Patricia Lee v. U.S. Bank National Association
Eleventh Circuit seems to hold that a mortgage on any property with a principal residence can’t be modified even if the principal use of the property is commercial.
- Rochelle Quick Take
View Rochelle Summary- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- 21-13887 (11th Circuit, May 23,2024) Published
- Tag(s):
- Ruling:
- In a split opinion (Chief Judge Pryor, dissenting) -- in which both the majority and the dissent focused on the meaning of the word "is" -- the Eleventh Circuit held that 11 U.S.C. § 1125(a)(3) prohibited a debtor who had mortgaged a 43-acre tract of land, which included her house and a yard, from modifying the mortgage debt. In dissent, Chief Judge Pryor noted that the majority opinion glossed over the statutory limitation that the anti-modification statute applies only to the debtor's principal residence and "incidental property," which is defined at 11 U.S.C. § 101(27B)(A).
- Procedural context:
- A chapter 11 debtor-appellant filed a chapter 11 plan that sought to modify a mortgage that was secured by a 43-acre tract of land that she owned. The mortgage holder filed a motion for relief from stay, arguing that Lee's chapter 11 plan could not be confirmed because 11 U.S.C. § 1125(a)(3) prohibited the modification of that mortgage. The bankruptcy court held that the mortgage holder was entitled to relief from the stay because the debtor's plan was not confirmable because § 1125(a)(3) barred modification of the mortgage. Accordingly, the bankruptcy court granted the mortgage holder relief from the automatic stay. The debtor-appellant appealed to the district court, which affirmed the bankruptcy court. The debtor-appellant then appealed to the Eleventh Circuit.
- Facts:
- The debtor, Patricia Lee, inherited a 43-acre tract of land (the "Property") that included a 1,595-square-foot house, a driveway, and a two-and-a-half-acre yard. Lee lived in the house and leased the remaining 40.5 acres of the tract to an unrelated farmer for commercial farming operations. In 2007, Lee mortgaged the Property. Lee subsequently defaulted on the mortgage loan. When she filed her chapter 11 bankruptcy petition in August 2020, she was in arrears for 110 payments [not a typo], totaling $253,070.25. After Lee filed her chapter 11 petition, Lee proposed a plan that would pay U.S. Bank, the holder of the mortgage, $1,000 per month for six months and a balloon payment of $138,000 (i.e., less than the debt owed on the petition date). U.S. Bank moved for relief from stay to foreclose on the mortgage. U.S. Bank argued, among other things, that Lee's plan could not be confirmed because it violated 11 U.S.C. § 1125(a)(3). Lee testified at the hearing on U.S. Bank's motion for relief from the automatic stay. Lee testified that she lived on the 2 1/2 acres where the house was located.
- Judge(s):
- WILLIAM PRYOR, Chief Judge, and LUCK and ED CARNES, Cir-cuit Judges
