Under Chapter 13 of the Bankruptcy Code, individual debtors may reorganize their debts (an “adjustment of debt”) rather than have them discharged. See 11 U.S.C. § 1301 et seq. To facilitate this adjustment (individual reorganization), the rights of secured creditors may be modified where the debt is more than the value of the collateral. This almost always results in a discharge of the unsecured portion of the debt and is commonly referred to as a “cram-down.” A cram-down is not available, however, where the collateral is “secured only by a security interest in real property that is the debtor’s principal residence[.]” 11 U.S.C. § 1322(b)(2). There is no question that the anti-modification provision applies to single-family homes and condominiums. But what about manufactured homes?
Because the status of property is determined by state law, whether a manufactured home is considered real or personal property for purposes of 11 U.S.C. section 1322(b)(2) depends on the law in your state—which may in turn depend on the views of your bankruptcy judges. For instance, in Iowa, the Northern District of Iowa Bankruptcy Court has held that a manufactured home is personal property under section 1322(b)(2). This conclusion was affirmed by the Eighth Circuit Bankruptcy Appellate Panel and the Eighth Circuit Court of Appeals. See In re Bennett, No. 18-2098 (8th Cir. Feb. 28, 2019).
In Bennett, the secured creditor argued that Iowa’s common law of fixtures governs whether property is considered real or personal for purposes of section 1322(b)(2). The secured creditor further argued that the debtors’ manufactured home was real property because it satisfied Iowa’s common law of fixtures in that it was “actually annexed to the realty, or to something appurtenant” to the realty; that it was “put to the same use as the realty with which it was connected”; and that “the party making the annexation intend[ed] to make” the home “a permanent accession to the freehold.” Ford v. Venard, 340 N.W.2d 270, 271 (Iowa 1983). The bankruptcy court disagreed, holding that the secured creditor, the party that annexed the home to the land, did not intend to make the accession permanent. See In re Bennett, No. 16-01254 (N.D. Iowa Bankr. Apr. 20, 2017). The Bankruptcy Appellate Panel and the Eighth Circuit Court of Appeals affirmed, concluding that the bankruptcy court did not commit clear error in finding that the secured creditor failed to prove sufficient facts to establish that the home was a fixture under Iowa law. See Bennett at 4–5.
Significantly, neither the bankruptcy court nor the appellate courts addressed whether Iowa’s common law of fixtures is the appropriate Iowa law for determining whether a manufactured home is real or personal property for purposes of section 1322(b)(2). For example, the property status of mobile and manufactured homes in Iowa is addressed in numerous statutes, not all of which are consistent with each other or with Iowa’s common law. This question is thus left open for future secured creditors to argue and, if they can prove the requisite facts, perhaps spur a change in Iowa’s bankruptcy law.
Missouri faced a similar situation in 2008. See In re Coleman, 392 B.R. 767 (8th Cir. B.A.P. 2008). At that time, under the Missouri Revised Statute, a manufactured or mobile home could be converted to real property “by both ‘(1) Attach[ing] the manufactured home to a permanent foundation situated by real estate owned by the manufactured home owner’ and (2) The removal or modification of the transporting apparatus including but not limited to wheels, axles and hitches rendering it impractical to reconvert the real property thus created to a manufactured home.’” Id. at 772 (citing Mo. Rev. Stat. § 700.111 (2008)). In 2011, Missouri amended the relevant statute, to provide that a manufactured home “shall be deemed real property” “[f]or the purposes of” section 1322(b)(2). Mo. Rev. Stat. 442.015(1).
Missouri’s solution—enacting a statute that directly addresses the status of manufactured homes under section 1322(b)(2)—is eminently reasonable. States that do not have such a statute could significantly reduce litigation time and expense by adopting one.
The takeaway here is that in order to evaluate whether a Chapter 13 proceeding may make sense for an owner of a manufactured home, you should first determine whether a manufactured home is considered real or personal property under the owner’s state law, as that can vary from state to state.
Siobhan Briley is with Pugh Hagan Prahm in Coralville, Iowa.
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