Tryphena F. Blake and Steadman L. Blake

In re
STEADMAN L. BLAKE and
TRYPHENA F. BLAKE,
Debtors
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
Chapter 11
Case No. 07-12445-FJB
MEMORANDUM OF DECISION ON
SECURED CREDITORS’ OBJECTIONS TO CONFIRMATION OF CHAPTER 11 PLAN
The principal issue presented by the present objections to confirmation is whether, in
quantifying the value of property securing a claim for purposes of “cram down” under 11 U.S.C.
§ 1129(b)(2)(A)(i), the date of valuation is the date on which the bankruptcy case was
commenced, as the secured creditors now argue, or the date of confirmation, as the debtors
propose in their plan. The values in question have dropped dramatically in the two years
between commencement of this case and the debtors’ presentation of their plan for
confirmation. For the reasons set forth below, the court holds that § 1129(b)(2)(A)(i) requires
valuation as of the date of confirmation and accordingly will overrule the objections and confirm
the plan.
FACTS AND PROCEDURAL HISTORY
Steadman and Tryphena Blake filed a joint petition for relief under Chapter 11 of the
Bankruptcy Code on April 20, 2007. They were then, and remain today, the owners of the four
rental properties presently at issue, each encumbered by two mortgages. Now, in their third
amended plan of reorganization (“the Plan”), which they filed on March 16, 2009, the debtors
propose the same treatment for each of the four first-position mortgage claims: 1 each
1 The present controversy concerns only the senior mortgage on each property. The
debtors propose to treat each junior mortgage as wholly unsecured, and no junior mortgagee
has objected to this treatment.
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 1 of 13

mortgagee will retain the mortgage securing its claim; and on account of its secured claim, each
mortgagee will receive a thirty-year stream of equal monthly payments having a present value
as of the date of confirmation of an amount that the debtors contend is the fair market value of
the property on the date of confirmation. Accordingly, in Article V of the Plan, the Debtors
specify as follows:
1. 	the Class II secured creditor, JPMorgan Chase Bank, N.A., as purchaser of the
loans and other assets of Washington Mutual Bank 2 (J.P. Morgan Chase”), as
holder of the first mortgage on the property at 121 Woodrow Avenue, Dorchester,
Massachusetts, will have a secured claim in the amount of only $250,000, to be
paid in full through equal monthly payments over a thirty-year term at a fixed
interest rate of five percent, notwithstanding that the claim in question is in the
amount of $355,051.15 and that the debtors themselves valued the property in
their schedules at $485,000 as of the date of their bankruptcy filing;
2. 	the Class IV secured creditor, HSBC Bank USA, NA, as Trustee3 (“HSBC”), as
holder of the first mortgage on the property at 11 Claybourne Street, Dorchester,
Massachusetts, will have a secured claim in the amount of only $250,000, to be
paid in full through equal monthly payments over a thirty-year term at a fixed
2 The plan identifies Washington Mutual Bank as the holder of the Class II mortgage.
However, the objection to the treatment of this claim was filed by JPMorgan Chase Bank, as
purchaser of the loans and other assets of Washington Mutual Bank. The debtors did not
question the standing of JPMorgan Chase to object to this claim or dispute that it is now the
holder of the mortgage in question. The court is satisfied that JPMorgan Chase is the true
holder of the Class II mortgage and claim.
3 The plan identifies “Ocwen Bank” as the Class IV secured creditor, but this appears to
be a misnomer, as the relevant proof of claim identifies the creditor as HSBC Bank USA, NA, as
Trustee on Behalf of ACE Securities Corp. Home Equity Loan Trust and for the Registered
Holders of ACE Securities Corp. Home Equity Loan Trust, Series 2005-HE6, Asset Backed
Pass-Through Certificates. The same proof of claim indicates that “Ocwen” is the name of the
party to whom notices should be sent concerning the proof of claim. The objection to the
treatment of this claim was filed by HSBC; and in its objection, HSBC identifies Ocwen Loan
Servicing LLC as the servicer of the mortgage. The court is satisfied that HSBC is the holder of
the Class IV mortgage and claim.
2
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 2 of 13

interest rate of five percent, notwithstanding that the claim in question is in the
amount of $447,828.10 and that the debtors themselves valued the property in
their schedules at $452,000 as of the date of their bankruptcy filing; 4
3. 	the Class VI secured creditor, U.S. Bank National Association, as Trustee for
First Franklin Mortgage Loan Trust, Mortgage Pass-Through Certificates, Series
2005-FF10 (“U.S. Bank”), 5 as holder of the first mortgage on the property at 7
Sayward Street, Dorchester, Massachusetts, will have a secured claim in the
amount of only $200,000, to be paid in full through equal monthly payments over
a thirty-year term at a fixed interest rate of five percent, notwithstanding that the
claim in question is in the amount of $350,772.98 and that the debtors
themselves valued the property in their schedules at $332,800 as of the date of
their bankruptcy filing; and
4. 	the Class X secured creditor, JPMorgan Chase Bank, NA, as Trustee 6 (“JP
Morgan Chase”), as holder of the first mortgage on the property at 9 Claybourne
Street, Dorchester, Massachusetts, will have a secured claim in the amount of
4 In its proof of claim, filed April 27, 2007, HSBC valued the collateral at $415,000.
5 The plan identifies the Class VI secured creditor as First Franklin Bank, but this
appears to be a mistake. The objection to the treatment of this claim was filed by U.S. Bank
National Association, as Trustee for First Franklin Mortgage Loan Trust, Mortgage Pass-
Through Certificates, Series 2005-FF10 (“U.S. Bank”), and the underlying proof of claim was
filed by Home Loan Services, Inc., whom U.S. Bank identifies as the servicer of its mortgage.
The debtors did not question the standing of U.S. Bank to object to this claim or dispute that it is
the holder of the mortgage in question. The court is satisfied that U.S. Bank is the true holder of
the Class VI mortgage and claim.
6 The plan identifies the Class X secured creditor only as “ACE,” but this appears to be
a mistake, as the relevant proof of claim identifies the creditor as “America’s Servicing Company
as servicer for JPMorgan Chase Bank, NA as Trustee for Nomura Asset Acceptance
Corporation Mortgage Pass Through Certificates Series 2004-AR3 its successors and assigns.”
The objection to the treatment of this claim was filed by JP Morgan Chase. The debtors did not
question the standing of JPMorgan Chase to object to this claim or dispute that it is the holder of
the mortgage in question. The court is satisfied that JP Morgan Chase is the true holder of the
Class X mortgage and claim.
3
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 3 of 13

only $195,000, to be paid in full through equal monthly payments over a thirty-
year term at a fixed interest rate of five percent, notwithstanding that the claim in
question is in the amount of $457,199.19 and that the debtors themselves valued
the property in their schedules at $511,496 as of the date of their bankruptcy
filing.
The Plan further provides, with respect to each mortgage claim, that the unsecured balance of
each mortgagee’s claim will be treated as an “undersecured claim”—under Article IX of the plan,
these are promised a five percent dividend over five years—unless the mortgagee makes a
section 1111(b) election, 7 in which case the mortgagee would receive no dividend on account of
its unsecured claim but retain its mortgage on the unsecured portion of its allowed claim.
Section 1111(b) elections have been filed as to two of the mortgage claims at issue. JP
Morgan Chase filed such an election as to its Class X secured claim. And Home Loan Services,
Inc. filed a section 1111(b) election as to the Class VI secured claim. Both elections were filed
in response to earlier plan iterations and before the debtors filed their present plan, but they
clearly apply to the present plan as well.
Four objections were filed to the Plan, all by secured creditors: one by JPMorgan
Chase, objecting to the treatment of the Class II claim; one by HSBC, objecting to the treatment
of the Class IV claim; one by U.S. Bank, objecting to the treatment of the Class VI claim; and
another by JPMorgan Chase, objecting to the Class X claim. The four objections are virtually
identical in that each challenges the plan in only two respects. First, the secured creditors
contend that in quantifying the value of property securing a claim for purposes of “cram down”
under 11 U.S.C. § 1129(b)(2)(A)(i), the appropriate date of valuation is the date on which the
bankruptcy case was commenced, not (as the debtors have proposed) the date of confirmation.
They do not deny that the properties have depreciated during this case to the values that the
7 11 U.S.C. § 1111(b).
4
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 4 of 13

debtors now use as the basis for the treatment of their respective claims. Their dispute is solely
one of law. The debtors concede that if the appropriate date of valuation is the date of their
bankruptcy filing, then their proposed values are inappropriate and confirmation must be denied.
The secured creditors’ second objection is closely related to their first. They contend
that in quantifying the interest rate necessary to assure that the stream of deferred payments
promised by the plan will have the present value required by § 1129(b)(2)(A)(i), a debtor is
required to use the base rate that existed at the time of the bankruptcy filing, not (as the debtors
propose) the rate applicable at the time of confirmation. Again, the secured creditors do not
deny that the debtors’ proposed five-percent rate is an appropriate rate if the proper date is that
of confirmation. They merely deny that the date of confirmation is the appropriate date. The
secured creditors contend that the rate would be higher if it were determined as of the date of
the bankruptcy petition; as proof of this, they rely on the fact that, in the original plan that the
debtors filed in this case, on February 25, 2008, they proposed to use an interest rate of 6.5
percent.
The court held a hearing on confirmation and took the matter under advisement. At the
hearing, the debtors satisfied the court as to all other requirements of confirmation, and no
objection was voiced by any party other than as set forth above.
DISCUSSION
The Plan satisfies all requirements of 11 U.S.C. § 1129(a) but the one in paragraph (8).
Paragraph (8) requires, with respect to each class, either that the class have accepted the plan
or that the class be unimpaired by the plan. 11 U.S.C. § 1129(a)(8). The classes of the four
secured claims now at issue—each being constituted by only the single secured claim in that
class—are impaired, and each has rejected the plan. When a plan satisfies the applicable
requirements of § 1129(a) other than paragraph (8), ”the court, on request of the proponent of
5
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 5 of 13

the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan
does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or
interest that is impaired under, and has not accepted, the plan.” 11 U.S.C. § 1129(b)(1).
The objecting secured creditors contend, in effect, that the plan does not satisfy
§ 1129(b)(1)’s “fair and equitable” requirement as to their claims. In subsection 1129(b)(2)(A),
the Bankruptcy Code specifies three requirements for “fair and equitable” treatment as to a
secured claim. Only the first, subsection (b)(2)(A)(i), is directly implicated here. It states:
(b)(2) For the purpose of this subsection [i.e., § 1129(b)], the condition
that a plan be fair and equitable with respect to a class includes the
following:
(A) With respect to a class of secured claims, the plan provides—
(i)(I) that the holders of such claims retain the liens
securing such claims, whether the property subject to such
liens is retained by the debtor or transferred to another
entity to the extent of the allowed amount of such claims;
and
(II) that each holder of a claim of such class receive on
account of such claim deferred cash payments totaling at
least the allowed amount of such claim, of a value, as of
the effective date of the plan, of at least the value of such
holder’s interest in the estate’s interest in such property.
11 U.S.C. § 1129(b)(2)(A)(i). The secured creditors do not dispute that the Plan satisfies the
lien retention requirement in clause (I). Rather, their dissatisfaction is limited to clause (II), with
which they say the plan fails to conform in two respects.
6
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 6 of 13

1. Date of Valuation
First, the objecting secured creditors say that because the Plan is based on current
values and not on those that existed upon commencement of the case, the value promised by
the plan in inadequate. They argue that “the value of such holder’s interest in the estate’s
interest in such property,” as that phrase is used in clause (II) of § 1129(b)(2)(A)(i), is the value
of the collateral as of the commencement of the bankruptcy case. The debtors take the
opposite position, arguing that the value of the secured claim should be determined as of the
date of confirmation. The issue appears to be one of first impression in this circuit. 8
The court must first determine whether the Bankruptcy Code expressly specifies the
date as of which the property securing a claim must be valued for purposes of § 1129(b)(2)(A).
In two places—sections 1129(b)(2)(A)(i)(II) and 502(b)—the Code appears at first glance to
address the issue. On closer inspection, however, neither provision can be construed as
resolving the issue presented.
In § 1129(b)(2)(A)(i)(II) itself, the Code specifies that the payments given for an allowed
secured claim must have a certain present value “as of the effective date of the plan.” In doing
so, however, this subsection specifies only a date as of which to measure what must be given
for a secured claim, not how to value or quantify the secured claim itself. In other words, it
states that the payments given in satisfaction of a secured claim must have a present value, as
of the date of confirmation, of x, but it doesn’t tell us what x is or the date of its valuation.
Therefore, the answer is not in § 1129(b)(2)(A)(i)(II).
8 In fact the court is aware of no case law at all on this particular question. There exists
a body of case law addressing the parallel issue in the chapter 13 context. See, for example, In
re Kennedy, 177 B.R. 967 (Bankr. S. D. Ala. 1995) and cases cited therein. Other cases
address the time-of-valuation issue for purposes of 11 U.S.C. § 506(a) and adequate protection
in chapter 11 cases. See, for example, In re Addison Properties Ltd. Partnership, 185 B.R. 766
(Bankr. N. D. Ill. 1995). But none address the specific demands of section 1129(b)(2)(A)(i)(II).
7
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 7 of 13

Next is section 502(b), which seems to supply the answer. It states that, when a claim is
objected to, and subject to certain exceptions, the court “shall determine the amount of such
claim . . . as of the date of the filing of the petition, and shall allow such claim in such amount[.]”
11 U.S.C. § 502(b) (emphasis added). However, because the specific takes precedence over
the general, the applicability of § 502(b)—and especially its enjoinder to determine the amount
of a claim as of the date of the petition—to secured claims is at least limited, if not wholly
supplanted, by § 506(a) and (b), which deal more specifically with the manner of determination
of secured claims. Section 506 states three things that give cause to question the applicability
of § 502(b) to the quantification of the secured portion of a claim. First, section 506(a) states
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.” 11 U.S.C. § 506(a)(1). It
follows that knowing the amount of an “allowed claim”—one allowed under § 502(b)—is
necessary but not sufficient to determine whether and to what extent that claim is a secured
claim; and the quantification of the secured portion of a claim is a distinct act from the
quantification of the claim itself under section 502(b), one not governed by § 502(b) itself.
Second, “[s]uch value,” i.e, the value of the creditor’s interest in the estate’s interest in property
securing a claim, ”shall be determined in light of the purpose of the valuation and of the
proposed disposition or use of such property, and in conjunction with any hearing on such
disposition or use or on a plan affecting such creditor’s interest.” 11 U.S.C. § 506(a)(1). The
valuation is therefore context-specific, dependent on the purpose of the valuation and the
proposed disposition of the property. These variables cannot be known at the commencement
of the case; they are functions of the history of the case; and some dispositions, such as sale or
foreclosure, will necessarily generate valuations dependent on market conditions and other
8
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 8 of 13

circumstances existing at the time at which the sale or foreclosure will occur. Third, section
506(b) states that where the value of property securing a claim exceeds the amount of a claim,
“there shall be allowed to the holder of such claim, interest on such claim, and any reasonable
fees, costs, or charges provided for under the agreement or State statute under which such
claim arose.” 11 U.S.C. § 506(b). This allowance for postpetition interest and other charges on
oversecured claims is a departure from § 502(b), under which interest that is unmatured, and
other charges that have not accrued, as of the date of the bankruptcy filing must be denied. 11
U.S.C. § 506(b)(2). This departure necessarily requires determination of the amount of the
secured claim as of a date after the filing of the bankruptcy petition, after postpetition interest
and other charges have accrued. For all these reasons, it follows that section 502(b)’s
requirement to determine the amount of a claim as of the date of the filing of the petition does
not apply to the quantification of the secured portion of a secured claim. For these reasons I
conclude the Bankruptcy Code nowhere expressly specifies the date as of which the property
securing a claim must be valued for purposes of § 1129(b)(2)(A).
Notwithstanding the lack of express guidance, the court finds in § 1129(b)(2)(A) two
indicators of congressional intent on the issue, both favoring valuation as of the date of
confirmation. The first is in § 1129(b)(2)(A)(ii), which permits a plan to satisfy the “fair and
equitable” requirement as to a secured claim by an alternate treatment: specifically, sale of the
encumbered property free and clear of liens, with the liens to attach to the proceeds of the sale,
and the treatment of such liens on proceeds under clause (i) or (iii) of § 1129(b)(2)(A). 9 Under
9 Clause (ii), in context, states:
(b)(2) For the purpose of this subsection [i.e., § 1129(b)], the condition
that a plan be fair and equitable with respect to a class includes the
following:
(A) With respect to a class of secured claims, the plan provides—
. . .
9
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 9 of 13

this clause, the plan may, through a sale of the collateral free and clear of liens upon or after
confirmation of the plan, with the liens to attach to the proceeds in lieu of the collateral, provide
for substitution of the proceeds for the original collateral and treatment of the creditor’s lien as a
lien on the proceeds instead of as a lien on the original collateral. Because the plan itself would
provide for the sale, the sale would necessarily occur at or after confirmation. In such a
scenario, the secured claim is necessarily valued as of the date of sale, because the sale itself
quantifies the claim by converting the lien from one on the original collateral to one on the
proceeds. Section 1129(b)(2)(A)(ii) defines this treatment of a secured claim as fair and
equitable and, in doing so, establishes it as an equivalent alternative to the treatment permitted
in clause (i) of the same subsection, § 1129(b)(2)(A)(i). It follows that Congress must have
contemplated that the value of a secured claim would, for purposes of § 1129(b)(2)(A), including
clause (i) thereof, be determined as of the date of confirmation.
The same conclusion is bolstered by language in § 1129(b)(2)(A)(i) itself, specifically its
requirement that the payments given for an allowed secured claim must have a certain present
value “as of the effective date of the plan.” As was explained above, this language does not
specify the date of valuation of the secured claim, only the date as of which the payments given
in satisfaction of the secured claim must have a present value equal to the secured claim.
Nonetheless, in doing so, this language seems to indicate an intent to assure that a secured
creditor receives such value as it would receive if the collateral (up to the value of the secured
claim) were simply handed over to the secured creditor on the effective date of confirmation.
Had Congress intended to guarantee to secured creditors the value of their secured claims as
(ii) for the sale, subject to section 363(k) of this title, of any
property that is subject to the liens securing such claims,
free and clear of such liens, with such liens to attach to the
proceeds of such sale, and the treatment of such liens on
proceeds under clause (i) or (iii) of this subparagraph[.]
11 U.S.C. § 1129(b)(2)(A)(ii).
10
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 10 of 13

of the commencement of the case, Congress would likely (albeit not necessarily) have written
this clause to require that the stream of deferred payments have the required present value “as
of the date of the bankruptcy petition.” For these reasons—and more the former than the
latter—the court is satisfied that Congress intended that the value of a secured claim would, for
purposes of § 1129(b)(2)(A)(i), be determined as of the date of confirmation.
In doing so, the court is mindful that, by making adequate protection available to secured
creditors through § 361 of the Bankruptcy Code, 11 U.S.C. § 361, Congress has shown an
intent to protect the value of a secured creditor’s interest in its collateral from deterioration from
the very commencement of the case. By the same token, however, it is clear that the
mechanism for obtaining such protection is a motion for adequate protection. The availability of
adequate protection is not cause to construe § 1129(b)(2)(A)(i) as requiring valuation of a
secured claim as of the commencement of the case. For purposes of plan confirmation, a
secured claim is valued as of the date of confirmation. Prior to that date, the value of the
secured claim is prevented from erosion only by adequate protection, whether obtained
consensually or by order of the court. The confirmation process is not a vehicle for restoring to
the secured creditor value that, for whatever reason, eroded between the commencement of the
case and confirmation of the plan.
2. Date of Determination of Interest Rate
The secured creditors also object to confirmation on the basis that the five percent
interest rate that the debtors use to amortize their secured claims is lower than the rate that
would have applied at the commencement of the case, the date as of which, according to the
secured creditors, the factors determining the amortization rate should properly be taken. The
debtors disagree and contend that they appropriately applied the rate appropriate to the
confirmation date.
11
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 11 of 13

Here the parties are arguing about the interest rate necessary for a stream of payments
to have, as § 1129(b)(2)(A)(i)(II) mandates, a present value as of the effective date of
confirmation of the secured creditor’s interest in the estate’s interest in the collateral. The
commonly used method of determining this rate—the method the debtors apparently used and
which this court would use here were the rate itself in issue—is known as the “formula” or “prime
plus” approach, 10 which begins with a base rate, usually the prime rate, and then adds to it a
premium appropriate to the risk of default. The objecting secured creditors contend that the
appropriate variables—prime rate and risk adjustment—should be those that prevailed at the
commencement of the case. The debtors argue that the appropriate point of reference is the
time of confirmation.
The court agrees with the debtors. The stream of payments promised under §
1129(b)(2)(A)(i)(II) must have a certain present value “as of the effective date of the plan.” 11
U.S.C. § 1129(b)(2)(A)(i)(II). A “cram down” under subsection § 1129(b)(2)(A)(i) thus
effectuates something akin to a forced loan, the date of which is the effective date of
confirmation. The court sees no reason—and the secured creditors have articulated none—why
that date should not be the date as of which both the base rate and the risk premium should be
determined. And the court would so hold even if the date the secured claim were appropriately
valued as of the commencement of the case. The date that the “loan” is made and the risk
undertaken should govern. As the secured creditors do not dispute that the interest rate
proposed in the plan is appropriate to the effective date of confirmation, their objection to the
interest rate is therefore overruled.
10 See Till v. SCS Credit Corp., 541 U.S. 465, 478-481, 124 S.Ct. 1951, 1961-1962
(2004).
12
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 12 of 13

CONCLUSION
For the reasons set forth above, the secured creditors objections are overruled, and a
separate order will enter confirming the plan
Date: November 30, 2009 	_______________________________
Frank J. Bailey
United States Bankruptcy Judge
13
Case 07-12445 Doc 321 Filed 11/30/09 Entered 11/30/09 15:44:50 Desc Main
Document Page 13 of 13