                                                        FILED
 1                         ORDERED PUBL ED
                                       ISH               MAR 7 2014
                                                     SUSAN M. SPRAUL, CLERK
 2                                                     U.S. BKCY. APP. PANEL
                                                       OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                        )      BAP No.      ID-12-1397-JuKiKu
                                   )
 7   CLAYTON HOYT WAGES and        )      Bk. No.      8:11-bk-40249-JDP
     ANDREA S. WAGES,              )
 8                                 )
                    Debtors.       )
 9   ______________________________)
                                   )
10   CLAYTON HOYT WAGES; ANDREA S. )
     WAGES,                        )
11                                 )
                    Appellants,    )
12   v.                            )           O P I N I O N
                                   )
13   J.P. MORGAN CHASE BANK, N.A.; )
     UNITED STATES TRUSTEE,        )
14                                 )
                    Appellees.     )
15   ______________________________)
16
                   Argued and Submitted on November 22, 2013
17                            by video conference
18                           Filed - March 7, 2014
19               Appeal from the United States Bankruptcy Court
                            for the District of Idaho
20
              Honorable Jim D. Pappas, Bankruptcy Judge, Presiding
21
                            _______________________
22
     Appearances:     Brent Taylor Robinson, Esq., Robinson, Athone &
23                    Tribe, argued for appellants Clayton Hoyt Wages
                      and Andrea S. Wages; Jon A. Stenquist, Esq.,
24                    Moffatt Thomas Barrett Rock & Fields, Chtd.,
                      argued for appellee J.P. Morgan Chase Bank, N.A.
25                         _________________________
26   Before:    JURY, KIRSCHER, and KURTZ, Bankruptcy Judges.
27   Opinion by Judge Jury
     Dissent by Judge Kurtz
28
 1   JURY, Bankruptcy Judge:
 2
 3        Debtors, Clayton Hoyt Wages and Andrea S. Wages, appeal
 4   from the bankruptcy court’s order denying confirmation of their
 5   chapter 111 plan in which they sought to modify the terms of a
 6   mortgage on their real property held by appellee-creditor, J.P.
 7   Morgan Chase Bank, N.A. (Creditor).
 8        At issue is whether the anti-modification provision under
 9   § 1123(b)(5) applies to any loan secured only by real property
10   that the debtor uses as a principal residence or whether it is
11   limited to those claims secured by property used only as a
12   debtor’s principal residence.     The issue is one of statutory
13   construction and of first impression in this Circuit.     We hold
14   that the anti-modification provision in § 1123(b)(5) applies to
15   any loan secured only by real property that the debtor uses as a
16   principal residence.    Accordingly, we AFFIRM.
17                                I.   FACTS2
18        In 1999, debtors purchased property consisting of a house,
19   buildings and eleven acres near Heyburn, Idaho (property).
20   Initially, they used approximately four acres for raising feed
21   or crops, five acres for pasturing livestock and two acres for
22   residential purposes.    At that time, debtors’ employment
23
24        1
            Unless otherwise indicated, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532,
25   and “Rule” references are to the Federal Rules of Bankruptcy
26   Procedure.
          2
27          Many of the undisputed underlying facts are taken from
     the bankruptcy court’s decision In re Wages, 479 B.R. 575
28   (Bankr. D. Idaho 2012).

                                       -2-
 1   consisted of raising roping stock on the property to rent out
 2   for rodeos and roping events.   About a year later, debtors
 3   purchased a truck to haul their livestock, and income from use
 4   of their truck became a component of their business income.
 5        Between 2004 and 2006, debtors sold all their livestock to
 6   raise money to stave off a foreclosure against the property.3
 7   Since then, debtors have not used the property at all to
 8   generate income from livestock.    Debtors leased an additional
 9   truck and began hauling commodities for others.
10        At some time, their former livestock/trucking business
11   became a trucking-only business.      Mr. Wages drives one of the
12   trucks; Mrs. Wages secures permits, keeps the books for the
13   business, and handles other administrative chores from an office
14   in debtors’ home.   When they are not being used on the road,
15   debtors park the two trucks and trailers on the property.
16        On March 4, 2011, debtors filed their chapter 11 petition
17   to allow them to retain their residence.      At the time, they were
18   using a portion of the property to operate the business,
19   including a small office in the house and enough adjoining space
20   to park two truck tractors and up to three trailers.
21        In May 2011, Creditor4 filed a $127,418.31 secured claim in
22   debtors’ bankruptcy case based on a mortgage debt.      Under the
23   mortgage note’s terms, debtors agreed to make monthly payments
24
25        3
            Apparently in an effort to stop the foreclosure process,
26   debtors filed for bankruptcy protection in 2005 and in 2006.
     Both of those cases were dismissed.
27
          4
            Creditor purchased the loans and other assets of
28   Washington Mutual Bank.

                                     -3-
 1   through April 1, 2029, at an annual interest rate of 7.5%.     The
 2   debt was secured by a mortgage on the property.
 3        In November 2011, debtors filed a chapter 11 plan.     Under
 4   the plan, debtors proposed to modify the terms of Creditor’s
 5   mortgage by reducing the interest rate to 5.0% per year and
 6   extending the payoff date to March 1, 2032.     Creditor objected
 7   to confirmation of the plan, arguing that it does not meet the
 8   confirmation requirements of §§ 1129(a)(1) and 1123(b)(5).
 9        On June 12, 2012, the bankruptcy court held an evidentiary
10   hearing on the confirmation of debtors’ proposed plan.     At the
11   end of the hearing, the court took the matter under advisement.
12        On July 24, 2012, the bankruptcy court entered its
13   Memorandum of Decision, sustaining Creditor’s objection to
14   confirmation of debtors’ proposed chapter 11 plan.     On the same
15   day, the court entered the order denying confirmation of
16   debtors’ chapter 11 plan.      Debtors timely appealed and filed a
17   motion for leave to appeal with this court.     On September 10,
18   2012, a motion’s panel granted leave to appeal.
19                            II.    JURISDICTION
20        The bankruptcy court had jurisdiction over this proceeding
21   under 28 U.S.C. §§ 1334 and 157(b)(2)(L).      We have jurisdiction
22   under 28 U.S.C. § 158.
23                               III.    ISSUES
24        A.   Whether the anti-modification provision under
25   § 1123(b)(5) applies to any loan secured only by real property
26   that the debtor uses as a principal residence; and
27        B.   Whether the bankruptcy court erred when it used the
28   petition date as the date to determine whether the deed of trust

                                        -4-
 1   or mortgage could be modified.5
 2                          IV.   STANDARD OF REVIEW
 3            We review the bankruptcy court’s statutory construction of
 4   § 1123(b)(5) de novo.    BAC Home Loans Serv., LP v. Abdelgadir
 5   (In re Abdelgadir), 455 B.R. 896, 900 (9th Cir. BAP 2011).
 6                                V.   DISCUSSION
 7   A.   Amended Statement Of Issues Is Proper
 8        Appellants’ Statement of Issues (SOI) on appeal filed on
 9   December 5, 2012, listed only the first issue stated above, but
10   their opening brief contained both issues.         Appellee argued that
11   the second issue was waived because it had not been included in
12   Appellants’ SOI.    In response, Appellants amended their SOI to
13   include the second issue and filed it with the bankruptcy court.
14   Appellee objected to the amended SOI again asserting that issues
15   not included in an SOI are waived under the holding in Marshack
16   v. Orange Commercial Credit (In re Nat’l Lumber & Supply, Inc.),
17   184 B.R. 74 (9th Cir. BAP 1995).         A motions panel deferred
18   resolution of the waiver issue to the hearing on the merits.
19        We conclude that Appellants did not waive the second issue.
20   The rule in In re Nat’l Lumber was abrogated by the Ninth
21   Circuit’s holding in Office of the U.S. Tr. v. Hayes (In re
22   Bishop, Baldwin, Rewald, Dillingham & Wong, Inc.), 104 F.3d
23   1147, 1148 (9th Cir. 1997).       There, the Ninth Circuit held that
24   arguments not specifically listed in an SOI are not waived.         The
25   court reasoned that an SOI required by Rule 8006 “does not
26   impact upon issue statements required by the court of appeals.
27
28        5
              The propriety of this second issue is addressed below.

                                        -5-
 1   The two are separate in nature and distinct in result.”    Id.
 2   The Ninth Circuit’s reasoning is equally applicable to appeals
 3   in this court.   Therefore, the second issue is not waived and
 4   will be addressed on the merits.     However, for purposes of flow,
 5   since this second issue has impact on the first, the order will
 6   be reversed in this opinion.
 7   B.   The Bankruptcy Court Did Not Err When It Used the Petition
          Date As the Date to Determine Whether The Deed Of Trust
 8        Could Be Modified
 9        Debtors raise an issue that is now settled in this court.
10   In In re Abdelgadir, 455 B.R. at 902-903, this court held that
11   the petition date is the appropriate date for determining
12   whether the anti-modification provision of § 1123(b)(5) applies
13   to a secured claim.   We later applied the same reasoning to the
14   identical wording in § 1322(b)(2) in Benafel v. One W. Bank, FSB
15   (In re Benafel), 461 B.R. 581 (9th Cir. BAP 2011).    As we are
16   bound to follow our published decisions, Salomon N. Am. v.
17   Knupfer (In re Wind N’ Wave), 328 B.R. 176, 181 (9th Cir. BAP
18   2005), we use the petition date, rather than the loan
19   transaction date, for determining whether the anti-modification
20   provision of § 1123(b)(5) applies to Creditor’s claim.
21   C.   The Anti-Modification Provision Under §1123(b)(5) Applies
          To Any Loan Secured Only By Real Property That The Debtor
22        Uses As A Principal Residence
23        A bankruptcy court shall confirm a plan only if it complies
24   with the applicable provisions of chapter 11.    See § 1129(a)(1).
25   One such applicable provision is § 1123(b)(5) which states:
26        (b) Subject to subsection (a) of this section, a plan
          may—
27        . . .
                (5) modify the rights of holders of secured
28              claims, other than a claim secured only by a

                                    -6-
 1                  security interest in real property that is
                    the debtor’s principal residence . . . .
 2
 3   This provision, known as the anti-modification provision,
 4   prevents a debtor from modifying claims that are secured only by
 5   a debtor’s primary residence.6
 6          Our task of resolving the parties’ dispute over the meaning
 7   of § 1123(b)(5) begins with the language of the statute itself.
 8   United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241
 9   (1989).       Where the statute’s language is plain, the inquiry ends
10   and our sole function is to enforce it according to its terms.
11   Id.
12          According to its plain language, the prohibition against
13   modification of the rights of the holders of secured claims in
14   § 1123(b)(5) has three distinct requirements: first, the
15   security interest must be in real property; second, the real
16   property must be the only security for the debt; and third, the
17   real property must be the debtor’s principal residence.        Here,
18   there is no dispute that the first two requirements have been
19   met.       Creditor’s claim is secured by debtors’ real property and
20   debtors do not assert that anything other than the real property
21   secures the claim.       Therefore, our focus is on the last
22   requirement — whether the real property is debtors’ principal
23   residence.       If it is, debtors may not modify the claim secured
24
25          6
            The wording of § 1123(b)(5) is identical to the anti-
26   modification provision in chapter 13’s § 1322(b)(2). Since
     these sections contain the same statutory language, the panel
27   considers the decisions interpreting either provision as
     persuasive in interpreting the other. See Benafel, 461 B.R. at
28   586-87.

                                        -7-
 1   by their property.
 2        Debtors do not dispute that the house on the property was
 3   being used as their principal residence on the petition date.
 4   Under our plain meaning analysis, the inquiry should end there.
 5   Nonetheless, relying on non-binding case law, debtors contend
 6   there is an uncodified exception to § 1123(b)(5) that applies
 7   when the property is used not only as the debtors’ residence,
 8   but also for a commercial use.    In this case, debtors use part
 9   of their residence for a home office to run their business and
10   they also park trucks and trailers that they use in the business
11   on the property.
12        Straying from the plain words of the statute, courts have
13   taken different approaches in resolving whether real property
14   should be considered a “debtor’s principal residence” when the
15   property also has a commercial use.    Parties are subject to
16   these different approaches and hence different results.    Courts
17   disagree on what factors should be applied, how they should be
18   applied, and even what they mean.
19        One line of cases equates the term “real property” with
20   “debtor’s principal residence.”    See Scarborough v. Chase
21   Manhattan Mortg. Corp. (In re Scarborough), 461 F.3d 406, 411
22   (3d Cir. 2006) (focusing on Congress’ use of the word “is” in
23   the phrase “real property that is the debtor’s principal
24   residence,” and finding that, by using “is,” Congress equated
25   “real property” and “principal residence,” meaning that, for the
26   anti-modification provision to apply, the property “must be only
27   the debtor’s principal residence” and have no other use
28   (emphasis in original)); Adebanjo v. Dime Sav. Bank of N.Y., FSB

                                      -8-
 1   (In re Adebanjo), 165 B.R. 98, 103-04 (Bankr. D. Conn. 1994)
 2   (same).
 3        We disagree with the Third Circuit’s parsing of the words
 4   of the statute in Scarborough because it disregards the
 5   bankruptcy code’s definition of “debtor’s principal residence”
 6   in § 101(13A).7   The term “means a residential structure if used
 7   as the principal residence by the debtor, including incidental
 8   property, without regard to whether that structure is attached
 9   to real property.”8   The definition avoids defining “real
10   property” and also clarifies that whether a structure is a
11   principal residence is independent of whether it might be real
12   property.   Simply put, the definition does not equate the term
13   “real property” with “debtor’s principal residence.”   Therefore,
14   an analysis which equates the two is misplaced.
15        Another line of cases follows a totality of the
16   circumstances or case-by-case approach.   Under this approach,
17   the intention of the parties is what matters most.   See Brunson
18   v. Wendover Funding, Inc. (In re Brunson), 201 B.R. 351, 353
19
20        7
            Section 101(13A) was amended in December 2010 pursuant to
     the Bankruptcy Technical Corrections Act of 2010. See Pub.L.
21   111–327, 124 Stat. 3557 (Dec. 22, 2010). The 2010 amendment
22   added the phrase “if used as the principal residence by the
     debtor,” and was intended to clarify “that [this] definition
23   pertains to a structure used by the debtor as a principal
     residence.” See Pawtucket Credit Union v. Picchi (In re
24   Picchi), 448 B.R. 870, 872 (1st Cir. BAP 2011) (citing 156 Cong.
     Rec. H7158 (daily ed. Sept. 28, 2010)).
25
          8
26          Section 101(13A)(B) states that the “debtor’s principal
     residence” includes an individual condominium or cooperative
27   unit, a mobile or manufactured home, or trailer if used as the
     principal residence by the debtor. Neither party asserts that
28   this section applies to this matter.

                                     -9-
 1   (Bankr. W.D.N.Y. 1996) (“each case must turn on the intention of
 2   the parties”).9    Such intent may be discerned by examining the
 3   underlying mortgage documents.
 4        The Court must focus on the predominant character of
          the transaction, and what the lender bargained to be
 5        within the scope of its lien. If the transaction was
          predominantly viewed by the parties as a loan
 6        transaction to provide the borrower with a residence,
          then the antimodification provision will apply. If,
 7        on the other hand, the transaction was viewed by the
          parties as predominantly a commercial loan
 8        transaction, then stripdown will be available.
 9   Id. at 354.   See also In re Zaldivar, 441 B.R. 389 (Bankr. S.D.
10   Fla. 2011) (“character of the transaction” and substance of what
11   the lender bargained for are paramount).
12        We reject this approach as it is inconsistent with our
13   recent case law.    We do not delve into the parties’ intentions
14   on the loan transaction date when the appropriate time for
15   determining whether property is a debtor’s principal residence
16   is the petition date.    See Benafel, 461 B.R. at 585 and
17   Abdelgadir, 455 B.R. at 898; compare Lievsay v. W. Fin. Sav.
18   Bank, F.S.B. (In re Lievsay), 199 B.R. 705, 709 (9th Cir. BAP
19   1996) (modification under § 1123(b)(5) was denied when debtor
20   failed to show that a home office added significant value to his
21   property, or that the bank relied on the additional security
22   offered by his home office in making the loan secured by the
23   property).
24        Finally, there is the bright-line approach taken by the
25
26        9
            The Brunson court also developed a long list of factors
27   to use in case-by-case determinations of whether property is
     commercial or the debtor’s principal residence. 201 B.R. at
28   353.

                                      -10-
 1   bankruptcy court in In re Macaluso, 254 B.R. 799, 800 (Bankr.
 2   W.D.N.Y. 2000).   The court held that the anti-modification
 3   exception in § 1322(b)(2) applies to any property that is used
 4   as the debtor’s principal residence, notwithstanding the fact
 5   that the debtor’s property in that case included a second
 6   residential unit and a store.10     We conclude that the bright-line
 7   approach is most consistent with the plain language of
 8   § 1123(b)(5).
 9        As noted by the bankruptcy court, the plain language of
10   § 1123(b)(5) does not protect from modification “claim[s]
11   secured only by a security interest in real property that is
12   exclusively the debtor’s principal residence,” or “claim[s]
13   secured only by a security interest in real property that is the
14   debtor’s principal residence, unless the debtor also uses the
15   property for significant commercial purposes.”     Wages, 479 B.R.
16   at 581 (emphasis in original).     We agree with the bankruptcy
17   court’s assessment that there is nothing in the bankruptcy code
18   indicating that, once a commercial use of a property becomes
19   sufficiently “significant,” that property ceases being the
20   debtor’s principal residence — either a property is a debtor’s
21   principal residence or it is not.
22        The adoption of an objective rule eliminates line drawing
23   and promotes certainty in the home mortgage lending market.
24   Wages, 479 B.R. at 582 (citing In re Bulson, 327 B.R. 830, 842
25
          10
26          Macaluso employed a simple two part test compared to our
     three prong analysis; the claims excepted from modification
27   under § 1322(b)(2) are those (1) secured only by a parcel of
     real estate which (2) the debtor uses for his principal
28   residence. 254 B.R. at 800.

                                       -11-
 1   (Bankr. W.D. Mich. 2005)).    However, the downside is that a
 2   bright line rule may sometimes lead to harsh results.
 3   Nonetheless, “the potential for harsh results can not be used as
 4   an excuse by the Court to torture the Code’s language to reach a
 5   different rule in this case.    Even if the Court does not agree
 6   with all of the possible outcomes produced by the statutory
 7   language, it is Congress, not this Court, that must repair any
 8   problems with the Code.”    Wages, 479 B.R. at 583 (citing Lamie
 9   v. U.S. Tr., 540 U.S. 526, 538, 542 (2004) (“Our unwillingness
10   to soften the import of Congress’ chosen words even if we
11   believe the words lead to a harsh outcome is longstanding.      It
12   results from deference to the supremacy of the Legislature, as
13   well as recognition that Congressmen typically vote on the
14   language of a bill. . . .    If Congress enacted into law
15   something different from what it intended, then it should amend
16   the statute to conform to its intent.    It is beyond our province
17   to rescue Congress from its drafting errors, and to provide for
18   what we might think . . . is the preferred result.”) (internal
19   quotation marks and citations omitted)).
20        Finally, in support of their argument, debtors contend that
21   the bankruptcy court’s bright line construction of § 1123(b)(5)
22   “seems to eliminate the use of the word ‘only’.”    This textual
23   argument is unpersuasive.    Essentially debtors add a second
24   “only” into the statutory language to further limit the
25   application of § 1123(b)(5).
26        Although the statute uses “only” to require the
          secured creditor to have no other security for the
27        debt, the Debtors construe the statute also to require
          that the residential structure serve only one
28        function, that of being their principal

                                     -12-
 1        residence. . . . The Debtor’s argument finds no
          support in the plain language of the Code. There
 2        simply is no second “only” in the statutory language
          of § 1123(b)(5), nor any way to read the one usage of
 3        that term to limit the use of the property rather than
          limiting the extent of the collateral for the secured
 4        debt.
 5   In re Schayes, 483 B.R. 209, 215 (Bankr. D. Ariz. 2012).
 6        Because the language in § 1123(b)(5) is plain and
 7   unambiguous, we have no need to look at legislative history or a
 8   policy-driven analysis.   We hold that the anti-modification
 9   exception applies to any loan secured only by real property that
10   the debtor uses as a principal residence property, even if that
11   real property also serves additional purposes.
12                             VI.   CONCLUSION
13        For all these reasons, we AFFIRM.
14
15
16
17
18                     Dissent begins on next page.
19
20
21
22
23
24
25
26
27
28

                                     -13-
 1   KURTZ, Bankruptcy Judge, Dissenting:
 2
 3        I respectfully dissent.    I disagree with the majority’s
 4   interpretation of the so-called plain meaning of the statute.
 5   In my view, the majority takes the statutory phrase “claim
 6   secured only by a security interest in real property that is the
 7   debtor’s principal residence” and recasts it as if the phrase
 8   actually read “claim secured only by a security interest in real
 9   property that includes the debtor’s principal residence.”
10        In lieu of the majority’s analysis, I find persuasive and
11   would follow the reasoning and holding of Scarborough v. Chase
12   Manhattan Mortg. Corp. (In re Scarborough), 461 F.3d 406, 410-13
13   (3d Cir. 2006).    In Scarborough, the Third Circuit Court of
14   Appeals held that the anti-modification provisions in
15   § 1322(b)(2) and § 1123(b)(5) do not apply to mortgaged real
16   property on which the debtor principally resides if the debtor
17   uses another part of the mortgaged real property to generate
18   income.    Id.
19        Like the majority decision, supra, Scarborough considered
20   the statutory language to be unambiguous.    However, Scarborough
21   reached a much different conclusion on the plain meaning of the
22   statute.    Whereas the majority here has construed the anti-
23   modification provisions to apply to any mortgaged real property
24   the debtor uses as his or her principal residence, Scarborough
25   effectively construed the anti-modification provisions to apply
26   only to mortgaged real property the debtor uses exclusively as
27   his or her principal residence.    That two appellate courts
28   could, after careful analysis, come to such divergent

                                     -1-
 1   conclusions on the plain meaning of the statute tends to support
 2   the notion that the statute actually is ambiguous.    In any
 3   event, Scarborough points out that the legislative history
 4   supports its construction of the statute.   Id. at 413.   The
 5   majority decision herein makes no such claim.
 6        The majority considered Scarborough but ultimately rejected
 7   the Third Circuit’s analysis.   According to the majority,
 8   Scarborough’s construction of the statute conflicts with the
 9   statutory definition of “debtor’s principal residence” contained
10   in § 101(13A).   The majority asserts that a conflict exists
11   because Scarborough’s construction of § 1322(b)(2) and
12   § 1123(b)(5) equates the “debtor’s principal residence” solely
13   with real property whereas the statutory definition of “debtor’s
14   principal residence” may include personal property.    But the
15   majority does not explain the practical significance of this so-
16   called conflict, nor do I perceive any.   More importantly, to
17   the extent there is any tension between § 1322(b)(2) and
18   § 1123(b)(5) on the one hand and § 101(13A) on the other hand,
19   Congress created this tension – not Scarborough.   Put another
20   way, Congress limited the scope of the anti-modification
21   provisions to real property by including in both provisions the
22   term “real property” but chose not to similarly limit the
23   definition of “debtor’s principal residence.”   Thus, the
24   difference between the anti-modification provisions and the
25   statutory definition is a direct result of the different
26   language Congress chose to use in each instance.   That
27   Scarborough’s construction gives meaning to the different
28   language Congress used is not a persuasive basis for rejecting

                                     -2-
 1   Scarborough.
 2        For the reasons set forth above, I respectfully dissent.1
 3
 4
 5
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21        1
            I also prefer Scarborough’s ruling that the relevant date
     for considering how the debtor uses the property is the loan
22
     transaction date rather than the petition date. Id. at 412.
23   Nonetheless, I do not base my dissent on this ground. Rather, I
     agree with the majority that our prior decisions in Benafel v.
24   One W. Bank, FSB (In re Benafel), 461 B.R. 581 (9th Cir. BAP
     2011), and BAC Home Loans Serv., LP v. Abdelgadir
25   (In re Abdelgadir), 455 B.R. 896 (9th Cir. BAP 2011), are
26   controlling on this point and answer this question in favor of
     the petition date. Even so, regardless of which date is used,
27   the result in this case would be the same because the mortgaged
     real property was used for income generating purposes on both
28   the loan transaction date and the petition date.

                                   -3-
