Opinion ID: 2982362
Heading Depth: 2
Heading Rank: 1

Heading: Second Mortgage Debt

Text: The bankruptcy court determined that it was the intent of the state court and the parties to create a support obligation. The bankruptcy court cited five reasons for its decision: (1) support is inferred because the second mortgage payments protected the children’s home; (2) the lack of an upward deviation in child support payments in the 2007 consent decree indicates a support payment; (3) the 2007 consent decree’s provision that if a sale of the family home created a deficiency debt that the parties split the debt, while if it created a surplus, Creditor was entitled to all of the surplus, was intended to assist in providing a home for the children; (4) Creditor’s hold harmless agreement in the 2003 consent decree does not relieve Debtor from his obligation to pay the disputed claim; and (5) the agreements do not show that Debtor was entitled to spousal support. Debtor’s brief implies that Creditor’s obligation to pay both mortgages in the 2003 divorce decree is binding despite entry of the 2007 consent decree and the 2009 order, but does not cite any authority for this proposition. The bankruptcy court took the better view, that is, that the 2007 consent decree and the 2009 order superceded the 2003 divorce terms. However, the bankruptcy court did also consider the terms of the 2003 divorce in determining the state court and parties’ intent. Debtor also challenges the bankruptcy court’s reliance on the fact that in the 2007 consent decree child support payments went down, but that Debtor became obligated on the second mortgage 4 In Fitzgerald, 9 F.3d at 520 and Sorah, 163 F.3d at 401, the Sixth Circuit modified the Calhoun standard to eliminate the “present needs” test, holding that the current needs of the non-debtor spouse should not be considered when determining if the obligation was intended as support. This prong is not relevant to this appeal. 10 as a further indication that the obligation was in the nature of support. Debtor argues that the record indicates that the reason for the reduction in child support was the fact that he was unemployed. While that fact is supported by the record, that fact does not negate the bankruptcy court’s inference. They are not mutually exclusive. The 2003 upward deviation from the standard calculation of child support clearly ties payment of the second mortgage to the children’s support. The fact that Debtor was out of work at the time of the second divorce and the amount labeled as “child support” decreased but that he obtained a new obligation to pay half of the second mortgage supports an inference that the mortgage payment was part of support for the children. As stated by one bankruptcy court: [T]he majority of courts considering whether a mortgage debt assumed by or ordered to be paid by a debtor pursuant to a judgment of divorce have held that such an obligation is in the nature of “support.” See, e.g., Gianakas v. Gianakas (In re Gianakas), 917 F.2d 759, 764 (3d Cir.1990) (“The great weight of authority holds that a spouse's assumption of mortgage debts which enable members of the family to remain in the marital residence is an obligation in the nature of support, maintenance or alimony.”) (collecting cases); In re Johnson, 397 B.R. at 297–98 (“Numerous courts have held that an obligation that is essential to enable a party to maintain basic necessities or to protect a residence constitutes a nondischargeable support obligation.” (collecting cases)). And although the divorce judgments before some courts included a hold harmless clause, the absence of such a clause here is not dispositive. In re Trump, 309 B.R. at 593–94 (“Even absent [hold harmless or indemnification] language, the Agreement created a legally enforceable obligation for [the debtor] to make payments on the second mortgage note.”). In re Palmieri, No. 11-51224, 2011 WL 6812336, at  (Bankr. E.D. Mich. Nov. 21, 2011). See also In re King, 461 B.R. 789, 794 n.23 (Bankr. D. Alaska 2010) (collecting cases). The bankruptcy court also found that Debtor’s payment of the second mortgage provided necessary support because the uncontradicted testimony of Creditor was that her income was insufficient to cover both the first and second mortgage payments. Although Debtor has asserted that he was out of work at the time and that Creditor made more money, Debtor has not disputed the finding that Creditor could not afford both the first and second mortgage payments. 11 Debtor argues that the debt created by the requirement in the 2007 consent decree that he pay half of the second mortgage is a property settlement rather than a domestic support obligation. He argues that nothing in either divorce decree was labeled as spousal support and that the 2003 consent decree specifically says that no alimony or spousal support was awarded. Debtor asserts that the bankruptcy court erroneously relied on “stock language” in the 2007 consent decree, which referred to spousal support, even though none had been awarded. See Thomas, 2013 WL 5493214 at . The bankruptcy court’s opinion does mention references to “child and spousal support” in the 2007 consent decree to indicate a probability that the state court intended something to be in the nature of spousal support. However, this reference is in passing and is not the primary support for the bankruptcy court’s conclusion. If the bankruptcy court erred in using the “stock language” as creating an inference of support, it was harmless in view of the other reasons for finding that the mortgage obligation was in the nature of support. Bankruptcy courts are permitted to find a debt to be in the nature of support regardless of the label used by the state court. In the present case, the bankruptcy court’s primary focus was the state court’s implications that the mortgage obligation was to assist in providing for the children’s support by providing them with a home. Finally, Debtor asserts that the 2007 consent decree language that contemplates the sale of the home rather than Creditor’s continued residence there, undermines the bankruptcy court’s conclusion. Accordingly, Debtor argues that the bankruptcy court’s reliance on the children’s need to maintain their home is a false conclusion and does not support a finding that the requirement to pay the second mortgage is in the nature of alimony, maintenance or support. The bankruptcy court found paragraph 4 of the 2007 consent decree to create an ambiguity due to the language providing for the allocation of sale proceeds in the event of a surplus arising from the sale of the property or a deficiency in the event that the sale proceeds did not equal or exceed the mortgages. The bankruptcy court acknowledged that this paragraph could be read as an indication of a property settlement. However, the bankruptcy court found it more likely that the order allowing Creditor to keep proceeds of a possible sale, while requiring Debtor to help cover a deficiency was 12 likely intended to provide for the children’s need for a home. Allowing Creditor to keep proceeds provided her with a possible down payment on a future home, while requiring Debtor to cover part of any deficiency also increased creditor’s ability to come up with a loan payment on a new home. Looking at the totality of the circumstances, the bankruptcy court’s conclusion that the parties and the state court intended to create a support obligation is not clearly erroneous. The fact that the mortgage payments helped provide a residence for the children is a strong indication that the payments were intended as support rather than a property settlement. The language in the 2003 consent decree is the strongest indication that the state court tied the payment of the second mortgage to the children’s support. The payment of half of the second mortgage was never specifically labeled as either support or a property settlement. The bankruptcy court’s determination that it is support is not clearly erroneous.