27 F.

3d 52
62 USLW 2774, 25 Bankr.Ct.Dec. 1679,
Bankr. L. Rep. P 75,945

In re Michael HAMMOND; Jeanette Hammond, Debtors.

Michael HAMMOND; Jeanette Hammond
v.
COMMONWEALTH MORTGAGE CORPORATION OF
AMERICA.
Commonwealth Mortgage Corporation of America, L.P.,
Appellant.
No. 93-1747.

United States Court of Appeals,

Third Circuit.
Argued Feb. 17, 1994.
Decided June 9, 1994.
Sur Petition for Rehearing July 7, 1994.

Lawrence T. Phelan and Peter C. Cillo (argued), Federman & Phelan,

Philadelphia, PA, for appellant.
Susan L. DeJarnatt (argued), Community Legal Services, Philadelphia,
PA, for Michael and Jeanette Hammond.
Present: BECKER, HUTCHINSON and COWEN, Circuit Judges.
OPINION OF THE COURT
HUTCHINSON, Circuit Judge.

Appellant, Commonwealth Mortgage Corporation of America

("Commonwealth"), appeals an order of the United States District Court for the
Eastern District of Pennsylvania affirming a decision of the United States
Bankruptcy Court for that district. The bankruptcy court had permitted
appellees, Michael and Jeanette Hammond (the "Hammonds" or the "debtors"),
to bifurcate Commonwealth's claim against the Hammonds into secured and

unsecured components pursuant to 11 U.S.C.A. Sec. 506(a). In so doing, the

bankruptcy court effectively limited Commonwealth's mortgage claim to the
fair market value of the premises securing the mortgage. On appeal
Commonwealth argues a bifurcation that has this effect is contrary to the recent
United States Supreme Court decision of Nobelman v. American Savings Bank,
--- U.S. ----, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), concerning the interplay
between section 506(a) and section 1322(b)(2) of the Bankruptcy Code of
1978.1 We conclude that Nobelman overrules only one of the two rationales
underlying our decisions in Wilson v. Commonwealth Mortgage Corp., 895
F.2d 123 (3d Cir.1990), and Sapos v. Provident Institution of Savings, 967 F.2d
918 (3d Cir.1992). Therefore, we will affirm the district court.
I. Factual & Procedural History
2

The Hammonds purchased their home at 5636 North 11th Street, Philadelphia,
Pennsylvania, on June 15, 1984. They financed the purchase with a loan from
Jersey Mortgage Company, which has since been assigned to Commonwealth.
The assignment made Commonwealth the holder of a $22,500.00 purchase
money mortgage on the Hammonds' home, as well as an additional security
interest in:

3 and all appliances, machinery, furniture and equipment (whether fixtures or not)
any
of any nature whatsoever now or hereafter installed in or upon said premises....
4

Appendix ("App.") at 15.

On December 15, 1987, Commonwealth foreclosed the mortgage and obtained

a foreclosure judgment for $30,726.10.2 The foreclosure eventually caused the
Hammonds to file a Chapter 13 bankruptcy petition in the Eastern District of
Pennsylvania on January 8, 1990. On February 8, 1990, Commonwealth filed a
secured claim for $42,969.93.3

The Hammonds thereafter filed an adversary proceeding, seeking to limit

Commonwealth's allowed secured claim to the fair market value of their home
by bifurcating the claim into secured and unsecured components pursuant to 11
U.S.C.A. Sec. 506. The parties stipulated that the fair market value of the
Hammonds' home is $25,000.00.

On July 30, 1990, the bankruptcy court agreed with the Hammonds and entered
an order limiting Commonwealth's secured claim to $25,000.00. See Hammond
v. Commonwealth Mortgage Co. (In re Hammond), No. 90-10093
(Bankr.D.N.J. July 30, 1990).4 The order provided for the Hammonds to repay

Commonwealth's secured claim of $25,000.00 at an interest rate of ten percent

over sixty-months in accord with the debtors' plan. The bankruptcy court
confirmed the debtors' plan on August 21, 1990. The plan provides:
8

1. The future earnings of the debtor are submitted to the supervision and control
of the trustee and the debtor shall pay to the trustee the sum of $666 on a
monthly basis for a period of 60 months.

2. From the payments so received, the trustee shall make disbursements as

follows:

******
10
11

(b) Holders of allowed secured claims shall retain the liens securing such
claims and shall be paid as follows:

12

--Lien of Commonwealth in excess of market value to be avoided.

Allowed secured claims to be paid inside plan.

13
14

App. at 21.

15

Commonwealth appealed the bankruptcy court's order of July 30, 1990 to the
district court. It did not appeal the confirmation order. On July 2, 1993, the
district court affirmed the bankruptcy court's decision to bifurcate
Commonwealth's claim into secured and unsecured portions. At the same time
the district court vacated and remanded the case for additional proceedings to
determine the value of any remaining security. Hammond v. Commonwealth
Mortgage Co. (In re Hammond), 156 B.R. 943, 948-49 (E.D.Pa.1990). This
timely appeal followed.

II. Jurisdiction & Standard of Review

16

The statute which governs jurisdiction over appeals from bankruptcy court
decisions is 28 U.S.C.A. Sec. 158. Section 158 provides in relevant part:

17 The district courts of the United States shall have jurisdiction to hear appeals
(a)
from final judgments, orders, and decrees ... of bankruptcy judges entered in cases
and proceedings referred to the bankruptcy judges under section 157 of this title....
*18* * * * *(d) The courts of appeals shall have jurisdiction of appeals from all final
decisions, judgments, orders, and decrees entered under subsections (a) and (b) of

this section.
19

28 U.S.C.A. Sec. 158(a), (d) (West 1993) (emphasis added). We conclude that
the district court had appellate jurisdiction under section 158(a), and we have
jurisdiction over the district court's order under section 158(d).5

20

Review of the district court order involved in this case presents questions of
law. Therefore, we exercise plenary review. See Sapos, 967 F.2d at 922; Dent
v. Cunningham, 786 F.2d 173, 175 (3d Cir.1986).

III. Analysis
21

This appeal concerns the interaction between two provisions of the Bankruptcy
Code: section 506(a) and section 1322(b)(2).6 Section 506(a) provides, in
pertinent part:

22

(a) An allowed claim of a creditor secured by a lien on property in which the

estate has an interest, or that is subject to setoff under section 553 of this title, is
a secured claim to the extent of the value of such creditor's interest in the
estate's interest in such property, or to the extent of the amount subject to setoff,
as the case may be, and is an unsecured claim to the extent that the value of
such creditor's interest or the amount so subject to setoff is less than the amount
of such allowed claim....

23

11 U.S.C.A. Sec. 506(a) (West 1993). In essence section 506(a) limits a

creditor's secured claim to the value of its collateral. See United States v. Ron
Pair Enters., Inc., 489 U.S. 235, 240 & n. 3, 109 S.Ct. 1026, 1029 & n. 3, 103
L.Ed.2d 290 (1989).

24

Section 1322(b)(2) governs the contents of a Chapter 13 bankruptcy plan and

provides:

25

(b) Subject to subsections (a) and (c) of this section, the plan may--

******
26
27

(2) modify the rights of holders of secured claims, other than a claim secured
only by a security interest in real property that is the debtor's principal
residence, or of holders of unsecured claims, or leave unaffected the rights of
holders of any class of claims....

28

11 U.S.C.A. Sec. 1322 (West 1993). This section, which limits a party's ability
to modify the rights of a lien on real property that is a debtor's principal place of
residence, is known as an "antimodification provision." Sapos, 967 F.2d at 921.
The specific question which arises when one considers section 506(a) and
section 1322 together is whether section 1322(b)(2) precludes a Chapter 13
debtor from relying on section 506(a) to modify the unsecured portion of an
undersecured mortgage claim, or whether the debtor is entitled to bifurcate a
secured claim pursuant to section 506(a).

29

In Wilson and Sapos, this Court considered the interplay between sections
506(a) and 1322(b)(2). In those cases we held that section 1322(b)(2) does not
prohibit modification of the unsecured component of an undersecured
mortgage. See Sapos, 967 F.2d at 926; Wilson, 895 F.2d at 127-28. Moreover,
we held that section 1322(b)(2)'s antimodification clause does not apply when
the creditor has an additional security interest in collateral other than the real
property in which the debtor resides because section 1322(b)(2)'s express terms
cover claims secured only by a security interest in the debtor's principal
residence. See Sapos, 967 F.2d at 925-26; Wilson, 895 F.2d at 128.

30

The district court, considering itself bound by Sapos and Wilson, affirmed the
bankruptcy court's ruling bifurcating Commonwealth's mortgage claim into
secured and unsecured portions because Commonwealth's mortgage was
secured by a lien on the debtors' personal property as well as the real property
that was their home. As the district court recognized, this case is on all fours
with Wilson. There too the mortgagee's claim was secured by "any and all
appliances, machinery, furniture and equipment (whether fixtures or not) of any
nature whatsoever now or hereafter installed in or upon said premises" in
addition to the lien on the mortgage debtors' residence. Wilson, 895 F.2d at
124.

31

Commonwealth argues that we should overrule our opinions in Wilson and

Sapos because of the Supreme Court's recent decision in Nobelman. Nobelman
did expressly overrule the holding in Wilson and Sapos that section 1322(b)(2)
does not preclude a debtor from modifying the undersecured portion of a
mortgage. Nobelman, --- U.S. at ----, ----, 113 S.Ct. at 2109, 2111. The Supreme
Court stated: "Section 1322(b)(2) prohibits such a modification where, as here,
the lender's claim is secured only by a lien on the debtor's principal residence."
Id. at ----, 113 S.Ct. at 2111.

32

The Supreme Court's opinion in Nobelman, however, did not expressly address
our alternate rationale for our decisions in Wilson and Sapos. In those cases, we

also held that a mortgagee who has an additional security interest in property
other than the real estate which is the mortgagors' primary residence cannot
claim any benefit from section 1322(b)(2)'s antimodification provision and
therefore such a mortgagee's claim can be bifurcated under section 506(a). See
Sapos, 967 F.2d at 925-26; Wilson, 895 F.2d at 128. The district court, in the
instant case, recognized that the record in Nobelman indicates that there the
mortgagee also held an additional security interest in "the common areas of the
condominium complex, escrow funds, proceeds of hazard insurance, and rents."
Hammond v. Commonwealth Mortgage Company, 156 B.R. at 947 n. 6
(quoting In re Nobelman, 129 B.R. 98, 99 (N.D.Tex.1991), aff'd, 968 F.2d 483
(5th Cir.1992), aff'd, --- U.S. ----, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993)).
The district court in Nobelman had held, contrary to Sapos and Wilson, that this
additional security interest did not matter, but neither the United States Court of
Appeals for the Fifth Circuit nor the Supreme Court addressed the issue on
appeal. Therefore, the district court in the case now before us felt this Court's
alternate rationale in Wilson and Sapos was still controlling and, applying
principles of stare decisis, affirmed the bankruptcy court on this ground.
33

Commonwealth contends, however, that Nobelman implicitly overrules our

alternate holding in Wilson and Sapos because the Nobelman mortgage also
had an additional security interest which the Supreme Court failed to give any
effect. Commonwealth points out that the district court in Nobelman expressly
held the debtors' argument that the additional security interest took their
mortgage out of the protection of the antimodification clause was "without
merit." Nobelman, 129 B.R. at 104. Commonwealth contends that the Supreme
Court's failure to discuss the additional security interest that the Nobelman
mortgage provided indicates such an additional interest in collateral found at or
on the debtors' residence is not significant. Therefore Commonwealth
concludes this panel can and should overrule Sapos and Wilson in their entirety.
It argues we should decide instead that a security interest in fixtures or personal
property on the mortgaged premises does not preclude a mortgagee from taking
advantage of the antimodification provision that section 1322(b)(2) provides
for a lien secured by mortgages on a debtors' principal residence.
Commonwealth would have us consider the additional security interest
provided for in its mortgage as meaningless standard language that gives it no
additional security as a practical matter.

34

In Wilson, we addressed and rejected an identical argument that an additional

security interest in personal property on or in the real estate securing a
residential mortgage has no real value and can be ignored under the maxim de
minimis non curat lex.7 See Wilson, 895 F.2d at 129. We held in Wilson that
section 1322(b)(2)'s language plainly states that a mortgagee who has an

additional security interest gets no protection from the antimodification clause

of section 1322(b)(2). Id. ("The language of section 1322(b)(2) is
unambiguous. The language of the bankruptcy judge bears repeating: 'If
Commonwealth wishes otherwise, it should delete such language from its
agreements.' "). We also relied on Collier on Bankruptcy to buttress our holding
that creditors who demand additional security interests in personalty or escrow
accounts and the like pay a price. Their claims become subject to modification.
Their recourse, if they wish to avoid modification, is to forego the additional
security. Id. (citing 5 Collier on Bankruptcy p 1322.06 at 1322-14-15).
35

Finally, Commonwealth argues that Wilson and Sapos were improperly decided
and points to the legislative history underlying section 1322(b)(2). It argues that
this section was included to implement Congress's intent to protect lenders of
residential mortgages because they provide a valuable economic and social
service when they make such funds available. See Grubbs v. Houston First Am.
Sav. Ass'n, 730 F.2d 236, 246 (5th Cir.1984) (in banc) ("This [section] was
apparently in response to perceptions ... that, home-mortgagor lenders,
performing a valuable social service through their loans, needed special
protection against modification....") (referring to Hearings Before the
Subcomm. on Improvements of the Judicial Machinery of the Senate Comm.
on the Judiciary, 95th Cong., 1st Sess. 652-53, 703, 707, 714-15, 719-21
(1977)). In fact, Justice Stevens cites Grubbs and its discussion of legislative
history in his concurrence in Nobelman. In agreeing with the majority, Justice
Stevens concludes that its literal reading of the text of section 1322(b)(2)
coincides with Congress's intent to "encourage the flow of capital into the home
lending market." Nobelman, --- U.S. at ----, 113 S.Ct. at 2112 (Stevens, J.,
concurring) (citing Grubbs, 730 F.2d at 245-246). We acknowledge that section
1322(b)(2) reflects a congressional policy meant to protect home mortgage
lenders. Nevertheless, as we noted in Wilson, the language in section 1322(b)
(2) is clear; it refers to "a claim secured only by a security interest in real
property that is the debtor's principal residence." 11 U.S.C.A. Sec. 1322(b)(2)
(emphasis added); Wilson, 895 F.2d at 129. We are unable to read the statutory
text to include mortgages which are secured not only by a "principal residence"
but also by "appliances, machinery, furniture and equipment (whether fixtures
or not) of any nature whatsoever." App. at 15.

36

As the Hammonds point out in their brief, the Supreme Court's failure to
address the effect of the additional security interest in the Nobelman mortgage
does not imply that the Supreme Court held section 1322(b)(2) prohibits
bifurcation of residential mortgages that also give the mortgagee a lien on
personal property used in or about the residence. We conclude that Nobelman
does not overrule our holding in Wilson or Sapos that a mortgagee who wishes

to avoid bifurcation of its claim on a residential mortgage must limit its lien to
the real estate. The district court correctly concluded that it had to follow this
alternate holding in Sapos and Wilson and bifurcate Commonwealth's
mortgage. This panel is also bound by the alternate holding of Sapos and
Wilson, which the Supreme Court did not consider in Nobelman. See Internal
Operating Procedure 9.1 ("It is the tradition of this court that the holding of a
panel in a reported opinion is binding on subsequent panels. No subsequent
panel overrules a holding in a published opinion of a previous panel. Court in
banc consideration is required to do so.").
37

In the absence of clearer instruction from the Supreme Court than we see in
Nobelman, we think the alternate rationale of Sapos and Wilson is controlling.
Any change in that holding is reserved to the Court in banc, not this panel.

IV. Conclusion
38

We conclude the Supreme Court's decision in Nobelman did not expressly or

implicitly overrule this Court's alternate rationale for its decisions in Wilson
and Sapos. Therefore, we conclude that a mortgage which creates security
interests in a debtor's personal property in addition to a lien on the mortgagor's
principal residence takes the mortgage beyond the protection of the
antimodification clause of section 1322(b)(2) of the Bankruptcy Code and
permits bifurcation of the mortgage into secured and unsecured components
under section 506(a). Accordingly, we will affirm the order of the district court.

39

Present: SLOVITER, Chief Judge, BECKER, STAPLETON, MANSMANN,

GREENBERG, HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO,
ROTH, LEWIS and McKEE, Circuit Judges.

SUR PETITION FOR REHEARING

July 7, 1994
40

The petition for rehearing filed by appellant in the above captioned matter
having been submitted to the judges who participated in the decision of this
court and to all the other available circuit judges of the circuit in regular active
service, and no judge who concurred in the decision having asked for rehearing,
and a majority of the circuit judges of the circuit in regular active service not
having voted for rehearing by the court in banc, the petition for rehearing is
denied.

In its brief, Commonwealth, relying on Stendardo v. Federal Nat'l Mortgage

Ass'n (In re Stendardo), 991 F.2d 1089, 1094-95 (3d Cir.1993), also argued that
merger of the mortgage into the foreclosure judgment eliminated any additional
security interest the mortgage provided to the mortgagee. Commonwealth
conceded at oral argument that it waived this argument by its failure to raise it
in the district court. Thus, we do not consider it. See Frank v. Colt Indus., Inc.,
910 F.2d 90, 100 (3d Cir.1990)

On August 30, 1989, damages were reassessed at $40,407.80

Commonwealth's claim was computed as follows:

Principal
Interest to the date of bankruptcy
Late Charges
Escrow Deficit
Mortgage foreclosure expenses
TOTAL

$22,108.71
$13,165.59
$
649.43
$ 4,006.57
$ 3,039.63
---------$42,969.93

The Hammonds filed for bankruptcy in the United States Bankruptcy Court for
the Eastern District of Pennsylvania, but Judge Wizmur, a United States
Bankruptcy Judge for the District of New Jersey, entered the order from which
this appeal was taken. At the time these proceedings were taking place, the
bankruptcy court for the Eastern District apparently had a large backlog. To
reduce the backlog, certain cases were transferred either to the United States
Bankruptcy Court for the District of New Jersey or perhaps assigned by
designation to New Jersey bankruptcy judges

The district court's order vacating the bankruptcy court's order and remanding
the case for a determination of the value of the additional security interest
raises the question whether the district court's order was a "final order" for
purposes of section 158(d). We have expansively interpreted the phrase "final
order" as used in section 158(d). See In re Porter, 961 F.2d 1066, 1072 (3d
Cir.1992) ("[B]ankruptcy cases have traditionally been subject to more lenient
finality rules than other cases.... '[W]hen the bankruptcy court issues what is
indisputably a final order, and the district court issues an order affirming or
reversing, the district court's order is also a final order....' ") (quoting In re
Marin Motor Oil, Inc., 689 F.2d 445, 449 (3d Cir.1982)). We believe the district
court's order is final within the meaning of section 158(d) and we have
appellate jurisdiction to review it

In their brief, the Hammonds mention the supportive effect the plan's

confirmation may have on their position as to the amount of the bank's secured
claim. In supplemental briefing, however, both parties agreed that issue did not
affect the merits. Therefore, we will not discuss it further
7

The Latin means: "The law does not care for, or take notice of, very small or
trifling matters. The law does not concern itself about trifles." Black's Law
Dictionary 388 (5th ed. 1979)