Olga E Roemer

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
OLGA E. ROEMER,
Debtor.
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Case No. 08-00686
(Chapter 13)
For Publication in West’s
Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER
The debtor has sought a ruling that her plan may treat the
claim of U.S. Bank secured by the debtor’s condominium as secured
only to the extent of the value of that property. 	For the
reasons set forth below, I will grant summary judgment in favor
of the debtor.
I
The material facts not in genuine dispute are as follows.
In May 2006, the debtor purchased a condominium, financed by
Wells Fargo Bank and secured by a purchase money deed of trust.
Subsequently, Wells Fargo properly assigned the deed of trust to
U.S. Bank and remained as servicing agent. 	In relevant part, the
deed of trust provided that:
BORROWER shall occupy, establish, and use the Property as
Borrower’s principal residence within 60 days after the
The document below is hereby signed.
Signed: December 23, 2009.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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1 	The debtor’s condominium bylaws restrict the amount of
units in the building that can be rented out at any time.
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execution of this Security Instrument and shall continue
to 	occupy 	the 	Property 	as 	the 	Borrower’s 	principal
residence 	for 	at 	least 	one 	year 	after 	the 	date 	of 	the
occupancy, 	unless 	Lender 	otherwise 	agrees 	in 	writing,
which 	consent 	shall 	not 	be 	unreasonably 	withheld, 	or
unless extenuating circumstances exist which are beyond
Borrower’s control.
[Emphasis added.] 	In 2008, the debtor encountered financial
difficulties and listed the property for sale. 	Thereafter, the
debtor obtained an offer, which would have constituted a short
sale (meaning a sale that would not generate enough proceeds to
pay off U.S. Bank’s claim). 	In anticipation of the sale, the
debtor rented a new apartment and vacated the residence. 	Debtor
then placed the condominium on the rental waiting list. 1 	The
debtor asserts that the condominium was still vacant on October
20, 2008, the date she commenced this chapter 13 case. 	That same
day, La Femme DC, Inc., a corporation solely owned by the debtor,
filed a Combined Declaration of Use and Incontestability with the
United States Patent and Trademark office, listing the
condominium as its proposed address.
II
A party is entitled to summary judgment when there is no
“genuine issue of material fact” and the undisputed facts warrant
judgment for the moving party as a matter of law. 	Fed. R. Civ.
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P. 56 (c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986).
In addressing a motion for summary judgment, “the court must view
the evidence in the light most favorable to the party against
whom summary judgment is sought and must draw all reasonable
inferences in [its] favor.” 	Matsushita Elec. Indus. Co. Ltd. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986). 	Whether any
disputed issue of fact exists is for the court to determine.
Balderman v. United States Veterans Admin., 870 F. 2d 57, 60 (2d
Cir. 1989). 	The moving party has the initial burden of
demonstrating the absence of a disputed issue of material fact.
Celotex v. Catrett, 477 U.S. 317, 323 (1986). 	Once such a
showing has been made, the non-moving party must present
“specific facts showing that there is a genuine issue for trial.”
Fed. R. Civ. P. 56(e). 	The party opposing summary judgment “may
not rely on conclusory allegations or unsubstantiated
speculation.” 	Scotto v. Almenas, 143 F. 3d 105, 114 (2d Cir.
1998). 	Moreover, not every disputed factual issue is material in
light of the substantive law that governs the case. 	“Only
disputes over facts that might affect the outcome of the suit
under the governing law will properly preclude summary judgment.”
Anderson, 477 U.S. at 248.
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III
Section 1322(b)(2) of the Bankruptcy Code provides, in
relevant part, that a chapter 13 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.” 	In Nobelman v. American Savings Bank, 508 U.S. 324
(1993), the Court interpreted this provision to preclude
bifurcation under a plan of an undersecured mortgage on a
debtor’s principal residence into secured and unsecured portions.
In so doing, the Court prevented the debtor from reducing a lien
on her principal residence to the fair-market value of the
property. 	The only issue before this court is whether the
debtor’s condominium qualifies as her principal residence for
purposes of § 1322(b)(2). 	Material in this respect is when is
the appropriate time for evaluating whether the property was the
debtor’s principal residence.
A.
Although an issue of first impression for this court, other
courts addressing when is the appropriate time for determining
principal residence for purposes of § 1322 fall in to one of
three schools of thought. 	The first set of courts, relying on
the plain language of § 1322, holds that the petition date is the
relevant time. 	See Wells Fargo Bank, N.A. v. Jordan (In re
Jordan), 330 B.R. 857 (Bankr. M.D. Ga. 2004); In re Howard, 220
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B.R. 716 (Bankr. S.D. Ga. 1998); In re Lebrun, 185 B.R. 665
(Bankr. D. Mass. 1995); In re Wetherbee, 164 B.R. 212 (Bankr.
D.N.H. 1994); In re Churchill, 150 B.R. 288 (Bankr. D. Maine
1993); In re Dinsmore, 141 B.R. 499 (Bankr. W.D. Mich. 1992).
These courts rely on the use of the word “is” in the statute, a
present tense verb. 	See, e.g., In re Churchill, 150 B.R. at 289.
The second set of courts, relying on the legislative history
of § 1322, holds that the loan origination date is the relevant
date for determining principal residence. 	See In re Smart, 214
B.R. 63 (Bankr. D. Conn. 1997); see also In re Bulson, 327 B.R.
830 (Bankr. W.D. Mich. 2005) (dictum). 	These courts rely on
Justice Steven’s concurrence in Nobelman, in which he observed
that Congress’s intent in enacting § 1322 was to encourage the
flow of capital into the home lending market. 	In re Smart, 214
B.R. at 68. 	By using the mortgage date, these courts reason,
lenders can be confident that their loan will not be subject to
modification if a borrow vacates the property on the eve of
bankruptcy.
Finally, at least one court has adopted a third approach: 	a
hybrid of the first two, evaluating the circumstances as of the
petition date and evaluating the underlying mortgage. 	In re
Baker, 398 B.R. 198 (Bankr. N.D. Ohio 2008). 	Like the first line
of cases, the In re Baker court found that the use of the word
“is” in the statute clearly pointed to the present tense;
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however, the court found that the inclusion of the words
“security interest” compelled it to also give weight to the
mortgage instrument securing the property. 	Id. at 203.
Although, as stated above, this is an issue of first impression
for this court, because U.S. Bank cannot prevail under any of
these tests the court need not adopt one today.
C.
There is no material fact outstanding as to the debtor’s
residence as of the petition date. 	In support of its contention
that the condominium was the debtor’s principal residence as of
the petition date, U.S. Bank offers a Combined Declaration of Use
and Incontestability filed by La Femme DC, Inc. with the United
States Patent and Trademark Office. 	The debtor is the sole
shareholder in La Femme DC. 	In La Femme’s Combined Declaration,
it lists the condominium as its proposed address. 	La Femme filed
the Combined Declaration on the same date the debtor filed her
chapter 13 petition. 	In her motion for summary judgment, the
debtor presents her affidavit, a moving company receipt, and
lease, all evidencing her pre-petition departure from the
condominium.
U.S. Bank’s evidence here is insufficient to provide even a
reasonable inference that the debtor lived in the condominium as
of the petition date. 	La Femme DC is an entity separate and
apart from the debtor. 	That the debtor is the sole shareholder
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and president of La Femme does not show that there is a material
issue in dispute as to the debtor’s residence. 	The parties have
had ample time to conduct discovery on this issue. 	The debtor
has come forward with an affidavit, moving bill, and lease. 	The
mere fact that La Femme filed a Combined Declaration listing the
condominium as its proposed address is not enough to show any
material fact in dispute regarding the debtor’s residence on the
petition date.
D.
U.S. Bank cannot prevail under the mortgage date test,
either. 	As stated above, courts that hold the mortgage date as
the relevant time for assessing whether a property is a principal
residence rely on the legislative history underlying § 1322.
This legislative history leads to the conclusion that Congress
chose to treat favorably principal residence lenders in order to
encourage the flow of capital to home buyers. 	It follows, these
courts state, that to allow a borrower to vacate his home on the
eve of bankruptcy and defeat § 1322's anti-modification provision
would be contrary to the spirit of the provision. 	In In re
Smart, the mortgage provided that the mortgagee could declare all
sums due and payable upon the debtors’ failure to continue to
occupy the property as their principal residence. 	214 B.R. at
64-65. 	The mortgage in In re Smart contemplated, therefore, that
the mortgagee could insist that the debtors continue to occupy
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the property as their principal residence throughout the life of
the mortgage. 	The underwriting of such a home mortgage proceeds
on the premise that, without the mortgagee’s consent, the
property can only be used as the debtor’s principal residence,
and that the mortgagee is not taking a mortgage in property that
can at a later date, and without the mortgagee’s permission,
cease to be the debtor’s principal residence. 	That is the home
lending market that Congress intended to protect. 	To permit
modification of such a mortgage would defeat the purpose of the
statute by depriving the mortgagee of the benefit of its bargain.
This rationale, however, does not hold true in this case.
Here, the deed of trust contains a provision that only
required the debtor to occupy the property as her principal
residence for one year. 	When the bank inserted this provision,
it limited its anti-modification protection to, at most, one year
(and arguably was not entitled to anti-modification protection at
all). 	Its mortgage was at the outset a mortgage in the debtor’s
principal residence for one year and a mortgage during the
remainder of the mortgage term in property that permissibly could
cease to be the debtor’s principal residence. 	Consequently, even
if testing § 1322(b)(2) as of the origination date were to
control, the mortgage here had, as of the origination date, a
temporal component to it that limited the duration of its being a
mortgage secured by the debtor’s principal residence.
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The bank cannot prevail by arguing that as of the
origination date the mortgage was only a mortgage in the
principal residence of the debtor, and thus under the mortgage
date test § 1322(b)(2) applies. 	The focus must be on the grant
in the mortgage instrument. 	In re Scarborough, 461 F.3d 406, 412
(3d Cir. 2006); 	In re Ferandos, 402 F.3d 147, 155 n.4 (3d Cir.
2005). 	If a mortgage instrument includes language that "is
effective to grant an interest in [collateral other than the
debtor’s principal residence], the mortgagee is at its peril in
not deleting it." 	In re Fernandos, 402 F.3d at 155. 	Here, the
mortgage instrument granted a security interest in property that
after one year was not required to be occupied as the debtor’s
principal residence, and accordingly the mortgage instrument was
not limited to being a security interest in the debtor’s
principal residence. 	Section 1322(b)(2) does not protect the
mortgage from modification.
If I ruled differently, a mortgagee would be entitled to
§ 1322(b)(2) protection if the real property that is its
collateral was the debtor’s principal residence only on Day 1 of
the loan, but the mortgage instrument contemplated that on Day 2
the debtor would utilize the loan proceeds to convert the
property to a commercial use and cease residing in the property.
That cannot have been the type of lending that Congress intended
to protect.
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E.
The same holds true for the hybrid test. 	Courts employing
the hybrid test look at both where the debtor was residing at the
petition date and the language of the underlying mortgage
instrument. 	For the reasons stated above, there is no material
issue outstanding as to the debtor’s residence as of the petition
date: she was not living in the condominium. 	Second, by only
requiring the debtor to occupy the condominium for one year, U.S.
Bank limited its § 1322(b)(2) protection under the hybrid test to
that period. 	U.S. Bank cannot now come before the court and
demand more than that for which it bargained—namely, anti-
modification protection for only one year.
IV
For these reasons, it is
ORDERED that the debtor’s motion for summary judgment is
GRANTED and U.S. Bank’s motion for summary judgment is DENIED.
It is further
ORDERED that the debtor is entitled to bifurcate the claim
of U.S. Bank pursuant to 11 U.S.C. § 506(a) for purposes of the
treatment of that claim under a plan, and that 11 U.S.C.
§ 1322(b)(2) does not apply to bar such a modification of the
claim.
[Signed and dated above.]
Copies to: Debtor; Debtor’s attorney; Chapter 13 Trustee; Renee
Dyson, Esq.
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