SAYLOR, District Judge.
This is an appeal from a final order of the United States Bankruptcy Court for the District of Massachusetts. Defendant TD Bank, N.A., is the holder of a second mortgage on plaintiff Maryann Landry's primary residence at 47 Frost Road in Tyngsborough, Massachusetts. The value of the property apparently declined between the date of Landry's bankruptcy petition and the effective date of her chapter 13 plan. Whether TD Bank's mortgage is wholly unsecured depends on the date of valuation.
TD Bank brought this appeal challenging the Bankruptcy Court's determination of that date. The Bankruptcy Court held that the proper date was the effective date of Landry's Chapter 13 plan; TD Bank contends the proper date is the date the petition was filed. For the following reasons, the order of the Bankruptcy Court will be reversed.
On October 31, 2005, Maryann Landry borrowed $132,000 from TD Bank N.A., secured by a mortgage on her principal residence, located at 47 Frost Road, Tyngsborough, Massachusetts. On April 30, 2009, Landry filed a Chapter 13 bankruptcy petition and her first Chapter 13 Plan. In Schedules A and C of her petition, Landry listed the value of the property at $369,486. (Record Vol. 1, at 6, 12). In Schedule D, she listed mortgages against the property held by Countrywide Home Loans, now BAC Home Loan Security, L.P. (in the amount of $310,240), TD Bank, N.A. (in the amount of $123,447), and Citibank, N.A. (in the amount of $87,471). (Id. at 12-13).
On June 10, 2011, TD Bank filed motions for relief from the automatic stay and co-debtor relief under 11 U.S.C. § 362(d)(1), arguing, among other things, that it was entitled to relief because Landry had failed to pay TD Bank on its mortgage and had been delinquent since June 2009. On July 1, 2011, Landry filed a motion to avoid TD Bank's secured claim, alleging that the value of the property had fallen below the balance owed on the first mortgage.
On December 28, 2011, TD Bank filed this appeal of the Bankruptcy Court's decision, requesting that this Court reverse the Bankruptcy Court's orders concerning Landry's motion to avoid and its motion for relief from the automatic stay and co-debtor relief. Specifically, TD Bank contends that the Bankruptcy Court erred in determining that the operative date for valuing the property for purposes of § 1322(b)(2) at "the effective date of the plan," and instead should have valued the property at the date the bankruptcy petition was filed.
This Court has jurisdiction to hear appeals from final judgments, orders, and decrees of the Bankruptcy Court pursuant to 28 U.S.C. § 158(a)(1). The Bankruptcy Court's findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo. See In re Hill, 562 F.3d 29, 32 (1st Cir.2009). This Court "may affirm, modify, or reverse [a Bankruptcy Court's order] or remand with instructions for further proceedings." Fed. R. Bankr. P. 8013. The Bankruptcy Court's Order was a final order, and there are no disputed questions of fact raised on appeal.
Section 506(a)(1) of the bankruptcy code provides in relevant part:
11 U.S.C. § 506(a)(1). In other words, subject to certain exceptions, claims may be generally divided into secured and unsecured components, with the secured component being the amount of the claim up to the value of the property at issue, and the remainder of the claim — that is, the amount in excess of the value of the property — being unsecured.
An exception set forth in § 1322(b)(2) prohibits the modification of "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 Supreme Court has held that § 1322(b)(2) prohibits the bifurcation of an undersecured home mortgage holder's claim (that is, where the amount of the claim is only partially secured by
At issue here is the question of the date on which the property should be valued in order to determine whether § 1322(b)(2) applies. Landry contends (and the Bankruptcy Court held) that the value of the property should be determined for these purposes as of the effective date of the Chapter 13 plan — which, in this case, may result in a valuation of less than the value of the first mortgage. TD Bank contends that the value of the property should be determined as of the date the petition was filed, in which case the operative value of the property would be approximately $369,000. It is undisputed that BAC Home Loan Servicing holds the first mortgage on the property worth approximately $318,000. Consequently, whether TD Bank's mortgage is undersecured or wholly unsecured (and therefore whether it is subject to protection from modification under § 1322(b)(2)) depends upon when the property is valued.
The Court's "interpretation of the Bankruptcy Code starts `where all such inquiries must begin: with the language of the statute itself.'" Ransom v. FIA Card Servs., N.A., ___ U.S. ___, 131 S.Ct. 716, 723-724, 178 L.Ed.2d 603 (2011) (citation omitted). As discussed, § 506(a)(1) dictates how courts are to determine the value of property in order to decide whether or not a creditor's claim is secured. The statute provides little guidance; it simply states that "the value of [a] creditor's interest" in the collateral "shall be determined in light of the purpose of the valuation and of the proposed disposition 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)(2). The plain language of § 506(a) then requires that courts adopt a flexible approach to the determination of secured status. See In re Sarno, 463 B.R. 163, 166 (Bankr.D.Mass. 2011); In re SW Hotel Venture, LLC, 460 B.R. 4, 31-32 (Bankr.D.Mass.2011). Consequently, the time of valuation must also be flexible — "[a]lthough the amount of a creditor's claim is fixed at the petition date, there is nothing to indicate that the value of the claim must also be determined at the petition date." In re Abdelgadir, 455 B.R. 896, 902 (9th Cir. BAP 2011); see also 11 U.S.C. § 502(b).
This flexibility, however, is not without limits. In determining when the valuation of the claim should occur, courts must consider, among other things, the purpose of the valuation; furthermore, courts are not "allow[ed to] use [] different valuation standards based on the facts and circumstances of individual cases." Associates Commer. Corp. v. Rash, 520 U.S. 953, 965 n. 5, 117 S.Ct. 1879, 138 L.Ed.2d 148 (1997). Thus, for example, when conducting a valuation for the purpose of determining whether proposed
The purpose of the valuation at issue, therefore, is critical to the analysis. The Bankruptcy Court stated that the purpose of the valuation was to determine how the property should be treated under Debtor's Chapter 13 plan. See In re Landry, 462 B.R. at 321-23.
Relying on the "cramdown" provision of the Bankruptcy Code in § 1325(a)(5), the Bankruptcy Court reasoned that Congress had indicated that all valuations relative to plan confirmation should "be conducted in the context of the present, rather than the past." Id. at 322.
The Bankruptcy Court's apparent conclusion that the purpose of the valuation was to determine how to distribute the property under the plan conflates the analysis of whether a creditor holds a particular type of claim (a claim secured by the debtor's principal residence) with a determination of how the value of the property is to be distributed after the nature of the claim has been established. See In re Benafel, 461 B.R. 581, 587 (9th Cir. BAP 2011) (discussing In re Abdelgadir, 455 B.R. at 902). Cf. In re Crain, 243 B.R. 75, 82-83 (Bankr.C.D.Cal.1999) (determining that "valuation should occur on or near the time of the chapter 13 confirmation hearing" while distinguishing a case that "utilized the date of the filing of the petition as the appropriate date for determining the extent of the lender's collateral for purposes of § 1322(b)(2) only."); In re Farmer, 257 B.R. 556, 561-62 (Bankr.D.Mont. 2000) (valuing the collateral as of the petition date for adequate protection purposes, and as of the confirmation date for purposes of cramdown).
The beginning of the bankruptcy case is the logical point to establish (to the extent reasonably possible) the debtor's and creditor's rights. In re Johnson, 165 B.R. at 528. "The scheme of Chapter 13 in attempting to accom[m]odate competing goals of financial rehabilitation for the debtor and preservation of the constitutionally protected, bargained-for rights of secured creditors is best served by valuing the collateral as of the date of filing." In re Dean, 319 B.R. at 478 (quoting In re Johnson, 165 B.R. at 528, and citing cases that adopted In re Johnson's reasoning). Additionally, it is highly likely that the value of the collateral will increase or decrease over the course of the proceeding. Determining the parties' rights early will discourage them from improperly delaying or accelerating the proceeding (or using other improper tactics) to change their substantive legal rights. See In re Dinsmore, 141 B.R. 499, 505-06 (Bankr. W.D.Mich.1992) ("Looking to the date of filing is proper to discourage creditors from disclaiming security interests post-petition or attempting other tactics to defeat the debtor's ability to modify the treatment of claims.").
Against this backdrop, a majority of courts, including a majority of courts in this district, have determined that the petition date is the appropriate date for determining whether the anti-modification provision of § 1322(b)(2) applies to a claim. In re Benafel, 461 B.R. at 591 ("[T]he use of the petition date for determining the anti-modification provision of § 1322(b) (2) is the clear majority rule."); see e.g., In re Sarno, 463 B.R. at 166 ("[T]he proper date for determining the value of the debtors' home and whether [creditor's] claim is secured by that home is the petition date...." (citing In re Abdelgadir, 455 B.R. 896, 903)); In re Leigh, 307 B.R. 324, 331 (Bankr.D.Mass.2004) ("[T]he relevant time for determining the extent of a secured creditor's collateral for § 1322(b)(2)
The Bankruptcy Court's analysis makes sense insofar as the purpose of the valuation is to determine how the property should be distributed under Debtor's Chapter 13 plan. It is only logical, after all, that when distributing an asset through a bankruptcy plan that the current value of that asset be used. See, e.g., In re King, 2003 WL 22110779, at *1-2, 2003 Bankr.LEXIS 1133, *6-7 (Bankr. E.D.Pa. Sept. 2, 2003) ("[T]he majority of cases addressing valuation of collateral in the cram down context adopt the [] position... that collateral should be valued as of or near the confirmation date."). However, as discussed, before conducting a valuation for the purpose of distributing the property through the plan, the property must first be valued to determine whether the claim is entitled to certain statutory protections. "The value of the bank's claim, whether it is secured or unsecured, is a distinct issue from whether [its] claim is secured by the Debtor's principal residence." In re Abdelgadir, 455 B.R. at 902. These distinct issues serve a different purpose in the Bankruptcy Code, and each valuation must be conducted in light of those purposes. "Evaluating the character of a creditor's security as of the date of filing ... accords with the specific statutory purpose of § 1322(b)(2)." In re Dinsmore, 141 B.R. at 506. Cf. In re Mann, 249 B.R. at 838 ("[F]or the purpose of determining exemptions, valuations should be fixed and not be made subject to later determinations." (citing In re Snyder, 249 B.R. 40 (1st Cir. BAP 2000)).
For the foregoing reasons, the Order of the Bankruptcy Court dated December 14, 2011, is REVERSED. This matter is referred to the Bankruptcy Court for further proceedings consistent with this opinion.
In re Pires, 2011 WL 5330772, at *4, 2011 Bankr.LEXIS 4259, at *12-*13.
Moreover, it would be illogical to determine whether the property is the debtor's principal residence for purposes of § 1322(b)(2) on the petition date, but to determine the value of the property (which may often be related to the use of the property) at a different date. For example, suppose a debtor used the property as his principal residence on the petition filing date; then, prior to the effective date of the plan, stopped living there (perhaps due to financial hardship), as a result of which the property began to deteriorate and declined in value. Or suppose the debtor moved out and rented the property to tenants who improved the property and increased its value. It would be incongruous to conclude that the operative date for determining each prong of the § 1322(b)(2) analysis would be different, especially in light of the relationship between those two prongs. Such an approach would not only be illogical, but it would allow for the possibility of gamesmanship. Cf. In re Dinsmore, 141 B.R. at 505-06.
