PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 15-1800

In Re: GREGORY BIRMINGHAM,

Debtor.

--------------------------

GREGORY BIRMINGHAM,

Plaintiff - Appellant,

v.

PNC BANK, N.A.,

Defendant - Appellee.

Appeal from the United States District Court for the District of 

Maryland, at Greenbelt. Paul W. Grimm, District Judge. (8:15-

cv-00108-PWG; 14-18432; 14-00378)

Argued: October 26, 2016 Decided: January 18, 2017

Amended: January 20, 2017

Before THACKER and HARRIS, Circuit Judges, and Gerald Bruce LEE, 

United States District Judge for the Eastern District of 

Virginia, sitting by designation.

Affirmed by published opinion. Judge Lee wrote the opinion, in 

which Judge Harris and Judge Thacker joined.
2

ARGUED: John Douglas Burns, THE BURNS LAW FIRM, LLC, Greenbelt, 

Maryland, for Appellant. Daniel J. Tobin, BALLARD SPAHR LLP, 

Washington, D.C., for Appellee. ON BRIEF: Bryan J. Harrison, 

Matthew G. Summers, BALLARD SPAHR LLP, Baltimore, Maryland, for 

Appellee. 
3

LEE, District Judge: 

The anti-modification clause in 11 U.S.C. § 1322(b)(2) of 

the Bankruptcy Code protects a mortgagee from having its claim 

in a Chapter 13 bankruptcy proceeding modified, if the mortgage 

is secured “only by a security interest in real property that is 

the debtor’s principal residence.” 11 U.S.C. § 1322(b)(2). The 

issue in this appeal is whether reference in the Deed of Trust 

to escrow funds, insurance proceeds, or miscellaneous proceeds 

constitute additional collateral or incidental property for 

purposes of § 1322(b)(2). We hold that these items constitute 

incidental property, which entitles Appellee to antimodification protection under § 1322(b)(2). The district 

court’s determination is therefore affirmed.

I.

On May 23, 2014, Appellant Gregory John Birmingham

(“Birmingham”) filed a voluntary petition for Chapter 13 

bankruptcy. J.A. 342-45. One of the claims against Birmingham 

is a mortgage in the amount of $343,101.87 held by Appellee PNC 

Bank, N.A. (“PNC”), and secured by a deed of trust (“Deed of 

Trust”) on Birmingham’s primary residence at 11721 Chilcoate 

Lane, Beltsville, Maryland 20705 (“Property”). J.A. 329. 

According to the District of Maryland Claims Register, there is 

an arrearage on the mortgage of $93,386.58 as of June 23, 2015. 

J.A. 329. 
4

Birmingham filed his Original Chapter 13 Bankruptcy Plan on 

June 4, 2014. J.A. 378. At that point in time, the Property

was valued at only $206,400. J.A. 362. The Bankruptcy Plan 

included a cram-down of PNC’s interest in the Property. J.A. 

385-86. After a series of objections and amendments to the 

Bankruptcy Plan, Birmingham filed a Complaint for Declaratory 

Action pursuant to 28 U.S.C. §§ 2201-2202; 11 U.S.C. §§ 105(a), 

506(a), 2201 (11721 Chilcoate Ln Beltsville, MD 20705). J.A. 

378-400. Birmingham’s Complaint requested a declaration that 

that PNC’s claim be treated as a partially unsecured claim 

subject to modification. J.A. 399-400. 

Birmingham argued that certain provisions of the Deed of 

Trust required collateral other than real property, which would 

remove the claim from 11 U.S.C. § 1322(b)(2)’s anti-modification 

protection. J.A. 397-99. Birmingham cited three specific 

provisions of the Deed of Trust, involving escrow items (Section 

Three), property insurance proceeds (Section Five), and 

miscellaneous proceeds (Section Eleven). J.A. 398. PNC filed a 

Motion to Dismiss the Adversary Complaint and an accompanying 

memorandum, contending that the items referred to in the Deed of 

Trust provisions cited by Birmingham constituted “incidental 

property,” which is part of a debtor’s principal residence. 

J.A. 674. Consequently, PNC argued that the additional items 

would not expose the PNC mortgage to a cram-down. J.A. 674. 
5

After Birmingham filed a response to the motion to dismiss, 

Bankruptcy Judge Wendelin I. Lipp granted the motion, noting 

that “the issues raised by [Birmingham] were identical to 

arguments that repeatedly have been denied by the Bankruptcy 

Court for this District.” J.A. 674.

Birmingham then appealed the Bankruptcy Court’s decision to 

the United States District Court for the District of Maryland. 

J.A. 405. Birmingham raised the same arguments on appeal, 

namely that the inclusion of miscellaneous proceeds, escrow 

funds, and insurance proceeds in the Deed of Trust constitute a 

waiver of the anti-modification provision of 11 U.S.C. § 

1322(b)(2). J.A. 422. The district court affirmed the 

bankruptcy court’s decision, holding that the miscellaneous 

proceeds, escrow funds, and insurance proceeds provisions 

describe “benefits which are merely incidental to an interest in 

real property” and generally are not “additional security for 

purposes of § 1322(b)(2).” J.A. 679. The district court 

further noted that the items at issue do not “have any value of 

their own separate and apart from the Property and the [PNC Deed 

of Trust]; to the contrary, they all exist only to give effect 

to the PNC’s security interest, which otherwise could be 

frustrated by a superior lien or by destruction or condemnation 

of the Property.” J.A. 681.
6

Birmingham filed a timely appeal before this circuit. J.A. 

685-88. This case was consolidated with a nearly identical case 

that similarly originated in the District Court of Maryland, 

Akwa v. Residential Credit Solutions, Inc., No. 14-cv-02703-GJH, 

530 B.R. 309 (D. Md. 2015). The Akwa appeal was dismissed on 

February 16, 2016. ECF No. 69-2. Accordingly, only the 

Birmingham appeal is currently before the Court. 

II.

This dispute requires us to determine whether the district 

court properly concluded that the bankruptcy court did not err 

in dismissing the adversary proceedings against PNC. 

Specifically, we are to analyze whether the district court 

correctly affirmed the bankruptcy court’s finding that PNC is 

entitled to the anti-modification protections of 11 U.S.C. § 

1322 (b)(2). 

Because the district court sits as an appellate tribunal in 

bankruptcy, our review of the district court’s decision is 

plenary. Bowers v. Atlanta Motors Speedway (In re Se. Hotel 

Properties Ltd. P’ship), 99 F.3d 151, 154 (4th Cir. 1996) 

(citation omitted). “We apply the same standard of review as 

the district court applied to the bankruptcy court’s decision.” 

Id. “Findings of fact are reviewed for clear error, and 

conclusions of law are reviewed de novo.” Id. (citation 

omitted). 
7

A.

The bankruptcy court granted PNC’s motion to dismiss 

Birmingham’s complaint under Federal Rule of Civil Procedure 

12(b)(6). J.A. 675. The district court applied this same 

standard of review to the bankruptcy court’s decision. Id.

A motion to dismiss under Federal Rule of Civil Procedure

12(b)(6) tests the legal sufficiency of the complaint. Papasan 

v. Allain, 478 U.S. 265, 283 (1986). The motion should be 

granted unless the complaint “states a plausible claim for 

relief.” Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012) 

(citing Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). In 

considering a Rule 12(b)(6) motion, the Court “must accept as 

true all of the factual allegations contained in the complaint,” 

drawing “all reasonable inferences” in the non-moving party’s 

favor. E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc., 

637 F.3d 435, 440 (4th Cir. 2011) (citations omitted). The 

court is not obligated to assume the veracity of the legal 

conclusions drawn from the facts alleged. Adcock v. 

Freightliner LLC, 550 F.3d 369, 374 (4th Cir. 2008) (citing 

Dist. 28, United Mine Workers of Am., Inc. v. Wellmore Coal 

Corp., 609 F.2d 1083, 1085-86 (4th Cir. 1979)).

The complaint must contain sufficient factual allegations, 

taken as true, “to raise a right to relief above the speculative 

level” and “nudge [the] claims across the line from conceivable 
8

to plausible.” Vitol, S.A. v. Primerose Shipping Co., 708 F.3d 

527, 543 (4th Cir. 2013) (quoting Bell Atl. Corp. v. Twombly,

550 U.S. 544, 555, 570 (2007)). The facial plausibility 

standard requires pleading of “factual content that allows the 

court to draw the reasonable inference that the defendant is 

liable for the misconduct alleged.” Clatterbuck v. City of 

Charlottesville, 708 F.3d 549, 554 (4th Cir. 2013) (quoting 

Iqbal, 556 U.S. at 678). The plausibility requirement imposes 

not a probability requirement but rather a mandate that a 

plaintiff “demonstrate more than a ‘sheer possibility that a 

defendant has acted unlawfully.’” Francis v. Giacomelli, 588 

F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678). 

Accordingly, a complaint is insufficient if it relies upon 

“naked assertions” and “unadorned conclusory allegations” devoid 

of “factual enhancement.” Id. (citations omitted). The 

complaint must present “‘enough facts to raise a reasonable 

expectation that discovery will reveal evidence’ of the alleged 

activity.” US Airline Pilots Ass’n v. Awappa, LLC, 615 F.3d 

312, 317 (4th Cir. 2010) (quoting Twombly, 550 U.S. at 556). 

In addition to the complaint, the court will also examine 

“documents incorporated into the complaint by reference,” as 

well as those matters properly subject to judicial notice. 

Clatterbuck, 708 F.3d at 557 (citations omitted); see also

Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d 
9

172, 176 (4th Cir. 2009) (quoting Tellabs, Inc. v. Makor Issues 

& Rights, Ltd., 551 U.S. 308, 322 (2007)). 

B. 

Certain provisions of the Bankruptcy Code are relevant to 

this appeal. “Under Chapter 13 of the Bankruptcy Code, 

individual debtors may obtain adjustment of their indebtedness 

through a flexible repayment plan approved by a bankruptcy 

court.” Nobelman v. Am. Sav. Bank, 508 U.S. 324, 327 (1993). 

The relationship between 11 U.S.C. § 506(a) and § 1322(b)(2) is 

pertinent to this circuit’s review of the district court’s 

decision to affirm the bankruptcy court’s dismissal of 

Birmingham’s complaint. Section 506(a) is used in conjunction 

with § 1322 to allow modification, or bifurcation, of a secured 

creditor’s claim into secured and unsecured portions when the 

claim exceeds the value of the secured property. Nobelman, 508

U.S. at 328.

In Nobelman, the Supreme Court examined the nexus between 

claim-bifurcation under § 506(a) and the anti-modification 

provision of § 1322(b)(2) to ascertain whether a debtor could 

bifurcate a single, under-secured residential mortgage claim 

into secured and unsecured components pursuant to § 506(a). Id.

at 326. The debtor in Nobelman argued that § 1322(b)(2)’s antimodification provision applied only to the secured component of 

her mortgage claim, as defined in § 506(a). Id.
10

Section 506(a) states that:

(a)(1) An allowed claim of 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. Such value 

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). Accordingly, under § 506(a), “an allowed 

claim secured by a lien on the debtor’s property is a secured 

claim to the extent of the value of the property; to the extent 

the claim exceeds the value of the property, it is an unsecured 

claim.” Nobelman, 508 U.S. at 328 (internal quotation marks 

omitted). 

Notwithstanding, § 1322(b)(2) provides:

(b) Subject to subsections (a) and (c) of this 

section, the 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). This “anti-modification” provision 

precludes reduction or cramming down the value of a claim 

secured by an interest in real property that is the debtor’s 

principal residence. In other words, a claimant’s interest in 
11

real property that is secured solely by the debtor’s principal 

residence may not be bifurcated.

C. 

Congress clarified the meaning of a key term in the antimodification clause, “debtor’s principal residence,” in the 

Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCP 

Act”) of 2005. The Bankruptcy Code now defines the term as “a 

residential structure if used as the principal residence by the 

debtor, including incidental property, without regard to whether 

that structure is attached to real property.” 11 U.S.C. § 

101(13A)(A)(emphasis added). The BAPCP Act also defined 

“incidental property,” as it relates to a debtor’s principal 

residence, as follows:

(A) property commonly conveyed with a principal 

residence in the area where the real property is 

located;

(B) all easements, rights, appurtenances, fixtures, 

rents, royalties, mineral rights, oil or gas rights or 

profits, water rights, escrow funds, or insurance 

proceeds;

(C) all replacements or additions.

11 U.S.C. § 101(27B). The Code defines a security interest as a 

“lien created by an agreement.” 11 U.S.C. § 101(51). Moreover, 

a lien is defined as a “charge against or interest in property 

to secure a payment of a debt or performance of an obligation.” 

11 U.S.C. § 101(37). 
12

With this framework in mind, and for the reasons that 

follow, we hold that the district court’s decision to affirm the 

bankruptcy court’s dismissal of Birmingham’s complaint was 

correct. PNC’s loan was secured solely by Birmingham’s 

principal residence and not any additional collateral. The 

Bankruptcy Code’s anti-modification provision precluded the 

bifurcation sought by Birmingham. Consequently, Birmingham’s 

complaint was appropriately dismissed.

III.

The Birmingham Deed of Trust not only grants PNC a security 

interest in the Property, but also provides additional 

protections for PNC. However, saliently, the auxiliary 

protections are not additional collateral and do not remove 

PNC’s claim from the protection of § 1322(b)(2). 

A. 

Of particular importance to this Court’s analysis are 

Sections 3, 5, and 11 of the Deed of Trust, all of which will be 

analyzed in turn. Section 3 of the Deed of Trust pertains to 

escrow funds and states, in pertinent part, the following:

Funds for Escrow Items. Borrower shall pay to Lender 

on the day Periodic Payments are due under the Note, 

until the Note is paid in full, a sum (the “Funds”) to 

provide for payment of amounts due for: (a) taxes and 

assessments and other items which can attain priority 

over this Security Instrument as a lien or encumbrance 

on the Property; (b) leasehold payments or ground 
13

rents on the Property, if any; (c) premiums for any 

and all insurance required by Lender under Section 5; 

and (d) Mortgage Insurance Premiums, if any, or any 

sums payable by Borrower to Lender in lieu of the 

payment of the Mortgage Insurance premiums in 

accordance with the provisions of Section 10. These 

items are called “Escrow Items.”

. . . 

If there is a surplus of Funds held in escrow, as 

defined under [the Real Estate Settlement Procedures 

Act (“RESPA”)], Lender shall account to Borrower for 

the excess funds in accordance with RESPA. If there 

is shortage of funds held in escrow, as defined under 

RESPA, Lender shall notify Borrower as requested by 

RESPA, and Borrower shall pay to Lender the amount 

necessary to make up the shortage in accordance with 

RESPA, but in no more than 12 monthly payments.

Deed of Trust § 3, J.A. 621-22.

Section 5 of the Deed of Trust addresses the topic of 

property insurance, and provides as follows:

Borrower shall keep the improvements now existing or 

hereafter erected on the Property insured against loss 

by fire, hazards included within the term “Extended 

coverage,” and any other hazards including, but not 

limited to, earthquakes and floods, for which Lender 

requires insurance . . . . 

If Borrower fails to maintain any of the coverage 

described above, Lender may obtain insurance coverage, 

at Lender’s option and Borrower’s expense. Lender is 

under no obligation to purchase any particular type or 

amount of coverage. Therefore, such coverage shall 

cover Lender, but might or might not protect Borrower, 

Borrower’s equity in the Property, or the contents of 

the Property, against any risk, hazard or liability 

and might provide greater or lesser coverage than was 

previously in effect.

. . . .

Borrower hereby assigns to Lender (a) Borrower’s 

rights to any insurance proceeds in an amount not to 
14

exceed the amounts unpaid under the Note or this 

Security Instrument, and (b) any other of Borrower’s 

rights (other than the right to any refund of unearned 

premiums paid by Borrower) under all insurance 

policies covering the Property, insofar as such rights 

are applicable to the coverage of the Property. 

Lender may use the insurance proceeds either to repair 

or restore the Property or to pay amounts unpaid under 

the Note or this Security Instrument, whether or not 

then due.

Deed of Trust § 5, J.A. 623-24.

Lastly, Section 11 of the Deed of Trust discusses 

miscellaneous proceeds and contains the following language:

Assignment of Miscellaneous Proceeds; Forfeiture. All 

Miscellaneous Proceeds are hereby assigned to and 

shall be paid to Lender.

. . . .

In the event of a partial taking, destruction, or loss 

in value of the Property in which the fair market 

value of the Property immediately before the partial 

taking, destruction, or loss in value is less than the 

amount of the sums secured immediately before the 

partial taking, destruction, or loss in value, unless 

the Borrower and Lender otherwise agree in writing, 

the Miscellaneous Proceeds shall be applied to the 

sums secured by this Securing Instrument whether or 

not the sums are then due. 

Deed of Trust § 11, J.A. 626.

Miscellaneous Proceeds include:

[A]ny 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 

omission as to, the value and/or condition of the 

Property.
15

Deed of Trust ¶ M. 

The issue presented is whether these provisions of the Deed 

of Trust constitute sufficient collateral so that PNC’s interest 

is secured by more than Birmingham’s principal residence. We 

hold that the aforementioned provisions do not entitle 

Birmingham to the bifurcation sought.

B.

Birmingham argues that Sections 3, 5, and 11 of the Deed of 

Trust provide additional security for PNC’s interest such that 

it is no longer secured solely by an interest in real property. 

Appellant Br. at 19-25. These items, however, are incidental 

property frequently conveyed in a deed of trust and defined in 

11 U.S.C. §§ 101(27B) and 101(13A)(A) as part of a debtor’s 

principal residence.

The case Allied Credit Corp. v. Davis (In re Davis), 989 

F.2d 208 (6th Cir. 1993) is illustrative. There, the Sixth 

Circuit found that “[i]tems which are inextricably bound to the 

real property itself as part of the possessory bundle of rights” 

do not extend a lender’s security beyond the real property. Id.

at 213; see also Akwa, 530 B.R. at 313 (D. Md. 2015). On the 

topic of insurance, the Davis court explained that “hazard 

insurance is merely a contingent interest — an interest that is 

irrelevant until the occurrence of some triggering event and not 

an additional security interest for the purposes of § 
16

1322(b)(2).” In re Davis, 989 F.2d at 211 (citation omitted)

(emphasis added). This reasoning similarly applies to 

miscellaneous proceeds and escrow funds that are tied to the 

real property at issue. See In re Ferandos, 402 F.3d 147, 156 

(3d Cir. 2005) (“[F]unds for taxes and insurance, paid over and 

placed in escrow, exist precisely for the purpose of paying said 

taxes and insurance — a cost incurred by the debtor in 

connection with the ownership of real property.”); see also 

Kreitzer v. Household Realty Corp. (In re Kreitzer), 489 B.R. 

698, 703-06 (Bankr. S.D. Ohio 2013) (holding that a security 

interest which residential mortgage lender took in miscellaneous 

proceeds was not an additional security interest that the lender 

possessed other than in the residential mortgage property 

itself). 

The district court in Akwa, which involved the same 

standard Fannie Mae/Freddie Mac deed of trust that is at issue 

in this appeal, correctly noted:

[T]he lender may collect funds for escrow to ensure 

that all property-related payments, like taxes and 

ground rents, are paid. Likewise, the Deed of Trust 

also permits the lender to hold insurance proceeds if 

an insurer pays for repairs to the house to ensure 

that the lender’s investment — the real property — is 

repaired to lender’s satisfaction. The same is true 

for miscellaneous proceeds paid by a third party, 

which the lender can use for repairs or restoration.

Akwa, 530 B.R. at 313-14.
17

PNC accurately states that this perspective has been 

recognized by a number of courts in analogous circumstances. 

See Abdosh v. Ocwen Loan Servicing (In re Abdosh), 513 B.R. 882, 

886 (Bankr. D. Md. 2014), aff’d sub nom. Abdosh v. Ocwen Loan 

Servicing, LLC, No. CIV. PJM 14-2916, 2015 WL 4635103 (D. Md. 

July 30, 2015) (noting that “[t]here is no need to re-visit in 

detail this clear legal issue”); In re Kreitzer, 489 B.R. at

703-06 (discussing miscellaneous proceeds); In re Mullins, No. 

11-11176C-13G, 2012 WL 2576625, at *2 (Bankr. M.D.N.C. July 3, 

2012) (discussing escrow funds); In re Inglis, 481 B.R. 480, 

482-83 (Bankr. S.D. Ind. 2012) (“[U]nder the express terms of 

these provisions . . . a lender does not lose its § 1322(b)(2) 

protection by taking a security interest in escrow funds as 

‘escrow funds’ are part of the ‘incidental property’ which 

comprise ‘the debtor’s principal residence.’”); In re Leiferman,

No. BR 10-40718, 2011 WL 166170, at *2 (Bankr. D.S.D. Jan 19, 

2011) (analyzing miscellaneous proceeds).

In his opposition, Birmingham cites a series of cases where 

courts have held that certain additional collateral existed 

beyond real property. For instance, Birmingham cites the Third 

Circuit’s decision Hammond v. Commonwealth Mortg. Corp. of Am., 

27 F.3d 52 (3d Cir. 1994) for the proposition that “supplemental 

collateral in a deed of trust will cause a waiver of the antimodification rights of 11 U.S.C. § 1322(b).” Appellant Br. at 
18

43-44. However, the lien in Hammond explicitly “covered more 

than the real property.” See Abdosh, 513 B.R. at 886. 

The security contrivance in Hammond created “an additional 

security interest in: any and all appliances, machinery, 

furniture and equipment (whether fixtures or not) of any nature 

whatsoever.” Hammond, 27 F.3d at 53-54 (internal quotation 

marks omitted). Here, the Deed of Trust does not expressly 

attempt to take a security interest in additional collateral. 

As the Akwa court concluded, the language found in these 

provisions “explicitly ties the funds to ensuring that the 

lender’s collateral — the real property — is preserved.” Akwa, 

530 B.R. at 313. Accordingly, Birmingham’s reliance on Hammond

is misplaced.

Relatedly, Birmingham’s arguments premised on the holdings 

of other cases cited in his brief are inapposite for the same 

reason: the security instruments at issue explicitly granted the 

debtee an interest secured by more than just real property. For 

example, In re Ennis – in which we found the anti-modification 

clause of § 1322(b)(2) inapplicable to a security agreement for 

personal property, i.e. a mobile home on leased property –

provides no guidance for a home mortgage that includes the 

typical incidental benefits intended to protect the interest in 

real property. See Ennis v. Green Tree Servicing, LLC (In re 

Ennis), 558 F.3d 343, 347 (4th Cir. 2009); see also Scarborough 
19

v. Chase Manhattan Mortg. Corp. (In re Scarborough), 461 F.3d 

406, 412 (3d Cir. 2006) (holding that when a mortgage lender 

takes an interest in real property that includes income 

producing property, the lender’s interest is also secured by 

property that is not the debtor’s principal residence, and its 

claim may be modified); Lomas Mortg., Inc. v. Louis, 82 F.3d 1, 

7 (1st Cir. 1996) (finding that § 1322(b)(2) does not bar 

modification of a secured claim on a multi-unit property in 

which one unit is debtor’s principal residence and the security 

interest extends to other income-producing units); Sapos v. 

Provident Inst. of Sav. in Town of Boston, 967 F.2d 918, 921 (3d 

Cir. 1992) (holding that the anti-modification provision is 

inapplicable where the note was also secured by wall-to-wall 

carpeting, rents, and profits), overruled on other grounds by

Nobelman v. Am. Sav. Bank, 508 U.S. 324 (1993); Wilson v. 

Commonwealth Mortg. Corp., 895 F.2d 123, 128 (3d Cir. 1990)

(finding § 1322(b)(2) not applicable where a mortgage agreement 

stated that the lender had “a security interest in appliances, 

machinery, furniture, and equipment”), abrogated on other 

grounds by Nobelman, 508 U.S. 324. 

Sections 3, 5, and 11 of the Deed of Trust do not create 

‘‘separate or additional security interest[s], but [are] merely

[] provision[s] to protect the lender’s security interest in the 

real property.’’ Akwa, 530 B.R. at 314 (quoting In re Kreitzer, 
20

489 B.R. 698, 705-06). Accordingly, the district court properly 

found, as a matter of law, that escrow funds, insurance 

proceeds, and miscellaneous proceeds are incidental property 

that do not constitute separate security interests. 

C. 

Birmingham additionally relies on a line of cases from 

North Carolina bankruptcy courts that ostensibly found “where an 

assignment of alternative collateral exists in a deed of trust 

other than real property, the lender will be subject to 

modification of its secured debt.” Appellant Br. at 26 (citing 

In re Bradsher, 427 B.R. 386 (Bankr. M.D.N.C. 2010); Bradshaw v. 

Asset Ventures, LLC (In re Bradshaw), Nos. 13-06176-8-RDD, 14-

00023-8-RDD, 2014 WL 2532227 (Bankr. E.D.N.C. June 4, 2014); In 

re Murray, No. 10-10125-8-JRL, 2011 WL 5909638 (Bankr. E.D.N.C. 

May 31, 2011); In re Martin, 444 B.R. 538 (Bankr. M.D.N.C. 

2011); In re Hughes, 333 B.R. 360 (Bankr. M.D.N.C. 2005)). As 

the district court in this case correctly stated, however, the 

loan documents in both Bradsher and Hughes “expressly provided 

that escrow payments constituted additional security for the 

loan.” J.A. 680 (citing Bradsher, 427 B.R. at 388-89 (“[T]he 

loan documents purport to provide a security interest for the 

indebtedness secured by the deed of trust in escrow funds in 

addition to a security interest in the residential land and 

housing structure.”); Hughes, 333 B.R. at 363 (noting that the 
21

loan documents “require the borrower to pledge the escrow funds 

as ‘additional security’”)). Hence, the language of the loan 

documents in both Bradsher and Hughes is unequivocally 

distinguishable from the language present in the Birmingham Deed 

of Trust. The holdings of Bradsher and Hughes therefore do not 

apply to this case.

Moreover, in Mullins, the same judge who presided over 

Bradsher held that nothing in the deed of trust “suggests that a 

security interest is also being granted in escrow funds. Nor is 

there any language in the escrow provisions [] purporting to 

create a security interest in escrow funds to be paid by the 

[debtors].” In re Mullins, 2012 WL 2576625 at *2. Further, in

Bynum v. CitiMortgage, Inc. (In re Bynum), Nos. 12-10660, 12-

2031, 2012 WL 2974694 (Bankr. M.D.N.C. July 19, 2012), the 

bankruptcy judge found that a standard Fannie Mae/Freddie Mac 

deed of trust “do[es] not contain elements required to create a 

security interest in Escrow Funds.” Id. at *3. 

To the extent that Birmingham also relies upon In re 

Daniels, No. 15-666-5-SWH, 2015 WL 9283153 (Bankr. E.D.N.C. Dec. 

18, 2015), a case that addresses the district court decision 

that is currently before us, the Court in Daniels stated that 

“Birmingham involved a deed of trust that did not contain 

explicit language creating a security interest in escrow funds.” 

Id. at *3 (citation omitted). Highlighting this difference, the 
22

Court in Daniels found that “Birmingham’s rejection of Bradsher

and Murray is not instructive.” Id.

In short, the North Carolina bankruptcy courts agree that 

the anti-modification clause applies to the Fannie Mae/Freddie 

Mac Deed of Trust before us in this case. We thus have no 

occasion to consider the effect – if any – of additional 

language in a deed purporting to create a separate security 

interest in escrow funds, insurance proceeds, or miscellaneous 

proceeds, in light of our interpretation of § 1322(b)(2).

D.

Birmingham also argues that both the bankruptcy court and 

the district court should have looked to Maryland law to 

determine whether the Deed of Trust created additional security 

interests in escrow funds, insurance proceeds, and miscellaneous 

proceeds as “real property.” Appellant Br. at 21-24. The 

Bankruptcy Code, however, explicitly defines “incidental 

property” to a debtor’s principal residence, which includes both 

escrow funds and insurance proceeds. 11 U.S.C. § 101(27B). 

State laws are suspended if they conflict with the Bankruptcy 

laws. Butner v. U.S., 440 U.S. 48, 54 n.9 (1979). Thus, it is 

not necessary for us to examine Maryland law on this issue.

Even if Maryland law were to apply, it is far from clear 

that the resulting holding would be favorable for Birmingham. A 

security interest is created, under Maryland law, when there is 
23

language present in the security instrument that leads to the 

logical conclusion that it was the intention of the parties to 

create a security interest. Tilghman Hardware, Inc. v. 

Larrimore, 628 A.2d 215, 220 (Md. 1993) (citation omitted). We 

have already found that the Deed of Trust did not contain 

language wherein a security interest was granted in escrow 

funds, insurance proceeds, or miscellaneous proceeds. 

Therefore, Birmingham’s argument with respect to the application 

of Maryland law is unavailing.

Finally, the policy arguments that Birmingham puts forth 

are similarly ineffective. Birmingham asks this circuit to 

ignore various cases that characterize escrow funds, insurance 

proceeds, and miscellaneous proceeds as “part and parcel” of 

real property. Appellant Br. at 44 (citing In re Kreitzer, 489 

B.R. at 704; In re Ferandos, 402 F.3d at 151; Davis, 989 F.2d at 

211; In re Rosen, 208 B.R. 345, 354 (D.N.J. 1997)). 

Additionally, Birmingham relies on In re Escue, 184 B.R. 287 

(Bankr. M.D. Tenn. 1995) to contend that the bankruptcy court 

erred by not finding that the pertinent incidental items at 

issue constitute supplemental collateral, in light of the 

legislative history of the Bankruptcy Code. Appellant Br. at 

48-49. The Escue decision came before §§ 101(13A)(A) and (27B) 

were enacted, however. Furthermore, as with many of the other 

cases that Birmingham has cited, the deed of trust at issue in 
24

Escue expressly created a security interest in certain fixtures 

with granting language that is wholly absent from the Birmingham 

Deed of Trust. Consequently, Birmingham’s reliance on Escue is 

misplaced.

Characterizing escrow funds, insurance proceeds, and 

miscellaneous proceeds as additional security for § 1322(b)(2) 

“would completely eviscerate the anti-modification exception of 

§ 1322(b)(2) because many deeds of trust which encumber improved 

real property contain these provisions to protect the lender’s 

investment in the real property.” Akwa, 530 B.R. at 313 

(internal quotation marks omitted). Moreover, as the district 

court noted, Congress did not intend for Birmingham’s position 

and “this principle cannot be squared with an interpretation 

that would render the anti-modification provision inapplicable 

to virtually all residential mortgages.” J.A. 682.

IV.

The Deed of Trust on Birmingham’s residence is secured only 

by real property that is also Birmingham’s principal residence. 

Escrow funds, insurance proceeds, and miscellaneous proceeds do 

not constitute additional collateral. Accordingly, Birmingham’s 

complaint fails to state a claim for relief that is plausible. 

For the foregoing reasons, the district court’s judgment is 

affirmed.

AFFIRMED