                                                                                                                           Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-9-1994

Hammond v. Commonwealth Mortgage
Corporation
Precedential or Non-Precedential:

Docket 93-1747




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                   UNITED STATES COURT OF APPEALS
                       FOR THE THIRD CIRCUIT
                            ___________

                               No. 93-1747
                               ___________

                                  IN RE:

                 MICHAEL HAMMOND; JEANETTE HAMMOND,
                                      Debtors


                 MICHAEL HAMMOND; JEANETTE HAMMOND

                                    v.

          COMMONWEALTH MORTGAGE CORPORATION OF AMERICA


      COMMONWEALTH MORTGAGE CORPORATION OF AMERICA, L.P.,
                                    Appellant

                               ___________

          Appeal from the United States District Court
            for the Eastern District of Pennsylvania
                (D.C. Civil Action No. 90-05606)

                               ___________

                     Argued:     February 17, 1994

     PRESENT:    BECKER, HUTCHINSON and COWEN, Circuit Judges

                (Opinion Filed    June 9, l994        )

                               ____________

Lawrence T. Phelan, Esquire
Peter C. Cilio, Esquire         (Argued)
Federman & Phelan
Suite 900
Two Penn Center Plaza
Philadelphia, PA      19103
               Attorney for Appellant

Susan L. DeJarnatt, Esquire         (Argued)
Community Legal Services
3207 Kensington Avenue


                                    1
Philadelphia, PA     19134-1917
               Attorney for Michael and Jeanette Hammond

                          ____________




                               2
                             ____________

                       OPINION OF THE COURT
                           ____________


HUTCHINSON, Circuit Judge.



          Appellant, Commonwealth Mortgage Corporation of America

("Commonwealth"), appeals an order of the United States District

Court for the Eastern District of Pennsylvania affirming a

decision of the United States Bankruptcy Court for that district.

The bankruptcy court had permitted appellees, Michael and

Jeanette Hammond (the "Hammonds" or the "debtors"), to bifurcate

Commonwealth's claim against the Hammonds into secured and

unsecured components pursuant to 11 U.S.C.A. § 506(a).   In so

doing, the bankruptcy court effectively limited Commonwealth's

mortgage claim to the fair market value of the premises securing

the mortgage.   On appeal Commonwealth argues a bifurcation that

has this effect is contrary to the recent United States Supreme

Court decision of Nobelman v. American Savings Bank, 113 S. Ct.
2106 (1993), concerning the interplay between section 506(a) and

section 1322(b)(2) of the Bankruptcy Code of 1978.1   We conclude

that Nobelman overrules only one of the two rationales underlying

our decisions in Wilson v. Commonwealth Mortgage Corp., 895 F.2d

1
 In its brief, Commonwealth, relying on Stendardo v. Federal
Nat'l Mortgage Ass'n (In re Stendardo), 991 F.2d 1089, 1094-95
(3d Cir. 1993), also argued that merger of the mortgage into the
foreclosure judgment eliminated any additional security interest
the mortgage provided to the mortgagee. Commonwealth conceded at
oral argument that it waived this argument by its failure to
raise it in the district court. Thus, we do not consider it.
See Frank v. Colt Indus., Inc., 910 F.2d 90, 100 (3d Cir. 1990).

                                  3
123 (3d Cir. 1990), and Sapos v. Provident Institution of

Savings, 967 F.2d 918 (3d Cir. 1992).     Therefore, we will affirm

the district court.



                   I.   Factual & Procedural History

          The Hammonds purchased their home at 5636 North 11th

Street, Philadelphia, Pennsylvania, on June 15, 1984.       They

financed the purchase with a loan from Jersey Mortgage Company,

which has since been assigned to Commonwealth.     The assignment

made Commonwealth the holder of a $22,500.00 purchase money

mortgage on the Hammonds' home, as well as an additional security

interest in:
          any and all appliances, machinery, furniture
          and equipment (whether fixtures or not) of
          any nature whatsoever now or hereafter
          installed in or upon said premises . . . .



Appendix ("App.") at 15.

          On December 15, 1987, Commonwealth foreclosed the

mortgage and obtained a foreclosure judgment for $30,726.10.2 The

foreclosure eventually caused the Hammonds to file a Chapter 13

bankruptcy petition in the Eastern District of Pennsylvania on

January 8, 1990.    On February 8, 1990, Commonwealth filed a

secured claim for $42,969.93.3

2
On August 30, 1989, damages were reassessed at $40,407.80.
3
Commonwealth's claim was computed as follows:

          Principal                                    $22,108.71

          Interest to the date of bankruptcy           $13,165.59
          Late Charges                                 $   649.43


                                   4
            The Hammonds thereafter filed an adversary proceeding,

seeking to limit Commonwealth's allowed secured claim to the fair

market value of their home by bifurcating the claim into secured

and unsecured components pursuant to 11 U.S.C.A. § 506.     The

parties stipulated that the fair market value of the Hammonds'

home is $25,000.00.

            On July 30, 1990, the bankruptcy court agreed with the

Hammonds and entered an order limiting Commonwealth's secured

claim to $25,000.00.   See Hammond v. Commonwealth Mortgage Co.

(In re Hammond), No. 90-10093 (Bankr. D.N.J. July 30, 1990).4 The

order provided for the Hammonds to repay Commonwealth's secured

claim of $25,000.00 at an interest rate of ten percent over

sixty-months in accord with the debtors' plan.   The bankruptcy

court confirmed the debtors' plan on August 21, 1990. The plan

provides:
            1.   The future earnings of the debtor are
                 submitted to the supervision and control
                 of the trustee and the debtor shall pay
                 to the trustee the sum of $ 666 on a
                 monthly basis for a period of 60 months.



            Escrow Deficit                          $ 4,006.57
            Mortgage foreclosure expenses                $ 3,039.63

                    TOTAL                         $42,969.93
4
 The Hammonds filed for bankruptcy in the United States
Bankruptcy Court for the Eastern District of Pennsylvania, but
Judge Wizmur, a United States Bankruptcy Judge for the District
of New Jersey, entered the order from which this appeal was
taken. At the time these proceedings were taking place, the
bankruptcy court for the Eastern District apparently had a large
backlog. To reduce the backlog, certain cases were transferred
either to the United States Bankruptcy Court for the District of
New Jersey or perhaps assigned by designation to New Jersey
bankruptcy judges.


                                 5
          2.    From the payments so received, the
                trustee shall make disbursements as
                follows:

                                 * * *

                (b)    Holders of allowed secured claims shall
                       retain the liens securing such claims and
                       shall be paid as follows:
                       -Lien of Commonwealth in excess of
                            market value to be avoided. Allowed
                            secured claims to be paid inside
                            plan.



App. at 21.

          Commonwealth appealed the bankruptcy court's order of

July 30, 1990 to the district court.     It did not appeal the

confirmation order.     On July 2, 1993, the district court affirmed

the bankruptcy court's decision to bifurcate Commonwealth's claim

into secured and unsecured portions.     At the same time the

district court vacated and remanded the case for additional

proceedings to determine the value of any remaining security.

Hammond v. Commonwealth Mortgage Co. (In re Hammond), 156 B.R.

943, 948-49 (E.D. Pa. 1990).     This timely appeal followed.


               II.    Jurisdiction & Standard of Review

          The statute which governs jurisdiction over appeals

from bankruptcy court decisions is 28 U.S.C.A. § 158.     Section

158 provides in relevant part:
          (a) The district courts of the United States
          shall have jurisdiction to hear appeals from
          final judgments, orders, and decrees . . . of
          bankruptcy judges entered in cases and
          proceedings referred to the bankruptcy judges
          under section 157 of this title . . . .



                                   6
                              * * *

          (d) The courts of appeals shall have
          jurisdiction of appeals from all final
          decisions, judgments, orders, and decrees
          entered under subsections (a) and (b) of this
          section.



28 U.S.C.A. § 158(a),(d) (West 1993) (emphasis added).       We

conclude that the district court had appellate jurisdiction under

section 158(a), and we have jurisdiction over the district

court's order under section 158(d).5

          Review of the district court order involved in this

case presents questions of law.       Therefore, we exercise plenary

review.   See Sapos, 967 F.2d at 922; Dent v. Cunningham, 786 F.2d

173, 175 (3d Cir. 1986).




5
 The district court's order vacating the bankruptcy court's order
and remanding the case for a determination of the value of the
additional security interest raises the question whether the
district court's order was a "final order" for purposes of
section 158(d). We have expansively interpreted the phrase
"final order" as used in section 158(d). See In re Porter, 961
F.2d 1066, 1072 (3d Cir. 1992) ("[B]ankruptcy cases have
traditionally been subject to more lenient finality rules than
other cases . . . . '[W]hen the bankruptcy court issues what is
indisputably a final order, and the district court issues an
order affirming or reversing, the district court's order is also
a final order . . . .'") (quoting In re Marin Motor Oil, Inc.,
689 F.2d 445, 449 (3d Cir. 1982)). We believe the district
court's order is final within the meaning of section 158(d) and
we have appellate jurisdiction to review it.


                                  7
                             III.   Analysis

          This appeal concerns the interaction between two

provisions of the Bankruptcy Code:      section 506(a) and section

1322(b)(2).6  Section 506(a) provides, in pertinent part:
               (a) An allowed claim of a creditor
          secured by a lien on property in which the
          estate has an interest, or that is subject to
          setoff under section 553 of this title, is a
          secured claim to the extent of the value of
          such creditor's interest in the estate's
          interest in such property, or to the extent
          of the amount subject to setoff, as the case
          may be, and is an unsecured claim to the
          extent that the value of such creditor's
          interest or the amount so subject to setoff
          is less than the amount of such allowed claim
          . . . .



11 U.S.C.A. § 506(a) (West 1993).       In essence section 506(a)

limits a creditor's secured claim to the value of its collateral.

See United States v. Ron Pair Enters., Inc., 109 S. Ct. 1026,

1029 & n.3 (1989).

          Section 1322(b)(2) governs the contents of a Chapter 13

bankruptcy plan and provides:
               (b) Subject to subsections (a) and (c)
          of this section, the plan may--

                     * * *

                    (2) 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, or of holders of

6
 In their brief, the Hammonds mention the supportive effect the
plan's confirmation may have on their position as to the amount
of the bank's secured claim. In supplemental briefing, however,
both parties agreed that issue did not affect the merits.
Therefore, we will not discuss it further.

                                    8
                  unsecured claims, or leave unaffected
                  the rights of holders of any class of
                  claims . . . .



11 U.S.C.A. § 1322 (West 1993).       This section, which limits a

party's ability to modify the rights of a lien on real property

that is a debtor's principal place of residence, is known as an

"antimodification provision."    Sapos, 967 F.2d at 921.    The

specific question which arises when one considers section 506(a)

and section 1322 together is whether section 1322(b)(2) precludes

a Chapter 13 debtor from relying on section 506(a) to modify the

unsecured portion of an undersecured mortgage claim, or whether

the debtor is entitled to bifurcate a secured claim pursuant to

section 506(a).

          In Wilson and Sapos, this Court considered the

interplay between sections 506(a) and 1322(b)(2).      In those cases

we held that section 1322(b)(2) does not prohibit modification of

the unsecured component of an undersecured mortgage.       See Sapos,

967 F.2d at 926; Wilson, 895 F.2d at 127-28.      Moreover, we held

that section 1322(b)(2)'s antimodification clause does not apply

when the creditor has an additional security interest in

collateral other than the real property in which the debtor

resides because section 1322(b)(2)'s express terms cover claims

secured only by a security interest in the debtor's principal

residence.   See Sapos, 967 F.2d at 925-26; Wilson, 895 F.2d at

128.

          The district court, considering itself bound by Sapos

and Wilson, affirmed the bankruptcy court's ruling bifurcating


                                  9
Commonwealth's mortgage claim into secured and unsecured portions

because Commonwealth's mortgage was secured by a lien on the

debtors' personal property as well as the real property that was

their home.   As the district court recognized, this case is on

all fours with Wilson.    There too the mortgagee's claim was

secured by "any and all appliances, machinery, furniture and

equipment (whether fixtures or not) of any nature whatsoever now

or hereafter installed in or upon said premises" in addition to

the lien on the mortgage debtors' residence.     Wilson, 895 F.2d at

124.

            Commonwealth argues that we should overrule our

opinions in Wilson and Sapos because of the Supreme Court's

recent decision in Nobelman.     Nobelman did expressly overrule the

holding in Wilson and Sapos that section 1322(b)(2) does not

preclude a debtor from modifying the undersecured portion of a

mortgage.   Nobelman, 113 S. Ct. at 2109, 2111.    The Supreme Court

stated: "Section 1322(b)(2) prohibits such a modification where,

as here, the lender's claim is secured only by a lien on the

debtor's principal residence."    Id. at 2111.

            The Supreme Court's opinion in Nobelman, however, did
not expressly address our alternate rationale for our decisions

in Wilson and Sapos.     In those cases, we also held that a

mortgagee who has an additional security interest in property

other than the real estate which is the mortgagors' primary

residence cannot claim any benefit from section 1322(b)(2)'s

antimodification provision and therefore such a mortgagee's claim

can be bifurcated under section 506(a).    See Sapos, 967 F.2d at

                                  10
925-26; Wilson, 895 F.2d at 128.     The district court, in the

instant case, recognized that the record in Nobelman indicates

that there the mortgagee also held an additional security

interest in "the common areas of the condominium complex, escrow

funds, proceeds of hazard insurance, and rents."    Hammond v.

Commonwealth Mortgage Company, 156 B.R. at 947 n.6 (quoting In re

Nobelman, 129 B.R. 98, 99 (N.D. Tex. 1991), aff'd, 968 F.2d 483

(5th Cir. 1992), aff'd, 113 S. Ct. 2106 (1993)).    The district

court in Nobelman had held, contrary to Sapos and Wilson, that

this additional security interest did not matter, but neither the

United States Court of Appeals for the Fifth Circuit nor the

Supreme Court addressed the issue on appeal.    Therefore, the

district court in the case now before us felt this Court's

alternate rationale in Wilson and Sapos was still controlling

and, applying principles of stare decisis, affirmed the

bankruptcy court on this ground.

           Commonwealth contends, however, that Nobelman

implicitly overrules our alternate holding in Wilson and Sapos

because the Nobelman mortgage also had an additional security

interest which the Supreme Court failed to give any effect.

Commonwealth points out that the district court in Nobelman
expressly held the debtors' argument that the additional security

interest took their mortgage out of the protection of the

antimodification clause was "without merit."    Nobelman, 129 B.R.

at 104.   Commonwealth contends that the Supreme Court's failure

to discuss the additional security interest that the Nobelman

mortgage provided indicates such an additional interest in

                                11
collateral found at or on the debtors' residence is not

significant.   Therefore Commonwealth concludes this panel can and

should overrule Sapos and Wilson in their entirety.    It argues we

should decide instead that a security interest in fixtures or

personal property on the mortgaged premises does not preclude a

mortgagee from taking advantage of the antimodification provision

that section 1322(b)(2) provides for a lien secured by mortgages

on a debtors' principal residence.    Commonwealth would have us

consider the additional security interest provided for in its

mortgage as meaningless standard language that gives it no

additional security as a practical matter.

          In Wilson, we addressed and rejected an identical

argument that an additional security interest in personal

property on or in the real estate securing a residential mortgage

has no real value and can be ignored under the maxim de minimis

non curat lex.7   See Wilson, 895 F.2d at 129.   We held in Wilson

that section 1322(b)(2)'s language plainly states that a

mortgagee who has an additional security interest gets no

protection from the antimodification clause of section

1322(b)(2).    Id. ("The language of section 1322(b)(2) is
unambiguous.   The language of the bankruptcy judge bears

repeating: 'If Commonwealth wishes otherwise, it should delete

such language from its agreements.'").    We also relied on Collier

on Bankruptcy to buttress our holding that creditors who demand


7
 The Latin means: "The law does not care for, or take notice of,
very small or trifling matters. The law does not concern itself
about trifles." Black's Law Dictionary 388 (5th ed. 1979).


                                 12
additional security interests in personalty or escrow accounts

and the like pay a price.    Their claims become subject to

modification.    Their recourse, if they wish to avoid

modification, is to forego the additional security.      Id. (citing

5 Collier on Bankruptcy ¶ 1322.06 at 1322-14-15).

          Finally, Commonwealth argues that Wilson and Sapos were

improperly decided and points to the legislative history

underlying section 1322(b)(2).    It argues that this section was

included to implement Congress's intent to protect lenders of

residential mortgages because they provide a valuable economic

and social service when they make such funds available.     See

Grubbs v. Houston First Am. Sav. Ass'n, 730 F.2d 236, 246 (5th

Cir. 1984) (in banc) ("This [section] was apparently in response

to perceptions . . . that, home-mortgagor lenders, performing a

valuable social service through their loans, needed special

protection against modification . . . .") (referring to Hearings

Before the Subcomm. on Improvements of the Judicial Machinery of

the Senate Comm. on the Judiciary, 95th Cong., 1st Sess. 652-53,

703, 707, 714-15, 719-21 (1977)).     In fact, Justice Stevens cites

Grubbs and its discussion of legislative history in his
concurrence in Nobelman.    In agreeing with the majority, Justice

Stevens concludes that its literal reading of the text of section

1322(b)(2) coincides with Congress's intent to "encourage the

flow of capital into the home lending market."     Nobelman, 113

S. Ct. at 2112 (Stevens, J., concurring) (citing Grubbs, 730 F.2d

at 245-246).    We acknowledge that section 1322(b)(2) reflects a

congressional policy meant to protect home mortgage lenders.

                                 13
Nevertheless, as we noted in Wilson, the language in section

1322(b)(2) is clear; it refers to "a claim secured only by a

security interest in real property that is the debtor's principal

residence."   11 U.S.C.A. § 1322(b)(2) (emphasis added); Wilson,

895 F.2d at 129.   We are unable to read the statutory text to

include mortgages which are secured not only by a "principal

residence" but also by "appliances, machinery, furniture and

equipment (whether fixtures or not) of any nature whatsoever."

App. at 15.

          As the Hammonds point out in their brief, the Supreme

Court's failure to address the effect of the additional security

interest in the Nobelman mortgage does not imply that the Supreme

Court held section 1322(b)(2) prohibits bifurcation of

residential mortgages that also give the mortgagee a lien on

personal property used in or about the residence.     We conclude

that Nobelman does not overrule our holding in Wilson or Sapos

that a mortgagee who wishes to avoid bifurcation of its claim on

a residential mortgage must limit its lien to the real estate.

The district court correctly concluded that it had to follow this

alternate holding in Sapos and Wilson and bifurcate
Commonwealth's mortgage.   This panel is also bound by the

alternate holding of Sapos and Wilson, which the Supreme Court

did not consider in Nobelman.   See Internal Operating Procedure

9.1 ("It is the tradition of this court that the holding of a

panel in a reported opinion is binding on subsequent panels.     No

subsequent panel overrules a holding in a published opinion of a



                                14
previous panel.   Court in banc consideration is required to do

so.").

          In the absence of clearer instruction from the Supreme

Court than we see in Nobelman, we think the alternate rationale

of Sapos and Wilson is controlling.    Any change in that holding

is reserved to the Court in banc, not this panel.



                          IV.   Conclusion

          We conclude the Supreme Court's decision in Nobelman

did not expressly or implicitly overrule this Court's alternate

rationale for its decisions in Wilson and Sapos.    Therefore, we

conclude that a mortgage which creates security interests in a

debtor's personal property in addition to a lien on the

mortgagor's principal residence takes the mortgage beyond the

protection of the antimodification clause of section 1322(b)(2)

of the Bankruptcy Code and permits bifurcation of the mortgage

into secured and unsecured components under section 506(a).

Accordingly, we will affirm the order of the district court.




                                 15
