Mr. Hurlburt sought to cram down the claim of a seller-financed purchase money deed to the value of his principal residence. While this would have been impermissible under 11 U.S.C. § 1322(b)(2), because the note was due, Mr. Hurlburt argued that 11 U.S.C. § 1322(c)(2) allowed such treatment even though Witt v. United Companies Lending Corp., 113 F.3d 508 (4th Cir. 1997) interpreted that section to allow only modification of the payment and not cram down. As this was a seller-financed purchase money deed, the anti-deficiency provisions of N.C.G.S. § 45-21.28, limited the lien-holder to only collect against the collateral. Due to the lack of any right to a deficiency claim, Mr. Hurlburt asserted that the lien-holder could never have an “under secured claim” and was limited by 11 U.S.C. § 506(a) to a secured the value of the property. Without both a secured and unsecured claim, the prohibition in Witt on bifurcation did not apply and Mr. Hurlburt only sought to modify the payment on the secured claim.
The bankruptcy court rejected this argument, instead finding that Mr. Hurlburt actually sought “to bifurcate the claim into a secured claim (that portion of the debt for which [the lien-holder] would have in rem rights) and a non-claim (that portion of the debt for which [the lien-holder] has neither in rem nor in personam rights).” (Emphasis added.) As such, pursuant to Nobelman v. American Savings Bank, 508 U.S. 324 (1993) (and with Witt precluding modification under §1322(c)(2)), § 1322(b)(2) prohibited modification of the rights of a secured creditor, “including the right to repayment of the principal in monthly installments over a fixed term at specified adjustable interest rates, the right to retain the lien until the debt is paid off, and the right to proceed against the property by foreclosure and public sale.”
As the bankruptcy court noted, while the anti-deficiency statute of N.C.G.S. § 45-21.28 is of infrequent application, if the lack of personal liability for an unsecured portion of a mortgage debt allowed a debtor to escape from the anti-modification provisions of § 1322(b)(2), this would be far more common in “Chapter 20” cases, where the mortgage note becomes a non-recourse claim if there was no reaffirmation.
For a copy of the opinion, please see:
For a copy of the amicus brief in support of Mr. Hurlburt, please see: