Reviewing For Clear Error, BAP Affirms Bankruptcy Court Decision That Manufactured Home Is Personal Property Under Iowa Law

By Karl Johnson posted 16 days ago

  
BANKRUPTCY BULLETIN
Editors-in-Chief
Karl Johnson, Hellmuth & Johnson, PLLC
Jeffrey Klobucar, Bassford Remele, P.A.
Contributing Editor: James Brand, Fredrikson & Byron, P.A.
Eighth_Circuit___Paddock__LLC_v__Bennett.pdf

In The Paddock, LLC v. Bennett (In re Bennett), No. 17-6025 (8th Cir. B.A.P. April 19, 2018), the Eighth Circuit Bankruptcy Appellate Panel analyzed Iowa state law regarding fixtures and concluded that the debtors’ manufactured home was personal property, rather than real property.  As a result, the debtors were able to confirm a chapter 13 plan that treated an installment sale contract, secured by their manufactured home, as partially secured and partially unsecured.  The lender argued that such treatment was prohibited by 11 U.S.C. § 1322(b)(2), which provides that a chapter 13 plan may not modify the rights of a holder of a secured claim secured by a security interest in real property that is the debtor’s principal residence.  After an evidentiary hearing, the bankruptcy court determined that the manufactured home was not a fixture, and therefore not real property.  The correct legal standard under Iowa law was not in dispute, but the lender challenged the bankruptcy court’s findings and its application of the legal standard.  In particular, the lender challenged the bankruptcy court’s finding that the lender did not intend to make the manufactured home a fixture.  The lender also leased the underlying real property to the debtors.  Despite language in the lease that the home would be “installed as a permanent improvement and fixture,” the bankruptcy court found that the home was not actually installed on a permanent foundation, it was capable of being moved, the lease could be terminated on 60 days’ notice, and the debtors would have been permitted  to remove the home under some circumstances.  Perhaps the most interesting aspect of the decision is the level of deference given by the BAP to the bankruptcy court’s determination that the manufactured home was not a fixture under Iowa law.  The BAP, noting that mixed questions of law and fact “are not all alike,” reviewed the decision for clear error due to the centrality of case-specific factual issues.

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