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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA

www.flsb.uscourts.gov

In re: Luis L. Ramirez Case No. 13-20891-AJC Chapter 13

Debtor /

DEBTORS RESPONSE TO CREDITOR LANSDOWNE MORTGAGE LLCS OBJECTION TO CONFIRMATION

The Debtor files his response to Creditor Lansdowne Mortgage LLCs (the Creditor)

Objection to Confirmation [D.E. 61] as follows:

Brief Background

The Creditor filed its proof of claim for a first priority residential mortgage secured by a

duplex which is both the Debtors home and rental property [Claim No. 3-1]. The Debtor filed

an objection to the proof of claim [D.E. 28] to which the Creditor filed a response [D.E. 45]. The

Debtor also filed a motion to value [D.E. 14] to which the Creditor filed an opposition [D.E. 35].

The parties agree the property value is $100,000 [D.E. 56].

The remaining issue for the Court is whether the Debtor can modify the mortgage with a

plan that contains a balloon payment in the final month. The Debtor contends he may modify the

mortgage because it is secured by real property which is not solely his primary residence and he

will be able to obtain a refinance with the significant equity available at the end of the plan. The

Creditor objects for two reasons. First, the Creditor maintains that the mortgage cannot be

crammed down because of the antimodification provision of 1322(b)(2). Specifically, the

Creditor asserts that it primarily viewed the mortgage transaction as providing the Debtor with a

residence and, as such, the mortgage cannot be modified. Second, the Creditor objects to the

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balloon payment in month 60 of the plan as unfeasible. Specifically, the Creditor is concerned

that the Debtor could dismiss the case in month 59 and completely thwart the Creditor.

Because the mortgage is subject to modification and the plan is feasible, the Court should

overrule the Creditors objections and confirm the plan.

A. Legal Standard to Determine Whether a Mortgage Cramdown is Prohibited by 1322(b)(2)s Anti-Modification Provision

A totality of the circumstances test, analyzing the facts of each case, is used to determine

whether a cramdown is permissible. In re Zaldivar, 441 B.R. 389, 390 (Bankr. S.D. Fla. 2011)

(internal citations omitted). Specifically, the Court looks to the predominant character of the

mortgage transaction:

If the transaction was predominantly viewed by the parties as a loan transaction to provide the borrower with a residence, then the antimodification provision will apply. If, on the other hand, the transaction was viewed by the parties as predominantly a commercial loan transaction, then stripdown will be available.

Id.

As a preliminary matter, the Creditor is not arguing that modification of a mortgage

secured by a duplex is impermissible per se. The cases permitting modification of multiunit-

properties are legion. See Zaldivar at n.1 (collecting cases). The Debtor here occupies one unit

and rents out the other unit [D.E. 41 (First Amended Schedule I)], thus, the mortgage subject to

modification. The Creditor asserts, instead, is that in this specific case modification is

impermissible because it predominantly viewed the transaction as providing the Debtor with a

residence.

The Creditors argument, however, is belied by the express terms of the mortgage.

Section F of the 1-4 Family Rider and Assignment of Rents to the mortgage deletes the borrower

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occupancy provision of the mortgage, a copy of which is attached as Exhibit A. It defies logic to

suggest that the Creditor intended the mortgage to provide the Borrower with a residence when

there is no owner-residency requirement. This Court previously held that the predominant

character of a mortgage cannot be viewed as providing the Debtor with a residence where, as

here, the Debtor is not required to reside in the property:

Because the Debtor is not required by the mortgage documents to occupy the property at all, the predominant character of this transaction cannot be predominantly viewed by the parties as a loan transaction to provide the borrower with a residence.

Id. (internal citation omitted). The Creditor has not provided any evidence to support its

conclusory argument that it predominantly viewed the transaction as providing the Debtor with a

residence.1 While the Debtor resides in one unit, he rents out the other unit to a tenant as an

investment property from which he earns rental income. Accordingly, the Court should overrule

the Creditors objection and hold that modification is permissible.

B. Legal Standard on the Feasibility of Balloon Payments

The Bankruptcy Code neither makes provisions for nor precludes the use of balloon

payments in Chapter 13 cases. In re Hendricks, 250 B.R. 415, 421 (Bankr. M.D. Fla. 2000)

(internal citations omitted). Whether a balloon payment will be permitted is left to the sound

discretion of the Court under the circumstances of each case. In re McClaflin, 13 B.R. 530,

533 (Bankr. N.D. Ill. 1981). Courts consider numerous factors, including the future earning

capacity and disposable income of the debtor, whether the plan provides for the payment of

1 The Debtor propounded his First Request for Production of Documents and First Set of Interrogatories on October 17, 2013, seeking the factual basis for the Creditors contention that it predominantly viewed the transaction as providing the Debtor with a residence. As of this writing, the Debtor has not received any discovery responses which are due the day before the next confirmation hearing scheduled for November 19, 2013.

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interest to the secured creditor over the life of the plan, and whether the plan provides for

substantial payments to the secured creditor which will significantly reduce the debt and enhance

the prospects for refinancing at the end of the plan. In re Fantasia, 211 B.R. 420, 423-24

(B.A.P. 1st Cir. 1997).

Where there is a concern of potential abuse by the debtor dismissing in the final month

and filing another Chapter 13 to satisfy the balloon payment, courts have required debtors to

prove by credible and definite evidence an ability to make the balloon payment when making a

feasibility determination. In re Crotty, 11 B.R. 507, 511-12 (Bankr. N.D. Texas 1981)

(explaining that credible and definite evidence is required because of the potential for abuse by

the Chapter 13 debtor who could dismiss before the balloon payment is due and refile to repay

the balloon payment). In determining whether the plan is proposed in good faith, as opposed to

whether the plan is feasible, courts have also sought reasonable certainty of the ability to pay a

balloon payment. In re Harrison, 203 B.R. 253, 256 (Bankr. E.D. Va. 1996) (denying

confirmation where the debtor filed a Chapter 13 bankruptcy to address child support arrearages

two months after obtaining a Chapter 7 discharge).

In Hendricks, the court found the Debtor failed to provide definite and credible evidence

of an ability to pay the balloon payment where, inter alia, the debtor proposed a plan with zero

payments to the unsecured creditors, had no stream of future income (she was unemployed), she

had not provided evidence her spouse (a co-owner to the property) would consent to a future

mortgage and the debtor had the ability to dismiss the Chapter 13 before the balloon payment

was due and file another Chapter 13 payment to satisfy the balloon payment. Id. at 421-22.

None of these factors are present here where the Debtor is gainfully employed, making payments

to his unsecured creditors and does not require the consent of his spouse to encumber the home

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with a mortgage as he is the sole record title owner. The plan also provides for interest to the

Creditor over the life of the plan. Fantasia at 423-24. More importantly, the threat of abuse is

not present here because this is a cramdown. The Debtor cannot simply dismiss and refile to

satisfy the balloon payment. If he is unable to make the balloon payment through a refinancing,

the bankruptcy will be dismissed and the crammed down value of $100,000 (upon which the

balloon payment is based) will no longer apply.

The Debtor proposes to pay nearly half the value during the life of the plan, a factor

strongly weighing in favor of permitting the balloon payment. Id. There will be significant

equity in the home at the end of 5 years such that refinancing is reasonably certain. In re Vause,

No. 6:09-bk-06224-ABB, 2010 WL 1204534, at *2 (Bankr. M.D. Fla. March 16, 2010)

(overruling creditors objection to Chapter 13 plan cramming down a duplex with a balloon

payment of $69,113 in month 60). Courts have observed that unless the real estate market

suffers a collapse, there is no reason to believe the value of the [lenders] security will fall. In

re McClaflin, 13 B.R. 530, 533 (Bankr. N.D. Ill. 1981) (noting that [r]efinancing the balloon in

5 years is uncertain, but possible); see also SPCP Group, LLC v. Cypress Creek Assisted Living

Residence, Inc., 434 B.R. 650, 657 (M.D. Fla. 2010) (holding that the bankruptcy court did not

err in finding the Chapter 11 plan with a balloon payment feasible and noting that based on the

evidence presented, the debtor should be able to refinance at the time the balloon comes due, if

unable to cover the payment). The real estate market in South Florida is improving as

evidenced by the fact that the Miami-Dade Property Appraiser valued this property at $39,735.00

on the date of filing. Just a couple months later, the Creditors appraisal valued the property

value was $100,000. Even assuming the countys value was low, this is still a substantial

increase.

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Permitting the Debtor to structure his plan with affordable payments for the next five

years and the opportunity to refinance in month 60 using the equity in his home is consistent

with the Congressional intent to provide Chapter 13 debtors with flexibility in structuring their

plans . . . [t]he policy behind Chapter 13 is to encourage individuals to pay their debts as opposed

to simply obtaining a discharge under Chapter 7. We recognize this statutory goal and seek to

preserve it. In re Ferguson, 134 B.R. 689, 695 (Bankr. S.D. Fla. 1991) (addressing the payment

of priority claims under 1322(a)(2)). Moreover, the Debtors home is necessary for an

effective reorganization. [M]ost courts have held that in a Chapter 13 case, a debtors home is

necessary for an effective reorganization. In re Ramos, 357 B.R. 669, 672 (Bankr. S.D. Fla.

2006) (internal citations omitted). Accordingly, the Court should overrule the Creditors

objection to confirmation based on feasibility.

Respectfully submitted, LEGAL SERVICES OF GREATER MIAMI, INC. By /s/________________________ Jacqueline C. Ledon, Esq., Attorney for Debtor 3000 Biscayne Boulevard, Suite 500 Miami, FL 33137 Telephone: (305) 438-2401 Facsimile (305) 573-5800 Florida Bar No. 002719

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