1

The motion is docketed as a motion for summary judgment but the pleading itself is

titled motion for partial summary judgment.

1

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: (

(

Jeremiah Thomas, Sr. a/k/a Jeremiah L. (

Thomas and Kimberly Thomas a/k/a ( Bankruptcy No. 05-24671/JKF

Kimberly D. Thomas, (

(

Debtors ( Chapter 13

(

(

Jeremiah Thomas, Sr. a/k/a Jeremiah L. (

Thomas and Kimberly Thomas a/k/a (

Kimberly D. Thomas (

(

Plaintiffs (

(

v. ( Adversary No. 05-3042

( Related to Dkt. No. 11, Motion for 

Countrywide Home Loans, Inc., as ( Partial Summary Judgment Filed on

Servicing Agent for Mortgagee of ( behalf of Debtors1

Record; Chapel Mortgage Corporation, (

Mortgagee of Record; and Unified CCR (

Partners, (

(

Defendants (

(

(

Appearances:

John P. Vetica, Jr., Esquire, for Debtors

Jay B. Jones, Esquire, Donna M. Donaher, Esquire, for Defendants

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2

The court’s jurisdiction was not at issue. This Memorandum Opinion constitutes our

findings of fact and conclusions of law.

3

 The 2005 amendments to the Bankruptcy Code (Bankruptcy Abuse Prevention and

Consumer Protection Act of 2005) (“BAPCPA”), 11 U.S.C., including the definitions of 

“debtor’s principal residence” and “incidental property,” do not apply to these proceedings as

the bankruptcy case was commenced before the effective date of the Act, which was October

17, 2005. Therefore, BAPCPA’s inclusion of escrow funds in its definition of “incidental

property” is inapplicable to this case.

2

MEMORANDUM OPINION2

The motion before the court is Debtors’ motion for partial summary judgment with

respect to a Complaint Seeking Determination of Secured Status filed on behalf of

Countrywide Home Loans, Inc. (“Countrywide”). Countrywide is the servicing agent for

Chapel Mortgage Corporation, the mortgagee of record. Complaint, Adv. Dkt. No. 1, at

unnumbered page 2. We are asked to determine whether Countrywide’s secured interest falls

within the anti-modification provisions of 11 U.S.C. §1322(b)(2).3

 Furthermore, we are asked

to determine the applicability of judicial estoppel due to Countrywide’s assertion of the

property’s value in an earlier proceeding in this case. We conclude that judicial estoppel does

not apply under the circumstances and that Debtors’ mortgage with Countrywide can be

modified because it is secured by an interest in property other than real property that is the

Debtors’ principal residence. 

The Debtors obtained a mortgage from Chapel Mortgage Corporation on October 10,

2003, in which they conveyed a security interest in their principal residence. Countrywide is

the servicer for this mortgage. There are two clauses at issue in the mortgage document in

this case, which are both located in the Uniform Covenants section of the document. The first

concerns the escrow account and compliance with the Real Estate Settlement Procedures Act

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If the lender applies the Miscellaneous Proceeds to restoration/repairs, it has the right

to hold Miscellaneous Proceeds until it inspects the property and it need not pay the Borrower

interest on the funds unless required by law or a written agreement with Debtors. Id.

3

(“RESPA”), 12 U.S.C. §2601 et seq. The mortgage includes various covenants, one of which

states, “[i]f there is a surplus of Funds held in escrow, as defined under RESPA, Lender shall

account to Borrower for the excess funds in accordance with RESPA.” Adv. Dkt. No. 12,

Exh. A, at 4, ¶ 3.

The mortgage also contains a covenant titled “Assignment of Miscellaneous Proceeds;

Forfeiture,” which states that all such proceeds “are hereby assigned to and shall be paid to

Lender.” Id. at 8, ¶ 11. The mortgage defines “Miscellaneous Proceeds” in paragraph (L) as:

any compensation, settlement, award of damages, or proceeds

paid by any third party (other than insurance proceeds paid

under the coverages described in Section 5) for: (i) damage to,

or destruction of, the Property; (ii) condemnation or other

taking of all or any part of the Property; (iii) conveyance in lieu

of condemnation; or (iv) misrepresentations of, or omissions as

to, the value and/or condition of the Property. 

Id. at 2. The covenant regarding Miscellaneous Proceeds requires Countrywide to use them

for restoration or repair of the property if economically feasible and if its security “is not

lessened.” Id. at 8, ¶ 11. If restoration/repair is infeasible or the lender’s security is lessened,

Miscellaneous Proceeds are to be “applied to the sums secured by this Security Instrument,

whether or not then due, with the excess, if any, paid to” Debtors. Id.

4

 If there are additional

Miscellaneous Proceeds after restoration or repair and Countrywide is satisfied regarding the

condition of the property, the Miscellaneous Proceeds are to be paid to the Debtors. Id. If

restoration or repair is economically infeasible, Countrywide is to apply the Miscellaneous

Proceeds to the outstanding debt. Id. In the event of a total taking, destruction, or loss of

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There are two docket entries denoted as “35" due to the CM/ECF system’s

configuration. The first order entered at Bankr. Dkt. No. 35 is an order granting the motion

for reconsideration. The second docket entry at number 35 is the order vacating the default

order.

4

value, Countrywide is to apply the Miscellaneous Proceeds to the outstanding debt and any

excess is to be paid to Debtors. Id. If there is a partial taking and the fair market value equals

or exceeds the amount secured, “the sums secured . . . shall be reduced” according to a

formula stated in the document. Id. If there is a partial taking and the fair market value is

less than the amount secured, the lender must apply Miscellaneous Proceeds to the sums

secured, whether or not they are due. Id. at 9. 

On April 15, 2005, the Debtors filed a voluntary petition under chapter 7 of the

Bankruptcy Code. Bankr. No. 05-24671. On June 27, 2005, Countrywide filed a Motion for

Relief from Stay claiming that Debtors had failed to tender payments from March 2005 to

June 2005. Bankr. Dkt. No. 12. Countrywide attached as an exhibit to its motion a Broker’s

Price Opinion that stated the fair market value of the property as $140,000. Id. at Exh. A. 

The court entered a default order granting Countrywide’s Motion for Relief from Stay on July

19, 2005. Bankr. Dkt. No. 19. Debtors subsequently filed a Motion to Reconsider Default

Order on July 29, 2005, Bankr. Dkt. No. 21.

On August 26, 2005, the Debtors filed a Motion to Convert Case to Chapter 13.

Bankr. Dkt. No. 33. The court entered an order converting the case on August 29, 2005,

Bankr. Dkt. No. 36, and on August 30, 2005, a separate order vacating the default order

granting relief from stay. Bankr. Dkt. No. 35.5

 The Debtors filed their complaint for

determination of secured status on September 16, 2005, at Adv. No. 05-3042.

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Analysis

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 . . . .” 11 U.S.C. §1322(b)(2). According to the Court of Appeals for the Third

Circuit, the United States Congress enacted this provision with the intent “‘to protect and

promote the increased production of homes and to encourage private individual ownership of

homes as a traditional and important value in American life.’” In re Ferandos, 402 F.3d 147,

151 (3d Cir. 2005), quoting In re Davis, 989 F.2d 208, 210 (6th Cir. 1993). However, a

mortgagee who has an additional security interest gets no protection. Ferandos, supra, 402

F.3d at 152. If creditors take more than an interest in a debtor’s real property used as a

principal residence, the language of §1322(b)(2) is very clear; the secured claim is modifiable

only if it secures something other than real property. When examining whether the claim was

secured by something other than real property that is a debtor’s principal residence, this court

must look at “the effect of the grant in the instrument, not the actual existence of collateral

available later to the creditor.” Id. at 155, n.4. Countrywide’s argument to the contrary,

citing cases from outside the Third Circuit, is unavailing. 

We must first determine whether Countrywide received a security interest in the

Miscellaneous Proceeds and the escrow fund. A security interest is defined in the Bankruptcy

Code as a “lien created by an agreement.” 11 U.S.C. §101(51). Additionally, a lien is

defined as a “charge against or interest in property to secure payment of a debt or

performance of an obligation.” 11 U.S.C. §101(37).

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6

Although Countrywide’s interest in the Miscellaneous Proceeds, defined in ¶ L of the

mortgage, see infra, and escrow fund was included under the heading “Uniform Covenants,”

the paragraph preceding the covenants provides “THIS SECURITY INSTRUMENT

combines uniform covenants for national use and non-uniform covenants with limited

variations by jurisdiction to constitute a uniform security instrument covering real property.”

Adv. Dkt. No. 12, Exh. A, at 3. The escrow fund includes amounts due for taxes,

assessments, premiums for insurance required by the lender, mortgage insurance premiums,

ground rents or leasehold payments. We must determine whether the instrument grants an

interest in something other than real property. The Supreme Court has made clear we must

look to applicable state law, in this case Pennsylvania law, in defining real property. Butner

v. United States, 440 U.S. 48, 55 (1979)(holding that unless there is an overriding federal

interest, state law applies to the determination of property and security interests, inasmuch as

state law creates and defines property interests).

We turn now to a discussion of the effect of Countrywide’s security interest in the

escrow funds. In Ferandos, the Court of Appeals for the Third Circuit held that, under New

Jersey law, the mortgage did not create a security interest in the escrow funds, as New Jersey

law was clear that the mortgagor did not retain an interest in the funds. In re Ferandos, 402

F.3d 147, 156 (3d Cir. 2005). However, the mortgage provisions at issue in this case are

different than those in Ferandos. An examination of the document establishes that

Countrywide’s mortgage included a security interest in the escrow funds. The mortgage

document specifically states that: “Lender may, at any time, collect and hold Funds in an

amount (a) sufficient to permit Lender to apply Funds at the time specified under RESPA. . .” 

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Adv. Dkt. No. 12, Exh. A, at 4, ¶ 3. Under Regulation X enacted with respect to RESPA, the

mortgagee shall refund any surplus in the escrow account over fifty dollars and may refund or

apply to the next year’s escrow account any surplus under fifty dollars if the mortgagor is

current. 24 C.F.R. §3500.17(f)(2)(i). However, if the mortgage servicer does not receive

payment within 30 days of the payment due date, the servicer may retain the surplus in the

escrow account in accordance with the mortgage loan documents. 24 C.F.R.

§3500.17(f)(2)(ii).

Countrywide’s mortgage documents state that it shall refund any excess funds to the

Debtors (as “Borrower”) upon full payment of the loan. Adv. Dkt. No. 12, Exh. A at 4, ¶ 3. 

The mortgage also allows it to hold the funds in an amount sufficient to apply the funds in the

manner specified in the mortgage document. Additionally, paragraph 2 of the covenants in

the mortgage document governs the application of payments. It provides that Countrywide 

shall apply all payments first to interest due under the Note, then to principal due under the

Note, and then to amounts due for escrow items. In the event that Debtors, as “Borrower,”

have more than one payment outstanding, Countrywide may apply any payment received

from Debtors to the “Periodic Payment” until it is paid in full. Id. at 3-4, ¶ 2. The document

defines “Periodic Payment” in Section N of the Definitions as “the regularly scheduled

amount due for (I) principal and interest under the Note, plus (II) any amounts due under

Section 3 [Escrow Items] of this Security Instrument.” Id. at 2.

Thus, the mortgage is clear that, under some circumstances, Countrywide has the

ability to apply payments to its debt even though the money used is from the escrow and

Countrywide has an obligation to refund any excess to the Debtors when the loan is paid in

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8

full. Therefore, Debtors retain an interest in the escrow. Countrywide did not heed the

warning of the Court of Appeals that “if the lender does not want its claim to fall outside of

the protection of §1322(b)(2), it should not seek to ‘get every last piece of collateral.’” 

Ferandos, supra, 402 F.3d at 152, quoting Sapos v. Provident Inst. of Sav. in Town of Boston,

967 F.2d 918, 925 (3d Cir. 1992).

Further, there is clear case authority in all three federal districts in Pennsylvania

supporting the conclusion that, under Pennsylvania law, escrow accounts are not real property

for purposes of 11 U.S.C. §1322(b)2). See In re Donadio, 269 B.R. 336 (Bankr.M.D.Pa.

2001); In re Reed, 247 B.R. 618 (Bankr.E.D.Pa. 2000); In re Crystian, 197 B.R. 803

(Bankr.W.D.Pa. 1996). In Donadio the court held that the escrow in the mortgage constituted

additional collateral for purposes of §1322(b)(2) 

[b]ased upon the plain reading of the statute . . ., the specific

and clear language of the mortgage document creating a

separate and distinct security interest in the escrow funds, and

the reasoned opinions of courts cited . . . .

269 B.R. at 339. Reed held that a tax and insurance escrow constituted additional security

which removed the protection of §1322(b)(2). In Crystian this court held that the security

interest taken by the lender in the escrow account was additional security, although the

opinion did not describe the items that made up the escrow.

Thus, Pennsylvania law is well settled regarding the classification of escrow funds as

personal property, rather than real property. Therefore, the security interest in the escrow

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6

We note that in Crystian this court held that because the provisions regarding hazard

insurance and condemnation proceeds were the subject of covenants which did not purport to

give the lender a security interest in same, those items did not constitute additional security

but were, in effect, substitute collateral as they had no existence independent of the property. 

197 B.R. at 806. A covenant is defined as

[a]n agreement, convention, or promise of two or more parties,

by deed in writing, signed, and delivered, by which either of the

parties pledges himself to the other that something is either

done, or shall be done, or shall not be done, or stipulates for the

truth of certain facts.

197 B.R. at 805, quoting BLACK’S LAW DICTIONARY 363 (6th ed. 1990). In the matter at

bench, however, although the escrow provision is under the “Uniform Covenants” heading,

the plain language of the mortgage document provides that it combined uniform and nonuniform covenants “to constitute a uniform security instrument covering real property.” Adv.

Dkt. No. 12, Exh. A, at 3. Thus, although the escrow funds in this case are the subject of a

covenant, the mortgage document itself makes them part of the security covering the real

property. Even if hazard insurance and condemnation proceeds otherwise would not

constitute additional security as in Crystian, the escrow funds here include funds for taxes and

assessments, insurance premiums, and proceeds of various causes of action. These items are

not real property.

7

Paragraph 5 of the mortgage document refers to hazard insurance. Adv. Dkt. No. 12,

Exh. A, at 5-6, ¶ 5.

9

funds in the mortgage instrument takes the mortgage out of the anti-modification protection of

§1322(b)(2).6

While this holding may obviate the need to discuss the Miscellaneous Proceeds

provisions of the mortgage document, we will continue the analysis for the purpose of 

completeness. 

Miscellaneous Proceeds are defined in ¶ L of the mortgage as

any compensation, settlement, award of damages, or proceeds

paid by any third party (other than insurance proceeds paid

under the coverages described in Section 5)7 for: (i) damage to,

or destruction of, the Property; (ii) condemnation or other

taking of all or any part of the Property; (iii) conveyance in lieu

of condemnation; or (iv) misrepresentations of, or omissions as

to, the value and/or condition of the Property.

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10

Adv. Dkt. No. 12, Exh. A, at ¶ L.

The inclusion of condemnation proceeds and hazard insurance proceeds in this

mortgage are not additional security, even under this mortgage. The condemnation proceeds

would be disbursed to Countrywide in exchange for the collateral by operation of state law. 

See In re Crystian, supra, 197 B.R. at 805, and cases cited therein. With respect to hazard

insurance, the better reasoned cases hold that it is not additional security but an essential

element of the underlying collateral which has no existence independent of the collateral. It

exists only to cover loss of or damage to the real property. Id. at 805-06.

The security interest in the misrepresentation and third party insurance proceeds 

constitutes additional security. See Adv. Dkt. No. 12, Exh. A at 8, ¶ 11. Such proceeds will

exist only as result of “compensation, settlement, award of damages, or proceeds paid by any

third party” that do not constitute the proceeds of hazard insurance. See definition of

“Miscellaneous Proceeds” at Adv. Dkt. No. 12, Exh. A, at 2, ¶ L. Thus, these proceeds can

result only from a chose in action. A chose in action is clearly not real property that a debtor

uses as a principal residence. Damages awarded as a result of misrepresentation of, or

omission with respect to, the value or condition of the real estate similarly are personalty and

arise from prosecution of a cause of action. 

Debtors contend that judicial estoppel precludes Countrywide from asserting a

property value different from that asserted in its motion for relief from stay. The Court of

Appeals for the Third Circuit has considered judicial estoppel in the context of bankruptcy

proceedings, most recently stating “[t]he doctrine of judicial estoppel prevents a party from

asserting inconsistent legal claims in different proceedings. . . . Judicial estoppel is an

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8

Under the BAPCPA amendments of October, 2005, this section became §506(a)(1).

11

equitable doctrine within the court’s discretion. . . . The doctrine was designed to prevent

parties from ‘playing fast and loose with the courts.’” In re Mintze, 434 F.3d 222 232 (3d Cir.

2006). Further, the Court of Appeals indicated that the purpose of the doctrine is to prevent a

party from asserting an inconsistent position in order to obtain an unfair advantage. 

Donaldson v. Bernstein, 104 F.3d 547 (3d Cir. 1997). It is not required that the party against

whom the doctrine is applied benefitted from a prior position, Ryan Operations G.P. v.

Santiam-Midwest Lumber Co., 81 F.3d 355, 361 (3d Cir. 1996), but there must have been

“intentional self-contradiction” to obtain an unfair advantage. Scarano v. Central R. Co. of

N.J., 203 F.2d 510, 513 (3d Cir. 1953).

We find that the doctrine of judicial estoppel does not apply here for two reasons. 

First, the order granting relief from stay by default to Countrywide, which relied on the

Broker’s Price Opinion attached to the motion for relief from stay for evidence of the value of

Debtors’ residence, has been vacated. Thus, the order is of no effect. Second, under 11

U.S.C. §506(a), the value of property is to be determined, inter alia, “in light of the purpose

of the valuation and of the proposed disposition or use of such property.” 11 U.S.C. §506(a).8

Cf. In re Snider Farms, Inc., 79 B.R. 801 (Bankr.N.D.Ind. 1987)(valuation of collateral when

debtor contemplates disposition of same is based on amount estate would expect to receive

for the property, but where debtors propose to retain and continue to use the collateral,

liquidation value is inappropriate). The value of the property submitted with a motion for

relief from stay is used to determine whether the debtor has any equity in the property, and

must be pled “with particularity.” Fed.R.Bankr.P. 9013. See also Local Rule 9013-3. There

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13

THE CASE ADMINISTRATOR SHALL SERVE A COPY OF THIS MEMORANDUM

OPINION ON THE FOLLOWING:

John P. Vetica, Jr., Esquire

600 Commerce Drive, Suite 601

Moon Township, PA 15108-3106

Jay B. Jones, Esquire

Federman and Phelan, LLP

1617 JFK Boulevard, Suite 1400

Philadelphia, PA 19103-1814

Ronda J. Winnecour, Esquire

U.S. Steel Tower, Suite 3250

600 Grant Street

Pittsburgh, PA 15219

Donna M. Donaher, Esquire

Tucker Arensberg

1500 One PPG Place

Pittsburgh, AP 15222

United States Trustee

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10The motion is docketed as a motion for summary judgment but the pleading itself is

titled motion for partial summary judgment.

1

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: (

(

Jeremiah Thomas, Sr. a/k/a Jeremiah L. (

Thomas and Kimberly Thomas a/k/a ( Bankruptcy No. 05-24671/JKF

Kimberly D. Thomas, (

(

Debtors ( Chapter 13

(

(

Jeremiah Thomas, Sr. a/k/a Jeremiah L. (

Thomas and Kimberly Thomas a/k/a (

Kimberly D. Thomas (

(

Plaintiffs (

(

v. ( Adversary No. 05-3042

( Related to Dkt. No. 11, Motion for 

Countrywide Home Loans, Inc., as ( Partial Summary Judgment Filed on

Servicing Agent for Mortgagee of ( behalf of Debtors10

Record; Chapel Mortgage Corporation, (

Mortgagee of Record; and Unified CCR (

Partners, (

(

Defendants (

ORDER

AND NOW, this 13th day of June, 2006, for the reasons expressed in the foregoing

Memorandum Opinion, it is ORDERED that Debtor’s Motion for Partial Summary

Judgement is GRANTED.

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