Lisa M. Pelosi

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UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS

Re eee

In re Chapter 13
LISA M. PELOSI, Case No. 07-16820-JNF
Debtor

MEMORANDUM

I. INTRODUCTION

The matter before the Court is the “Debtor’s Motion for Determination of Secured
Status under 11 U.S.C. § 506” (the “Motion”). Pursuant to the Motion, Lisa M. Pelosi (the
“Debtor”), seeks a discharge of a second mortgage on her primary residence - - a single
family dwelling located at 44 Diane Road, Peabody, Massachusetts, which the Debtor and
her non-debtor spouse own as tenants by the entirety (the “Property”). In her Motion, to
which she attached an appraisal dated November 27, 2007, the Debtor represents that the
Property has a value of no more than $370,000. The Debtor further represents that there
are two mortgages encumbering the Property: a first mortgage held by Wells Fargo Home
Mortgage (“Wells Fargo”) in the amount of approximately $375,201.20, and a second
mortgage held by American Home Mortgage Servicing (“ American Home”) witha balance
of approximately $94,843.14. The Debtor states in her Motion that she has filed a Chapter
13 plan which reflects the value of the Property, the amount of the secured claim held by

Wells Fargo, and “the treatment of the second mortgage asa totally unsecured claim.” The

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION
GPO

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issue presented is whether under 11 U.S.C. § 1322(b)(2) and the Supreme Court's decision

in Nobelman v. American Savings Bank, 508 U.S. 324 (1993), the Debtor may modify the

rights of American Home who holds a lien against the Property but has an “unsecured
claim” under 11 U.S.C. § 506(a) because there is no value to its interest in the Property.
II. FACTS

The Debtor filed a voluntary Chapter 7 petition on October 25, 2007. On November
3, 2007, the Bankruptcy Noticing Center served American Home witha copy of the“ Notice
of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines” at the address provided
by the Debtor, namely P.O. Box 631730, Irving, Texas, 75063. On November 27, 2007, the
Chapter 7 Trustee conducted the section 341 (a) meeting of creditors, and filed, three days
later, a Report of No Distribution.

On December 6, 2007, the United States Trustee filed a statement indicating that she
was currently unable to determine whether the Debtor’s case would be presumed to be an
abuse under 11 U.S.C. § 707(b). In response, on December 7, 2007, the Debtor converted
her Chapter 7 case to a case under Chapter 13. On December 10, 2007, she filed amended
Schedules, a Chapter 13 Plan, and the Motion that is now before the Court. In her amended
Schedules A and D, the Debtor reduced the value of the Property by $110,000,' thereby

eliminating equity that would make American Home's mortgage a secured claim. In her

"In her original Schedule A, filed on November 13, 2007, the Debtor valued the
Property at $480,000. Following conversion, she filed an amended Schedule A on
December 10, 2007 in which she valued the property at $ 370,000. She supported the
reduced value with an appraisal dated November 27, 2007.

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proposed Chapter 13 plan, the Debtor listed American Home as the holder of an unsecured
claim in the sum of $94,843.14 as a result of “cram down of unsecured claim of second
mortgagee on Debtor’s principal residence... .” The Debtor served both the Motion and
her Chapter 13 plan on American Home.”

On December 17, 2008, the Court scheduled the Motion fora nonevidentiary hearing
to be conducted on February 7, 2008 and established a deadline of January 24, 2008 for the
filing of any objections or responses. The next day, the Debtor served a copy of a “Notice
of Nonevidentiary and Response Deadline” (the “Notice”) on American Home. On
January 17, 2008, the Debtor filed a Supplemental Certificate of Service indicating that she
had served by first class mail, postage prepaid, the Motion and Notice on “Mortgage
Electronic Registration Systems, Inc. (Registry of Deeds Address

American Home neither filed an objection by the January 24, 2008 deadline nor
appeared at the February 7, 2008 hearing. Moreover, it has not filed a proof of claim,
although the deadline to do so in the Debtor’s Chapter 13 case will not expire until April
7, 2008.

III. DISCUSSION

American Home did not respond to the Debtor’s Motion® despite adequate and

* The Debtor filed a First Amended Chapter 13 Plan on January 17, 2008. She did
not alter the treatment of American Home’s mortgage in her amended plan.

° The Debtor’s Motion is a proper pleading. See In re Yekel, No. 305-47107-
tmb13, 2006 WL 2662849, *3 (Bankr. D. Or. Sept. 14, 2006), noting that the majority of
courts that have addressed the issue of whether an adversary proceeding is required
when a debtor seeks to avoid a wholly unsecured lien has concluded that avoidance can

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proper notice of the filing of bankruptcy petition, the conversion of the Debtor’s Chapter
7 case to Chapter 13, the meetings of creditors scheduled in both the Chapter 7 and Chapter
13 cases, the Motion, and February 7" hearing date and the January 24"" response deadline.
Thus, the facts set forth by the Debtor in her Motion are uncontested, and the matter is ripe
for decision.

The United States Bankruptcy Appellate Panel for the First Circuit addressed the

identical issue to the one now before this Court in Domestic Bank v. Mann (In re Mann),

249 B.R. 831 (B.A.P. 1st Cir. 2000). In that case, Judge Boroff and the Bankruptcy Appellate
Panel for the First Circuit ably set forth the legal issue, analyzed the applicable sections of
the Bankruptcy Code, and discussed relevant cases. This Court need not repeat his
discussion and refers the reader to the decision in Mann and the cases cited on both sides
of the issue by Judge Boroff. See 249 B.R. at 836 n.8 and n.9. Judge Boroff, after noting the
split among courts addressing the issue, sided with the majority, see, inter alia, Bartee v.

Tara Colony Homeowners Ass‘n (In re Bartee), 212 F.3d 277 (5th Cir. 2000); McDonald v.

Master Fin., Inc. (Inre McDonald), 205 F.3d 606 (3rd Cir. 2000); and Lam v. Investors Thrift

(In re Lam), 211 B.R. 36 (B.A.P. 9th Cir. 1997). Speaking for the Panel, he stated:

We agree with the Third and Fifth Circuit Courts of Appeals, the Ninth
Circuit Bankruptcy Appellate Panel, and the several bankruptcy and districts
[sic] courts making up the majority view. Pursuant to § 506(a) and §
1322(b)(2), and notwithstanding the antimodification provision in the latter,
Chapter 13 plans may void residential real property liens that are wholly
unsecured. We believe that a literal reading of § 1322(b)(2) and § 506(a)
mandates this result and that our view is congruent with the Nobelman

be accomplished through a Chapter 13 plan or by motion.

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decision which relegated the role of the antimodification provision of §
1322(b)(2) to claims first made subject to § 506(a) treatment. We decline to
read Nobelman as mandating better rights for unsecured creditors holding
a document purporting to be a residential real property mortgage than for
unsecured creditors without. We find unwarranted the argument that the
burden of asset appraisal or the risk of bankruptcy abuse are beyond a
court’s ability to carry out its responsibilities. Neither concern justifies
elevating one group of unsecured creditors over another or denying to
debtors a remedy intended by Congress for Chapter 13 debtors. . . .

Any interpretation of the Bankruptcy Code which relies on a suspension of
reality deserves to be subjected to a significant level of skepticism. Here, the
bankruptcy judge was unable to find any collateral value for the Bank’s
mortgage lien. Accordingly, he ruled that the Bank enjoyed only the rights
of a holder of an unsecured claim. Our reading of the Bankruptcy Code
supports the bankruptcy judge’s ruling. And we do not believe that Congress
intended otherwise.

Mann, 249 B.R. at 840.
Since the decision in Mann, the Second, Sixth, Ninth and Eleventh Circuits have
joined the Third and Fifth Circuits and the Ninth Circuit Bankruptcy Appellate Panel in

adopting the majority position. See Zimmer v. PSB Lending Corp. (Inre Zimmer), 313 F.3d

1220 (9th Cir. 2002); Lane v. Western Interstate Bancorp (In re Lane), 280 F.3d 663 (6th Cir.

2002); Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122 (2nd Cir.2001); Tanner v.

FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357 (11th Cir. 2000). But see Am. Gen. Fin., Inc.

v. Dickerson (In re Dickerson), 222 F.3d 924, 926 (11th Cir. 2000) (following Tanner because

the panel was bound by it but stating: “[W]ere we to decide this issue on a clean slate, we
would not so hold.”). Moreover, the United States Court of Appeals for the First Circuit,

in dicta, cited Mann with approval in Eastern Savings Bank v. LaFata (In re LaFata), 483

F.3d 13 (1st Cir. 2007), a case in which the issue was “whether the Bankruptcy Code’s

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protection of mortgage lenders against modification of claims secured by a principal
residence applies when the residence in fact lies mostly on a lot abutting the mortgaged
property.” Id. at 15. The case arose out of a “bizarre set of facts,” namely that the debtor
and his current spouse “mistakenly built a house on the property line between two lots
owned by the debtor’s ex-wife, a fact which was not discovered until after a mortgage on
the lot believed to include the house had already been granted.” Id. In discussing section
1322(b)(2) and Nobelman, the First Circuit stated:

We and other courts have interpreted § 1322(b)(2) narrowly, even after the
Nobelman decision. See, e.g., Scarborough v. Chase Manhattan Mortgage
Corp. (Inre Scarborough ), 461 F.3d 406, 411 (3d Cir. 2006) (§ 1322(b)(2) does
not bar modification where claim secured by multifamily dwelling, and
noting policy of reading § 1322(b)(2) “literally and narrowly”); Zimmer v.
PSB Lending Corp. (In re Zimmer ), 313 F.3d 1220, 1226-27 (9th Cir. 2002) (§
1322(b)(2) does not bar modification where claim is wholly unsecured
because of prior lien on primary residence); In re Mann, 249 B.R. 831, 835-37
(B.A.P. 1st Cir. 2000) (same, and collecting cases); Lomas, 82 F.3d at 4. The
policy of encouraging mortgage lending does not require § 1322(b)(2) to be
interpreted expansively.

483 F.3d at 20. In view of the First Circuit’s dicta, this Court predicts that it would adopt
the majority view and permit the avoidance of a wholly unsecured lien such as the one

held by American Home.

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IV. CONCLUSION
In view of the foregoing and in the absence of objection, the Court grants the

Debtor’s Motion.

By the Court,

fe U. Baran

Joan N. Feeney
United States Bankruptcy Judge

Dated: February 21, 2008
cc: Laurel E. Bretta, Esq., Carolyn Bankowski, Esq., American Home Mortgage Servicing