Mobile HomeFrom our neighbors to the west in Alabama, the issue before the Court in In re Atchison, 557 B.R. 818 (Bankr. M.D. Ala. 2016) was whether a debtor can modify the secured claim of a lender where the security is a manufactured home that serves as the debtor’s residence.  Section 1322(b)(2) provides: “the plan may …modify 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 principal residence, …”.  Thus, lenders whose claims are undersecured cannot have their liens stripped entirely, or down to the value of the collateral.  Is a manufactured home “real property” such that the claim cannot be modified in a Chapter 13 Plan?

The first place the Court looked for the answer was Alabama state law, since property interests are typically “created and defined by state law.”

Under Alabama law, a manufactured home is personal property at the time of its sale. See ALA. CODE § 32B20-20(a) (requiring that manufactured homes in Alabama with designated model years of 1990 or later must have a certificate of title which is indicative of its chattel character)…

However, there are exceptions under which the manufactured home could be deemed real property.

Therefore, in order for a manufactured home to become realty, Alabama law requires 1) that the manufactured home be affixed to real property, 2) that the manufactured home and realty be owned by the same person or persons, and 3) that the certificate of origin or certificate of title be cancelled.

See ALA. CODE § 32–20–20(b).

In this case, the parties agreed that the manufactured home had become affixed to real property and the mobile home and the land to which it was affixed were owned by the same party – the debtor.  However, it was undisputed that the third element was not met as the certificate of title or certificate of origin had not been cancelled.  Therefore, under Alabama law, the manufactured home remained personal property.  The Court noted that this result was somewhat inconsistent with the legal concepts regarding “fixtures” (“an article of personalty which has become so affixed or annexed to realty as to become part of that realty, inseparable from it without damage to the underlying realty and therefore partaking of the legal incidents of the freehold”), but under Alabama law, manufactured homes were expressly subject to a different treatment.

Further, Alabama law authorizes the secured party with a perfected security interest, such as a manufactured home lienholder, to remove an affixed manufactured home on default of the purchaser. ALA. CODE § 7–9A–604(c). If the lienholder does remove the affixed manufactured home pursuant to § 7–9A–604(c), damages are measured differently than they are measured for the removal of other fixtures not subject to a perfected security interest. ALA. CODE § 7–9A–604(d) (providing that the secured party is liable for the damage to the underlying realty caused by the fixture removal, but not for the diminution of the value of the property caused by the fixture’s removal). Hence, although a manufactured home may become affixed, Alabama law explicitly protects a manufactured home lienholder by providing for the retention of priority and the ability to remove the fixture with a corresponding limitation on the resulting damages.

As long as the lienholder retains a perfected interest by way of the certificate of title, the manufactured home is always subject to removal even if it has become affixed to the land. Therein lies the significance of cancelling the certificate of title. Specifically, to effectuate a cancellation of the certificate of title, a lienholder must first release its lien. ALA. CODE § 32–20–20(b)(2). By releasing its lien, the creditor is essentially relinquishing its right to remove the manufactured home from the real property… Thus, it is only by cancelling the certificate of title in accordance with § 32–20–20(b) that a manufactured home ultimately becomes real property.

Finally, the above analysis does not change because the loan contract provides that the home ““shall be conclusively deemed to be real estate.” This provision disregards and would negate the statutory requirements.

Accordingly, the debtor was able to modify the rights of the lender in his Chapter 13 plan.

Picture courtesy of and Tiny Heirloom.

Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation.  For more information, click here.