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Birmingham v. Pnc Bank, N.A, Inc.

United States District Court, D. Maryland, Southern Division

July 7, 2015

GREGORY JOHN BIRMINGHAM, Appellant,
v.
PNC BANK, N.A., INC., et al., Appellees. In re: GREGORY JOHN BIRMINGHAM, Chapter 7, Debtor. Aversary Proc. No. 14-00378 No. 11-16614-WIL

MEMORANDUM OPINION

PAUL W. GRIMM, District Judge.

Appellant-Debtor appeals the Bankruptcy Court's dismissal of an adversary proceeding that sought a declaratory ruling that a Chapter 13 plan could modify the undersecured mortgage on Debtor's primary residence. Appellant argues that, because the deed of trust also conveyed rights to certain insurance proceeds, escrow funds, and condemnation awards, the loan is not secured "only" by the Debtor's primary residence and therefore can be modified. Appellee asks me to affirm the ruling of the Bankruptcy Court and hold that those other sources of payment merely were incidental to the security interest in the property itself. I agree with Appellee and affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Appellant-Debtor Gregory John Birmingham filed his voluntary Chapter 13 Petition on May 23, 2014. Ch. 13 Pet., ECF No. 2. Among the claims against Debtor is a mortgage (the "PNC Mortgage") in the amount of $309, 449.51 held by Appellee PNC Bank, N.A. ("PNC") and secured by a deed of trust (the "Deed of Trust") on Debtor's primary residence, 11721 Chilcoate Lane, Beltsville, Maryland 20706 (the "Property"). See Schedule D, ECF No. 2-10. According to Debtor's Schedule D, the Property is valued at only $206, 500.00 and there is an $86, 000 arrearage on the mortgage. Id.

The Deed of Trust grants PNC a security interest in the Property and provides certain additional protections to PNC. Section 3 of the Deed of Trust states:

Funds for Escrow Items. Borrower shall pay to Lender on the day Periodic Payments are due under the Note, until the Note is paid in full, a sum (the "Funds") to provide for payment of amounts due for: (a) taxes and assessments and other items which can attain priority over this Security Instrument as a lien or encumbrance on the Property; (b) leasehold payments or ground rents on the Property, if any; (c) premiums for any and all insurance required by Lender under Section 5; and (d) Mortgage Insurance premiums, if any, or any sums payable by Borrower to Lender in lieu of the payment of the Mortgage Insurance premiums in accordance with the provisions of Section 10. These items are called "Escrow Items."....
....
If there is a surplus of Funds held in escrow, as defined under RESPA, Lender shall account to Borrower for the excess funds in accordance with RESPA. If there is a shortage of Funds held in escrow, as defined under RESPA, Lender shall notify Borrower as required by RESPA, and Borrower shall pay to Lender the amount necessary to make up the shortage in accordance with RESPA, but in no more than 12 monthly payments.

Deed of Trust § 3, ECF No. 1-13.

Section 5 of the Deed of Trust provides:

Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term "Extended coverage, " and any other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance....
If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense. Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower's equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect.
....
... Borrower hereby assigns to Lender (a) Borrower's rights to any insurance proceeds in an amount not to exceed the amounts unpaid under the Note or this Security Instrument, and (b) any other of Borrower's rights (other than the right to any refund of unearned premiums paid by Borrower) under all insurance policies covering the Property, insofar as such rights are applicable to the coverage of the Property. Lender may use the insurance proceeds either to repair or restore the Property or to pay amounts unpaid under the Note or this Security Instrument, whether or not then due.

Id. § 5.

Finally, Definition (M) of the Deed of Trust creates a category of "Miscellaneous ...


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