de la Cruz v. Aegis Wholesale Corporation et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
SANDRA F. DE LA CRUZ, 	No. 08-12081
Debtor(s).
______________________________________/
SANDRA F. DE LA CRUZ,
Plaintiff(s),
v. 	A.P. No. 09-1153
AEGIS WHOLESALE CORPORATION, et al.,
Defendant(s).
_______________________________________/
Memorandum After Trial
_________________
The confirmed Chapter 13 plan of debtor and plaintiff Sandra de la Cruz provides that secured
creditor and defendant Aurora Loan Services will be paid $1,676.77 per month, with the balance of
its claim to be paid by sale or refinance between 48 and 60 months of the effective date of the Plan.
By this adversary proceeding, de la Cruz seeks to reduce the amount of Aurora’s secured claim to the
current value of the property, stipulated to be $340,000.00. Aurora argues that its loan is not subject
to this sort of modification, so that when the property is sold or refinanced the entire amount of its
Entered on Docket
June 24, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-01153 Doc# 41 Filed: 06/24/10 Entered: 06/24/10 14:48:45 Page 1 of 2

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claim must be paid. 	That claim was over $429,000.00 as of the date of filing.
The sole remaining issue is a legal one: whether Aurora’s loan is modifiable. All rights of
secured creditors are subject to modification in Chapter 13 except those of a creditor secured only by
security interest in real property that is the debtor’s principal residence. 11 U.S.C § 1322(b)(2).
There are two separate residential units in the property at 990 Central Avenue, Napa, California. De
la Cruz lives in one, a renter in the other. De la Cruz argues that while the property is her principal
residence, as the term is defined in § 101(13A) of the Bankruptcy Code, the fact that the security
interest extends to that portion of the property she does not occupy means that the Aurora lien is not
secured “only” by her principal residence and is therefore subject to modification.
While there is no controlling law in this circuit, other circuits have agreed with de la Cruz’
position that § 1322(b)(2) protects claims secured only by a security interest in real property that is
the debtor’s principal residence, not real property that merely includes or contains the debtor’s
principal residence, so that a claim secured by multi-unit property is subject to modification even if
the debtor occupies one of the units. In re Scarborough, 461 F.3d 406, 411 (3rd Cir. 2006); Lomas
Mortgage, Inc. v. Louis, 82 F.3d 1, 7 (1st Cir. 1996). 	In the absence of a decision of Ninth Circuit
Court of Appeals, lower federal courts in this circuit are supposed to follow the rulings of circuit
courts in other circuits. In re Taffi, 68 F3d. 306, 308 (9th Cir. 1995); In re Berg, 188 B.R. 615, 620
(9th Cir. BAP 1995). The court will accordingly follow Scarborough and Louis and render judgment
in favor of de la Cruz.
This memorandum constitutes the court’s findings and conclusions pursuant to FRCP 52(a)
and FRBP 7052. Counsel for de la Cruz shall submit an appropriate form of judgment forthwith.
Dated: June 24, 2010
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 09-01153 Doc# 41 Filed: 06/24/10 Entered: 06/24/10 14:48:45 Page 2 of 2