Opinion
Bankruptcy Case No. 11-41856-JDP
04-13-2012
In re: TERRY W. DOBBS and JERI L. DOBBS, Debtors.
John Avery, Idaho Falls, Idaho, Attorney for Debtors. Ben Cluff, COLEMAN, RITCHIE & CLUFF, Attorney for Martin and Monica Meyers.
MEMORANDUM OF DECISION and
ORDER re OBJECTION to CLAIM
Appearances:
John Avery, Idaho Falls, Idaho, Attorney for Debtors.
Ben Cluff, COLEMAN, RITCHIE & CLUFF, Attorney for Martin and Monica Meyers.
Kathleen McCallister, Boise, Idaho, Chapter 13 Trustee .
MEMORANDUM OF DECISION
Chapter 13 debtors Terry Wayne and Jeri Lynn Dobbs ("Debtors") filed an objection to Proof of Claim No. 8 filed in this bankruptcy case by creditors Monica and Martin Meyers ("Creditors"). Dkt. No. 38. Debtors argue that Creditors have incorrectly calculated the amount of the "arrearage" they owe on a promissory note Debtors made and delivered to Creditors in connection with a $20,018.99 loan. Debtors defaulted on the loan before they filed their bankruptcy petition, and now propose to cure that default by paying the arrearage through their chapter 13 plan pursuant to § 1322(b)(5). Creditors responded to the objection, Dkt. No. 46, and assert the arrearage amounts to $52,414.89. Debtors insist the correct amount of arrearage should be $14,669.77.
Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all rule references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
Claim No. 8 indicates Monica Meyers is now known as "Monica (Meyers) Ware." She is referred to in the promissory note and deed of trust governing Creditors' loan to Debtors simply as Monica Meyers. See Claim No. 81.
Section 1322(b)(5) provides:
(b) [A debtor's] plan may—
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(5) . . . provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due.
Creditors' Proof of Claim indicates the arrearage amount is $52,416.78. While, in their Response to Debtors' Objection to Claim, Creditors indicate that, "[d]ue to a calculation error, the amount shown as the arrearage in [the] Proof of Claim should be $52,414.89, not $52,416.78," they have not amended the Proof of Claim to reflect the actual arrearage amount. See Dkt. No. 46 at 2.
Debtors also miscalculated the arrearage amount in earlier filings; they asserted the arrearage was $14,344.77 in their Objection to Creditors' Claim. See Dkt. No. 38.
As security for their loan, Debtors executed a deed of trust on their real property in favor of Creditors. Now, in objecting to Creditors' arrearage calculations, Debtors assert that deeds of trust are subject to the Uniform Principal and Income Act ("UPIA"), and that applying the UPIA to the facts here results in the lower arrearage figure. In other words, Debtors argue that, because the word "trust" is used in the UPIA, and because the instrument securing Creditors' loan is a "deed of trust," the UPIA is the applicable nonbankruptcy law that governs the arrearage amount necessary to cure their default. See § 1322(e). However, Debtors are mistaken.
Per Debtors' reading of the UPIA, specifically Idaho Code §§ 68-10-302(b) and (c), an arrearage is to be calculated based on the principal and interest that would have been due had no default occurred, and should not include an amount for interest accrued as a result of default. See Debtor's Memorandum Regarding Arrearage at 3, Dkt. No. 59.
Section 1322(e) provides:
[I]f it is proposed in a plan to cure a default, the amount necessary to cure the default shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law.
Deeds of trust are not "trust instruments" for the purposes of the UPIA. The general provisions of the Idaho Code governing statutory construction provide:
Words and phrases are construed according to the context and the approved usage of the language, but technical words and phrases, and such others as have acquired a peculiar and appropriate meaning in law, or are defined in the succeeding section, are to be construed according to such peculiar and appropriate meaning orIdaho Code § 73-113. This is consistent with Idaho case law. See, e.g., Maguire v. Yanke, 590 P.2d 85, 92 (Idaho 1978) ("It is a matter of common understanding that definitional provisions do not purport to prescribe what meanings shall attach to the defined terms for all purposes and in all contexts but generally only establish what they mean where they appear in that same act.").
definition.
Title 68 of the Idaho Code, where the UPIA is found, relates to trusts and fiduciaries. Idaho Code §§ 68-101 to -1405. Trusts are defined therein as:
[A]n express trust created by a trust instrument, including a will, whereby a trustee has the duty to administer a trust asset for the benefit of a named or otherwise described income or principal beneficiary, or both; "trust" does not include . . . a security instrument . . . .Idaho Code § 68-104(1). In other words, a "trust" for UPIA purposes includes an asset that is managed to benefit income beneficiaries and principal beneficiaries. Id. The specific provisions of the UPIA relied upon by Debtors identify how a trustee is to allocate income receipts or disbursements as between those two types of beneficiaries. See Idaho Code §§ 68-10-302(b) and (c).
Title 45 of the Idaho Code, on the other hand, governs liens, mortgages, and pledges, and contains a definition of "trust deed":
[A] deed executed in conformity with this act and conveying real property to a trustee in trust to secure the performance of an obligation of the grantor or other person named in the deed to a beneficiary.Idaho Code § 45-1502(3); see also BLACK'S LAW DICTIONARY 476 (9th ed. 2009) (defining "deed of trust" as "[a] deed conveying title to real property to a trustee as security until the grantor repays a loan"). For the purposes of Title 68 of the Idaho Code, including the UPIA, "trust" specifically excludes security instruments. Trust deeds, however, are security instruments intended to assure loan performance. See Idaho Code § 45-1502(3). Thus, the provisions of the UPIA do not apply to deeds of trust.
This is particularly evident in looking at other portions of the UPIA not relied upon by Debtors, which govern, among other things, residuary and remainder beneficiaries, income and principal receipts derived from trust property, trustees' investment and management of trust assets, income distributions, and the liquidation of assets. See, e.g., Idaho Code §§ 68-10-104, - 201, -202, -410. Such regulations are consistent with the concept and operation of typical express trusts, but not with the operation of deeds of trust.
The UPIA, even if applied to deeds of trust, would not govern the calculation of interest or the arrearage in this case. Debtors' arrearage is calculated based on the terms of their promissory note. The deed of trust's purpose is to provide security for the "[p]ayment of the indebtedness evidenced by [the] promissory note," including "principal and interest." Claim No. 8-1 at 5. The deed of trust was not intended by the parties to fix payment amounts, interest rates, or the means to calculate the outstanding debt. Thus, even if the UPIA applied to Debtors' deed of trust, the note, and not the deed of trust, would control the arrearage calculations.
Even if the deed of trust contained the interest rates and other information necessary to calculate the arrearage in this case, the terms of the deed of trust, and not the UPIA, would control. See Hedrick v. West One Bank, Idaho, N.A., 853 P.2d 548, 553 (Idaho 1993) ("If the trust document has terms contrary to the provision of the [UPIA], the trust document controls.").
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As Debtors have not provided any reason besides the asserted application of the UPIA to support their objection to Creditors' Proof of Claim, that objection will be denied.
ORDER
For the reasons set forth above, and for other good cause, IT IS HEREBY ORDERED THAT Debtors' Objection to the Proof of Claim filed herein by Creditors' Claim No. 8, Dkt. No. 38, is hereby DENIED.
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Honorable Jim D. Pappas
United States Bankruptcy Judge