Reinhardt v. Vanderbilt Mortgage and Finance Inc. (In re Reinhardt)

563 F.3d 558 (6th Cir. Ohio 2009)

On April 29, 2009, the Sixth Circuit affirmed a bankruptcy court decision that debtors may cram down a secured creditor’s interest in an unattached mobile home and land on which the mobile home sits. In the case, the Debtor’s Chapter 13 petition listed the mobile home as personal property valued at $12,000 and listed the land as real property valued at $3,000. The Debtors listed the total secured claim on the mortgage and mobile home as $37,399.87, and their Chapter 13 plan proposed that $15,000 of the secured creditor’s claim was secured, which was the current value of the mobile home and the land at the time of the bankruptcy filing. The secured creditor filed an objection to the proposed cramdown and bifurcations of its claim into secured and unsecured components.

The Bankruptcy Court cited to 11 U.S.C. § 1322(b)(2) in overruling the secured creditor’s objection. Bankruptcy Code Section 1322(b)(2) permits a bankruptcy court to “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence . . . .” Bankruptcy Code Section 101(13A) defines a debtor’s principal residence as “(A) . . . a residential structure, including incidental property, without regard to whether that structure is attached to real property; and (B) includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer.”

The Bankruptcy Court in this case held that for the secured creditor’s claim to fit within the exception set forth in 11 U.S.C. §1322(b)(2), that the mobile home had to be the debtor’s personal residence and had to be real property. The Bankruptcy Court looked to Ohio law to determine if the Debtor’s mobile home was “real property”. Under Ohio law, a mobile home only becomes real property if (1) it is affixed to a permanent foundation; and (2) located on land owned by the owner of the home; and (3) the certificate of title for the mobile home has been inactivated by the clerk of the court of common please that issued it. O.R.C. §5701.02(B)(2). In this case, the Debtor’s mobile home was not attached to the land and the Debtors never surrendered the certificate of title to the mobile home. As a result, Section 1322(b)(2) did not apply.

The Sixth Circuit stated, “§1322(b)(2) clearly contains a separate requirement that the debtor’s principal residence must be real property . . . ” and that the Bankruptcy Court correctly analyzed separately whether the mobile home qualified as real property. The Sixth Circuit affirmed the Bankruptcy Court’s decision confirming the Debtor’s reorganization plan, because Ohio state law is clear that Debtors’ mobile home is not real property and the Court could modify the secured creditor’s claim under §1322(b)(2).