494 B.R. 833
Bankr. E.D.N.C.2013Background
- Debtor bought Raleigh property in 2006 as a second home; loan documents included a “Second Home Rider” requiring use as borrower’s second home and deleting the principal-residence occupancy clause.
- Debtor moved from New York and began living full-time at the Raleigh property in 2009; at filing (Nov. 13, 2012) the debtor used the Raleigh property as his principal residence and intends to keep it.
- Debtor filed a chapter 11 plan seeking to modify the OneWest loan secured by the Raleigh property; OneWest and the bankruptcy administrator objected.
- Central factual dispute: characterization of the collateral for § 1123(b)(5) — governed by the loan’s terms at origination (second-home designation) or by the debtor’s residence status at the petition date.
- Court found no evidence of bad faith or manipulative timing in the debtor’s move; nonetheless the legal question of temporal reference controlled confirmation.
Issues
| Issue | Debtor's Argument | OneWest's Argument | Held |
|---|---|---|---|
| Whether “principal residence” for § 1123(b)(5) is determined by the mortgage transaction (loan documents) or the petition date | Use the loan documents/transaction date — security instrument is the static, controlling expression of the parties’ expectations | Use the petition date — a claim’s character is fixed at the petition date and the statute’s use of “is” points to the debtor’s status when the case is filed | Mortgage documents control; loan was for a second home, so antimodification protection does not apply and the plan may modify the claim |
Key Cases Cited
- Scarborough v. Chase Manhattan Mortgage Corp., 461 F.3d 406 (3d Cir. 2006) (looks to mortgage transaction to determine whether collateral is debtor’s principal residence)
- Abdelgadir v. SLM Corp. (In re Abdelgadir), 455 B.R. 896 (9th Cir. BAP 2011) (holds petition date controls characterization of claim for antimodification purposes)
- Benafel v. OneWest Bank, FSB (In re Benafel), 461 B.R. 581 (9th Cir. BAP 2011) (applies petition-date analysis; surveys split of authority)
- Ennis v. Green Tree Servicing LLC (In re Ennis), 558 F.3d 343 (4th Cir. 2009) (examines loan documents and state law to characterize collateral; looks to security agreement)
- Nobelman v. American Savings Bank, 508 U.S. 324 (1993) (explains antimodification provision’s role in encouraging home lending)