In Re Dunn
AMENDED DECISION and ORDER ON OBJECTION TO CONFIRMATION 1
Before the court is Debtors’ motion to confirm their Second Amended Chapter 13
Debtors’ Plan may have been precipitated by U.S. Bank’s motion for adequate protection of 15 October 2008 (docket no. 32). Therein the Bank alleged Debtors were not making payments to it, and sought adequate protection payments pending confirmation. That motion is alsо before the court.
Notwithstanding
In re Proudfoot,
Debtors’ Plan meets those requirements; U.S. Bank’s objection will be OVERRULED and its motion for adequate protection DENIED. The rationales follow.
I. FACTS
Debtors filed this chapter 13 case on 28 February 2008. They propose to:
[s]ell the [PJroperty ... on or before April 30, 2009, to pay mortgage creditors in full or such other amount as the creditors may agree to accept under a short-sale arrangement. Debtor will stipulate to immediate relief from stay if requested by mortgage creditors provided that no foreclosure salе occurs prior to the above date. If a different date is set forth in the stipulation, the stipulation shall control. If no stipulation is presented by mortgage creditors, relief from stay shall be granted to mortgage creditors upon confirmation of the plan.
Plan, ¶ 10(f). This is not a familiar “house saver” plan in which debtors propose to cure delinquencies over the life of the plan while continuing to make regular payments. Rаther, it is in the nature of a “Hail Mary” plan 3 thrown in hopes of salvaging something out of a grim (even in Seattle) real estate market and a stringent economy.
U.S. Bank asserts in its objection that it holds a note secured by a deed of trust encumbering Debtors’ principal residence.
II. JURISDICTION
These are core proceedings within this court’s jurisdiction. 28 U.S.C. § 1334(a) and (b), and 157(a) and (b)(2)(L); General Rule 7, ¶ 1.01, Local Rules, W.D. Washington.
U.S. Bank has submitted no evidence that it holds the note, or that it is authorized to act for whomever does, although attached to its proof of claim are copies of Debtors’ recorded Deed of Trust naming Wells Fargo Bank as beneficiary and the recorded assignment of it to U.S. Bank. While the lack of evidence regarding the holding of the note could put the Bank’s standing in question,
see In re Parrish,
III. ISSUE
Whether the Plan impermissibly modifies the rights of the Bank as a creditor whose only security is an interest in Debtors’ residential real property.
III. DISCUSSION
The Code prohibits chapter 13 plans from modifying the rights of holders of claims secured only by a security interest in real property that is a debtor’s principal rеsidence. Specifically, § 1322 provides:
(b) Subject to subsections (a) and (c) of this section, the plan may—
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real prоperty that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims[.]
But a plan may provide for the curing of a default within а reasonable time. § 1322(b)(5).
The Ninth Circuit Bankruptcy Appellate Panel has held that a plan proposing to withhold current mortgage payments pending sale of a debtor’s residence violates § 1322(b)(2).
Proudfoot,
It bears recall at this juncture that the payment default here is not created by the
Under Washington law, it takes a minimum of 120 days to foreclose nonjudicially aftеr the initial notice of default — 30 days to cure, followed by notice of sale at least 90 days before the sale if there is no timely cure. RCW §§ 61.24.030, 61.24.040; see also Stoebuck and Weaver, Real Property Practice, 18 Wash. Prac. §§ 20.10, 20.11 (2004). Judicial foreclosure takes longer, requiring the service of a summons and complaint. Even if not answered, at least 20 days must elapse after personal service before a default judgment of foreclosure can be obtained, and then four weeks’ notice of the shеriffs sale, followed by a 12-month redemption period. WnCR 12 and 55; RCW §§ 61.12; 6.21.030; and 6.23.020; see also Tegland, Rules Practice, 3A Wash. Prac. § CR 12 and 4 Wash. Prac. § CR 55 (2006), and Stoebuck and Weaver, 18 Wash. Prac. Ch. 19. Nothing on the docket indicates that U.S. Bank had commenced foreclosure prоceedings pre-petition; Debtors answered question 5 in their Statement of Financial Affairs that none had been commenced.
Debtors’ Plan provides for immediate relief from stay by stipulation, so long as no foreclosure sale occurs before 30 April 2009 (or another date agreed to by the parties); otherwise, relief from stay will occur upon confirmation. There has been no stipulation, and assuming prompt prеsentation of a confirmation order, U.S. Bank will imminently have relief from stay. Under Washington law no sale could occur before the Plan’s sale deadline — 30 April is less than 120 days after the confirmation hearing.
In effect, U.S. Bank has the same rights under the Plan it would have outside of bankruptcy. Neither
Proudfoot
nor
Gavia
addressed an analogous situation. Neither mentions whether relief from stay was granted or in the offing, or the status of any foreclosure. Presumably, had thе plans in those cases been confirmed, the mortgage creditors would have had to wait until the sale deadlines passed to obtain relief from stay or dismissal. In
Gavia,
that was to be six months;
Proudfoot
does not say what the deadline was to be, or if therе was one. The cases are predicated on their unique facts, and I do not read them as mandating denial of confirmation of sale plans that do not provide for current ongoing payments, so long as the “reasonable” requirement of § 1322(b)(5) is met.
See In re Newton,
The Plan here neither creates a default, nor does it impermissibly modify U.S. Bank’s rights: upon confirmation, it is free to start the foreclosure process. Section 1322(b)(2) does
not
require the maintenance of payments; rather plans
“may”
so provide (emphasis added);
see In re Lopez,
Not so here — the proposed cure period mirrors the foreclosure timeline in the absence of bankruptcy. And the Debtors are proposing cure — either payment of the loan in full, or a short sale acceptable to the Bank. The Bank has the option to foreclose if the payoff is insufficient. That is exactly the situation which would obtain, absent bankruptcy, when borrоwers are not paying. And the Bank has only argued that the Plan transgresses § 1322, and not that the confirmation requirements of § 1325 are violated.
That Debtors are almost a year into the case is of no moment. U.S. Bank, for whatеver reason, has not sought relief from stay, and the Plan calls for completion of any sale before the Bank could conduct a nonjudicial foreclosure under Washington law, and long before it could foreclose judicially.
As the Plan will be confirmed, the Bank’s motion for adequate protection is moot and will be denied by separate order.
IV. ORDER
U.S. Bank’s objection is OVERRULED, and as there are no other objections to the Plan, the trustee may lodge a confirmation order.
Notes
. Minor clerical changes made. See Notice of Minor Clerical Changes docketed herewith.
. Absent contrary indication, all "Code,” chapter and sеction references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330 as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA”), Pub.L. 109-8, 119 Stat. 23. "RCW” refers to the Revised Code of Washington, and "WnCR” to the Washington Civil Rules.
. A “Hail Maty” рass is “[A] long pass thrown high into the air in a last-ditch attempt to score a touchdown with time running out; aptly named because so few are completed, it does not amount to much more than a prayer.” Dave Ominsky & P.J. Harari, Football Made Simple: A Spectator’s Guide, 116 (4th ed.2002) (emphasis omitted).