Judge Ted Albert Tentative Clarifies (Somewhat) Issues on Modification of Loan on Residence

8:11-20215  [debtor]     Chapter  11

#10.00 Motion to Value Property of the Estate Pursuant to 11 U.S.C.  Section 506(a)

Tentative Ruling:
The motion is for valuation of collateral known as 2xxx Santa Ana Ave., Costa Mesa (“property”) under §506, but the real question presented here is whether a Chapter 11 Plan can treat the junior trust deed claim of Citibank as only partially secured since the debtor contends there is only $287,000 in value to support two trust deeds of $202,410 and $510, 968.  If the bifurcation can be done then the junior secured claim is only around $85,000.  The impediment, if any, would be §1123(b)(5) which forbids modification of claims “secured only by a security interest in real property that is the debtor’s principal residence.”  The property is apparently a duplex. While there is case law on both sides of the issue, and no definitive 9th Circuit authority, the majority of authority as represented by cases like the 3d Circuit in In re Scarborough, 461 F. 3d 406, 414 (3d Cir. 2006), suggest that since technically the lien is secured by something other than the residence (i.e. an adjoining income property) and therefore is not secured only by the residence, the statute does not apply. See also In re Boardman, 2011 WL 478987 (Bankr. N.D. Cal.).

Matthew E. Faler
17330 Brookhurst St., Ste 240
Fountain Valley, CA 92708

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