Opinion
On or after the calendar set forth above, the court issued the following ruling. The official record of the ruling is appended to the minutes of the hearing.
Because the ruling constitutes a "reasoned explanation" of the court's decision under the E-Government Act of 2002 (the "Act"), a copy of the ruling is hereby posted on the court's Internet site, www.caeb.uscourts.gov, in a text-searchable format, as required by the Act. However, this posting does not constitute the official record, which is always the ruling appended to the minutes of the hearing.
DISPOSITION AFTER ORAL ARGUMENT
This matter came on for final hearing on March 18, 2008, at 9:30 a.m. Appearances are noted on the record. The following constitutes the court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
Neither the respondent within the time for opposition nor the movant within the time for reply has filed a separate statement identifying each disputed material factual issue relating to the motion. Accordingly, both movant and respondent have consented to the resolution of the motion and all disputed material factual issues pursuant to FRCivP 43(e) . LBR 9014-1(f) (1) (ii) and (iii).
The motion is granted to the extent set forth herein. The automatic stay is modified pursuant to 11 U.S.C. § 362(d)(1) in order to permit the movant to foreclose on the real property located at 309 Jasmine Court, Roseville, California 95678 (APN 477-210-060-00) (the "Residence") and to obtain possession of the Residence following the sale, all in accordance with applicable non-bankruptcy law.
Both the movant and the debtor misunderstand the situation. The present facts create multiple separate obligations. The movant alleges without dispute that on or about October 8, 2004, several agreements were executed by Pachanga, Inc., a corporation of which the debtor is Secretary ("Pachanga") and others in favor of the movant. First, Pachanga borrowed money in the principal amount of $150,000.00 from the movant and executed a promissory note in favor of the movant (the "Note") for that amount. Second, Pachanga also executed a Commercial Security Agreement granting to the movant a security interest in certain of Pachanga's personal property to secure repayment of the Note. Third, the debtor executed a U.S. Small Business Administration Unconditional Guarantee (the "Debtor Guaranty") in which he guarantied repayment of the Note. The terms of the Debtor Guaranty require the debtor to "pay all amounts due under the note when Lender makes written demand upon Guarantor." (Dkt. 36 at 12). Fourth, Teresita Gutierrez executed a U.S. Small Business Administration Unconditional Guarantee (the "T. Gutierrez Guaranty") in which she guarantied repayment of the Note. Fifth, Erin Simpson executed a U.S. Small Business Administration Unconditional Guarantee in which she guarantied repayment of the Note. Sixth, Christopher Simpson executed a U.S. Small Business Administration Unconditional Guarantee in which he guarantied repayment of the Note. Seventh, the debtor and Teresita Gutierrez executed a deed of trust (the "Gutierrez Deed of Trust") encumbering the Residence to secure performance of their obligations under the Debtor Guaranty and the T. Gutierrez Guaranty. Eighth, Erin and Christopher Simpson executed a deed of trust encumbering their real property located at 1783 Toby Drive, El Dorado Hills, CA 95762 to secure performance of their obligations under their guaranties.
Generally speaking, the following obligations flowed from the foregoing events. Pachanga was obligated to pay the Note according to its terms. The debtor was obligated to pay the movant an amount equal to the then outstanding balance on the Note if Pachanga defaulted on the Note and the movant made demand under the Debtor Guaranty. Teresita Gutierrez, Erin Simpson and Christopher Simpson were also obligated to pay the movant an amount equal to the outstanding balance on the Note if Pachanga defaulted on the Note and the movant made demand under their guaranties.
If Pachanga defaulted on its obligation on the Note, the movant could also foreclose on the collateral covered by the Pacahanga Commercial Security Agreement to secure payment of the Note. If the debtor, Teresita Gutierrez, Erin Simpson and/or Christopher Simpson defaulted on their obligations on their guaranties, the movant could foreclose on the deeds of trust securing performance of the guaranty obligations.
From all of the foregoing, two things are clear: the debtor had one obligation - the obligation on the Debtor Guaranty - and that obligation was secured by one thing - a deed of trust on the Residence. These conclusions are supported by the terms of the deed of trust executed by the debtor and Teresita Gutierrez on October 8, 2004 contains the following provision:
This deed of trust, including the assignment of rents and the security interest in the rents and personal property, is given to secure (A) performance of a guaranty from trustor to lender, and does not directly secure the obligations due lender under the note, (B) payment of the indebtedness, and (C) performance of any and all obligations due lender under the note, the related documents, and this deed of trust.
Dkt. 36 at 22 (emphasis added). The deed of trust also defines the term "note" as the promissory note dated October 8, 2004, in the original principal amount of $150,000.00, which note defines the obligation of Pachanga to the movant. The court construes these provision as evidence that the Gutierrez Deed of Trust secures only the obligations under the Debtor Guaranty and the T. Gutierrez Guaranty (Dkt. 36 at 12-16). Therefore, the court finds that the movant's secured claim in this case, based on the debtor's liability on the Debtor Guaranty, is 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).
The court has yet to confirm a plan in this case. Prior to confirmation cause for relief from the automatic stay under Section 362(d)(1) exists if the movant's interest is not adequately protected. The debtor's proposed plan erroneously treats the movant's claim as a class 1 claim, to be paid by the chapter 13 trustee from the debtor's plan payments. This treatment is based on a misunderstanding of the obligations involved. The debtor confuses Pachanga' s Note obligation with his Debtor Guaranty obligation. The class 1 treatment is based on the repayment terms of the Note, not on the immediately due obligation on the Debtor Guaranty. The movant makes the same mistake of adopting the Pachanga Note obligation by alleging that since the filing of this case on November 8, 2007, it has only received one post-petition payment from the trustee, while three have come due. The chapter 13 trustee has confirmed in his response that as of March 3, 2008 the debtor is delinquent to the trustee in the amount of $9,700.00, or 1.69 plan payments. The trustee also confirms that he has been unable to pay all post-petition contract installment payments since they have come due, and has only made one post-petition installment payment to movant. Assuming that the movant's claim were correctly classified and that the parties accurately stated the facts regarding the payment obligations and payment history, the debtor's failure to provide for post-petition payments to movant would not adequately protect the movant's interest, and that would constitute cause for relief from the automatic stay.
Unfortunately, the movant's claim is not properly classified. Substituting someone else's (Pachanga's) repayment terms as the basis for class 1 treatment constitutes a modification of a claim secured only by the Residence that is prohibited by section 1322(b)(2) and not "saved" by section 1322 (b) (5) . The debtor might have attempted to provide for the movant's claim in class 2 as a claim that matured before the final plan payment is due, thus allowing modification pursuant to section 1322(c)(2), but the debtor did not do so. The failure to provide for the movant's claim in any permissible way denies the movant's claim adequate protection and constitutes cause for relief from the automatic stay.
The debtor's opposition to the motion is not persuasive. In his written opposition the debtor asserts that he intends to refinance the subject real property within six months and that "if need be" he will make adequate protection payments to the movant while the refinancing is moving forward. The debtor's position is not persuasive principally because, as set forth above, it misapprehends the nature of the obligations among the parties. Furthermore, despite his stated intention to refinance the subject real property, he has not proposed an amended plan that does so. The debtor has also not demonstrated an ability to make adequate protection payments to any creditor where he is presently delinquent in chapter 13 plan payments.
At oral argument on this matter the debtor also argued that Section 1322(b)(2) does not prevent him from modifying the creditor's secured claim because the movant is secured by more than one item of collateral. The debtor argued that the movant was also secured by a deed of trust on the residence of guarantors Erin and Christopher Simpspon as well as by the equipment of Pachanga Inc. The debtor cited three cases, In re Cummings, 214 B.R. 126 (D.N.J. 1997), In re Bouvier, 160 B.R. 24 (Bankr. D.R.I. 1993), and In re Reeves, 65 B.R. 898 (N.D. Ill. 1986).
The debtor's contention at oral argument focuses on the wrong "claim." Pachanga's obligation on the Note is not the relevant "claim;" rather, the debtor's obligation on the Debtor Guaranty is the relevant claim. The Debtor Guaranty is secured only by the Gutierrez Deed of Trust on the Residence. In any event, the court has reviewed the cases cited by the debtor at the oral argument and does not find them persuasive. The holdings in these cases are not binding on this court. They are also distinguishable from the instant case.
For example, in Cummings a lender made a loan to a corporation of which the chapter 13 debtor was the sole stockholder. The loan was secured by the corporation's "machinery, equipment, inventory, accounts and assignment of the corporate leasehold. The loan was also secured by an assignment of a life insurance policy on one joint debtor] and a second mortgage on the principal residence of [the debtors]." Cummings, 214 B.R. at 127. The Cummings court also pointed out that the mortgage granted to the mortgagee the property together with all buildings, fixtures, improvements, rents, issues, and profits. Id. The Cummings court held that the debtors could modify the lender's secured claim because the mortgage was secured by the debtors' personal property, including principal property with fixtures, rents, issues, and profits, the life insurance policy, and the assets of a corporation controlled by the debtors. The Cummings court held that the additional property securing the loan made the lender's claim one that was secured by more than just real property that was the debtor's principal residence. Id. at 128-29. The court also held that Section 1322(b) (2) did not require the debtors themselves to give the lender additional security in order to permit modification. Id. at 130. The problem for the debtor with Cummings is that there the debtors' deed of trust directly secured the corporate debt obligation, which was also secured by collateral other than the debtors' residence. That is not the case here.
The Bouvier court also addressed the issue of whether a corporation's pledge of personal property as security for a business loan in addition to the debtors' pledge of a second mortgage on their residence could permit modification. Like the Cummings court the Bouvier court also held that the debtors could modify the lender's secured claim because Section 1322(b)(2) did not require that all of the security be given only by the debtors. Bouvier, 160 B.R. at 25. Again, this case involved a corporate debt directly secured by a second mortgage on the debtors' residence and other collateral. That is not the case here.
In Reeves, the debtor entered into a retail installment contract with a creditor, under which the creditor made certain improvements to the debtor's home, including work on the roof, gutters, walls and porch. The contract was secured by a second mortgage on the debtor's residence. The contract terms also provided that the creditor would take a security interest in the goods and accessories, parts and property sold to the debtor and installed or affixed to the real property. Reeves, 65 B.R. at 901. The Reeves court read the retail installment contract "as creating two different security interests: one attaching only to fixtures under Article 9, and the other attaching to ,real property that is the debtor's principal residence,' including fixtures, under the trust deed mortgage and real estate law." Reeves, 65 B.R. at 901. Similarly to the Cummings court, the Reeves court also held that the fixtures retained a separate status as personal property, based in part on the doctrine under Illinois law that personal property attached to real property remains personalty where an intent that it remains so can be gathered from the conduct or action of the parties. Id. As a result, the Reeves court held that the creditor was not protected by Section 1322 (b) (2).
In each case cited by the debtor a single obligation to a creditor was secured by the debtors' residence and other collateral. Here, however, there are multiple obligations. The Note obligation is secured by personal property belonging to Pachanga, but not by the debtor's residence. A separate obligation, the debtor's liability on the Debtor Guaranty, is secured by the Gutierrez Deed of Trust on the Residence, but not by any other collateral. The Gutierrez Deed of Trust does not secure the Note.
The court also disagrees with Cummings and Reeves to the extent they would hold that because a deed of trust executed by the debtor granted an interest in the Residence "together with all existing or subsequently created or affixed buildings, improvements, and fixtures; all assessments, rights of way, and appurtenances, all water, water rights, and ditch rights . . . .; and all other rights, royalties, and profits relating to the real property" (Dkt. 36 at 22), the movant's claim is not protected by Section 1322(b) (2) . The Ninth Circuit Bankruptcy Appellate Panel has held that the addition of the boilerplate phrase "all the improvements now or hereafter erected on the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water rights and stock and all fixtures now or hereafter a part of the property" to a deed of trust did not remove a secured creditor' s claim from the protection of Section 1322 (b) (2) . See In re Lievsay, 199 B.R. 705, 708-09 (9th Cir. BAP 1996). The additional language in the deed of trust in the instant case is similar boilerplate language that does not extend the movant's security interest " ''beyond items which are inextricably bound to the real property itself as part of the possessory bundle of rights.'" Id. at 708 (citing In re Davis, 989 F.2d 208, 213 (6th Cir. 1993).
Also unavailing is the debtor's argument in his written opposition that the Note is guarantied by the United States Small Business Administration (the "SBA") and "no matter what this debtor does, there is no way that the moving party can lose any money whatsoever" (Dkt. 64 at 2). First, it is irrelevant. The debtor has cited no authority for the proposition that either SBA loans or loans where the creditor "cannot lose" are exempted from the operation of section 1322(b)(2). Second, section 7(a) of the Small Business Act (Pub. L. 85-536), the section that governs the majority of small business loans made and guarantied by the SBA, provides that
(2) LEVEL OF PARTICIPATION IN GUARANTEED LOANS.-
(A) IN GENERAL.-Except as provided in subparagraph (B), in an agreement to participate in a loan on a deferred basis under this subsection (including a loan made under the Preferred Lenders Program), such participation by the Administration shall be equal to-
(i) 75 percent of the balance of the financing outstanding at the time of disbursement of the loan, if such balance exceeds $150,000; or
(ii) 85 percent of the balance of the financing outstanding at the time of disbursement of the loan, if such balance is less than or equal to $150,000.
Small Business Act, Pub. L. 85-536, § 7(a)(2)(codified in 15 U.S.C. § 636(a)(2)(A)) (emphasis added). The debtor has not provided any evidence regarding the type of SBA loan he has or the level of the SBA's participation in it, other than his own self-serving assertion. The debtor has not shown that the loan is fully guarantied. Movant shall serve a copy of the order granting relief on the holders of all junior liens, if any.
The 10-day period specified in Fed.R.Bankr.P. 4001(a) (3) is not waived, as the subject real property is the debtor's residence.
Except as so ordered, the motion is denied.
The court will issue a minute order.