ORDER DENYING CONFIRMATION OF CHAPTER 13 PLAN

HELEN E. BURRIS, Bankruptcy Judge.

THIS MATTER comes before the Court for confirmation of Debtors' Chapter 13 plan, and Federal National Mortgage Association's ("Fannie Mae") Objection thereto. Debtors seek to cure through their Chapter 13 plan arrearages on a note secured by a mortgage attaching to their principal residence. However, they do not hold title to the property securing the debt and are not obligated on the note and mortgage. For the reasons set forth below, the Court sustains Fannie Mae's objection and denies confirmation.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. The Court makes the following Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52, made applicable to this proceeding by Fed. R. Bankr.P. 7052 and 9014(c).1

FINDINGS OF FACT

1. Terence M. Morgan purchased real property located at 515 Tomotley Court, Greer, in Spartanburg County, South Carolina (the "Property") on February 7, 2007, for $180,000. (Doc. 10, ¶ 21). On the same date, Morgan executed a mortgage on the Property in favor of Bankline Mortgage Corp. ("Mortgage") which is recorded in Book 3831 at Page 410 in the Spartanburg County Register of Deeds Office. Id. The Mortgage was subsequently assigned to Fannie Mae on May 10, 2011, by assignment recorded in Book 4466 at Page 73. Id.

2. Debtors allege that on July 22, 2009, they entered into an agreement labeled as a "Bond for Title" for acquisition of the Property from Morgan. (Doc. 13-2).2 Under the terms of the agreement, Morgan would deed the Property to the Debtors after the full purchase price of $185,000 was paid. Id. at ¶ 7. Debtors were required to put $1,000 down when the Bond for Title was signed, and then make another $8,000 down payment by November 22, 2009. Id. at ¶ 1(a). Debtors were supposed to make monthly payments in the amount of $1,500 until August 1, 2039. Id. at ¶ 1(c). The monthly payments consist of $1,291.43 for principal and interest, an estimated amount of $133.57 for pro-rated taxes and insurance, and $75.00 for a management fee. Id. If Debtors fail to pay the full purchase price by the end of the term of the Bond for Title, all rights and obligations under the Bond for Title "shall become null and void and [the] Bond for Title shall terminate at that time." Id. The Bond for Title was recorded on August 24, 2009, in the office of the Register of Deeds for Spartanburg County in Book 94-K, Page 824. Id. at 1.

3. On May 18, 2011, Fannie Mae sought to foreclose its Mortgage encumbering the Property, initiating Federal National Mortgage Association v. Morgan, Case No. 2011-CP-42-02209, Court of Common Pleas, Spartanburg County. According to the foreclosure complaint, Morgan defaulted on the mortgage payments and the loan is in default and due for January 1, 2011. See Compl. ¶ 31, Case No. 2011-CP-42-02209. Fannie Mae declared the entire principal balance in the amount of $171,889.26, plus interest, advances, late charges, and costs from December 1, 2010, due and payable. Id. Debtors were named as defendants in the foreclosure lawsuit to extinguish their interest, if any, in the property by virtue of their recorded Bond for Title agreement with Morgan. Id. at ¶ 9.

4. There is no evidence that Fannie Mae had knowledge of the existence of the Bond for Title or had any reason to search the title records until after Morgan defaulted on the loan and the note was accelerated, in preparation of filing the foreclosure action.

5. At the Meeting of Creditors held in this case, Debtors testified that they were aware of the Mortgage but never made any mortgage payments directly to Fannie Mae or any prior loan servicer or holder.

6. On June 13, 2011, Debtors were served with the foreclosure action and subsequently filed their Chapter 13 petition in an attempt to stay the action. See Doc. 10, ¶ 17. The Property is the Debtors' residence.

7. In their petition and schedules, Debtors claimed the entire Property as part of the bankruptcy estate by virtue of the Bond for Title and estimated the amount of the secured claim encumbering the Property at $171,537.03. This is essentially the principal balance Morgan owes to Fannie Mae on the Loan. See Doc. 1, Sch. A. Fannie Mae is named as a secured creditor of Debtors pursuant to a "Mortgage/Bond for Title." Debtors valued their interest in the property at $170,000. See Doc. 1, Sch. D. Morgan is also listed as a secured creditor, but for "Notification Purposes Only," and any property securing Morgan's claim is scheduled at $0. Id. In Schedule J, Debtors listed their current monthly rent or home mortgage payment as only $1,167.00 a month instead of the $1,500 month payment due pursuant to the terms of the Bond for Title. (Doc. 1, Sch. J; Doc. 13-2, ¶ 1(c)). They do not list any real estate taxes or homeowners' insurance as expenses. Id. Debtors claim they have lived at the Property for at least three years prior to filing bankruptcy. See Doc. 1, Statement of Financial Affairs, ¶ 15; Doc. 13-2, ¶ 3.

8. In their Amended Schedule G, itemizing Executory Contracts and Unexpired Leases, Debtors identified: (1) a "Payment/Escrow Management Agreement" with National Real Estate Services.Com, Inc. ("NRES") as an executory contract (Doc. 13, Am. Sch. G); (2) the Bond for Title between Morgan and the Debtors identified as Exhibit A; (3) a Payment/Escrow Management Agreement between Morgan and NRES identified as Exhibit B; and (4) a Payment/Escrow Management Agreement between Debtors and NRES identified as Exhibit C. All exhibits identified are attached to the Amended Schedule G. (Doc. 13-2). Many of these documents are also relevant to the related adversary proceeding, Flucker v. Gantt, Adv. Pro. No. 11-80078-hb.

9. Debtors' Proposed Chapter 13 Plan lists the Fannie Mae loan under the heading supplied for long term or mortgage debt in this Court's form plan, and the Plan states that it will cure Morgan's arrearage to Fannie Mae over five (5) years and make regularly scheduled post-petition payments of Morgan's loan directly to Fannie Mae. (Doc. 2, ¶ B(3)). The Bond for Title is not specifically mentioned in the Plan, but Debtors indicated that they intend to reject all executory contracts and unexpired leases. See Doc. 2, ¶ D.

10. Fannie Mae objected to the confirmation of Debtors' Proposed Plan on the basis that the Property is not property of the estate, that Debtors do not own the Property, that Fannie Mae is not in privity of contract with the Debtors, and that entering into the Bond for Title is considered a material breach of the recorded mortgage which cannot be cured by making loan payments. (Doc. 14).

11. Fannie Mae had not filed a Proof of Claim in this case as of the date of the confirmation hearing. However, the Court's records indicate that Fannie Mae filed a claim on October 17, 2011, for $171,889.26. (POC #16-1). The claim and its attachments indicate that the loan is in Morgan's name. Furthermore, the claim states the following: "Please note that the four-digit number referenced above refers to an account which is not in the name of the debtor, and no number identifying debtor can be found. This POC is being filed because debtor named Federal National Mortgage Association as a creditor. Whether or not this property is part of the bankruptcy estate is the subject of a related adversary action." Id.

CONCLUSIONS OF LAW

Debtors frame the question before this Court as whether a Chapter 13 debtor who is not in contractual privity with the mortgagee can repay a secured loan to that mortgagee through a Chapter 13 bankruptcy plan. Debtors claim this can be done on these facts and cite In re Trapp, 260 B.R. 267 (Bankr.D.S.C.2001), and In re Davis, C/A 10-02249-JW, 2010 WL 5173187, 2010 Bankr.LEXIS 4619 (Bankr.D.S.C. Oct. 12, 2010), to support their contention. In Trapp, the Court found that a mortgage holder held a "claim" against a debtor's estate even though the debtor was not in privity of contract with the mortgage holder, because "`it is undisputed ... that the debtors own the Property as to which the bank holds a lien and that the Property is property of the estate.'" Id. at 271 (quoting In re Allston, 206 B.R. 297, 299 (Bankr. E.D.N.Y.1997)). The debtors in Trapp and Davis3, both held legal title to the property in question; however, that is not the Debtors' situation in the instant case.

S.C. Fed. Sav. Bank v. San-A-Bel Corp., 307 S.C. 76, 78-79, 413 S.E.2d 852, 854 (App.1992) (emphasis added) (internal citations omitted). However, debtors assert that:

(DR's Prop. Or., Doc. No. 32 at 6) (footnote added).

It is true that § 1322(b)(3) of the Bankruptcy Code allows a debtor to propose a plan to "provide for the curing or waiving of any default." 11 U.S.C. § 1322(b)(3). Fannie Mae certainly holds a claim secured by a "security interest in real property that is the debtor's principal residence" as set forth in 11 U.S.C. § 1322(b)(2). These facts, however, do not make Fannie Mae the holder of a "secured claim" in this case secured by property of the Debtors. The finding in Trapp that the mortgage holder held a secured claim was based on the fact that the debtor owned the property (by holding legal title) on which the bank had a lien, making the claim squarely secured by property of the estate. Trapp, 260 B.R. at 271. In the instant case, the only intersection between Fannie Mae's debt and Debtors is that Fannie Mae holds a mortgage lien secured by property owned by Morgan and Debtors have an equitable lien on and occupy that property owned by Morgan.5 Accordingly, Fannie Mae holds a lien on real property that is not property of the estate. The Court cannot find, and the parties have not supplied, any authority sufficient to support a finding that possession plus an equitable lien on real property for amounts paid thus far transforms Debtor's interest into one sufficient to fit the factual pieces of this puzzle into 11 U.S.C. § 1322.

In an attempt to find applicable authority, the Court considered In re Rivers-Jones, C/A No. 07-02607-JW, 2007 Bankr.LEXIS 2992 (Bankr.D.S.C. Sept. 4, 2007), where Judge Waites found that a debtor not in privity of contract with a creditor could value a mobile home titled in the name of another in her Chapter 13 plan based on the Debtor's equitable interest in the property. However, the facts of that case are far different from this one because the Court found that the debtor's equitable interest arose from a resulting trust she held in the home. Id. at *9-10. That is, the Court essentially found that she was a current owner of the property in question by operation of law to the facts of that case. The debtor held a resulting trust because the loan and mobile home were placed in the grandmother's name in order to assist the debtor, but the debtor made all the payments on the mobile home directly to the creditor, including taxes and insurance, the debtor always resided there, and the grandmother intended for the debtor to have at least a current ownership interest in the home. Id. at *10.6 Judge Waites found that the resulting trust effectuated the "intent of the parties[,]" which was either sole or joint ownership of the property at that point in time. Id. at *9. There are no allegations that the facts in the instant case create a resulting trust—there was no intention on the part of Morgan and Debtors for Debtors to have an ownership interest in the home before the full debt set out in the Bond for Title was paid. The terms of the contract itself do not support such a finding.

Debtors have not provided any authorities that would convince the Court that they have met their burden of proof that the plan complies with the standards for confirmation set forth in 11 U.S.C. § 1325.7

IT IS THEREFORE ORDERED:

That Confirmation of the Plan is denied.