In a decision with important implications for lenders in the real estate business, the Bankruptcy Appellate Panel for the First Circuit determined that debtors can strip down a creditor’s under-secured claim in a multi-family dwelling to the appraised value of the property. While the Bankruptcy Technical Corrections Act of 2010 (“BTCA”) were in effect at the time of the decision, the panel decided the issue under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) because both parties argued the issue under the BAPCPA definitions and declined to raise the applicability of BTCA to the issue. Specifically at issue in the case, Pawtucket Credit Union v. Pichhi (In re Picchi), was whether the definitions introduced by Congress under the BAPCPA amendments brought multi-family dwellings within the definition of debtor’s principal residence and by extension incidental property. In deciding the issue, the court relied heavily upon the pre-BAPCPA case of Lomas Mortgage, Inc. v. Louis, finding that the definitions of “debtor’s principal residence” and “incidental property” introduced by BAPCPA did not alter the meaning of section 1322(b)(2), the anti-modification provision of the Code.
To best understand the implications of the panel’s decision it is necessary to first understand the relevant provisions of the Bankruptcy Code and the reasoning behind the decision. After reviewing these important matters we can then turn to the future impact that the In re Picchi decision may have in the future. Therefore, Part I of this memorandum will analyze the precedential case of Lomas, the landmark case of Nobelman v. American Sav. Bank and Bankruptcy Code provisions including, section 1322 anti-modification provision, section 506 bifurcation provision, section 101(13A)’s definition of debtor’s principal residence, and section 101(27B)’s definition of incidental property. Next, part II of this memorandum will provide a detailed explanation of the panel’s decision, including analyzing the relevant precedent, the arguments made, and the reasoning for deciding the issue under the BAPCPA instead of the BTCA. Finally, part III will look at how future courts may analyze the issue and decide the issue based on the BTCA while still looking to In re Picchi for guidance.