MEMORANDUM OPINION 1
I. Introduction
The matter before the court is the motion of the United States Department of Housing and Urban Development (HUD)
2
for summary judgment pursuant to Debtors’ Complaint to Determine Secured Status and to Avoid Mortgage. In their complaint Debtors seek a determination that HUD’s second mortgage claim is wholly unsecured and is avoidable in its entirety under 11 U.S.C. § 506.
3
In thеir Response to Motion for Summary Judgment, Debtors also argue that the anti-modification clause of 11 U.S.C. § 1322(b)(2)
4
is inapplicable to HUD’s claim because it is entirely unsecured under § 506(a) and can therefore be stripped off, notwithstanding
Nobelman v. American Sav. Bank,
The parties stipulated that the mortgage encumbers the Debtors’ principal residence locаted at 5109 Lotus Way, Pittsburgh, Pennsylvania, 15201. They agree that the fan-market value of the property is $15,600 and that, on the date HUD’s second mortgage in the amount of $9,790 was created, Midfirst Bank held a first mortgage in the amount of $21,000. Thus, there was no equity in the property over and above that secured by the first mortgage when the second mortgage was conveyed, nor is there equity now.
There are two issues before the court. The first is whether HUD’s rights can be modified under 11 U.S.C. § 1322(b)(2) on the ground that HUD’s mortgage includes a security interest in property other than “real property that is [Debtors’] principal resi
*101
dence.” The second is whether, under
Nobelman v. American Sav. Bank,
*100 An allowed claim of a creditor secured by a lien on properly 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 allowed claim....
*101 II. 11 U.S.C. § 1322(b)(2)
HUD contends that its mortgage is secured “only by a security interest in real property that is [Debtors’] principal residence”, 11 U.S.C. § 1322(b)(2), and, therefore, is not modifiable. Debtors argue that the mortgage includes collateral in addition to' their principal residence and, therefore, the mortgage is modifiable under § 1322(b)(2). We agree with Debtors. The mortgage in this case grants HUD a security interest in the real estate “TOGETHER with all the improvements now or hereafter erected on the property, and all easements, rights, appurtenances and rents”. Mortgage, Exhibit A to Response to Motion fоr Summary Judgment. The covenants of the mortgage include an assignment of rents clause and grant a security interest in certain tax and insurance premium payments Debtors are required to make.
A. The Rents Clause
We previously addressed rents in
In re Wilkinson,
B. The Tax and Insurance Premium Clauses
The mortgage also requires Debtors to pay one-twelfth of the annual taxes and assess *102 ments that may gain priority over the mortgage and one-twelfth of the annual hazard insurance premiums 7 to this lender, unless Debtors are already making that same payment to an institutional lender who holds a prior mortgage. 8 Mortgage at ¶2. These payments are called “the Funds” in the Mortgage. Id. The lender, pursuant to paragraph 3 of the niortgage, is required to apply all payments it receives under the note and mortgage, including the Funds, to the taxes, assessments, insurance premiums and ground rents, then to interest pаyable on the note, and then to the principal of the note. 9
The Funds are pledged as additional security for the sums secured by the mortgage. Mortgage at ¶ 2. A pledge is defined as
A ... deposit of personal property to a creditor as security for' some debt or engagement. Personal property transferred to pledgee as security for pledgor’s payment of debt or other obligation----Another definition is that a pledge is a security interest____A lien created by delivery of personal property by owner to another, upon express or implied agreement that it shall be retained as security for existing or future debt.
Black’s Law Dictionary 1153 (6th ed.1990)(emphasis added). The mortgage, thereforе, conveyed a security interest in the Funds to the lender. The mortgage requires the lender to put the Funds on deposit in an institution which insures its accounts and, under Pennsylvania law, upon deposit, the Funds constitute an account. “Account” is defined at 13 Pa.Cons.Stat.Ann. § 4104(a): “[a]ny deposit ... account with a bank, including a demand, time, savings, passbook, share draft or like account, other than an account evidenced by a certificate of deposit.” The Funds are not real property used as Debtors’principal residence. They are personalty. Accordingly, under § 1322(b)(2), the mortgage is modifiable because HUD has taken a security interest in collateral other' than real property that is Debtors’ principal residence. 10
III. 11 U.S.C. § 506
Debtors also seek to avoid the mortgage in its entirety through § 506. The parties agree that HUD’s claim is completely unsecured under § 506. Section 506(a) provides that
An allowed claim of a creditor secured by a lien 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 allowed claim....
*103
Debtors suggest that we should avoid the lien because the claim is unsecured by value in the realty. Hоwever, the Supreme Court has declared that valuation cannot be used as a basis to strip off a properly perfected mortgage lien. In
Nobelman v. American Sav. Bank,
Since
Nobelman
was decided, courts have questioned whether its prohibition on strip-down applies to a wholly unsecured mortgage. The majority view is that when a mortgage is completely unsecured, the lien can be stripped off in its entirety and § 1322(b)(2) does not apply. Although
Nobelman
was decided based on the
.rights
of the holder of the secured claim under § 1322(b)(2), courts espousing the view that a wholly unsecured lien can be stripped off focus on valuation under § 506(a) of the collateral securing the lien. These courts view
Nobelman
as limited to situations in which the claim is at least partially secured.
See In re Lam,
The minority espouses the view that
No-belman’s
prohibition against stripping down a lien apрlies to properly perfected security interests represented by residential mortgages, even when the claim is wholly unsecured.
See In re Barnes,
The debate over the applicability of
Nobelman
to totally unsecured mortgages was articulated in
In re Barnes
wherein the court noted that the majority view, rather than assessing creditors’ rights in the collateral, as required by § 1322(b)(2) and the Supreme Court in
Nobelman,
“looked ... to § 506(a) for valuation of the creditor’s claim.”
*104
Under the majority view, whether a creditor’s rights are modifiable could hinge on the existence of merely one dollar of value supporting the lien.
See In re Jones,
The facts of
In re Bauler,
After careful review of the cases, we join the minority insofar as it declares that, in a chapter 13, the mortgage lien cannot be avoided based on the valuation of the claim under § 506(a), even where there is no equity to support the claim. We find that any other holding would nоt 'fairly apply the dictate of the Supreme Court in Nobelman, however unfortunate that result may be for debtors in the context of chapter 13.
IV. Conclusion
In this case, HUD has a security interest in collateral other than Debtors’ principal residence. Section 1322(b)(2) provides that, under these circumstances, HUD’s rights can be modified in the chapter 13 plаn. Modifiable rights include HUD’s right to be paid the full amount Of its claim. To be paid through the plan, the claim must be classified. Because there is no secured component of the claim, 12 it can be classified and paid only as unsecured. 13 Thus, Debtors must amend their plan to include HUD’s claim in the class of unsecured creditors and must pay HUD accordingly. The lien will survive under Nobelman until Debtors have completed all plan payments and receive their chapter 13 discharge. At that time, Debtors will have fulfilled their obligations under the mortgage and the Bankruptcy Code. HUD will have been paid all that it is entitled to be paid as an unsecured creditor, inasmuch as its rights are modifiable under § 1322(b)(2), and will be required to mark its lien satisfied.
Notes
. The court's jurisdiction was not аt issue. This Memorandum Opinion constitutes our findings of fact and conclusions of law.
. HUD has a Title I program for loans for home improvements for poor credit risks who cannot obtain a commercial loan. Debtors obtained a second mortgage with Preedmont builders, an authorized lender of HUD under the Title I program. HUD is the guarantor оf the loan.
. Section 506(a) provides
.This section provides that the plan may
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 ...
. With respect to the rents, Debtors rely on
Lutz
v.
Miami Valley Bank,
Property interests and their status as personal or real property for bankruptcy purposes are created and defined by state law.
See Nobelman,
Pennsylvania follows the title theory in defining the relationship between mortgagor and mortgagee. Thus, in Pennsylvania, a mortgage is a conveyance in fee simple to the mortgagee.
Commerce Bank v. Mountain View Village, Inc.,
"For what is land but the profits thereof for thereby vesturе, herbage, trees, mines, and all whatever parcel of the land doth pass ." It is presumed that a devise of the rents, issues and profits of the land, without qualification or duration of time, passes the fee.
In re Crystian,
. In
Commerce Bank v. Mountain View Village, Inc.,
. In
In re Crystian,
. The Pennsylvania Supreme Court explained the inception of lenders’ practice of requiring debtors to deposit funds toward tax and insurance payments as follows:
In the 1930’s substantial numbers of foreclosures were caused by inability to pay annual assessments. As a result of this, banks began requiring the monthly tax payments. The theory was that individual homeowners, especially small borrowers, would find it easier to make monthly payments of one-twelfth the yearly taxes, than to meet in a single payment the annual bill. The practice has continued ever since.
Buchanan v. Brentwood Federal Savings and Loan Association,
. Paragraph 2 of the mortgage gives Debtоrs an option to require any excess of the Funds to be refunded or credited against the monthly installment due for the taxes and insurance premiums. The parties have not provided evidence of which option Debtors chose, or whether Debtors were making such payments to another institutional lender. Regardless, paragraрh 3 requires the lender to apply all payments it receives, as stated in the text, supra.
.
But see In re Rosen,
. The impracticality of exercising a right to foreclose against a property that is overencum-bered with prior liens was noted in
In re Lam, 211 B.R.
36 (9th Cir. BAP 1997), and we are cognizant of this reality. Nonetheless, the Supreme Court decided
Nobelman
and we are not free to ignore rulings of the Supreme Court, regardless of their practical effect. Moreover, the Supreme Court has found that property rights are created and defined by state law.
See Barnhill v. Johnson,
. In
Nobelman
the court recognized that under § 506(a) "claim secured ... by” a lien includes the entire claim, including its secured and unsecured components.
. Section 1322(b)(2)’s focus on rights “does not state that a plan may modify 'claims’ or that the plan may not modify 'a claim secured only by’ a home mortgage. Rather, it focuses on the modification of the 'rights of holders' of such claims."
Nobelman,