In Re Anderson, 458 B.R. 494

Background

Debtors own a homestead in Wisconsin, subject to a mortgage serviced for Fannie Mae by American Home Mortgage Servicing, Inc.
Debtors filed a chapter 13 plan proposing to pay a cramdown to the secured amount, with a balloon at the end, alleging the mortgage rights should be limited to the value of the property.
Foreclosure action was filed by American Home after default; state court entered a judgment finding $149,725.19 due on the mortgage, with proceeds partially used to discharge prior plan and compensate parties.
Debtors acquired the encumbered property in a manner scrutinized as a possible due-on-sale/foreclosure-rescue transaction; they are not personally liable on the note but hold the property subject to the lien.
The court must determine whether the plan may modify the lender’s in rem rights under Nobelman and Johnson, and whether 1322(c)(2) or equal payment requirements permit the proposed cramdown given the lack of personal liability.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Can a chapter 13 plan strip a lien on a principal residence where the debtor has no personal liability on the note (Nobelman/rights modification)?	Andersons argue they may cram down the lien because rights, not personal liability, are at issue and the noteholder’s rights should be diminished.	American Home contends that §1322(b)(2) anti-modification bars modification of a mortgage secured by a debtor's residence and that 1322(c)(2) does not apply here.	Plan modification of the in rem rights is prohibited; Nobelman bars cramming down.
Does 11 U.S.C. §1322(c)(2) apply to allow plan modification of a matured real-property secured claim?	1322(c)(2) permits modification when last payment is due before plan completes, even after acceleration.	The last payment date remains before plan completion did not occur; acceleration and foreclosure do not convert to applicability.	1322(c)(2) does not apply in this case.
Must secured claims paid under the plan be in equal monthly amounts, with no balloon at end?	Equal treatment requires level payments to the secured creditor throughout the plan.	The plan proposed a balloon payment at the end, which should be allowed under some formulations.	Plan must provide equal monthly payments over the life of the plan; balloon payment not allowed.
Can the debtor challenge the creditor’s standing or status as claimant to receive payments, given prior foreclosure proceedings?	Status as creditor may be contestable; preclusion may not bar discovery of standing.	Preclusion and final foreclosure judgment bind the creditor’s status; however, standing issues remain for confirmation.	Creditors’ standing and status may be subject to further proceedings; plan cannot be confirmed as proposed.

Key Cases Cited

Nobelman v. Am. Sav. Bank, 508 U.S. 324 (1993) (anti-modification rights focus under §1322(b)(2); rights of the mortgagee protected)
Johnson v. Home State Bank, 501 U.S. 78 (1991) (mortgage survives personal discharge; nonrecourse-like rights addressed in plan)
In re Newcomer, 438 B.R. 527 (2010) (majority view permitting cure of mortgage defaults despite lack of privity)
In re Brown, 428 B.R. 672 (2010) (reverse mortgage cure when debtor lacks privity)
In re Flores, 345 B.R. 615 (2006) (community property scenarios permitting plan inclusion)
In re Garcia, 276 B.R. 627 (2002) (cure vs. modification distinction in mortgage contexts)
In re Back Bay Restorations, Inc., 118 B.R. 166 (1990) (claim preclusion considerations in bankruptcy judgments)
United Student Aid Funds, Inc. v. Espinosa, 559 U.S. _ (2010) (court intervention when plan proposes discharge without adequate proceedings)
In re Rowe, 239 B.R. 44 (1999) (1322(c)(2) interpretation in context of plan timing vs. acceleration)