Court Opinion

ID: 9688515
Source: CourtListenerOpinion
Date Created: 2023-08-24 17:53:17.819217+00
Date Added: 2024-06-11T18:18:39.918875
License: Public Domain

STOSBERG,
dissenting.
Congress clouded rather than clarified the rights of debtors to modify claims secured by home mortgages when it enacted 11 U.S.C. § 1322(c)(2) and any endeavor to address the majority’s reasoning seems futile in light of the conflicting approaches by various courts. Indeed, In re Young, 199 B.R. 643 (Bankr.E.D.Tenn.1996), supplies sufficient support for the majority’s decision.
The context for favoring bifurcation and cramdown presupposes that “saving the home” should serve as the controlling element in deciding whether to confirm a Chapter 13 plan. As an isolated proposition, no one can quarrel with the basic idea of saving the home. I question whether there is really anything to save when the Debtors have zero equity and they have already proven that they are incapable of making burdensome payments. Nonetheless, a particular court’s philosophy cannot provide the debtor financial salvation in the form of a bifurcated 100% mortgage in derogation of the safeguards found in, other provisions of the Bankruptcy Code.
The majority rejects the result dictated by Nobelman v. American Savings Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993)’, especially in the context of Justice Thomas’ “protection of rights” analysis.
The bank’s “rights,” therefore, are reflected in the relevant mortgage instruments, which are enforceable under Texas law. They include the right to repayment of the principal in monthly installments over a fixed term at specified adjustable rates of interest, the right to retain the lien until the debt is paid off, the right to accelerate the loan upon default and to proceed against petitioners’ residence by foreclosure and public sale, and the right to bring an action to recover any deficiency remaining after foreclosure, [citations omitted]. These are the rights that were “bargained for by the mortgagor and the mortgagee,” Dewsnup v. Timm, 502 U.S. 410, 417, 112 S.Ct. 773, 778, 116 L.Ed.2d 903 (1992), and are rights protected from modification by § 1322(b)(2).
Id. at 329-30, 113 S.Ct. at 2110.
But like it or not, Congress has granted these special protections since the enactment *481of the Bankruptcy Code in 1978. I quote generously from First National Fidelity Corp. v. Perry, 946 F.2d 61(3d Cir.1991), which summarizes the approach to home mortgage loans:
“The purpose of chapter 13 is to enable an individual, under court supervision and protection, to develop and perform under a plan for the repayment of his debts over an extended period.” H.R.Rep. No.-595, 95th Cong., 1st Sess. 118 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6079. To achieve this purpose, Chapter 13 generally allows modification of creditors’ claims to allow debtors the necessary time to repay their debts. This power of modification was extended in Chapter 13 to claims secured by real estate that had been ex-eluded from plans under the old chapter XIII. But testimony by representatives of secured creditors resulted in § 1322(b)(2)’s exception of home mortgages from that general power of modification. Congress apparently accepted predictions by representatives of secured creditors’ interests that
savings and loans will continue to make loans to individual homeowners, but they will tend to be ... extraordinarily conservative and more conservative than they are now in the flow of credit. [Home mortgage lenders] will have to recognize that there is an additional business risk presented [if a bill is passed] providing for the possibility of modification of the rights of the secured creditor in the residential mortgage area.
Bankruptcy Reform Act of 1978: Hearings on S. 2266 and H.R.. 8200 Before the Sub-cototo. on Improvements in Judicial Machinery of the Senate Comm, on the Judiciary, 95th Cong., 1st Sess. 707, 715 (1977) (statement of Robert E. O’Malley). As the Court of Appeals for the Sixth Circuit has observed,
Congress had to face the reality that ... [ejvery protection Congress might grant a homeowner at the expense of the holders of security interests on these homes would decrease the attractiveness of home mortgages as investment opportunities [and the availability of home mortgage financing]. In re Glenn, 760 F.2d 1428, 1434 (6th Cir.1985); see also Id. at 1433 n. 1; Grubbs v. Houston First Amer. Sav. Ass’n, 730 F.2d 236, 245-46 (5th Cir.1984) (en banc).
Thus, the prohibition found in § 1322(b)(2) against modification of the rights of home mortgage lenders was intended to make home mortgage money on affordable terms more accessible to homeowners by assuring lenders that their expectations would not be frustrated. The only exception to this assurance is § 1322(b)(5) which allows a Chapter 13 debtor to “cure” his mortgage after a default.
Id. at 63-64.
After the Perry court denied the right of the debtor to pay a foreclosure judgment over the life of a plan, Congress enacted 1322(c)(2) and in the legislative history specifically indicated its intent to overrule Perry. The Young court overextends, in my view, the reach' of § 1322(c)(2) for the reasons articulated in a Comment by Timothy B. McCaffrey, Jr. in the Loyola of Los Angeles Law Review:
To summarize, Congress’s express mention ■ of Perry indicates that § 1322(c)(2) permits debtors to modify principal and interest payments of mortgage obligations that mature immediately before the filing of, or during, a chapter 13 plan. But Congress’s desire to overrule Perry does not ■ support an interpretation of § 1322(c)(2) that permits bifurcation and cramdown of undersecured homestead mortgagees’ claims. Rather, under the Supreme Court’s analysis in Dewsnup, a court should not interpret § 1322(c)(2) as permitting bifurcation and cramdown of undersecured homestead mortgagees’ claims that come due before or during a chapter 13 plan because Congress did not indicate it intended to overrule Nobelman with respect to such mortgages. Indeed, if Congress wanted to overrule a recent' United States Supreme Court case, why would it not say so? (footnotes omitted).
Timothy B. McCaffrey, Jr., From Dewsnup to Nobelman to the Bankruptcy Reform Act *482of 1994: Did Congress Intend to Change “Pre-Amendment” Law When It Enacted § 1322(c)(2)?, 30 Loy. L.A.L. Rev. 841, 860 (1997).
Further, the author continues:
Finding the language of § 1322(c)(2) unambiguous, the Young court permitted the debtor to bifurcate and cramdown the un-dersecured homestead mortgagee’s claim under § 1322(c)(2). But the Young court’s reliance on this statement is misplaced. As stated earlier, it is unclear why the Court found the provision at issue in Dewsnup ambiguous. The Supreme Court’s failure to explain its conclusion should make lower courts wary, absent at least some indication by Congress that is intended to effect such a change, of interpreting a new Code provision to alter preexisting practice. Indeed, relying on the Court’s finding of ambiguity as the basis for its examination of § 506(d)’s legislative history ignores the Court’s underlying concern that it should be prudent when interpreting a Code provision that might alter a preexisting bankruptcy practice.
Id. at 861 (footnotes omitted).
Finally, at the Circuit level, I find this view reinforced in Witt v. United Companies Lending Corporation, 113 F.3d 508 (4th Cir.1997). Analyzing the legislative history, the Witt court notes: ,
It makes no mention of the Nobelman decision or of any intention to overrule that decision. The Witts’ interpretation of the statute, however, would directly overrule Nobelman. Had Congress intended to overrule Nobelman, we expect Congress would have discussed that in the legislative history. Although the Report directly refers to forty eases, including three Supreme Court cases, that the Act was intended to overrule, Nobelman is not one of them. The Witts offer no reason why Congress would have failed to include No-belman in this list if it was actually overruled by § 1322(e)(2).
“It is firmly entrenched that Congress is presumed to enact legislation with knowledge of the law.” United States v. Langley, 62 F.3d 602, 605 (4th Cir.1995)(en banc), cert. denied, 516 U.S. 1083, 116 S.Ct. 797, 133 L.Ed.2d 745 (1996). The upshot of this canon of statutory interpretation is that “absent a clear manifestation of contrary intent, a newly-enacted or revised statute is presumed to be harmonious with existing law and its judicial construction.” Id. (quoting Estate of Wood v. C.I.R., 909 F.2d 1155, 1160 (8th Cir.1990) (quoting Johnson v. First Nat’l Bank of Montevideo, 719 F.2d 270, 277 (8th Cir.1983))). Congress certainly intended the Bankruptcy Reform Act of 1994 to overrule judicial precedent in a number of different areas. There is no “clear manifestation,” however, that Congress intended to overrule Nobel-man. We believe it ill-advised to give such a drastic interpretation to § 1322(c)(2) without congressional support. As we said in Langley, “[i]f Congress intended such a revolutionary change in the law, ... it would have made clear its intention to do so.” Langley, 62 F.3d at 606; cf. Dewsnup v. Timm, 502 U.S. 410, 419, 112 S.Ct. 773, 779, 116 L.Ed.2d 903 (1992) (“[Tjhis Court has been reluctant to accept arguments that would interpret the Code ... to effect a major change in pre-Code practice that is not the subject of at least some discussion in the legislative history.”) (footnotes deleted).
Id. at 513.
I further note that the Fourth Circuit “recognized” their decision would make the Witts’ fresh start a little tougher, but it balanced that effect against the impact on prospective future loans to other debtors. And it also noted that § 1322(c)(2) “still provides significant relief for homeowners in Chapter 13 who need more flexibility ... by paying the remaining part of the debt over the life of a Chapter 13 plan.” Id. at 514.
Although Congress may not have offered crystal clear language in passing § 1322(c)(2), it obviously knew about Nobel-man. Nobelman’s precedent notwithstanding, Congress instead chose to overrule Perry which convinced the Witt court to prohibit bifurcation. I agree with Witt and therefore respectfully dissent.