On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil No. 93-06624).
Panel: Becker, Cowen and Garth, Circuit Judges
This appeal presents us with two issues. First, whether a debtor in a chapter 13 bankruptcy may modify the rights of an undersecured mortgage lender under 11 U.S.C. § 1322(b)(2) and 11 U.S.C. § 506(a) when the mortgage is secured by both real and personal property. Second, whether a pre-petition foreclosure judgment precludes modification of the mortgagee's secured claim because the terms of the mortgage have "merged" into the foreclosure judgment. The district court held that modification was appropriate and was not precluded by merger. We affirm.
Appellee Lillie M. Johns ("Ms. Johns") purchased a house in Chester, Pennsylvania on April 29, 1986, with the help of a loan secured by a mortgage that was later assigned to Rousseau Mortgage Corporation ("Rousseau"). The mortgage covered Ms. Johns' home as well as "any and all appliances, machinery, furniture and equipment (whether fixtures or not) of any nature whatsoever now or hereafter installed in or upon said premises." Appellee's Appendix 31.
At some time prior to filing in bankruptcy, and following over a year's delinquency on the part of Ms. Johns, the Delaware County Court of Common Pleas entered a foreclosure judgment against Ms. Johns and in favor of Rousseau in the amount of $39,557.15.
It was stipulated in the bankruptcy court that the fair market value of Ms. Johns' residence was $8,000, and that the value of her appliances, machinery, furniture and equipment ("personalty") was $1,000.
On April 15, 1993, shortly before the planned foreclosure sale, Ms. Johns filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code. Thereafter, Ms. Johns instituted an adversary action in bankruptcy court against Rousseau to limit Rousseau's claim to the fair market value of the mortgaged premises. By Order of November 4, 1993, the bankruptcy court, pursuant to 11 U.S.C. § 506(a), bifurcated Rousseau's interest into a secured claim of $9,000 and an unsecured claim of $30,557.15, holding that the anti-modification provision of 11 U.S.C. § 1322(b)(2) did not prohibit a modification of the debtor's indebtedness where the secured claim was secured by personalty as well as an interest in the debtor's principal residence. The bankruptcy court also rejected Rousseau's argument that the mortgage foreclosure judgment precluded reliance on the mortgage's "additional security" provisions because the mortgage had merged into the judgment.
Rousseau appealed to the district court, which, by Memorandum and Order dated March 17, 1994, affirmed the order of the bankruptcy court. This appeal followed.
Because this case was submitted on a stipulated record and presents issues of statutory interpretation and Conclusions of law only, our standard of review is plenary. Brown v. Pennsylvania State Employees Credit Union, 851 F.2d 81, 84 (3d Cir. 1988).
Chapter 13 of the Bankruptcy Code permits debtors to structure repayment of their indebtedness through a plan approved by the bankruptcy court. Section 1322(b) lists ten provisions which Chapter 13 debtors may, at their option, include in their bankruptcy plans. ...