508 B.R. 161
9th Cir. BAP2014Background
- Debtors Hoyt Wages and Andrea Wages filed Chapter 11 to retain their residence in Idaho property.
- Property is used for residential living and also for business activities (home office, parking of trucks/trailers).
- Creditor J.P. Morgan Chase Bank holds a $127,418.31 secured claim secured only by the property.
- Debtors proposed a Chapter 11 plan in Nov 2011 to modify the mortgage by lowering interest to 5% and extending to 2032.
- Bankruptcy court denied confirmation on July 24, 2012, sua sponte memorandum and order; debtors timely appealed.
- Issue centers on whether § 1123(b)(5) anti-modification applies to any loan secured by real property used as a principal residence, and which date governs modification (petition date).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of §1123(b)(5) anti-modification | Wages: real property principal residence with any commercial use still qualifies. | Chase: use as principal residence with commercial use must be considered; the statute is narrow. | Applies to any loan secured only by real property used as principal residence. |
| Date for determining principal residence status | Wages: use on petition date should govern. | Chase: transaction date should govern per Scarborough/related cases. | Petition date governs; analysis consistent with Abdelgadir/Benafel. |
| Bright-line vs. case-by-case approach | Scarborough approach should apply a strict line; residential use suffices. | Case-by-case approaches misinterpret the statute. | Adopted bright-line rule: if property is used as principal residence, anti-modification applies, regardless of commercial use. |
Key Cases Cited
- Scarborough v. Chase Manhattan Mortg. Corp. (In re Scarborough), 461 F.3d 406 (3d Cir. 2006) (limits anti-modification when property is not used exclusively as principal residence)
- Benafel v. One W. Bank, FSB (In re Benafel), 461 B.R. 581 (9th Cir. BAP 2011) (petition date used to determine applicability of anti-modification)
- BAC Home Loans Serv., LP v. Abdelgadir (In re Abdelgadir), 455 B.R. 896 (9th Cir. BAP 2011) (confirms petition date as the relevant time for §1123(b)(5))
- In re Wind N’ Wave (Salomon N. Am. v. Knupfer), 328 B.R. 176 (9th Cir. BAP 2005) (informational on framework for statutory interpretation in this area)
- In re Macaluso, 254 B.R. 799 (Bankr. W.D.N.Y. 2000) (bright-line approach cited in related discussions)