The Paddock, LLC v. Benjamin Bennett

United States Bankruptcy Appellate Panel
For the Eighth Circuit
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No. 17-6025
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In re: Benjamin and Teresia Bennett
Debtors.
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The Paddock, LLC
Creditor – Appellant,
v.
Benjamin M. Bennett,
Debtor - Appellee
Teresia R. Bennett
Debtor – Appellee
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Appeal from United States Bankruptcy Court
for the Northern District of Iowa
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Submitted: February 23, 2018
Filed: April 19, 2018
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Before SALADINO, Chief Judge, SHODEEN and SANBERG, Bankruptcy
Judges.
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SHODEEN, Bankruptcy Judge,
The Paddock, LLC appeals the bankruptcy court’s1 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
1
The Honorable Thad J. Collins, Chief Judge, United States Bankruptcy Court for the Northern
District of Iowa.
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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
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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 division difficulty arises in discovering
where the distinction should be drawn.
Ottumwa Woolen Mill Co. v. Hawley, 44 Iowa 57, 60 (1876). Three factors are
applied to evaluate whether a property is a fixture: “(1) it is actually annexed to
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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 Coll., 211 Iowa at 1345). The third factor – the
intention of the party making the annexation – is most important to whether an
improvement is a fixture. Cornell Coll., 211 Iowa at 1345.
At the hearing conducted by the bankruptcy court an employee of The
Paddock’s management company testified that any home installed in the
community is placed on a full concrete foundation.2 As part of this process she
further explained that the wheels and axles are removed but the underlying
structure used to attach these transportation items likely remained in place because
there is no reason to remove it. Based upon the timing of her employment this
witness was not present at the time the Bennetts’ home was installed and she did
not inspected the foundation under their home. The Bennetts contend that their
home is not installed on a permanent foundation. Mr. Bennett testified that there is
no cement foundation behind the plastic skirting that surrounds the home. There is
a crawl space underneath the home along with piers and blocks that require
maintenance to address the sinking and shifting of the home in order to keep it
level.
2
After the evidentiary hearing, The Paddock asked the bankruptcy court to take judicial notice of a
“Guide to Foundation and Support Systems for Manufactured Homes” (“Guide”) from the United
States Department of Housing and Urban Development Office of Policy Development and Research.
The Bennetts filed a Motion to Strike which was denied. The record before us on appeal contains
no information that would permit a conclusion that The Paddock met the requirements under Federal
Rule of Evidence 201 to permit consideration of the documents; that the information somehow
proves its intent; or that the Bennetts’ home was placed on a permanent foundation. USCS Fed
Rules Evid R 201. This document was not offered or admitted as exhibit at the hearing; the
bankruptcy court’s ruling does not reference it; and the Guide was not designated as part of the
record on appeal. For these reasons we do not consider the contents of that Guide for purposes of
this appeal.
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Under Iowa law
[e]mphasis has also been given to the manner in which
the structure is attached to the soil, if at all. We said in
O'Bryon v. Weatherly and other cases cited supra that the
method of attachment is of little controlling importance,
although, by force of gravity alone, if the structure is
intended to be and is properly a part of the realty, it
becomes such. Therefore a physical attachment of the
structure to the soil or to an appurtenance thereto is not
essential to make the structure a part of the realty. The
method of attachment may, however, and, under some
circumstances does, quite conclusively establish the
intention.
Cornell Coll., 211 Iowa at 1345. The bankruptcy court identified specific facts that
have been evaluated by Iowa courts to determine whether a structure is a fixture.
Due to Mr. Bennett’s personal knowledge of the home, and the manner in which it
was installed, the bankruptcy court specifically found his testimony to be more
credible than the testimony of The Paddock’s representative. We see no reason to
disturb that finding. Wright v. St. Vincent Health Sys., 730 F.3d 732, 739 (8th Cir.
2013) (such a finding is given deference and not easily challenged on appeal).
In further proof of its intent The Paddock points to language contained in the
documents executed by the parties, specifically Section III of the Lease which
states: “[t]he Land Owner and Resident agree that the Home shall be installed as a
permanent improvement and fixture.” The Bennetts argue that the documents are
not dispositive of The Paddock’s intent for a variety of reasons. The bankruptcy
court agreed and enumerated a number of facts that support its conclusion that the
parties did not intend to make the home a permanent accession to the real estate.
The installment sales contract provides that upon full payment of the
purchase price a bill of sale (which is how personal property title is passed) will be
issued to the Bennetts for the home. The Lease agreement states: “The Home and
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any other improvements covered under the Financing Documents may not be
removed from the Home Site without the prior written permission of the Secured
Lender,” but that prohibition is limited. Once the secured loan is paid or
refinanced, nothing in the documents prohibits removal of the home. Further,
while the Paddock points to the length of the Lease as evidence of its intent to treat
the manufactured home as a fixture of the underlying realty, it is clear that the
Lease can be terminated on 60 days notice. Other than removal while money is
owed to The Paddock, the documents contain no other restrictions that pose any
impediments to removing the home from the community.
The Paddock argues that the bankruptcy court incorrectly relied upon In re
Drahn in reaching a determination that a manufactured home is personal property
because its taxes are characterized and assessed as such. Schnittjer v. Burke
Constr. Co. (In re Drahn), 405 B.R. 470, 475 (Bank N.D. Iowa 2009). The
significance of this case in the bankruptcy court’s ruling is overstated. In re Drahn
mainly stands for the proposition that an installment sale contract for the purchase
of a manufactured home is not an executory contract that must be assumed or
rejected pursuant to 11 U.S.C. §365. Id. at 477. Iowa law recognizes that a
manufactured home may be taxed as either personal property or as real property
under certain circumstances. Iowa Code § 435.263; Iowa Code § 435.2(2).4 The
bankruptcy court recognized that even if In re Drahn was not considered, the
Bennett’s home would still qualify as personal property under Iowa law. See also
Wallingford v. Green Tree Servicing, LLC (In re Wallingford), 524 F. App’x 205,
3
“A mobile home or manufactured home which is located outside a manufactured home community
or mobile home park shall be converted to real estate by being placed on a permanent foundation
and shall be assessed for real estate taxes.”
4
“If a manufactured home is placed in a manufactured home community or a mobile home park,
the home must be titled and is subject to the manufactured or mobile home square foot tax. If a
manufactured home is placed outside a manufactured home community or a mobile home park,
the home must be titled and is to be assessed and taxed as real estate.”
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208 (6th Cir. 2013) (It is proper for appellate courts to look to state law when
determining what qualifies as real property).
The Paddock also argues that the bankruptcy court’s reliance on In re
Coleman is inapposite because Iowa’s common law contains no requirement that a
manufactured home be installed on a permanent foundation or that it be placed on
real estate owned by the manufactured home owner. In re Coleman, 392 B.R. at
722. In re Coleman applied Missouri law which, at that time, treated a
manufactured home as personal property until converted to real property according
to Mo. Rev. Stat § 700.111. Id. That case ultimately determined that a mobile
home was personal property where it could be jacked up, attached to wheels and
moved. Id. at 773. Missouri has since changed its law. The Paddock appears to
suggest that because the Missouri law has been revised this case no longer has any
relevancy under Iowa law. This argument is not persuasive. When In re Coleman
was decided, Missouri’s law was similar to Iowa’s law related to whether
manufactured homes were personal or real property. The bankruptcy court
explicitly noted that it applied In re Coleman to the facts contained in the record
under Iowa law. Because Iowa’s law has not changed, the analysis in In re
Coleman remains germane.
CONCLUSION
Based upon our review the bankruptcy court’s findings are not clearly erroneous
and it properly applied the law. Accordingly, the bankruptcy court’s order is
AFFIRMED.
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