The en banc fourth circuit panel overturned a two-decade-old precedent and held that section 1322(c)(2) “authorizes modification of covered homestead mortgage claims, not just payments, including bifurcation of undersecured homestead mortgages into secured and unsecured components.” Hurlburt v. Black, No. 17-2449 (4th Cir. May 24, 2019) (en banc).
Larry Hurlburt bought his home from Juliet Black. The mortgage included a balloon payment of $136,000. Hurlburt defaulted on the balloon payment. After Black initiated foreclosure. To save his home, Hurlburt filed for chapter 13 bankruptcy. His plan sought to bifurcate the mortgage into secured and unsecured portions with the unsecured portion receiving no payments.
Under Witt v. United Cos. Lending Corp. (In re Witt), 113 F.3d 508 (4th Cir. 1997), which held that bifurcation is not allowed the bankrutpcy court denied confirmation. After the district court and the foruth circuit affirmed. Witt only allowed extension of the final payment due during the chapter 13.
Hurlburt asked the entire panel of the fourth circuit to hear the case and it agreed. This is known as an en banc hearing.
Section 1322(b)(2) prohibits modification of a debt secured by the debtor’s residence.
The Supreme Court has interpreted this anti-modification provision as prohibiting the cramdown of a partially-secured homestead debt in chapter 13. Nobelman v. American Savings Bank, 508 U.S. 324 (1993).
The difference here is that the loan was due before the end of the plan period. Because of this, the court turned to section 1322(c)(2) which says: “Notwithstanding subsection (b)(2). . . in a case in which the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor’s principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5) of this title.”
Section 1322(c)(2) says that “the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5) of this title.” 1325(a)(5) provides from cramdown. Hence, cramdown was available under 1322(c)(2).
This ruling is welcome to relief to homeowners who may be underwater in their homes.
Admittedly it is likely more to help a limited number of people because of the requirement that the last payment comes due during the plan.
It is another tool to save homes.
