage to a property with rental use; the court ultimately grants confirmation.
The court adopts a majority view that §1322(b)(2) protects only security interests in real property that is the debtor’s entire principal residence, and determines the relevant snapshot date is when the security interest was created; the order confirms the plan.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does §1322(b)(2) apply where the debtor’s principal residence includes a rental unit?	Abrego argues multi-unit property can still be principal residence and protected.	TCF argues the property is multi-unit and not exclusively the debtor’s principal residence.	No; §1322(b)(2) does not apply to real property that contains but is not exclusively the debtor’s principal residence.
Should the anti-modification rule be applied using a bright-line single-family test or a case-by-case approach?	Abrego endorses minority/ Ramirez-type approach that multi-unit with rental income may be exempt.	TCF urges strict/bright-line rule that multi-unit properties are not entirely the debtor’s principal residence.	Court adopts the majority view limiting protection to property exclusively serving as the debtor’s principal residence.
What is the controlling date for determining the principal-residence status of the collateral?	Abrego relies on the loan-creation date approach to fix the property’s character.	TCF suggests petition-date or other dates could fix status.	The date of creation of the security interest controls.

In re Scarborough, 461 F.3d 406 (3d Cir. 2006) (anti-modification does not reach non-exclusive principal residences in multi-unit properties)
Lomas Mortgage, Inc. v. Louis, 82 F.3d 1 (1st Cir. 1996) (ambiguous §1322(b)(2); legislative history informs interpretation)