Oregon bankruptcy court holds that a debtor’s plan can compel a lender to accept title to the mortgaged property

An Oregon Bankruptcy Court interpreting Section 11 U.S.C. §1322(b)(9) held that a bankruptcy plan that provid[ed] for the vesting of mortgaged property in a lender at the time of confirmation may be confirmed over the lender’s objection. In Re Watt, No. 14-31295-tmb13, (Bankr. D.OR. Oct.15, 2014). Debtors, in an effort to escape liability for post-petition HOA assessments against the property, sought confirmation of a Chapter 13 plan that would divest the debtors of their ownership interest in the mortgaged property. Despite the debtors’ intentions to surrender the property, surrender alone would have been inadequate to provide the debtors with the necessary relief as 11 U.S.C. §1325(a)(5)(c) had been previously interpreted to mean that, surrender in of itself did not divest a debtor of ownership and its obligations. So the debtors, in addition to proposing to surrender the property, also sought to vest title to the mortgaged property in the lender at the time of confirmation. The lender objected because vesting title would mean that the HOA and other liens remained in place. The court conducted an evidentiary hearing which chiefly centered on whether a bankruptcy plan could compel a lender to accept title to the mortgaged property absent foreclosure or quasi-foreclosure proceedings. The lender maintained that §1322(b)(9) provided a debtor with no such relief. Ironically, the debtor and lender cited the same authority in their briefs in support of their respective position: _In re Rosa_, 495 B.R. 522 (Bankr. D. Haw.2013), and _In re Rose_, 512 B.R. 790 (Bankr. W.D.N.C. 2014 both of which took the position that §1322(b)(9) could not be used to compel a lender to accept title to its collateral without the lender’s consent. In rejecting the holdings in both Rosa and Rose, the court relied on the standard rules of statutory construction and concluded that nothing in the language of §1322(b)(9) required a [lender’s] consent before title could vest. Therefore, a plan which provides for vesting of property in a secured lender at time of confirmation may be confirmed over the lender’s objection, provided that the plan complied with the provisions of §1325(a)(5) with respect to payment of secured claims. So long as the plan is (1) made in good faith and (2) is not an attempt to use §1322(b)(9) as a means to escape responsibility for nuisance or environmental problems associated with the property, a debtor’s plan that seeks to both surrender the property and vest title in the lender at the time of confirmation may be confirmed without the lender’s consent.

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