KEVIN McNULTY, U.S.D.J.:
The debtor, Lindsey C. Holmes, appeals from an order by Judge Rosemary A. Gambardella of the United States Bankruptcy Court for the District of New Jersey, entered on remand from a prior appeal. (DE 1-2). Judge Gambardella has denied confirmation of the debtor's modified plan and dismissed the voluntary petition for relief under Chapter 13 without prejudice. (DE 1-2; see generally No. 15-cv-6834, DE 9). The plan, the bankruptcy judge found in a careful and detailed decision, was not feasible because a lien for condominium charges could not be modified as a matter of law.
At issue is the scope of 11 U.S.C. § 1322(b)(2). This anti-modification clause, particularly as it interacts with state law, gives rise to a difficult issue of interpretation that has divided the courts; in picking a side, I by no means intend to criticize any court, including the bankruptcy court here, that has seen the matter differently. For the reasons set forth below, I will reverse the dismissal of the Chapter 13 petition and remand for a redetermination of the feasibility of the proposed Plan.
The prior remand to the bankruptcy court was structured by the analysis in my prior Opinion. (2016 Op., DE 9) For clarity, I will simply reprint here the most pertinent portions of that Opinion, indented and in a smaller font:
11 U.S.C. § 1322(b)(2) (emphasis added). See Nobelman v. Am. Savings Bank, 508 U.S. 324, 331-32, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993).
There is an exception to the exception —i.e., an avenue of escape from the anti-modification clause of § 1322(b)(2). If the relevant lien, even one on a principal residence, is junior to a lien that exceeds the value of the residence collateral, it is treated as unsecured. Being wholly unsecured, it is of course not secured by a principal residence, and therefore does not fall under § 1322(b)(2). See In re McDonald, 205 F.3d 606, 613-14 (3d Cir. 2000); Rones, 551 B.R. at 168.
So whether a condominium association's lien for assessments is secured only by a security interest in the debtor's unit might depend (inter alia) on whether it is junior to another lien that
In re Rones, 551 B.R. at 168.
Applying the "one dollar rule," Rones held that "because a portion of the Lien was secured by a security interest in the debtor's principal residence, no portion of the Association's lien could be stripped off under Section 1322." 551 B.R. at 171 (citing In re McDonald, 205 F.3d at 613-14).
But hold on, says Holmes. The Rones analysis does not even come into play unless the lien at issue is a "security interest." Otherwise, § 1322(b)(2), by its plain language, does not apply at all.
A "security interest," as the term is used in § 1322(b)(2) and elsewhere, is defined as a "lien created by an agreement." 11 U.S.C. § 101(51). As such, it is to be distinguished from a "statutory lien," i.e., one "arising solely by force of a statute on specified circumstances or conditions."
Rones, says Holmes, did not squarely face that definitional issue. Indeed, it appears that Rones accepted the conclusion of the bankruptcy court that the lien was created by agreement: "[T]he Bankruptcy Court itself observed when determining whether the Lien was consensual or statutory, [that] the Condominium Act did not create the Lien—it was created by the Master Deed .... [T]he Condominium Act merely altered the priority of a portion of the Lien." 551 B.R. at 171.
But the NJ Act seemingly can operate to create a lien; consider the language of N.J. Stat. Ann. § 46:8B-21(a), quoted above ("The association shall have a lien on each unit for any unpaid assessment... upon proper notice to the appropriate unit owner"). And the subsection (b) priority operates to elevate, not just any old lien, but "[a] lien recorded pursuant to subsection a."
So it is not so simple to say that there is a security interest (i.e., one arising from agreement), as to which the Act merely sets a priority. Remember, the condominium association's lien is secured by the unit (which is underwater on its mortgage) only to the extent it can be regarded as senior to the mortgage. So the priority issue under the State Act is inextricably intertwined with the issue of whether the lien is secured by the unit at all.
There is more. The § 1322(b) no-modification rule applies to a lien secured only by a security interest (i.e., a contractual lien). But this lien, says Holmes, is also secured by a statutory lien, defined as one that arises "solely by force of a statute." Those dueling claims of exclusivity seem to reinforce the notion that the contractual and statutory liens, assuming both are present, must be considered separately.
The case law has meandered as to whether a condominium lien like this one is a statutory or consensual one. See In re Rones, 531 B.R. 526 (Bankr. D.N.J. 2015) (surveying case law), rev'd, 551 B.R. 162 (D.N.J. 2016). As the Bankruptcy Court observed in Rones, the issue may depend on how and when a lien arose. A consensual lien arises from the purchase of the unit, but depends on other facts, such as the content of the master deed and presumably the existence of an arrearage. A statutory lien, too, depends on facts such as the filing of the master deed, notice to the unit holder, and recordation. And the operation of priority rules, particularly where the mortgage exceeds the value of the property, will determine whether the lien is secured at all.
I think that the bankruptcy court should have first crack at these issues. Some of these ramifying issues may be mooted by a clear set of facts. Here, says Holmes, by contrast with Rones, the bankruptcy court never made a finding as to whether this lien was created by contract or only by statute. Community Hills did not submit the master deed or by-laws for the court's consideration. It is not clear that a security interest, in the sense of a lien arising by contract, perfected and secured by equity in the unit, even exists. To determine that, the bankruptcy court must make specific findings as to the facts and determine the priority of such a security interest.
For the foregoing reasons, the order of the bankruptcy court is reversed and remanded for further consideration. The parties shall present the matter to the bankruptcy judge in a manner that permits the judge to make factual findings as to the existence, priority, and recordation of (a) any security interest; (b) any statutory lien; (c) the priority of such; and (d) relatedly, whether any such lien is secured by equity in the property. I express no view as to whether, even if all of these issues were decided favorably to the debtor, the plan would be a feasible and confirmable one.
On remand, the bankruptcy judge rendered a decision in which she again declined to confirm the Plan, leading to the current appeal.
With my prior opinion as background, I will first review the facts most pertinent to this appeal and then discuss the legal issues.
Ms. Holmes owns a condominium unit at 252 West Kinney Street, Newark, New Jersey (the "Condo") (Bankr. Op. p. 2), which is part of Community Hills Condominium Association Inc. ("Community"). (Id. p. 3).
The Condo is subject to a mortgage lien in the amount of $206,523.23 (the "Mortgage"),
The Condo was purchased by Deed, recorded on April 19, 2007
(Bankr. Op. p. 3). Community has filed condominium liens against the Condo in the aggregate amount of $27,358.71 for unpaid condominium fees and other charges. (Bankr. Op. p. 3. See also id. (discussing Paragraph 16.03, titled "Master Deed Provisions and Exhibits to be a Covenant Running with the Land.")).
On August 18, 2008, Countrywide, which held a first mortgage on the Condo, filed a complaint in foreclosure against the Condo (hereinafter, the "First Foreclosure Complaint"), which also named Community as a defendant. (Bankr. Op. p. 4).
On September 2, 2008 and October 15, 2008, Community sent notices warning Ms. Holmes that failure to pay the delinquent amounts might result in the association's filing a lien against the Condo. The notices advised that the Association had directed its then-counsel, Stark & Stark, P.C., to prepare and file a Notice and Assessment of Lien against the Condo. (Id.). On December 19, 2008, Community recorded a first lien against the Condo in the amount of $5,822.25 (hereinafter, the "2008 Lien"). (Id.).
On March 20, 2009, Countrywide filed another complaint in foreclosure against the Condo (hereinafter, the "Second Foreclosure Complaint"). (Id. pp. 4-5). The Second Foreclosure Complaint named Community as a defendant and specifically referred to the 2008 Lien in the amount of $5,822.25. (Id. p. 5).
On April 17, 2009, Community recorded a lien on the Condo in the amount $4,348.00 for unpaid common expense assessments and other charges (hereinafter, the "2009 Lien"). (Id.).
On October 2, 2009, after filing an action against Ms. Holmes in the Superior Court of New Jersey, Law Division, Special Civil Part (hereinafter, the "Special Civil Action"), Community obtained a money judgment for unpaid fees and charges in the amount of $11,899.00. (Id.). Community sent multiple letters to Ms. Holmes regarding the Special Civil Action. (Id.).
On April 9, 2010, Community sent Ms. Holmes a letter advising her of the 2009 lien (then about a year old), and sent a copy of the letter to Countrywide. (Id.). On May 28, 2010, Community advised Countrywide of the payoff amount of $18,707.41,
At some point, Community's 2008 and 2009 liens were, apparently, satisfied. (Id.; see also Feldman Cert., Bankruptcy DE 115-1, ¶ 6).
I turn to the period from December 2011 through March 2014. In that period, Community filed four additional liens for unpaid common expense assessments and other charges, as described in this section. These are the liens that make up its current Proof of Claim in bankruptcy. (Id. p. 5). All of the four remaining liens remain unsatisfied. (Id. p. 6). During this period, the 2008 and 2009 foreclosure actions were dismissed. (Id. p. 4-5).
On November 4, 2011, Community sent Ms. Holmes notice of its intent to file a lien. On December 15, 2011, Community recorded the first lien in the amount of $5,237.38 (hereinafter, the "December 2011 Lien"). (Id.).
On January 26, 2012, the First Foreclosure Complaint was dismissed without prejudice. (Id. p. 4).
On March 5, 2012, Community recorded a second lien in the amount of $5,186.00 (hereinafter, "March 2012 Lien"). (Id.). On March 16, 2012, Ms. Holmes and Countrywide were sent Notice that the March 2012 Lien had been recorded. (Id.).
On January 24, 2013, the Second Foreclosure Complaint was dismissed without prejudice. (Id. p. 5).
On September 25, 2013, Community recorded the third of the four liens at issue here, in the amount of $7,375.28 (hereinafter, "September 2013 Lien"). (Id. pp. 5-6). On October 7, 2013, Ms. Holmes and Countrywide were sent a Notice that the September 2013 Lien had been recorded. (Id. p. 6).
On March 21, 2014, Community recorded a fourth lien in the amount of $9,560.05 (hereinafter, "March 2014 Lien"). The bankruptcy court's record on remand did not contain evidence that the Debtor and Mortgagee were given notice of the recordation of the March 2014 lien. (Bankr. Op. p. 46).
On March 9, 2015, Ms. Holmes filed a petition under chapter 13 of the Bankruptcy Code. (Id. p. 6). On July 20, 2015, Community filed an Amended Proof of Claim in the total amount of $36,585.06 for unpaid assessments, late fees, attorney's fees and other charges, comprising $27,358.71 secured by the four liens and an unsecured claim of $9,226.35. (Id.).
On March 20, 2015, Community filed a motion to dismiss Ms. Holmes's Case, or, in the alternative to vacate the automatic stay, and for prospective relief. (Id.). On several occasions, the motion was adjourned to allow Ms. Holmes to set forth a feasible chapter 13 plan. (Id.).
On March 24, 2015, Ms. Holmes filed her first Chapter 13 Plan. (Id.). On May 21, 2015, Ms. Holmes filed her second chapter 13 plan. (Id.). Finally, on July 24, 2015, Ms. Holmes filed a third modified chapter 13 plan (hereinafter, the "Plan"). (Id.).
Each of the three plans proposed to partially avoid the four liens on the Condo, in effect reclassifying a secured claim as
On August 18, 2015, Judge Gambardella held that Community's secured claim could not be modified. (Id. p. 7). It followed, Judge Gambardella reasoned, that the Plan was not feasible. (Id.). Thus, on August 27, 2015, Judge Gambardella entered an Order denying Confirmation of the Plan and dismissing the chapter 13 petition without prejudice. (Id.). Ms. Holmes appealed. (Id.).
On September 1, 2015, Judge Gambardella granted a stay pending appeal. (Id. p. 8). In reaching that decision, the bankruptcy judge acknowledged a split of authority on the modification issue. (Id. pp. 7-8) (discussing In re Robinson, No. 11-26981, 2012 WL 761251, at *5 (Bankr. D.N.J. 2012); In re Rones, 531 B.R. 526 (Bankr. D.N.J. 2015) (hereinafter, "Rones I")).
On September 16, 2016, I filed a written Opinion and Order reversing the Bankruptcy Court's order of dismissal and remanding the matter for further proceedings. (2016 Op.; 2016 Order). That opinion is extensively quoted at pp. 2-8, supra. My 2016 Opinion directed the Bankruptcy Court to do the following on remand:
(Bankr. Op. p. 9).
After taking several submissions and hearing oral argument, on September 19, 2017, the bankruptcy court filed a lengthy opinion. (2017 Bankr. Op.). That opinion decided several issues, each of which is now the subject of the current appeal.
First, the bankruptcy court determined that Community's claim was supported only by a security interest, to the exclusion of a statutory lien.
Second, the bankruptcy court determined that Community's claim met the statutory requirements of the Condominium Act to achieve super-priority status for its lien.
Third, the bankruptcy court ruled that under the anti-modification clause in § 1322(b)(2), modification of Community's claim was barred and that the proposed plan therefore was not feasible.
A District Court has jurisdiction to hear appeals of final judgments and orders of the Bankruptcy Court pursuant to 28 U.S.C. § 158(a)(1). A district court reviews "`the bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof.'" In re American Pad & Paper Co., 478 F.3d 546, 551 (3d Cir. 2007) (quoting In re United Healthcare Sys., Inc., 396 F.3d 247, 249 (3d Cir. 2005) (quotation and citation omitted)). A district must separately analyze mixed findings of fact and conclusions of law, and appropriately apply the applicable standards —clearly erroneous or de novo—to each component. Meridian Bank v. Alten, 958 F.2d 1226, 1229 (3d Cir. 1992) (citing In re Sharon Steel Corp., 871 F.2d 1217, 1222 (3d Cir. 1989) and Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102-03 (3d Cir. 1981)). "The district court ... may affirm, modify, or reverse a
The issue involves the application of section 1322(b)(2) of the Bankruptcy Code, which generally provides for modification of liens, but also contains what I will call the "anti-modification clause": "Subject to subsections (a) and (c) of this section, the plan may — ... modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims." See 11 U.S.C. § 1322(b) (anti-modification clause italicized.) Thus the Code grants a court the power to modify the rights of the holder of a secured claim "other than a claim secured only by a security interest in real property that is the debtor's principal residence."
Ms. Holmes argues that the bankruptcy court erred in holding that the Community's condominium lien was unitary and subject to the anti-modification clause, and therefore, as a whole, could not be modified. (DE 5). She makes arguments under both the Bankruptcy Code and the New Jersey Condominium Act.
Under the Bankruptcy Code, Ms. Holmes first argues that Community's claim does not fall within the anti-modification clause of § 1322(b)(2). She argues that the claim is supported solely by a statutory lien, not a security interest, and therefore does not fall within the anti-modification clause. Alternatively, she concedes that the claim is supported by a consensual security interest, but says that it is also supported by a statutory lien. The claim therefore is not secured "only" by a security interest; it follows that it remains within the scope of the anti-modification clause, § 1322(b)(2).
I also consider whether, under the New Jersey Condominium Act, Community obtained priority status for its recorded lien(s). As stated in my prior 2016 Opinion, the issue is significant because the mortgage lien is sufficient to exhaust the equity in the property; unless Community's claim has priority over the mortgage lien, it is not a secured claim at all. Ms. Holmes makes several state-law arguments as to why Community's liens are junior to the mortgage lien. First, Ms. Holmes argues, the mortgage liens were first in time. Second, she argues that Community's liens are not entitled to statutory priority because Community did not properly notify the Mortgagee before recording them. Third, Ms. Holmes argues that Community did not properly notify her before recording its liens.
The premise of this discussion—more about this later—is that a consensual security interest and a statutory lien have mutually exclusive definitions; a lien must be one or the other. Courts, even within this District, are split on whether a claim for condominium assessments is secured by a statutory lien, a security interest, or both. Compare Rones I at 529-34, with In re Smiley, 569 B.R. 377, 393 (Bankr. D.N.J. 2017), as corrected (Jan. 26, 2018). See also, e.g., In re Spradley, No. 18-CV-263 (PGS), 2019 WL 460224 (D.N.J. Feb. 6, 2019); In re Keise, 564 B.R. 255, 264
Packed within that holding are several issues of statutory interpretation, both state and federal. "In interpreting a statute, the starting point is the language of the statute itself." United States v. Gollapudi, 130 F.3d 66, 70 (3d Cir. 1997) (internal citations omitted). "In most situations, the plain language rule is the preferred method of statutory interpretation." Id. (internal citations omitted). "Only the most extraordinary showing of contrary intentions" in the legislative history will justify a departure from that language." Id. (internal citations omitted). Under state law, the preference for plain meaning is similar. In interpreting state statutes, the court "should not resort to extrinsic interpretative aids when the statutory language is clear and unambiguous, and susceptible to only one interpretation." Daidone v. Buterick Bulkheading, 191 N.J. 557, 924 A.2d 1193, 1198 (2007) (internal citations omitted). That being said, "if there is ambiguity in the statutory language that leads to more than one plausible interpretation, [the court] may turn to extrinsic evidence, including legislative history, committee reports, and contemporaneous construction." Id.
First, I must interpret § 1322(b)(2) of the Bankruptcy Code. Under a Chapter 13 plan, a claim may be modified, or "crammed down," to the extent that it is not secured. Section 1322(b)(2) provides that secured claims may also be modified, subject to an exception, the anti-modification clause:
11 U.S.C. § 1322(b)(2) (emphasis added).
I start from the premise that "only" means what it says in § 1322(b) ("only by a security interest in real property that is the debtor's principal residence" (emphasis added)). With respect to a "principal residence," it does.
As background to the determination of whether a claim is secured "only by a security interest," I must consider the three categories of liens defined in the Bankruptcy Code: (1) a security interest, (2) a statutory lien, and (3) a judicial lien.
First, a "security interest" is defined as a "lien created by an agreement." 11 U.S.C. § 101(51). See also United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 240, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (observing that consensual liens are "called a `security interest' by the Code").
Second, a "statutory lien" is defined as a
11 U.S.C. § 101(53) (emphasis added).
Third, a "judicial lien" is a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." Id. at § 101 (36). That category is not relevant here.
"Although the legislative history indicates that the `three categories are mutually exclusive', the Bankruptcy Code is devoid of any language that expressly makes that conclusion." In re Smiley, 569 B.R. 377, 385 (Bankr. D.N.J. 2017), as corrected (Jan. 26, 2018) (quoting H.R. REP. 95-595, 312, 1978 U.S.C.C.A.N. 5963, 6269). That said, the sharp statutory distinction drawn between a security interest and a statutory lien goes a long way toward such a conclusion. To complicate the analysis, however, "[n]otwithstanding the discussion in the legislative history, the Supreme Court dictates that "[p]roperty interests are created and defined by state law.'" Id. (quoting Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979)); see also Butner, 440 U.S. at 55, 99 S.Ct. 914 (1979) ("The justifications for application of state law are not limited to ownership interests; they apply with equal force to security interests ...").
With that background, I consider whether Community's claim for delinquent condominium assessments may be modified, or whether it falls within the scope of the
I find that Community does have a state-law statutory lien on the Condo, created under N.J. Stat. § 46:8B-21. (For convenient reference, subsections (a) & (b) of the statute are reprinted as an Appendix at p. 34, infra.)
To determine whether N.J. Stat. § 46:8B-21
N.J. Stat. § 46:8B-21(a).
Ms. Holmes argues that, under a plain reading, N.J. Stat. § 46:8B-21 creates a statutory lien. (DE 5, p. 13-14). As stated in my earlier opinion, I think the statute creates a lien of its own force, and does not merely elevate the priority of a lien that has its origin elsewhere, e.g., in the master deed. See 2016 Op. (quoted at p. 6, supra), reported at 579 B.R. 327, 332 (D.N.J. 2016) (pre-remand, suggesting that N.J. Stat. § 46:8B-21(a) "can operate to create a lien"); see also In re Keise, 564 B.R. 255, 264 (Bankr. D.N.J. 2017) (Kaplan, J.) ("The Condominium Act explicitly provides for the creation of a lien."), rev'd and remanded on other grounds, No. 17-cv-1832, 2018 WL 624105 (D.N.J. Jan. 30, 2018) (Wolfson, J.). Irrespective of any security agreement, and "solely by force of the statute," the association "shall" have a lien for delinquent assessments upon notice, with such lien becoming effective
The statute here provides that if certain events occur, the association shall have a lien. Those events—an unpaid assessment for a share of common expenses, proper notice to the appropriate unit owner, effectiveness upon recordation—have occurred. None of those preconditions include the existence of a contractual agreement. It follows that Community possesses a lien under N.J.S. § 46:B-21(a), one which flows from the statute and does not depend on the Master Deed or any other consensual arrangement.
I also find that Community's claim is also supported by a security interest created by the Master Deed.
The Master Deed is a consensual agreement signed by Ms. Holmes, which states in pertinent part: "all charges and expenses chargeable to any Unit constitute a lien against that Unit in favor of the Association." (Master Deed ¶ 7.02). Thus, like the bankruptcy court in this case, I acknowledge that the claim is supported by a security interest. Like the bankruptcy court in In re Keise, however, I conclude that this security interest exists in parallel with, rather than in lieu of, the statutory lien. See 564 B.R. at 264.
The bankruptcy court here was "not convinced that N.J.S.A. 46:B-21(a) operates to create a lien that is independent of the Master Deed." (Bankr. Op. 40 (citing
The bankruptcy court's analysis rests on the view that, under the Code definitions, the three categories of lien are mutually exclusive. That view that has good support. The Code definition bespeaks an attempt to preserve the distinction between a statutory lien and a security interest: thus a statutory lien "does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute." 11 U.S.C. § 101(53); see also discussion at Section II.b.1, supra.
Assume, then, that under the Code, any single lien must be either a security interest or a statutory lien. Even so, there is no text or even legislative history suggesting that a single claim cannot be supported by more than one category of lien. Two liens—one statutory, and the other a security interest—can coexist and support the same claim without violating the principle that any particular lien must be one thing or the other. To say that a single claim may be supported by both a statutory lien and a separate consensual security interest is not to say that the two merge, or are the same thing.
On that point, I find the analysis in In re Keise persuasive.
564 B.R. 255, 263-64 (Bankr. D.N.J. 2017).
The bankruptcy court's opinion here points out that the statutory lien could not exist if a Master Deed had never been filed (Bankr. Op. p. 41-42 (citing N.J. Stat. §§ 46:8B-8 & 9)). In a but-for sense, that is true—no condo, no lien—but I do not find that the statutory lien is legally dependent on the master deed for its vitality. A statutory lien under N.J. Stat. § 46:8B-21 has independent force. It arises as a matter of law, and does not depend on contract or consent for its existence.
Here, a statutory lien under N.J. Stat. § 46:8B-21 arises because certain factual conditions are met (and the existence of a consensual security interest is disqualified as such a condition). Those conditions are the existence of an unpaid assessment and notice to the unit owner. If
To look at it another way, a statutory lien could arise without any such language being present in the master deed, and conversely a security interest could arise contractually from the master deed without the aid of the statute. Under the Condominium Act, a statutorily-compliant master deed need not provide for the creation of a security interest at all. If it does not, the statutory lien does not therefore cease to operate; the statutory lien has an independent basis. Conversely, the inclusion of a consensual-lien provision in the master deed should not affect the status of the statutory lien, either. The two are simply distinct.
There is a statutory lien here. It follows that even if there is a security interest, I cannot find that Community's claim is "only" secured by a security interest within the meaning of § 1322(b)(2).
Section 46:8B-21(b) creates a limited super-priority—limited, that is, to six months' worth of charges—for the statutory condo assessment lien (or liens) created by N.J. Stat. § 46:8B-21(a). In effect, it elevates the priority of the association's lien (or at least the part of it that covers six months of charges) above that of a prior-filed mortgage. By its terms, it affects the priority of a statutory lien only:
N.J. Stat. § 46:8B-21(b).
This is one important point of diversion between my opinion and that of the bankruptcy court, as well as certain prior cases. In re Spradley, No. 18-CV-263 (PGS), 2019 WL 460224 (D.N.J. Feb. 6, 2019), for example, held that the condominium fees were secured by a consensual lien, i.e., a security interest. It then went on to find that this was a "secured claim" because it partook of the § 46:8B-21(b) priority, which placed it (or six months' worth of it) ahead of the mortgage. As I interpret the § 46:8B-21(b) priority, however, it explicitly applies to a statutory lien under § 46:8B-21(a), not a security interest that originates elsewhere. The super-priority may bear on the issue of whether there is any equity, i.e., whether this is a "secured claim" at all; it does not, however, resolve the threshold issue of whether the claim (if secured) is secured "only" by a security interest. The cart is before the horse.
I have already found that Community has a statutory lien (in addition to the security interest). I will therefore consider whether Community satisfied the requirements
The § 46:8B-21(b) super-priority is subject to six requirements or conditions. See N.J. Stat. § 46:8B-21(b)(1)-(6).
Section 46:8B-21(b)(2) requires that the condo lien on a unit be recorded prior to "the association's receipt of a summons and complaint in an action to foreclose a mortgage on that unit." N.J. Stat. § 46:8B-21(b)(2). Ms. Holmes argues that Community failed to obtain priority because the mortgagee filed two complaints in foreclosure before any of Community's liens had been recorded. (DE 5, p. 19-23).
It is true that the mortgagee filed two foreclosure actions: one on August 18, 2008, and one on March 20, 2009. Those foreclosure actions were dismissed, however, on January 26, 2012 and January 24, 2013. See Sections I.a(ii) & (iv), I.a.2 & 3, supra.
The first two of the liens in question— i.e., the December 2011 and March 2012 Liens, see Section I.a.vii, supra—were recorded when the mortgage foreclosure actions were filed and still pending.
The third and fourth liens, however, were recorded after the dismissals of the
Doesn't matter, says Ms. Holmes. A lien recorded after the dismissal of a foreclosure action was perforce recorded after the service of the summons and complaint in that action. N.J. Stat. § 46:8B-21(b)(2)(a).
Too literal, said the bankruptcy court, and I agree. The statute appears to contemplate a filed and pending foreclosure, not a dismissed one. An already-dismissed foreclosure action should not bar priority under § 46:8B-21(b)(2). The foreclosure bar is seemingly intended to promote diligence, ensure that the relevant issues are considered together, and prevent the association from pulling the rug from under a mortgagee that is in the process of foreclosing. Community poses a persuasive reductio argument: "[I]f a foreclosure complaint were filed in 2001, dismissed in 2002 and a bankruptcy filed ten (10) years later, [the] same logic would apply and no priority could be given even though there was a dismissal of the foreclosure action conceivably, one, two, three, four, five or ten years earlier." (DE 6, p. 14).
Subsection (b)(2) could not have been intended to bar priority for all time merely because a foreclosure proceeding was brought and dismissed at some time in the past. I read N.J. Stat. § 46:8B-21(b)(2)(a) to bar a condo association from obtaining priority only as to a foreclosure action that was pending when the association's lien was recorded. No foreclosure action was pending when the third and fourth liens (the September 2013 and March 2014 Liens) were recorded. They are therefore at least eligible for § 46:8B-21(b) super-priority, if the other requirements are met.
Section 46:8B-21(b)(6) requires that, "[w]hen recording a lien which may be granted priority pursuant to this act, an association shall notify, in writing, any holder of a first mortgage lien on the property of the filing of the association lien." N.J. Stat. § 46:8B-21(b)(6). Ms. Holmes asserts that Community did not give the mortgagee timely notice of the recording of its liens, which therefore are not entitled to priority.
The requirement of notice "when" recording a lien does not mean that notice must be served at the precise moment of recordation, neither before nor after. It does not detract from the plain-meaning principle of interpretation to note that "when," a conjunction or adverb, is a multihued word. The bankruptcy court here correctly interpreted § 46:8B-21(b)(6) to require "simultaneous notice, or notice within a reasonable time thereafter, of the recording of the lien." (Bankr. Op. p. 30) The case law is in accord:
Loigman v. Kings Landing Condominium Ass'n., Inc., 324 N.J.Super. 97, 734 A.2d 367, 370 (N.J. Super. Ct. Ch. Div. 1999). See also Wincenter Condo. Ass'n, Inc. v. Berger, No. A-4423-15T2, 2018 WL 1461711, at *1 (N.J. Super. Ct. App. Div. 2018). In short, notice must be provided within a reasonable time.
With respect to the third, September 2013 Lien, Ms. Holmes objects that Community did not provide the mortgagee with notice until two weeks after recordation. (DE 5, p. 33-34). The bankruptcy court found that notice to be reasonable; Community, the court wrote, "provided sufficient documentary evidence of notice of the recording of the 2013 lien to both the Debtor and the Mortgagee to satisfy the notice requirements under N.J.S.A. 46:8B-21(a)... and (b)(6)." (Bankr. Op. p. 45). I agree. Community did not leave the mortgagee in the dark or unable to protect its rights; two weeks does not seem to be an unreasonable period of time; and Ms. Holmes points to no prejudice that accrued in the interim.
With respect to the fourth, March
The bankruptcy court did not actually rule either way as to notice of the March 2014 Lien; it was sufficient, wrote the court, that the September 2013 lien met the statutory requirements for priority. (Id. p. 46) I agree, but for a different reason. If the September 2013 Lien, standing alone, exhausted the maximum six months' worth of charges that are entitled to priority—and it appears that it did— then the priority analysis can stop there.
The remainder owing under Community's lien(s) must go to the back of the line, behind the undersecured mortgage, and to that extent must be considered unsecured claims. As such, they are subject to cram-down and would not stand in the way of a reorganization plan.
Ms. Holmes also argues that Community's claim is subject to modification under § 1322(c)(2) as a "short-term obligation." The bankruptcy court necessarily reached this issue because it found the claim could not be modified under § 1322(b)(2). (Bankr. Op. 46-48) Because I hold that the claim may be modified under § 1322(b)(2), I do not reach this issue.
For the foregoing reasons, the decision of the bankruptcy court, insofar as it rejected the plan as not feasible and dismissed the Chapter 13 case, is reversed and the matter is remanded for further proceedings not inconsistent with this opinion. An appropriate order is filed herewith.
N.J. Stat. § 46:8B-21(a) & (b).
Under the recently amended version of the statute, sections (1), (4) and (5) have been changed so that the "limited priority may be cumulatively renewed on an annual basis as necessary." NJ LEGIS 68 (2019), 2019 NJ Sess. Law Serv. Ch. 68 (ASSEMBLY 5002) (WEST).
11 U.S.C. § 101(53).
The other possibility, not relevant here, is a "judicial lien," i.e., one "obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." 11 U.S.C. § 101(36).
All citations to items on the docket of the bankruptcy court [BP No. 15-14034] will be abbreviated as "BR DE." Further, certain items will be abbreviated as follows:
Citations to my prior order and opinion filed in Civil No. 15-6834 will be abbreviated as follows:
Because there is no dispute that the Condo is real property, and that it is Ms. Holmes's principal residence, I will simplify the remaining discussion by setting those factors aside.
2 Collier on Bankruptcy P 101.53 (16th 2019).
I was taught long ago that the meaning of shall and will depends on whether they are stated in the first person. A revered (if not infallible) source expressed the distinction with characteristic wit:
W. Strunk and E.B. White, The Elements of Style, p. 58 (4
In addition, for the reasons stated in my earlier opinion, I reject the view that the statute does no more than alter the priority of a lien that has its origin elsewhere. See 2016 Op. (portion quoted at p. 6, supra). The Condominium Act creates a lien of its own force.
Nobelman v. Am. Sav. Bank, 508 U.S. 324, 332, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) (Stevens, J., concurring) (considering the application of § 1322(b) to bar bifurcation of undersecured mortgage claim into a secured and unsecured component). A condo association lienholder is not a mortgagee under state law. See JNH Funding Corp. v. Ayed, 450 N.J.Super. 271, 280-81, 161 A.3d 775 (Ch. Div. 2017) ("While a condominium association lienholder may be in a similar position with similar rights to a mortgagee, it is still not a mortgagee by definition.").
The view of § 1322(b) as a mortgagee-friendly statute is reinforced by legislative history. As originally introduced in the House, Section 1322(b)(2) allowed plans to "modify the rights of holders of secured claims or of holders of unsecured claims." H.R. Rep. No. 595, 95th Cong., 1st Sess. 429 (1977). However, after a series of compromises, Congress reached the final anti-modification clause as it is today. H.R. 8200, 95th Cong. (1977). Apparently, § 1322(b)(2)'s anti-modification clause was drafted "in response to perceptions, or to suggestions advanced in the legislative hearings ... that, home-mortgag[e] lenders, performing a valuable social service through their loans, needed special protection against modification thereof (i.e., reducing installment payments, secured valuations, etc.)." Grubbs v. Houston First Am. Say. Ass'n, 730 F.2d 236, 246 (5th Cir. 1984) (reviewing the legislative history).
To be sure, the statute may not be a perfect proxy for the result the legislature was aiming at. Such policy arguments, however, have force only where they do not derogate from the actual wording of the statute. See In re McDonald, 205 F.3d 606, 613 (3d Cir. 2000) (citing as a plain-language example § 1322(b)'s application to mortgages "only" secured by a principal residence, and not those secured by other property as well).
Second, the condo lien must be recorded prior to (a) "the association's receipt of a summons and complaint in an action to foreclose a mortgage on that unit" or (b) "the filing with the proper county recording office of a lis pendens giving notice of an action to foreclose a mortgage on that unit." N.J. Stat. § 46:8B-21(b)(2).
Third, when more than one condo lien is filed, "the total amount of the liens granted priority shall not be greater than the assessment for the six-month period" described supra. N.J. Stat. § 46:8B-21(b)(3). More than one condo lien can be filed "either because an association files more than one lien or multiple associations have filed liens." N.J. Stat. § 46:8B-21(b)(3). "Priority among multiple filings shall be determined by their date of recording with the earlier recorded liens having first use of the priority given herein." N.J. Stat. § 46:8B-21(b)(3).
Fourth, the limited priority "shall expire on the first day of the 60th month" following the date the lien was recorded. N.J. Stat. § 46:8B-21(b)(4).
Fifth, if one condo lien obtains priority over a recorded mortgage, for 60 months after that condo lien is recorded, no other condo lien will be granted priority over that same mortgage. N.J. Stat. § 46:8B-21(b)(5).
Sixth, "[w]hen recording a lien which may be granted priority pursuant to this act, an association shall notify, in writing, any holder of a first mortgage lien on the property of the filing of the association lien." N.J. Stat. § 46:8B 21(b)(6).
Under my view, however, the court's analysis would be beside the point, for two reasons: (1) the claim is not secured "only" by a security interest, so the § 1322(b) anti-modification clause does not apply; and (2) if the claim were secured only by a security interest, then the § 46:8B-21(b) priority boost, which pertains only to statutory liens, would not apply.
