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In re Bennett

United States Court of Appeals, Eighth Circuit

February 28, 2019

In re: Benjamin Matthew Bennett; Teresia Robin Bennett Debtors
v.
Benjamin Matthew Bennett; Teresia Robin Bennett Appellees The Paddock, LLC Appellant

          Submitted: November 14, 2018

          Appeal from the United States Bankruptcy Appellate Panel for the Eighth Circuit

          Before BENTON, BEAM, and ERICKSON, Circuit Judges.

          BENTON, CIRCUIT JUDGE.

         Benjamin Matthew Bennett and Teresia Robin Bennett filed for Chapter 13 bankruptcy. Their plan proposed that The Paddock's secured claim in their manufactured home would be bifurcated into secured and unsecured parts. The Paddock objected. The bankruptcy court[1] overruled the objection. It held that 11 U.S.C. § 1322(b)(2)'s anti-modification provision did not apply to The Paddock's claim. In re Bennett, 2017 WL 1417221 (Bankr. N.D. Iowa Apr. 20, 2017). The Paddock appealed. The Bankruptcy Appellate Panel (BAP) affirmed. In re Bennett, 584 B.R. 15 (B.A.P. 8th Cir. 2018). The Paddock again appeals. Having jurisdiction under 28 U.S.C. § 158(d)(1), this court affirms.

         I.

         The Paddock LLC installs, rents, and sells manufactured homes in a planned neighborhood it owns. The Bennetts rented and later purchased a manufactured home, financed by monthly payments to The Paddock. At the time of purchase, they also agreed, for the lot under the home, to a 990-year Ground Lease (99-year terms with 9 renewal options). By the lease, the Bennetts pay a monthly association fee. They pay personal-property taxes for the home; The Paddock pays real-property taxes for the lot.

         The Bennetts filed for Chapter 13 bankruptcy. Their plan proposed that The Paddock's claim-secured by a security interest only in their manufactured home-would be treated as partly secured and partly unsecured under 11 U.S.C. § 506(a)(1). The Paddock objected, arguing that an anti-modification provision bars bifurcation because the manufactured home is real property. This provision prohibits a plan from modifying the rights of creditors who have "a claim secured only by a security interest in real property that is the debtor's principal residence." 11 U.S.C. § 1322(b)(2). After an evidentiary hearing, the bankruptcy court found that, under Iowa law, the home was personal-not real-property. The court overruled The Paddock's objection and confirmed the plan. The Paddock appealed to the BAP, which reviewed for clear error and affirmed.

         The Paddock appeals, arguing the bankruptcy court erred in finding the manufactured home was personal property under Iowa law.

         II.

         "In an appeal from the BAP, this court independently reviews the bankruptcy court's decision, applying the same standard of review as the BAP." In re Terry, 687 F.3d 961, 963 (8th Cir. 2012). Factual findings are reviewed for clear error and conclusions of law de novo. Id. This appeal presents a mixed question of law and fact: whether the bankruptcy court's factual findings meet Iowa's legal test for fixtures. Because this question entails primarily factual work, its resolution is reviewed for clear error. See U.S. Bank N.A. v. Village at Lakeridge, LLC, 138 S.Ct. 960, 967 (2018).

         The Paddock has the burden to prove that its claim is within § 1322(b)(2)'s anti-modification exception. See Educ. Assistance Corp. v. Zellner, 827 F.2d 1222, 1226 (8th Cir. 1987) (creditor objecting to Chapter 13 plan bears initial burden to produce satisfactory evidence supporting its objection). See also In re Jordan, 403 B.R. 339, 351 (Bankr. W.D. Pa. 2009) (collecting cases).

         The Paddock's claim is secured by a security interest only in the Bennetts' manufactured home, which is their principal residence. The issue is whether the home is personal or real property. The Bankruptcy Code does not resolve this issue. "In the absence of a controlling federal rule, we generally assume that 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. Am. Sav. Bank, 508 U.S. 324, 329 (1993) (alteration in original), quoting Butner v. United States, 440 U.S. 48, 54-55 (1979). See In re WEB2B Payment Sols., Inc., 815 F.3d 400, 405 (8th Cir. 2016) ("The nature and extent of the debtor's interest in property are determined by state law."). Here, the issue is determined by Iowa law. See In re Reinhardt, 563 F.3d 558, 563-64 (6th Cir. 2009) (using state law to determine whether mobile home was personal or real property under § 1322(b)(2)); In re Ennis, 558 F.3d 343, 345-46 (4th Cir. 2009) (same).

         Under Iowa common law, personal property is a fixture-thus real property-when: "(1) it is actually annexed to the realty, or to something appurtenant thereto; (2) it is put to the same use as the realty with which it is connected; and (3) the party making the annexation intends to make a permanent accession to the freehold." Ford v. Venard, 340 N.W.2d 270, 271 (Iowa 1983), citing Cornell College v. Crain, 235 N.W. 731, 732 (Iowa 1931). The first two are "mainly important in determining the intention of the party making the annexation," which is "the controlling consideration in determining the whole question." Speer v. Donald, 207 N.W. 581, 582 (Iowa 1926), quoting Ottumwa Woolen Mill Co. v. Hawley, 44 Iowa 57, 63 (1876). "[T]he intention is paramount and really the determining factor." Cornell College, 235 N.W. at 732. A party's intention is a factual question. Speer, 207 N.W. at 582 ...


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