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In re Bennett

United States Bankruptcy Appellate Panel of the Eighth Circuit

April 19, 2018

In re: Benjamin and Teresia Bennett Debtors.
v.
Benjamin M. Bennett, Debtor - Appellee The Paddock, LLC Creditor - Appellant, Teresia R. Bennett Debtor - Appellee

          Submitted: February 23, 2018

          Appeal from United States Bankruptcy Court for the Northern District of Iowa

          Before SALADINO, Chief Judge, SHODEEN and SANBERG, Bankruptcy Judges.

          SHODEEN, Bankruptcy Judge

         The Paddock, LLC appeals the bankruptcy court's[1] orders dated April 20, 2017, and September 5, 2017, confirming Benjamin and Teresia Bennett's chapter 13 plan. Because we agree with the bankruptcy court that the Bennetts can modify The Paddock, LLC's secured claim, we affirm.

         BACKGROUND

         The Paddock is in the business of installing, renting and selling manufactured homes in a planned neighborhood that it owns. In 2003 the Bennetts rented a home previously installed by The Paddock at 222 Hackeny Court in Iowa City, Iowa. A few years later The Paddock financed the Bennetts' purchase of that home through an installment sale contract. At the same time the parties entered into a Ground Lease for the lot underneath the home. The combination of these two contracts require the Bennetts to make monthly payments to The Paddock for the purchase of the home as well as for a maintenance fee. Personal property taxes are paid by the Bennetts to the County Treasurer. The Paddock pays real estate taxes on the land where the home sits.

         In 2016 the Bennetts filed a Chapter 13 bankruptcy petition. Their proposed plan treated The Paddock's claim as partially secured and partially unsecured as provided for under 11 U.S.C. §1322(b)(2). This code section states in relevant part: "[T]he plan may [m]odify 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." (emphasis added). The Paddock objected to this treatment arguing that it holds a security interest in real property that is the debtor's principal residence and is, therefore, protected from bifurcation of its claim under section 1322(b)(2). After conducting an evidentiary hearing, the bankruptcy court concluded that the Bennetts' home was not real property under Iowa law, overruled The Paddock's objection and confirmed the Bennetts' chapter 13 plan. This appeal followed. The Paddock presents two primary arguments. First, that the bankruptcy court committed error because the record as a whole demonstrates its intent to make the Bennetts' home a fixture. Second, that the bankruptcy court incorrectly applied the law.

         STANDARD OF REVIEW

         This appeal involves a mixed question of law (the bankruptcy court's application of Iowa law regarding fixtures) and fact (the bankruptcy court's fact findings regarding the property and the intent of the parties). As the United States Supreme Court recently observed, "Mixed questions are not all alike." U.S. Bank Nat. Ass'n v. Vill. at Lakeridge, LLC, 200 L.Ed.2d 218, 222 (U.S. 2018). But, as applicable here, certain "mixed questions immerse courts in case-specific factual issues - compelling them to marshal and weigh evidence, make credibility judgments, and otherwise address what we have . . . called 'multifarious, fleeting, special, narrow facts that utterly resist generalization.'" Id. at 227 (quoting Pierce v. Underwood, 487 U.S. 552, 561-562 (1988)). In such a situation, "appellate courts should usually review a decision with deference. Id. (citing Anderson v. Bessemer City, 470 U.S. 564, 574-576 (1985)). Accordingly, we review the bankruptcy court's determination that the manufactured home at issue is not a fixture under Iowa law with deference; that is, for clear error. Its conclusions of law are reviewed de novo. Green Tree Servicing, LLC v. Coleman (In re Coleman), 392 B.R. 767, 768 (BAP 8th Cir. 2008).

         DISCUSSION

         In order for the anti-modification provision of 1322(b)(2) to apply, The Paddock's claim "must both be secured only by an interest 'in real property' and further, that the real property must be the 'debtor's principal residence'" In re Coleman, 392 B.R. at 770. The Paddock bears the burden of proof on these issues. In re Snowden, 546 B.R. 39, 44 (Bankr. E.D. KY 2016); In re Hutsler, No. 16-60275, 2016 Bankr. LEXIS 4361, at *10 (Bankr. W.D. Mo. Dec. 19, 2016); In re Petrella, 230 B.R. 829, 832 (Bankr.N.D.Ohio 1999). Here, there is no dispute that the manufactured home is the principal residence of the debtors. The only dispute is whether that manufactured home is real property or personal property. That is an issue to be determined under the laws of the state of Iowa, which is where the home is located. In re Coleman, 392 B.R. at 772.

         Iowa common law recognizes that personal property may become a fixture and be considered real property. See Cornell Coll. v. Crain, 211 Iowa 1343, 1345 (1931). Determining whether an item has become a fixture is not a simple process.

Fixtures are a species of property which are the dividing line between real and personal property, and to decide which side of the line certain property belongs is often a vexatious question. When we compare a thing at the extremity of one class with a thing at the extremity of another the difference is obvious, but when we approach the point of ...

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