United States District Court, D. Oregon
Crystal S. Chase, Oren B. Haker, Stoel Rives LLP, Portland, Oregon, Attorneys for appellant, Bank of New York Mellon.
Michael D. O'Brien, Michael D. O'Brien & Associates PC, Portland, Oregon, Attorney for appellees, Nicolas and Patricia Watt.
Britta E. Warren, Black Helterline, LLP, Portland, Oregon, Attorney for appellees, Meritage Homeowners' Association.
C. Anthony Crnic, III, Klatt, Augustine, Sayer, Treinen & Rastede, PC, Des Moines, Iowa, Attorney for amicus curiae, American Legal and Financial Network.
OPINION AND ORDER
ANN AIKEN, Chief District Judge.
Bank of New York Mellon, as trustee for certificate holders of the CWALT, Inc., alternative loan trust 2006-0A21, mortgage pass-through certificates series 2006-0A21 ("BNYM"), appeals the bankruptcy court's confirmation of Nicolas and Patricia Watt's ("debtors") Chapter 13 plan. For the reasons set forth below, the bankruptcy court's decision is vacated and this case is remanded for further proceedings.
In November 2006, debtors took out a loan, in the amount of $296, 940, to purchase a second residence in Newport, Oregon ("Property"), which is one of eighteen townhouse units within a planned community that is subject to a series of covenants and restrictions enforced by Meritage Homeowners' Association ("Meritage"). Excerpt of Record ("ER") 19-48, 70. Pursuant to this transaction, debtors executed a promissory note ("Note") in favor of Mortgage Trust, Inc. ("MTI"). ER 19-23, 39-48. The Note was secured by a deed of trust ("DOT"), which lists MTI as the lender, Western Title and Escrow as the trustee, and Mortgage Electronic Registration Systems, Inc. ("MERS"), as the beneficiary. ER 25-38. The DOT was duly recorded in Lincoln County, Oregon. ER 25.
In April 2012, MERS assigned MTI's interest in the DOT to BNYM. ER 50. This assignment was recorded in the official records of Lincoln County. Id. At some unspecified time in 2012, debtors stopped making the requisite loan repayments, thereby materially defaulting under the Note and DOT, such that BNYM commenced preliminary foreclosure proceedings. ER 88-89, 122. Coterminous with or subsequent to that default, debtors incurred a significant amount of assessments leveraged by Meritage as a result of their failure to repair defective windows and pay homeowners' association ("HOA") fees. ER 70-72.
On March 12, 2014, debtors filed a petition for relief under Chapter 13 of the Bankruptcy Code. ER 122. By operation of law, debtors' Chapter 13 petition stayed BNYM's foreclosure efforts. ER 122; 11 U.S.C. § 362. At that time, the Property was subject to several liens. Specifically, the DOT, held by BNYM,  created a secured first-position lien on the Property; the total amount owing under the Note was greater than $346, 000. ER 71-72. Meritage's unpaid assessments and fines formed an automatic lien under Oregon law, subordinate to the DOT. ER 72; Or. Rev. Stat. § 94. 709(1) (b).
Further, Bank of America, N. A., possessed a $34, 000 consensual lien. ER 72. Finally, Meritage held a judgment lien against the Property in the amount of $225, 000. Id. As such, the value of the Property did not exceed the value of the secured claims. ER 71, 124.
On April 1, 2014, debtors proposed their initial plan, which advanced "selling the Property pursuant to 11 U.S.C. § 363(b), " as well as surrendering the Property to creditors with secured claims. ER 1-4. Meritage objected to this plan on the ground that it sought to discharge debtors' obligation to pay post-petition HOA assessments and fines. BNYM's Opening Br. 4-5 (citation omitted). On April 23, 2014, debtors amended their initial plan, but without addressing Meritage's objection. ER 5-9. As such, Meritage filed a substantively identical opposition to debtors' amended plan. BNYM's Opening Br. 5 (citation omitted).
On June 17, 2014, BNYM moved for relief from the automatic stay to enable it to pursue its remedies under the Note and DOT. ER 10-52. On June 30, 2014, debtors filed a second amended plan. ER 53-58. This plan no longer proposed the sale and surrender of the Property; instead, debtors added a nonstandard provision pursuant to which they planned to vest the Property in BNYM under 11 U.S.C. § 1322(b) (9) upon confirmation. ER 58. That same day, debtors filed a response to BNYM's motion for relief from stay, in which they argued that the stay should remain in place in light of their second amended plan. ER 60.
On July 31, 2014, BNYM objected to the second amended plan on the grounds that confirmation thereof would force it to take title to the Property "subject to the junior liens [and] be obligated on the [post-petition HOA] dues and assessments." ER 65. In other words, BNYM asserted that 11 U.S.C. § 1325(a) (5) was the exclusive statutory provision concerning confirmation of Chapter 13 plans and that the requirements listed therein could not be enlarged by other provisions of the Bankruptcy Code, including 11 U.S.C. § 1322 (b) (9). ER 64-68. On ...