Opinion
BANKRUPTCY NO: 21-02804-MM7
2021-12-09
IN RE: Judy Lyn RHODES, Debtor
Jeffrey D. Schreiber, Law Offices of Jeffrey D. Schreiber, La Jolla, CA, for Debtor.
Jeffrey D. Schreiber, Law Offices of Jeffrey D. Schreiber, La Jolla, CA, for Debtor.
MEMORANDUM DECISION
MARGARET M. MANN, United States Bankruptcy Judge
Debtor Judy Rhodes ("Rhodes"), a financially vulnerable elderly debtor, was threatened with repossession of her mobile home by creditor 21st Mortgage Corporation ("Lender") if her counsel did not certify the reaffirmation agreement ("Agreement") she had always intended to sign. Her counsel reluctantly certified the Agreement so that it would be filed with the court and protect her from loss of her home. Even before it was advised of Lender's threats, the court had scheduled a hearing and issued a tentative ruling because of its concerns about the validity of the certification.
The reaffirmation decision has always been difficult for debtors and their counsel given the potentially severe consequences of losing a discharge. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") compounded these challenges by creating a statutory scheme for reaffirming a secured debt which has been described as "confusing, overlapping, and sometimes self-contradictory." In re Donald, 343 B.R. 524, 529 (Bankr. E.D.N.C. 2006). Attempts at interpreting this scheme have been compared to "trying to solve a Rubik's Cube that arrived with a manufacturer's defect." Id.
Although this court explored some reaffirmation issues in In re Anzaldo, 612 B.R. 205, 213-14 (Bankr. S.D. Cal. 2020), other issues have arisen here. The court now addresses the effect of an uncertified reaffirmation agreement, threats by the lender regarding the reaffirmation decision, whether lenders must file proofs of claim to access statutory remedies, and the unique reaffirmation challenges involving mobile home collateral.
I. BACKGROUND
Rhodes resides in a 2002 CAVCO Mobile Home 20' x 40' mobile home located in a mobile home park at Space 32 of 7908 Rancho Fanita Drive, Santee, California. She filed her "no asset" Chapter 7 bankruptcy case on June 30, 2021. As noticed by the court, no proofs of claim needed to be filed, and Lender did not file one. Although she lives in the mobile home, Rhodes scheduled it as personal property valued at $60,205 which she claimed exempt under this state's "wildcard" exemption. Rhodes scheduled Lender as holding a debt of $36,422.33 secured by the mobile home.
The so called "wildcard" exemption is found in Cal. Civ. Proc. Code § 703.140.
Rhodes's monthly income is $2,850, which she earns as a receptionist for her employer of one year. Her well below median income, less expenses of $2,831, including homeownership expenses of $1,640, results in monthly net income of only $19. Rhodes's housing expenses are 60% of her gross income, which are nevertheless the least expensive housing option in this high cost of living area.
Rhodes timely stated an intent to reaffirm the debt and then entered into the Agreement with Lender, which was promptly filed with the court. The Agreement reflects a monthly payment of $824.60 due over six years based on a high fixed interest rate of 11.25%. Rhodes surrendered one of her cars to achieve her minimally positive budget and avoid the presumption of undue hardship. Her counsel certified that the Agreement was in her best interests and that Rhodes had been fully advised of the legal effect and consequences of the Agreement.
Although Lender received notice of the reaffirmation hearing, it did not appear. Counsel advised at the hearing that Lender threatened to repossess the mobile home if he did not certify the Agreement, and he succumbed to the threat since he was unable to discern a strategy to protect Rhodes from repossession without waiving her discharge. Counsel also believed there was equity in the mobile home that would protect her from a deficiency judgment, an issue he did not fully consider. Counsel also believed Rhodes could continue to live on her budget, even though her inability to do so led her to file bankruptcy. Counsel withdrew his certification at the hearing, realizing it was not necessary to protect Rhodes from a Hobson's choice of repossession or loss of discharge as the court had explained in its tentative ruling.
II. ANALYSIS
A. Failure to Certify Does Not Eliminate the Ride-Through Option
Before BAPCPA was enacted, the Ninth Circuit in McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668, 672 (9th Cir. 1998) interpreted the reaffirmation statutes to permit debtors to preserve their discharges but also keep the collateral if they continued to the make payments on their secured debt. This benefit is known as the "ride-through" . Dumont , 581 F.3d at 1114, recognized the importance of preserving ride-through for debtors:
Dumont v. Ford Motor Credit Co. (In re Dumont), 581 F.3d 1104 (9th Cir. 2009) adopted the phrase and spelling of "ride-through", which this court also adopts.
If ride-through existed, any lawyer who advised his client to make a reaffirmation offer on the original contract terms would be guilty of malpractice, and any bankruptcy judge who approved such a reaffirmation from a pro se litigant would be seriously derelict in his duties. For why would one ever choose reaffirmation on such terms and thus incur the risk of personal liability when one could safely achieve the same ends by ride-through?
Dumont, id. at 1109-10, was required to consider the impact on Parker of BAPCPA's revisions to 11 U.S.C. §§ 521(a)(2), 521(a)(6), 362(h), and 521(d) to the statute, which make ride-through more difficult to achieve. Section 521(a)(2) was changed to mandate that debtors must timely file a statement of intention for all secured debts. Section 521(a)(6) was changed to require that debtors timely "enter into" a reaffirmation agreement for creditors holding an allowed claim for the purchase price secured by personal property. Section 362(h)(1) was changed to terminate the automatic stay and removes personal property from the estate if debtors fail to comply with §§ 521(a)(2) and (6).
All statutory citations in the remainder of this decision will refer to Title 11, United States Code, unless otherwise stated.
Section 521(d) is the most cumbersome limitation to ride-through after BAPCPA. That section allows ipso facto clauses to be enforceable for debtors who fail to satisfy other statutory requirements. Dumont , 581 F.3d at 1115, defined an ipso facto clause, which commonly appears in loan documents, as "any contractual term which purports to create a default solely based on the commencement of a bankruptcy case." Outside the reaffirmation context, ipso facto clauses are unenforceable under §§ 365(e)(i)(B) and 541(c)(i)(B). Dumont , 581 F.3d at 1115.
Because BAPCPA rendered ipso facto clauses potentially enforceable in the reaffirmation context, Rhodes's counsel was concerned that Lender could repossess her mobile home even though Rhodes was current with her payments. Rhodes's concerns about loss of ride-through were misplaced here, however. Unlike the debtor in Dumont , Rhodes timely stated an intent to reaffirm the debt and entered into the Agreement, thus complying with §§ 521(a)(2) and (6). Dumont did neither, so ride-through under these circumstances was held to be "superseded by BAPCPA." Dumont , 581 F.3d at 1119.
The viability of ride-through in other contexts remains an open issue in this Circuit. Dumont , 581 F.3d at 1112 n.14 ; Bobka v. Toyota Motor Credit Corp., 968 F.3d 946, 953 (9th Cir. 2020). But this court remains convinced that ride-through remains available for compliant debtors such as Rhodes. See Anzaldo, 612 B.R. at 213-14.
Compliant debtors such as Rhodes can enjoy the benefits of ride-through. In re Moustafi, 371 B.R. 434, 436 (Bankr. D. Ariz. 2007) ; In re Baker, 390 B.R. 524, 529-30 (Bankr. D. Del. 2008), aff'd . 400 B.R. 136 (D. Del. 2009) ; In re Blakeley, 363 B.R. 225, 231 (Bankr. D. Utah 2007) ; In re Bower, No. 07-60126-FRA7 , 2007 WL 2163472 at *2, 2007 Bankr. LEXIS 2580 at *6 (Bankr. D. Or. July 26, 2007) ; In re Openshaw, No. 06C-24120, 2007 WL 2916294 at *4–5, 2007 Bankr. LEXIS 3489 at *13-14 (Bankr. D. Utah Mar. 12, 2007) ; In re Husain, 364 B.R. 211, 220 (Bankr. E.D. Va. 2007) ; In re Riggs, No. 06-60346, 2006 WL 2990218, at *4, 2006 Bankr. LEXIS 2732, at *13 (Bankr. W.D. Mo. Oct. 12, 2006).
The cases in Circuits that recognize ride-through can be largely reconciled based on whether the debtors comply with §§ 521(a)(2), 521(a)(6), and 362(h), or not. See Nuckoles v. Ford Motor Credit Co. LLC (In re Nuckoles), 546 B.R. 651, 656-57 (Bankr. W.D. Va. 2016) (citations omitted) ("In every instance [where the ipso facto clause was found to be enforceable], the debtor either failed to file a statement of intention or did not attempt to reaffirm the debt."). Dumont , 581 F.3d at 1122, n. 14, itself made this distinction when it listed the cases after BAPCPA which concluded the ride-through option had been eliminated and noting they all involved no attempt at reaffirmation by the debtors. In re McFall, 356 B.R. 674, 676 (Bankr. N.D. Ohio 2006) ("Every published bankruptcy court decision has similarly interpreted the plain language of § 362(h)(1)(A) to require a debtor to state an intention to redeem or reaffirm.")
Noncompliant debtors who only specify an intention to "retain and pay" and decline to enter into a reaffirmation agreement face the same outcome as in Dumont , 581 F.3d at 1119, i.e., loss of ride-through and risk of repossession. See Daimler Chrysler Fin. Servs. Am., LLC v. Jones (In re Jones), 591 F.3d 308, 312-13 (4th Cir. 2010) ; Donald, 343 B.R. at 34; In re Anderson, 348 B.R. 652, 658 (Bankr. D. Del. 2006) ; In re Sanders, No. 11-51240, 2012 WL 692549 at *4, 2012 Bankr. LEXIS 845 at *15 (Bankr. W.D. Tex. Mar. 2, 2012) (approving Ford's post-discharge repossession when debtors entered into and then rescinded reaffirmation agreement); Almond v. Ford Motor Credit Co. (In re Almond), No. B-06-50324C-7W, Adv. P. No. 06-6089W, 2007 WL 1345224 at *1, 2, 2007 Bankr. LEXIS 1595 at *2, 7 (Bankr. M.D.N.C. May 7, 2007) (concluding lender could repossess the car post-discharge because debtors never signed the reaffirmation agreement); In re Norton, 347 B.R. 291, 300 (Bankr. E.D. Tenn. 2006) (finding the Statement of Intention did not comply § 521(a)(2)(A) where it stated "retain and pay" but granting an extension of the automatic stay); In re Steinhaus, 349 B.R. 694 (Bankr. D. Idaho 2006) (automatic stay lifted because statement of intention stated retain and continue to make regular payments); In re Boring, 346 B.R. 178, 180 (Bankr. N.D. W. Va. 2006) (the automatic stay terminated under § 362(h)(1) when the debtor filed a timely Statement of Intention saying she would "retain and pay" and did not indicate that she would either redeem the property or reaffirm the debt); In re Rowe, 342 B.R. 341, 346-47 (Bankr. D. Kan. 2006) (same; debtor's stated intention was to "[r]etain collateral and continue to make regular payments"); In re Craker, 337 B.R. 549, 551 (Bankr. M.D.N.C. 2006) (finding the automatic stay terminated after debtor did not select one of the options on the Statement of Intention); In re Rice, No. 06-10975 (JKF), 2007 WL 781893, at *6, 2007 Bankr. LEXIS 945, at *19 (Bankr. E.D. Pa. Mar. 12, 2007) (same; although debtor was given additional time to state and perform intention to reaffirm); In re Ruona, 353 B.R. 688, 692 (Bankr. D.N.M. 2006) (holding automatic stay terminated because debtor did not redeem the property or enter into a reaffirmation agreement).
This clear reconciliation of the ride-through cases is muddied somewhat when other issues arise, such as regarding court approval of the reaffirmation, or lack of counsel's certification. The majority view, which this court adopts, is that ride-through is not affected whether the agreement is certified. In re Barron, 441 B.R. 131, 134 (Bankr. D. Ariz. 2010) (lack of a certification renders the agreement unenforceable and eliminates the court's review function but does not affect ride-through); see also In re Perez , No. 7-10-11417 JA, 2010 WL 2737187 at *9–10, 2010 Bankr. LEXIS 2229 at *41 (Bankr. D.N.M. July 12, 2010) ; In re Isom , No. 07-31469-KRH, 2007 WL 2110318 at *3–4, 2007 Bankr. LEXIS 2437 at *13 (Bankr. E.D. Va. July 17, 2007) ; In re Smith , No. 15-10340 (LSS), 2015 Bankr. LEXIS 4620, at *14 (Bankr. D. Del. July 29, 2015); In re Bemi , No. K12-00404-GS, 2013 WL 160217 at *2, 2013 Bankr. LEXIS 196 at *5 (Bankr. D. Alaska Jan. 14, 2013) (treating an uncertified reaffirmation agreement as though the debtor was proceeding in pro per and preserving the ride-through option). Court approval also should have no impact on ride-through which has no bearing on whether a debtor has "fully complied with all the pertinent requirements of Sections 362(h) and 521." In re Chim, 381 B.R. 191, 198 (Bankr. D. Md. 2008). Nuckoles , 546 B.R. at 656, found the cases unanimous on this point. See also Coastal Fed. Credit Union v. Hardiman , 398 B.R. 161, 186 (E.D.N.C. 2008) ; Baker , 390 B.R. at 529-30 ; Husain , 364 B.R. at 219, and Blakeley , 363 B.R. at 232.
The minority view, however, requires that debtors' counsel certify the agreement for ride-through to apply. See In re Wright , 622 B.R. 779, 794 (Bankr. D. Or. 2020) and In re Harvey, 452 B.R. 179, 186-87 (Bankr. W.D. Va. 2010). This court is not persuaded by the minority view for several reasons.
First, nothing in the plain, but very specific language of §§ 521(a)(6) and 362(h), requires a reaffirmation agreement be certified or otherwise enforceable to preserve the ride-through option. The statutory language of § 521(a)(6)(A) only requires that the debtor "enters into an agreement with the creditor pursuant to section 524(c) with respect to the claim secured by such property." Section 362(h)(1)(A) similarly requires that debtors "enter into an agreement of the kind specified in section 524(c) applicable to the debt secured by such personal property." The phrase "enter into" was clearly intended to be significant. And, the "consequences arising from § 521(d) of the Bankruptcy Code are triggered upon a debtor's failure to enter into the appropriate agreement, not by the court's disapproval of the agreement or by its determination that the agreement is unenforceable." Husain , 364 B.R. at 219 (emphasis added). Nowhere in §§ 521 (a)(2), 521 (a)(6) or 362(h) does the word "enforceable" appear, and the court cannot add a word that Congress did not find appropriate. Courts cannot ignore "the explicit language that Congress enacted." Drummond v. Welsh (In re Welsh), 711 F.3d 1120, 1133 (9th Cir. 2013).
Second, even if the statute were less clear, the noted authority of Collier Bankruptcy Practice Guide concludes that whether a reaffirmation agreement is enforceable under § 524(c) through certification by counsel should not be "conflated" with whether debtors remain protected from the ipso facto clause, because an "absurd result" would occur. See also 4 Collier Bankruptcy Practice Guide ¶ 77.05[2], p. 5 (Richard Levin & Henry J. Sommer eds.) ("Collier"). Sections 521(a)(2), 521(a)(6), 521(d), and 362(h) augment secured lenders' enforcement remedies for their benefit, and against those of debtors. See Dumont , 581 F.3d at 1114 (noting detriment to debtors without the ride-through option). In contrast, the certification requirement found in § 524(c) protects debtors by establishing conditions to the enforceability of the reaffirmation agreement and loss of the discharge. Conflating a debtor protective scheme with a creditor protective scheme undercuts the efficacy of one or the other which is avoided by keeping them separate. Keeping these statutory schemes distinct is required by the rule of statutory construction that specific language prevails over the general. Bobka, 968 F.3d at 952.
Third, Wright , 622 B.R. at 794, primarily relied upon Harvey, 452 B.R. at 186-87, which held that Congress intended BAPCPA to eliminate ride-through absent certification by counsel. Wright , 622 B.R. at 792 also relied on dicta in Dumont , 581 F.3d at 1118 n.27 that Congress intended to "eliminate-or at least restrict-ride-through." The court rejects this dicta as inconsistent with the actual holding of Dumont , 581 F.3d at 1119, as recognized in Bobka, 968 F.3d at 953, that BAPCPA invalidated ride-through in a narrow manner. This dicta on Congressional intent is also inconsistent with other dicta in Dumont that ride-through would be available without a reaffirmation agreement if the creditor failed to participate, id. at 1114 n. 17. Dumont, id. at 1112 n. 12, also expressly left open what would happen if the court did not approve a reaffirmation. These examples of how ride-through may have survived BAPCPA based on express statutory language are contrary to a wholesale elimination of ride-through based on perceived Congressional intent.
As the dissent in Dumont, id. at 1120, notes the legislative history is actually silent on the issue of ride through. The dissent also felt the Ninth Circuit panel and lower courts were bound by the recognition in Parker, 139 F.3d at 673 of ride-through. See also Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (en banc) (requiring a finding that intervening authority be "clearly irreconcilable" for courts to disregard it).
For these reasons, while the court concludes that counsel's withdrawal of his certification rendered the Agreement unenforceable under § 524(c)(3), Anzaldo, 612 B.R. at 217, and Bay Fed. Credit Union v. Ong (In re Ong), 461 B.R. 559, 563-64 (B.A.P. 9th Cir. 2011), Rhodes was nonetheless protected from the loss of ride-through because she otherwise complied with the statutory requirements.
B. Threats Regarding Certification of the Reaffirmation Should be Disregarded
Rhodes's counsel's initial certification was motivated by Lender's threats to repossess the mobile home if the Agreement were not certified. These types of threats are not infrequent in the court's experience, but they should not cause counsel to ignore their duties to their clients.
Debtors' counsel are obligated under § 524(k)(3)(J)(ii)(5) to certify that the agreement was entered into by the debtor "voluntarily," meaning without coercion or threats of any type. Jamo v. Katahdin Fed. Credit Union (In re Jamo), 283 F.3d 392, 398 (1st Cir. 2002) ("courts have insisted upon a showing that a reaffirmation agreement is not the product of abusive creditor practices" but found no coercion under facts). In this Circuit, "not all communications between creditors and debtors are a violation of the automatic stay" unless the communication is harassing or coercive. Zotow v. Johnson (In re Zotow), 432 B.R. 252, 258 (9th Cir. BAP 2010).
Because Rhodes's counsel withdrew his certification, the court need not determine whether his communications with Lender were in fact coercive. It is sufficient that these communications threatened the independence of his informed judgment which was hindered by the discussions. Collier, supra at 1J 77.05[1] (discussing importance of independent advice); Isom , 2007 WL 2110318, at *3–4, 2007 Bankr. LEXIS 2437, at *11-13 (same). This independent advice is what determines the reaffirmation agreement to be enforceable.
Because lenders who interfere with debtors' attempts to comply with the reaffirmation process are precluded from benefiting from these threats, counsel should not be deterred from exercising their independent judgment. Dumont , 581 F.3d at 1114 (pursuant to § 362(h), a "debtor who files an intent to reaffirm on the original contract terms but is unable to complete such a reaffirmation due to the creditor's refusal is not subject to the section."); In re Hinson, 352 B.R. 48, 52 (Bankr. E.D.N.C. 2006) (enjoining repossession when debtor attempted to reaffirm on original terms, but creditor refused to sign reaffirmation agreement because it wanted additional fees); In re Perkins, 418 B.R. 680, 681-82 (Bankr. M.D.N.C. 2009) (ipso facto clause was unenforceable when debtor "timely complied with the requirements of section 524(c) and 521(a)(2), and in all respects agreed to reaffirm the debt on the original terms of the contract," but creditor failed to timely file reaffirmation agreement).
In fact, creditors who interfere with counsel's certification decision may also be held in contempt if they attempt to exercise their foreclosure remedies. Nuckoles, 546 B.R. at 655 (lender who refused to file a reaffirmation agreement after counsel refused to execute the certification was held in contempt for pursuing foreclosure since the debtor was current on the payment, the discharge applied, and the ipso facto clause was unenforceable); Baker , 390 B.R. at 529-30 (creditor who repossessed car on a reaffirmed debt sanctioned for violation of the discharge since the ride-through option survived BAPCPA even though court disapproved agreement for pro per debtor); Blanco v. Beneficial Mortg. Co. of Ariz. (In re Blanco), Nos. 4:10-bk-34085-EWH, 4:11-ap-01812-EWH, 2013 WL 140213, at *4, 2013 Bankr. LEXIS 96, at *11 (Bankr. D. Ariz. Jan. 9, 2013) (lenders who caused pro per debtors to sign a second reaffirmation agreement with unfavorable terms after discharge sanctioned for discharge violation).
While sanctions are not at issue here because Rhodes's counsel withdrew the certification, remedies may apply to lenders who engage in abusive practices.
C. Lender's Failure to File a Proof of Claim Preserves the Ride-Through
Even if counsel here had not withdrawn his certification, Lender's failure to file a proof of claim preserved the ride-through for Rhodes. Although debtors must file a statement of intention under § 521 (a)(2) for all secured debts, the category of debts for which they also must enter into reaffirmation agreements is narrower. This additional requirement applies only to debts based on an "allowed claim for the purchase price. " 11 U.S.C. § 521(a)(6) (emphasis added); Blakeley , 363 B.R. at 229 (" Section 521(a)(6) only applies if a creditor has an ‘allowed claim’. The subsection requires that a creditor hold an ‘allowed claim’ and not simply a ‘claim’...The Court cannot ignore this choice of words."); Anderson, 348 B.R. at 657 ; Donald, 343 B.R. at 535 (filing a proof of claim is "a reasonable prerequisite to [a creditor] receiving the relief afforded by § 521(a)(6)"); Moustafi, 371 B.R. at 438 (creditor which fails to establish an allowed claim cannot pursue the remedies of § 521(a)(6) ). Although the term "allowed claim" is not defined in § 101, the concept of allowance is fully developed instead in § 502(a) to mean a claim filed pursuant to § 501 without objection. See Blakeley , 363 B.R. at 229.
In contrast to lenders' obligation to file an "allowed claim" as required under § 521(a)(6) for debtors to lose their ipso facto protection under § 521(d), this obligation does not apply to lenders' rights to be relieved from the automatic stay under § 362(h) due to debtors' failure to comply with § 521(a)(2). See Donald, 343 B.R. at 534. Rhodes's timely stated an intent to reaffirm the debt which preserved that protection here.
A minority of courts, however, have held that the statutory term "allowed claim" can be disregarded. These cases assume Congress intended §§ 521(a)(6) and (d) not to apply in "no asset" Chapter 7 cases where proofs of claim are not regularly filed. Rowe , 342 B.R. at 348-49 ; Steinhaus , 349 B.R. at 704.
This court cannot disregard the plain statutory language, however, without violating numerous principles of statutory construction. First, the word "allowed" in the statute would be impermissibly rendered mere surplusage. Bobka , 968 F.3d at 951 (statutory construction cannot cause words in a statute to become surplusage).
Second, although Steinhaus, 349 B.R. at 704, justified its disregard of the statutory language by applying the absurdity doctrine, this doctrine can only be applied in "rare and exceptional circumstances." United States v. Lucero, 989 F.3d 1088, 1098 (9th Cir. 2021) ; Cal. River Watch v. City of Vacaville, 14 F.4th 1076, 1082 (9th Cir. 2021) (citations omitted) ("courts may only depart from the "plain meaning of a provision" when "the absurdity and injustice of applying the provision to the case would be so monstrous, that all mankind would, without hesitation, unite in rejecting the application."). This court cannot find that requiring lenders to file proofs of claim is a "monstrous" burden; indeed, in Dumont , 581 F.3d at 1107, the creditor filed a proof of claim obviating further consideration of the issue.
Third, the court need not engage in prohibited speculation about Congress's unexpressed intent about policy, Bobka, 968 F.3d at 954, where, as here, conceivable policy reasons to require lenders to possess "allowed" claims exist: (1) a proof of claim is necessary to establish an ipso facto clause exists and (2) to ensure the underlying contract and lien are "valid, enforceable, and perfected". Coastal Fed. Credit Union v. Hardiman, 398 B.R. 161, 179 (E.D.N.C. 2008) (identifying these reasons.)
Accordingly, the ipso facto clause, if there is one in Lender's loan documents, remains ineffective since Lender failed to file a proof of claim. Donald, 343 B.R. at 535 ; Moustafi, 371 B.R. at 438.
D. Reaffirmation Choices Involving Mobile Home Benefit from Proofs of Claim
Although Rhodes's counsel initially assumed Lender's debt was secured by personal property collateral, he later admitted he did not know whether the mobile home was real or personal property. Mobile home financing in California can be structured as either or both. Ascertaining the nature of the collateral affects whether the mobile home has equity, Rhodes's anti-deficiency protection, and the court's review function. Counsel's withdrawal of his certification was justified because he could not advise Rhodes about her differing rights based on the nature of the collateral.
Mobile home financing in this state is classified as a real estate loan where the mobile home is affixed to the foundation, the security interest involves a leasehold interest, or where the lender is assigned rights in the real estate contract. Otherwise, the financing is structured as a personal property loans. 8 Karl E. Geier, Miller & Starr's California Real Estate § 27:89 (4th ed. June 2021 Update) ("Miller & Starr") (noting the difference between the manner of affixing a mobile home to the foundation matters for the requisite foreclosure procedures pursuant to Cal. Health & Safety Code § 18551(a) and Cal. Health & Safety Code § 18038.7 ). The secured financing could also have elements of both personal and real property collateral. In re Valdez , 338 B.R. 97, 99 (Bankr. N.D. Cal. 2006) (regardless of the documentation for the loan, mobile home secured lenders under Cal. Civ. Code § 798.79 have a statutory right to sell debtors' mobile homes at the current location within the mobile home park and to keep all proceeds from that sale without compensating the debtor and should be valued in place for purposes § 506).
Importantly here, if the reaffirmed debt is real estate, Rhodes's counsel need not be concerned with ipso facto protection because debtors' reaffirmation obligations under §§ 521(a)(6), 521(d), and 362(h) only pertain to personal property collateral. In re Waller, 394 B.R. 111, 113 (Bankr. D.S.C. 2008) ; In re Wilson, 372 B.R. 816, 820 (Bankr. D.S.C. 2007) (disapproving reaffirmation agreement on real estate secured loan as not in the debtors' best interests since they were not faced with loss of ipso facto protection); In re Covel , 474 B.R. 702, 709 (Bankr. W.D. Ark. 2012) (denying a motion for order requiring a debtor to complete reaffirmation, redemption, or surrender where the ride-through option is available to debtor for her real property); In re Lopez , 440 B.R. 447, 448 (Bankr. E.D. Va. 2010) (finding the 2005 amendments in the BAPCPA did not change ride-through for real property and finding debtor, who was current on payments, did not benefit from reaffirmation); In re Caraballo, 386 B.R. 398, 402 (Bankr. D. Conn. 2008) (disapproving a reaffirmation agreement finding BAPCPA did not affect ride-through for real property).
Rhodes's counsel warned her of the risk of waiver of anti-deficiency rights if the reaffirmation agreement was enforceable. The scope of that risk is again determined by whether the mobile home was secured by real estate collateral. Miller & Starr § 27:89. Cal. Health & Safety Code § 18038.7 anti-deficiency protections apply where mobile home is affixed to real estate. Cal. Civil Code § 2983.8 also provides anti-deficiency protection for seller financing. Cal. Civ. Proc. Code §§ 726 and 580(b) anti-deficiency protections apply to leasehold security interests. See Daley v. Dawson, G023177, 2001 WL 1628175, at *3, 2001 Cal. App. Unpub. LEXIS 609, at *9 (Dec. 18, 2001) (noting change in law as to whether security interests in leaseholds are real estate security interests). Rhodes's anti-deficiency rights were left unclear with counsel not knowing the nature of the collateral.
The character of the collateral also affects the court's review function. Whether the presumption of undue hardship has been rebutted under § 524(c)(6)(B) for unrepresented debtors is not reviewable by the court if the reaffirmed debt was secured by real property. Bobka, 968 F.3d at 954 (noting limit to review function under the statute). This limit is inapplicable here since Rhodes was represented by counsel. The court's review of the § 524(c) requirements for enforceability also apply to real estate loans despite § 524(c)(6)(B), however. Law v. No Respondent (In re Law), 421 B.R. 735, 737-38 (Bankr. W.D. Pa. 2010) ; In re Hart, 402 B.R. 78, 84 (Bankr. D. Del. 2009). So too does the court's review function under § 524(m) to determine if the presumption of undue hardship has been rebutted for represented debtors because § 524(m) applies to both real and personal property collateral reaffirmation agreements. Hart, 402 B.R. at 86.
Although this case need not be decided in the § 524(m) context because counsel's certification was withdrawn, Rhodes's budget was well below the § 707(b) standards as explained in Anzaldo , 612 B.R. at 14, giving rise to a presumption of undue hardship. The court would have extended the § 524(m) deadline and determined that the presumption had not been rebutted as an alternative ground for its ruling.
The nature of Rhodes's rights in the real estate also affected counsel's consideration of whether the mobile home had equity that could protect her from a deficiency judgment. The valuation of mobile homes varies significantly based on the manner of foreclosure, which in turn will depend upon Rhodes's rights in the real estate. Valdez , 338 B.R. at 99, recognized the valuation of the mobile home will vary based on whether it is sold "in place" or at its "box value." In re Young , 367 B.R. 183, 191 (Bankr. N.D. CA 2007) (valuing collateral at its box value if removed from the real estate even though that would be a lower value than the "in place" value under § 506). If Rhodes were to lose her space lease at the mobile home park, the collateral might be sold at box value and create a deficiency that would undercut counsel's certification that the Agreement was in her best interests.
Proper advice to debtors for all these reasons requires assessment of the nature of the collateral, particularly for mobile homes
III. CONCLUSION
Rhodes's timely compliance with §§ 521(a)(2), 521(a)(6) and 362(h) provided her the benefit of ride-through and protection from the ipso facto clause under § 521 (d). Her counsel's decision to withdraw his certification had no impact on ride-through, other than to protect her discharge by rendering the Agreement unenforceable. Counsel need not be concerned with threats by lenders that interfere with their independent advice in the future. Particularly where mobile home collateral is involved, counsel's obligation to fully advise their clients will be impaired if they do not review the loan documents because the lender did not file a proof of claim. That Lender did not do so here is another reason why Rhodes's protection from the ipso facto clause is preserved. As long as Rhodes is current on her obligations, Lender cannot enforce its default remedies under its loan.
IT IS SO ORDERED.