The United States Bankruptcy Court for the District of New Jersey recently overruled a creditor’s objection to the debtors’ proposed chapter 13 plan, rejecting the association’s argument that its claim is secured by a consensual lien and may not be modified pursuant to 11 U.S.C. 1322(b)(2). Specifically, the Court found that a lien held by a New Jersey condominium or homeowners’ association can be either a statutory lien (subject to modification) or a consensual lien (not subject to modification) depending upon the circumstances presented. In re Keise, 564 B.R. 255 (Bankr. D.N.J. 2017). The matter was before the Court on a confirmation hearing on the chapter 13 plan filed by the debtors. A homeowners’ association filed an Objection to Confirmation on grounds that the plan improperly sought to modify the association’s lien on the debtors’ property. The association argued that its claim falls within the protections under 11 U.S.C. 1322(b)(2), which states that “a claim secured only by a security interest in real property that is the debtor’s principal residence”—i.e., a consensual lien—may not be modified. The debtors argued that the lien is a statutory lien created by the New Jersey Condominium Act and is subject to modification.
The Court determined that, in contrast to the parties’ views that the association’s claim is enforceable by a single lien, the claim is secured simultaneously by two separate liens: one consensual lien created by the parties’ agreement and one statutory lien created by the New Jersey Condominium Act. N.J.S.A. 46:8B-1. The Court noted that, in addition to support in New Jersey case law, the Condominium Act reinforces its conclusion that the association’s claim is secured by two separate liens and that N.J.S.A. 46:8B-21(f) contemplates a scenario where multiple liens may exist simultaneously to enforce a single claim. The Court concluded that because the claim is supported by two liens, it is not secured only by a consensual lien. Accordingly, it does not fall within the ambit of 1322(b)(2) and can be modified. Therefore, the Court overruled the association’s objection and granted the debtor’s plan.