ORDER OVERRULING OBJECTION TO CONFIRMATION
This case is before the Court upon the objection by HomeComings Financial Network (“HomeComings”) to confirmation of the debtors’ plan of reorganization. The issue is whether a plan of reorganization can be confirmed over objection by a creditor who holds a second mortgage on the debtors’ residential real estate, where the value of the real estate is less than the claim of the first mortgage holder, and the plan treats the second mortgage as an unsecured nonpriority debt, and requires the second mortgage to be released upon completion of the plan. This Court holds that such a plan may be confirmed.
I. FINDINGS OF FACT
Monta and Gail Callander (“Debtors”) filed a petition for relief under Chapter 13 of the Bankruptcy Code on November 24, 2000. In Schedule A, the Debtors listed the value of their principal residence *568 (“Residence”) at $60,000.00. On January 2, 2001, Old Kent Mortgage Services filed a proof of claim for $61,720.81, secured by a first mortgage on the Debtors’ Residence. On January 25, 2001, HomeComings filed a proof of claim for $34,950.91, secured by a second mortgage on the Debtors’ Residence.
The Debtors submitted an amended plan of reorganization (“Plan”) on February 2, 2001. In the Plan, the Debtors attempt to “strip off’ HomeComings’ hen on the Residence. “The term ‘strip off is colloquially used when, there being no cohateral value for a mortgage, the entire hen is proposed to be avoided.”
In
re
Mann,
At the confirmation hearing on March 1, 2001, Mr. Bruce Gosney, a licensed real estate appraiser who had appraised the Residence at the Debtors’ request, testified that the value of the Debtors’ Residence was $60,000.00. Mr. Gosney’s credentials and method of appraisal were unchallenged by HomeComings. Further, HomeComings did not present any evidence of its own, nor cross-examine the Debtors’ expert.
Value of the cohateral is an essential factual issue. Resolution of the legal issue before the Court hinges directly on the role the value of the collateral plays in the interpretation of two Bankruptcy Code sections and in the apphcation of an important U.S. Supreme Court decision. If the value of the cohateral is sufficient to secure even $1.00 of HomeComings’ claim, the result reached by the Court would be entirely different. However, HomeComings’ in its memorandum supporting its opposition to confirmation and in its presentation at the confirmation hearing did not controvert the Debtors’ evidence as to the value of the Residence. Therefore, based on the uncontroverted evidence submitted by the Debtors, the Court finds that the value of the Debtors’ Residence is $60,000.00.
II. STATUTORY AUTHORITY
Section 506(a) of the Bankruptcy Code provides, “[a]n allowed claim of a creditor secured by a hen on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such ahowed claim.” 1 11 U.S.C. § 506(a).
Section 1322(b)(2) of the Bankruptcy Code allows a Chapter 13 plan to “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence ...” 2 11 U.S.C. § 1322(b)(2).
III. NOBELMAN
In
Nobelman v. American Sav. Bank,
If Nobelman controls the interpretation of § 1322(b)(2)’s anti-modification clause here, HomeComings’ claim must be treated as secured despite the Court’s § 506(a) valuation. If Nobelman does not control the interpretation of § 1322(b)(2) here, then HomeComings may be treated as wholly unsecured because there is no equity in the Residence to secure HomeComings’ lien, after a § 506(a) valuation. Naturally, HomeComings asks this Court to apply the holding in Nobelman regardless of the value of the Residence. The real question becomes whether Nobelman should apply in a situation, like here, where the value of the Residence is insufficient to provide any equity to which the junior lienholder’s security interest can attach.
IV. CASELAW
Research on this question reveals a notable split among courts to have addressed this issue, with a majority willing to distinguish
Nobelman
and allow a wholly unsecured junior mortgage to be stripped off.
See, In re McCarron,
A significant minority of courts, however, have held that
Nobelman
should apply in situations like the one presented here, thus placing a wholly unsecured second mortgage holder’s claim within the anti-modification clause of § 1322(b)(2).
See Green Tree Consumer Discount Co. v. Miller (In re Miller),
No. 99-13446DWS,
*570
Courts within the Southern District of Ohio have also split on this question.
In re Perkins,
In re Purdue,
V. HOLDING
This Court today adopts the majority position, and holds that, where § 506(a) valuation establishes that there is no equity to which a junior lienholder’s security interest can attach, the junior lienholder’s rights are not protected by § 1322(b)(2)’s anti-modification clause. Accordingly, a plan of reorganization which proposes to treat such a creditor as wholly unsecured may be confirmed. Given the impact of this holding and the extent of the split in authority, further discussion of the factors this Court finds persuasive is warranted.
A. STATUTORY INTERPRETATION
Principles of statutory interpretation provide strong support for the majority position, which allows a wholly unsecured lien such as HomeComings’ to be stripped off. Given a choice between two equally plausible statutory interpretations, a court should choose the interpretation which gives effect to the whole statutory scheme.
See, e.g., Kawaauhau v. Geiger,
Indeed, the beauty of
Nobelman
is that it interprets the Bankruptcy Code so as to render neither § 506(a) nor § 1322(b)(2) superfluous. An explanation of the history of
Nobelman
helps illustrate this point. Before
Nobelman,
the majority position allowed debtors to strip down liens in a Chapter 13 case, effectively eviscerating the anti-modification clause in § 1322(b)(2). In
In re Nobleman,
The Supreme Court, however, while upholding the conclusion that a strip down is not allowed, expressly rejected the Fifth Circuit’s resolution of the conflict it perceived between §§ 506(a) and 1322(b)(2). As Justice Thomas explained, “Petitioners were correct in looking to § 506(a) for a judicial valuation of the collateral to determine the status of the bank’s secured claim.”
Nobelman,
B. CREDITORS’RIGHTS
Application of
Nobelman’s
analysis of creditors’ rights also lends strong support to the majority position. Justice Thomas, writing for a unanimous Court, relied heavily on analyzing the rights enjoyed by a secured party in determining that the anti-modification clause of § 1322(b)(2) prevented a strip down in a Chapter 13 case. “The bank’s ‘rights’ ... are reflected in the relevant mortgage instruments which are enforceable under Texas law. They include the right to repayment of the principal in monthly installments over a fixed term at specified adjustable rates of interest, the right to retain the lien until the debt is paid off, the right to accelerate the loan upon default and to proceed against petitioners’ residence by foreclosure and public sale, and the right to bring an action to recover any deficiency remaining after foreclosure.”
Nobelman,
Likewise here, HomeComings bargained for certain rights, enforceable under state law. However, as explained in
In re Lam,
C. FACTUAL DISTINCTION OF NOBELMAN
This Court cannot ignore the significant difference between the instant facts and those of
Nobelman.
The value of the collateral in
Nobelman
was sufficient to provide some anchor for the security interest in question. Here there is no question that HomeComings’ hen enjoys no such purchase.
Nobelman’s
facts gave rise to a concern that the debtor was trying to turn one claim into two, as language from
No-belman
illustrates. “The bank’s contractual rights are contained in a unitary note that applies at once to the bank’s overall claim, including both the secured and unsecured components. Petitioners cannot modify the payment and interest terms for the unsecured component, as they propose to do, without also modifying the terms of the secured component.”
Nobelman,
D. APPELLATE AUTHORITY
The majority position is in keeping with the trend in the Circuit Courts of Appeal and Bankruptcy Appellate Panels. Of the Circuit Courts and Bankruptcy Appellate Panels to have addressed the issue, all have adopted the position taken today. For example, in
In re Mann,
In re Lam,
E. A BRIGHT LINE
In
In re Dickerson,
The Third Circuit, however, had addressed this concern a few months earlier in
McDonald.
“Bright-line rules that use a seemingly arbitrary cut-off point are common in the law. A day beyond the statute of limitations and the plaintiff must lose, even if the claim was otherwise unquestionably a winning 'one. If the evidence is just over a preponderance, the plaintiff wins fall damages; just under, the plaintiff gets nothing. In bankruptcy law a Chapter 7 trustee cannot contest the validity of a debtor’s claimed exemption when the 30-day period for objecting has expired and the trustee failed to obtain an extension; and this is true even if the debtor has no colorable basis for claiming the exemption [citation omitted] ... What these examples show is that fine drawing is often required in the law and, at the boundary, the appearance of unfairness is unavoidable. Simply pointing out that some arbitrariness occurs is not a compelling objection.”
McDonald,
F. FAIRNESS
Today’s ruling should not prove too onerous a burden on junior mortgagees, and, in fact, focuses the contest on the appropriate issue: the value of the collateral. Where a junior mortgagee wishes to press its demand to be treated as a secured claimant, it will have, through the confirmation process, ample opportunity to offer evidence of value, just as debtors will. This renders the playing field level, and the game fair.
VI. CONCLUSION
This Court holds that where a § 506(a) valuation establishes that there is no equity to secure a junior mortgagee’s lien, a plan of reorganization that proposes to treat such a creditor as wholly unsecured may be confirmed. This holding is supported by the majority of decisions that have addressed the interplay of § 506(a), § 1322(b)(2), and the principles of Nobel-ma,n. Further, such a conclusion is supported by sound principles of statutory interpretation, and does not prejudice the rights of creditors.
Accordingly, HomeComings’ objection to confirmation of the Plan is OVERRULED. The Debtors’ Plan will be confirmed pursuant to a separate order.
IT IS SO ORDERED.
Notes
. Determining a claim’s secured, unsecured, or undersecured status based upon the collateral's value is generally referred to as a § 506(a) valuation.
. The portion of § 1322(b)(2) that prohibits a debtor from modifying the rights of a claimant who holds a security interest in real property that is the debtor's principal residence is referred to as the "anti-modification” clause.