BANKRUPTCY CORNER
BANKRUPTCY CORNER
What Does “ is ” Mean ?
JASON S . RIGOLI
In Lee v . U . S . Bank , N . A ., Case No . 21-13887 , -- F . 4th -- , 2024 U . S . App . LEXIS 12477 ( 11th Cir . May 23 , 2024 ), the Eleventh Circuit grappled with the meaning of “ is ” in the context of 11 U . S . C . § 1123 ( b )( 5 )’ s antimodification provision .
The issue in Lee was whether the debtor , who owned a 43-acre plot of land on which the debtor ’ s primary residence was located , occupying approximately 2.5 acres of the property , and the remaining 40.5 acres were leased to a farming company , could modify U . S . Bank ’ s mortgage encumbering the debtor ’ s 43 acres of real property . 2024 U . S . App . LEXIS 12477 at * 4-6 . The security deed executed by the debtor required the debtor to occupy , establish , and use the property as her principal residence . Id . at * 4 .
The majority in Lee started its analysis with the statutory language .
Section 1123 ( b )( 5 ) provides that a chapter 11 plan of reorganization may not “ modify the rights of holders of . . . a claim secured only by a security interest in real property that is the debtor ' s principal residence .” 11 U . S . C . § 1123 ( b )( 5 ). Id . at * 8 ( internal quotation marks omitted ).
Section 101 ( 13A )( A ) defines “ debtor ’ s principal residence ” as “ a residential structure if used as the principal residence by the debtor , including incidental property , without regard to whether that structure is attached to real property .” Id . at * 8-9 ( internal quotation marks omitted ).
Section 101 ( 27B ) defines “ incidental property ” as “ with respect to a debtor ' s principal residence — ( A ) property commonly conveyed with a principal residence in the area where the real property is located ; ( B ) all easements , rights , appurtenances , fixtures , rents , royalties , mineral rights , oil or gas rights or profits , water rights , escrow funds , or insurance proceeds ; and ( C ) all replacements or additions .” Id . at * 9 ( internal quotation marks omitted ).
Reading the sections together , the majority in the Eleventh Circuit found 1123 ( b )( 5 ) had “‘ three distinct requirements ’”: “[ F ] irst , the security interest must be in real property ; second , the real property must be the only security for the debt ; and third , the real property must be the debtor ' s principal residence ." Id . at 9 ( internal quotation marks and citations omitted ; alterations in original ).
Now to the word “ is .” The majority considered the “ Scarborough ” approach to reading the anti-modification provision which interprets “ is ” to mean “ only or exclusively ,” whereby the real property could only or exclusively be used as the debtor ’ s principal residence . 2024 U . S . App . LEXIS 12477 at * 10-15 ( citing Lomas Mortg ., Inc . v . Louis , 82 F . 3d 1 , 4-7 ( 1st Cir . 1996 ) and In re Scarborough , 461 F . 3d 406 , 411 ( 3d Cir . 2006 )). Ultimately , the majority decided that “ is ” does not mean “ only or exclusively ,” instead following the common definition of “ is ” which is the conjugated form of the verb “ be ,” meaning “‘[ t ] o belong to a given class or group ’ or ‘[ t ] o have or exhibit a given quality or characteristic .’” 2024 U . S . App . LEXIS 12477 at * 13 ( quoting Webster ' s II New Riverside University Dictionary 159 ).
Having determined the meaning of “ is ,” the majority held that the 40.5-acres leased to the farming company is “ incidental property ,” the “ three distinct requirements ” were met by U . S . Bank , and the debtor could not modify the mortgage encumbering the entire parcel of property pursuant to 11 U . S . C . § 1123 ( b )( 5 ).
Conclusion
The Eleventh Circuit ’ s Opinion creates a circuit split over the meaning of “ is ” in §
1123 ( b )( 5 ), which may one day be resolved by the Supreme Court . For now , in this circuit , any property used by a debtor as a principal residence will remain subject to the anti-modification provision of 11 U . S . C . § 1123 ( b )( 5 ).
This article was submitted by Jason S . Rigoli , Esq ., Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL 33431 , jrigoli @ furrcohen . com .
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