Fifth Third Bank v. Cole (In re Cole)

Burton Perlman

This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio. IT IS SO ORDERED.

___________________________

Burton Perlman

United States Bankruptcy Judge

Judge Burton Perlman

Chapter 13

ORDER OVERRULING
OBJECTION TO CONFIRMATION OF PLAN

This matter is before the Court on creditor Fifth Third Mortgage Company's ("Fifth Third's") Objection to Confirmation of Plan (doc. 23). The Chapter 13 Trustee also filed an Objection to Confirmation of Plan. Fifth Third has filed memorandum in support of its objection to confirmation. Debtors have filed memoranda in support of confirmation.

I. Jurisdiction.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the general order of reference entered in this district. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L).

II. Facts.

In 2000, Debtors purchased a 2000 Redman mobile home. The mobile home sits on 1.072 acres of real estate located at 13085 S. R. 774, Bethel, Ohio (the "real estate"). Fifth Third has a first mortgage on the real estate, and the parties are in agreement that Fifth Third's loan was intended to be secured by the real estate, to which the mobile home was to be legally affixed. According to the appraisal filed by Debtors, the mobile home has a value of $54,000.00 and the real estate has a value of $20,000.00.

Debtors filed their chapter 13 petition on April 14, 2011 and their chapter 13 plan on April 27, 2011. In the plan, Debtors propose to cram down Fifth Third's claim to the value of the real estate—arguing that Fifth Third "failed to take the steps required to attach the mobile home to the real estate and never otherwise recorded a lien on the mobile home in Debtors' name." Debtor's Memorandum in Support of Confirmation at p. 2 (doc. 38).

Fifth Third filed its Objection to Confirmation of Plan on the basis of a foreclosure action initiated on May 29, 2010 and a final judgment entry filed on January 13, 2011, each from the Court of Common Pleas of Brown County, Ohio. In the amended complaint filed in that action, Fifth Third asserted that Debtors had failed to surrender the mobile home's original certificate of title to the Brown County Auditor, which was required before Fifth Third could attach its lien to the mobile home. In particular, Fifth Third's foreclosure complaint requested:

(h) That this Honorable Court declare, as real property, the attached manufactured home pledged as security by Defendant(s);
(i) That this Honorable Court direct the Brown County Auditor to issue a duplicate Certificate of Origin and/or Certificate of Title to the manufactured home and thereafter, surrender same to himself, thereby converting the manufactured home from personal property to real property and taxing it appropriately.

See
Exhibit 1 in Support of Objection to Confirmation of Plan at p. 4 (doc. 35).

Debtors filed no response to the amended complaint and default judgment in favor of Fifth Third was entered. The judgment entry in the action provided:

It is further ORDERED that the Brown County Clerk of Court Shall issue a duplicate Certificate of Title to the manufactured home located at 13085 State Route 774, Bethel, Ohio 45106, bearing the date May 13, 2000, serial number 137C1452 and, thereafter surrender same to himself. It is further ORDERED that Plaintiff shall comply with the Brown County Auditor's Requirements for Converting a Manufactured Home to Real Estate, of copy of which said requirements is attached hereto as Exhibit "B."

See
id. at p. 3 of Exhibit 2.

III. Positions of the Parties.

It is Debtors' position that the parties intended Fifth Third to "legally attach the mobile home to the real estate and record a mortgage on said real estate at the Brown County Recorder's office," but that "the Bank never took the steps required to attach the mobile home to the real estate . . . ." Debtors' Memorandum in Support of Confirmation at p.1-2 (doc. 38). They point to the fact that personal property tax has accrued on the mobile home in their names and that Fifth Third never recorded a lien on the mobile home's title-emphasizing their position that the only way to perfect a lien on a mobile home in Ohio is through notation on its title. Consequently, Debtors assert that Fifth Third failed to obtain a lien on the mobile home and that their treatment of Fifth Third's claim is thus appropriate under §§ 544(a)(1) and 1322(b)(2).

Fifth Third argues that the basis for its amended complaint in the Brown County Court of Common Pleas was to effectuate the parties' intent to convert the mobile home to real property. Fifth Third contends that the doctrines of res judicata and Rooker-Feldman prevent the re-litigation of Fifth Third's interest in the mobile home and protect the Brown County Court of Common Pleas' prepetition judgment. That judgment, Fifth Third argues, contains findings that demonstrate its interest in the mobile home was found to be a real property interest. Debtors' plan, therefore says Fifth Third, does not comply with § 1322(b)(2).

DISCUSSION A. Lis Pendens.

As a preliminary matter we deal with the question of lis pendens, much discussed by the parties. While it is true that the Chapter 13 Trustee has filed a document entitled objection to confirmation, therein she is simply seeking information. The Trustee has given no indication that she intends to pursue an interest in the property which is the subject of the present matter. The introduction of a discussion of lis pendens is therefore irrelevant to the dispute at hand and will not be further addressed by the Court.

B. Pertinent Law.

Debtors' proposed plan would modify the rights of Fifth Third, a secured creditor. Such modifications are governed by § 1322(b)(2), which states that a plan may "modify the rights of holders of secured claims, other than a claim secured only by a security in real property that is the debtor's principle residence . . . . " It is necessary, therefore, to determine whether Fifth third's claim falls within the anti-modification provision of this code section.

The property at issue is located in Ohio. Therefore, "[i]n the absence of a controlling federal rule, Congress has 'left the determination of property rights in the assets of a bankrupt's estate to state law,' since such '[p]roperty interests are created and defined by state law.'" Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 2110, 124 L. Ed. 2d 228 (1993) (quoting Butner v. United States, 440 U.S. 48, 54-55, 99 S. Ct. 914,918,59 L. Ed. 2d 136 (1979)). Here, we look to the judgment of the Common Pleas Court of Brown County, Ohio as determining the state law in this case.

The Sixth Circuit has stated Ohio law on conversion of a mobile home from personal property into real property:

"Real property" is undefined in the Code. See § 101. Under Ohio law, a mobile home is generally considered personal property, and only becomes real property if (1) "[t]he home is affixed to a permanent foundation . . . and is located on land owned by the owner of the home," and (2) "[t]he certificate of title for the [mobile] home has been inactivated by the clerk of the court of common pleas that issued it[.]" Ohio Rev. Code § 5701.02(B)(2). In re Reinhardt, 563 F.3d 558 (6th Cir. 2009).

Pertinent law also includes: ". . . a party objecting to confirmation bears the burden of proof as to the objection. In re Mendenhall, 54 B.R. 44 (Bankr. W.D. Ark. 1985); See In re Zellner, 827 F. 2d 1222 (8th Cir. 1987)." In re Petrella, 230 B.R. 829, 832 (Bankr. N.D. Ohio 1999).

C. Law Applied to the Facts.

Fifth Third filed a foreclosure action in the Common Pleas Court of Brown County, Ohio against Debtors. A default judgment in favor of Fifth Third was given by that court. Fifth Third urges that said judgment held that the mobile home had become part of the real property. Fifth Third relies entirely on that judgment to support its objection.

In its complaint in that action, Fifth Third had asked for a declaration by the state court that the mobile home was part of the real estate. Our examination of that judgment leads us to conclude that that is not what the state court did. The state court did not grant the request by Fifth Third for a declaration that the mobile home was real estate. Instead, it prescribed what must be done in order for the mobile home to be regarded as part of the real estate. The judgment contained the following:

It is further ORDERED that the Brown County Clerk of Court shall issue a duplicate Certificate of Title to the manufactured home located at 13085 State Route 774, Bethel, OH 45106, bearing the date May 13, 2000, serial number 137C1452 and, thereafter surrender same to himself.
It further ORDERED that Plaintiff shall comply with the Brown County Auditor's Requirements for Converting a Manufactured Home to Real Estate, a copy of which said requirements is attached hereto as Exhibit "B."

The auditor's requirements, as referenced in the judgment and which incorporate Ohio Rev. Code § 5701.02(BX2), are as follows:

1. Tongue, wheels and axles must be completely removed.
2. Manufactured home must be installed on a permanent foundation. (Home shall be rendered immovable as in any other traditional permanent improvements to the property.)
3. If the manufactured home has been previously taxed, all taxes prior and current must be paid.
4. "Declaration of Manufactured Home to Real Property" is to be completed by owner or agent of owner and must be notarized.
5. The original title must be surrendered. Any liens attached to the title must be satisfied before this title will transferred.
6. Two photos (different views) shall be submitted showing that the manufactured home is on a permanent foundation and has met all specifications.
7. Once converted to real estate the manufactured home shall be not be put back on the manufactured home tax list.
8. Land must be deeded to the owner listed on the surrendered title.
9. Completed and notarized applications, the original lien free title and required photos must be submitted to the Auditor's Office no later than December 31st of the year prior to conversion.

The steps required by the Common Pleas Court of Brown County to convert the mobile home from personal property to real estate were clearly prospective. Fifth Third admits in its response to Debtors' memorandum (Doc. 44) that the steps laid out in the Brown County final judgment entry to convert the mobile home from personal property to real property were not carried out. The state of the record, then, is that no conversion has occurred pursuant to Ohio law (Ohio Rev. Code § 5701.02(87)(2) or pursuant to the Court of Common Please of Brown County's judgment entry. Debtors' mobile home thus remains personal property.

Because we hold that the reliance of Fifth Third on the state court judgment to support its objection is misplaced, Fifth Third's only recourse would be to show that Fifth Third was not responsible for the fact that the steps had not been taken to change the status of the mobile home to real estate. Fifth Third has presented no evidence that it made any effort to require that Debtors take the steps required of it to comply with the order of the state court. Fifth Third has failed to sustain its burden in bringing this objection.

VI. Conclusion.

In view of the foregoing, the Court holds that the objection of Fifth Third is overruled.

IT IS SO ORDERED.

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Mark Lembright