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UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA
In re: Case No. 13-20891-AJC
LUIS L. RAMIREZ
Debtor /
ORDER CONFIRMING CHAPTER 13 PLAN
This case is before the Court upon Lansdowne Mortgage LLCs (the Creditors)
Objection to Confirmation of the Debtors proposed Third Amended Chapter 13 Plan. An
evidentiary hearing was held on these issues on January 29, 2014. After hearing the evidence
presented, the Court makes the following Findings of Fact and Conclusions of Law.
Procedural Background
The Creditor filed its proof of claim for a first priority residential mortgage secured by a
duplex which is both the Debtors home and rental property [Claim No. 3-1]. The Debtor filed
an objection to the proof of claim [D.E. 28] to which the Creditor filed a response [D.E. 45].
ORDERED in the Southern District of Florida on April 4, 2014.
A. Jay Cristol, Judge
United States Bankruptcy Court
_____________________________________________________________________________
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The Debtor also filed a motion to value the property [D.E. 14] to which the Creditor filed an
opposition [D.E. 35]. The parties agree the property value is $100,000 [D.E. 56]. The Creditor
filed an Objection to Confirmation [D.E. 61] to which the Debtor filed a response in opposition
[D.E. 64].
The two issues before the Court are: 1) whether the Debtor can modify the residential
mortgage on a duplex that is both the debtors primary residence and rental property where the
Creditor alleges it predominantly viewed the mortgage transaction as providing the borrower
with a residence, and 2) if such modification is permissible, whether the balloon payment in the
final month is feasible.
Issue 1: Does 1322(b)(2)s anti-modification provision prohibit strip-down of a duplex that is
both the debtors primary residence and rental property where the creditor alleges it
predominantly viewed the mortgage transaction as providing the borrower with a residence?
Findings of Fact
At the January 29, 2014, evidentiary hearing, the Court considered the mortgage and
closing documents provided by the Creditor. The parties do not dispute the authenticity of the
closing documents, but disagree as to how they should be interpreted. The Debtor relies on
Section F of the 1-4 Family Rider and Assignment of Rents to the mortgage which deletes the
borrower occupancy provision of the mortgage: Unless Lender and Borrower otherwise agree in
writing, Section 6 concerning Borrowers occupancy of the Property is deleted. The Creditor
responds that the mortgage does not actually contain a borrower occupancy provision and
suggests the rider was simply an error. The Debtor contends that to the extent any ambiguity
exists as to the rider, such ambiguity must be construed against the Creditor as the drafter.
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Finally, the Debtor notes that the Creditor failed to present any evidence signed by both parties,
as required by the rider, altering the terms regarding the owner-occupancy provision.
The Creditor also introduced evidence of closing documents including the Uniform
Residential Loan Application and a Disclosure Notice that contained an Affidavit of Occupancy
both of which indicated the Debtor checked the box for residence and not investment.
Neither of these documents was signed by the Creditor. The Debtor concedes that it intended to
use the property as his primary residence, however, asserts that he also always intended to rent
out the other unit of his duplex. The Debtor argues that it would have been inappropriate to
select the box for investment property because the Creditor defined it as Not owner-occupied.
Purchased as an Investment to be held or rented, and the property would be, in fact, owner-
occupied. Moreover, the Debtor points to page 3 of the rental application, Section VI. Assets
and Liabilities, which shows the Creditor specifically contemplated the Debtor would rent out a
portion of the duplex and that the Creditor considered $1,000 in monthly gross rental income
for the 2-4PLX property.
Conclusions of Law
As a preliminary matter, the Court notes that the cases permitting modification of
residential mortgages secured by multiunit-properties are legion. In re Zaldivar, 441 B.R. 389,
390 (Bankr. S.D. Fla. 2011) (collecting cases). A totality of the circumstances test, analyzing the
facts of each case, is used to determine whether a cramdown is permissible. Id. Specifically, the
Court looks to the predominant character of the mortgage transaction:
If the transaction was predominantly viewed by the parties as a loan
transaction to provide the borrower with a residence, then the
antimodification provision will apply. If, on the other hand, the
transaction was viewed by the parties as predominantly a commercial loan
transaction, then stripdown will be available.
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Id. The Zaldivar court previously held that the predominant character of a mortgage cannot be
viewed as providing a debtor with a residence where, as here, the Debtor is not required to reside
in the property:
Because the Debtor is not required by the mortgage documents to occupy
the property at all, the predominant character of this transaction cannot be
predominantly viewed by the parties as a loan transaction to provide the
borrower with a residence.
Id. (internal citation omitted) (emphasis supplied). This Court finds the Zaldivar reasoning
persuasive in that a Creditor who does not require a borrower to reside in the property cannot
simultaneously assert that it predominantly viewed the transaction as providing the Debtor with a
residence.
The Court further finds that to the extent any ambiguity exists as to the applicability of
the rider deleting the borrower occupancy provision, such ambiguity is construed against the
Creditor as drafter of the mortgage contract. See generally In re Woodham, 174 B.R. 346,
(Bankr. M.D. Fla. 1994):
It is an axiom of contract interpretation law that an ambiguous contract be
interpreted against its drafter. Any ambiguity resulting from the deliberate choice
of language will be interpreted most strongly against the party who wrote it . . .
Insofar as contract language may be deemed ambiguous, Florida law dictates that
any ambiguity will be interpreted against the party who selected the language . . .
this principal of law is applicable to a mortgage . . . Furthermore, a mortgage can
be termed an adhesion contract, since it is generally not bargained for; rather it is
imposed on the mortgagor on a take it or leave it basis by the mortgagee.
According to Blacks Law Dictionary, the distinctive feature of an adhesion
contract is that the weaker party has no realistic choice as to its terms. The
demand to interpret ambiguous language against the maker of an adhesion
contract becomes even more imperative.
(internal citations and quotation marks omitted).
Finally, the Court finds that the Creditor did not present any evidence, signed by
both parties as required by the rider, altering the terms of the rider deleting the owner-
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occupancy provision. The Uniform Residential Loan Application and Disclosure Notice
with the Borrower Occupancy provision were only signed by the Debtor. Moreover, the
Creditor drafted both notices which did not provide an option for the borrower both
residing in the property and renting it out. As such, the Debtor correctly selected the box
for owner-occupation. More importantly, for bankruptcy purposes the inquiry is not
whether the property is the debtors primary residence, a point the Debtor concedes;
rather, the inquiry is whether the property is solely the borrowers primary residence.
Where the borrower resides in one unit and rents out the other unit of a duplex, the
property is not solely the borrowers primary residence and, as such, the mortgage is
subject to modification.
Issue #2: Is a $66,093.81 balloon payment in the final month feasible?
Findings of Fact
The Debtor proposes a Third Amended Plan [D.E. 59] that provides for equal monthly
payments of $718.41 to the Creditor plus interest and a final balloon payment of $66,093.81 plus
interest in month 60. The Creditor argues this is not feasible and is concerned the Debtor could
dismiss in month 59 and thwart the Creditor. The Debtor argues he will have significant equity
in the property with which to refinance the mortgage to satisfy the balloon payment in month 60.
Conclusions of Law
The Bankruptcy Code neither makes provisions for nor precludes the use of balloon
payments in Chapter 13 cases. In re Hendricks, 250 B.R. 415, 421 (Bankr. M.D. Fla. 2000)
(internal citations omitted). Whether a balloon payment will be permitted is left to the sound
discretion of the Court under the circumstances of each case. In re McClaflin, 13 B.R. 530,
533 (Bankr. N.D. Ill. 1981). Courts consider numerous factors, including the future earning
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capacity and disposable income of the debtor, whether the plan provides for the payment of
interest to the secured creditor over the life of the plan, and whether the plan provides for
substantial payments to the secured creditor which will significantly reduce the debt and enhance
the prospects for refinancing at the end of the plan. In re Fantasia, 211 B.R. 420, 423-24
(B.A.P. 1st Cir. 1997).
Courts have imposed a more stringent standard where the risk of potential abuse exists,
see In re Crotty, 11 B.R. 507, 511-12 (Bankr. N.D.Tex. 1981) (explaining that credible and
definite evidence of an ability to repay the balloon payment is required because of the potential
for abuse by the Chapter 13 debtor who could dismiss before the balloon payment is due and
refile to repay the balloon payment) or when the plan is not filed in good faith, see In re
Harrison, 203 B.R. 253, 256 (Bankr. E.D.Va. 1996) (applying a reasonable certainty standard
regarding the ability to pay a balloon payment to deny confirmation where the debtor filed a
Chapter 13 bankruptcy to address child support arrearages two months after obtaining a Chapter
7 discharge). The Court finds these more stringent standards inapplicable here where the Debtor
would lose the benefit of the cramdown if he is unable to satisfy the balloon payment. As the
Chapter 13 trustee noted, the Debtor has a strong incentive to successfully complete the plan
because of the cramdown. Moreover, the Creditor has not asserted lack of good faith; rather, the
Creditor contends the plan is not feasible.
Here, the Debtor is gainfully employed, making payments to his unsecured creditors and
does not require the consent of his spouse to encumber the home with a mortgage as he is the
sole record title owner. The plan also provides for interest to the Creditor over the life of the
plan. Fantasia at 423-24. More importantly, the threat of abuse is not present here because this
plan involves a cramdown. The Debtor proposes to pay nearly half the value during the life of
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the plan, a factor strongly weighing in favor of permitting the balloon payment. Id. There will
be significant equity in the home at the end of 5 years such that refinancing is reasonably certain.
In re Vause, No. 6:09-bk-06224-ABB, 2010 WL 1204534, at *2 (Bankr. M.D. Fla. March 16,
2010) (overruling creditors objection to Chapter 13 plan cramming down a duplex with a
balloon payment of $69,113 in month 60). Courts have observed that unless the real estate
market suffers a collapse, there is no reason to believe the value of the [lenders] security will
fall. In re McClaflin, 13 B.R. 530, 533 (Bankr. N.D. Ill. 1981) (noting that [r]efinancing the
balloon in 5 years is uncertain, but possible); see also SPCP Group, LLC v. Cypress Creek
Assisted Living Residence, Inc., 434 B.R. 650, 657 (M.D. Fla. 2010) (holding that the bankruptcy
court did not err in finding the Chapter 11 plan with a balloon payment feasible and noting that
based on the evidence presented, the debtor should be able to refinance at the time the balloon
comes due, if unable to cover the payment). In this case, the Miami-Dade County Property
Appraiser valued the property at $39,735.00 on the date of filing. Just a couple months later, the
Creditors appraisal valued the property at $100,000. The Debtor proposes to pay the full value
of the Creditors appraisal.
Permitting the Debtor to structure his plan with affordable payments for the next five
years and the opportunity to refinance in month 60 using the equity in his home is consistent
with the Congressional intent to provide Chapter 13 debtors with flexibility in structuring their
plans . . . [t]he policy behind Chapter 13 is to encourage individuals to pay their debts as opposed
to simply obtaining a discharge under Chapter 7. We recognize this statutory goal and seek to
preserve it. In re Ferguson, 134 B.R. 689, 695 (Bankr. S.D.Fla. 1991) (addressing the payment
of priority claims under 1322(a)(2)). Moreover, the Debtors home is necessary for an
effective reorganization. [M]ost courts have held that in a Chapter 13 case, a debtors home is
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necessary for an effective reorganization. In re Ramos, 357 B.R. 669, 672 (Bankr. S.D. Fla.
2006) (internal citations omitted). Accordingly, the Court overrules the Creditors objection to
confirmation based on feasibility.
ORDERED that the mortgage is subject to modification and the plan is feasible, as
such, the Court overrules the Creditors objections and confirms the Debtors Third Amended
Plan.
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Submitted by:
Jacqueline C. Ledon, Esquire
Counsel for Debtor
Address: Legal Services of Greater Miami, Inc.
3000 Biscayne Blvd., Suite 500, Miami, FL 33137
Phone: 305-438-2401
Email: jledon@lsgmi.org


The party submitting the order shall serve a copy of the signed order on all required parties and
file with the court a certificate of service conforming with Local Rule 2002-1(F).


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