## Facts

- Terrie M. Mattson owned and occupied a Minnesota residence purchased in 1994 for about $50,000, financed by a first mortgage to Norwest Mortgage, Inc.
- In 1995, Mattson borrowed $10,000 from Commercial Credit Consumer Services, Inc., giving Commercial a second mortgage on the residence.
- Mattson filed a Chapter 13 petition and plan on February 27, 1997.
- The plan treated Norwest’s first mortgage as fully secured and proposed to treat Commercial’s second mortgage as wholly unsecured based on Mattson’s asserted property value relative to the first mortgage balance.
- Commercial objected to confirmation, arguing (1) the property value exceeded the first mortgage (leaving equity for its lien) and (2) its claim was protected from modification as a homestead mortgage under 11 U.S.C. § 1322(b)(2).
- The plan’s final payment would come due before the final payment on Commercial’s note under its original payment schedule, implicating 11 U.S.C. § 1322(c)(2).

## Issues

1. Whether a Chapter 13 debtor may use 11 U.S.C. § 506(a) to value a junior mortgage on the debtor’s principal residence and treat it as unsecured if the property value does not reach the junior lien.
2. Whether 11 U.S.C. § 1322(b)(2), as construed in Nobelman, bars modification of the junior mortgagee’s rights, or whether 11 U.S.C. § 1322(c)(2) permits modification when the last payment on the original schedule is due before the plan’s final payment.

## Decision

- The court overruled Commercial’s objection in part, rejecting the argument that § 1322(b)(2) categorically prohibited modification of Commercial’s claim.
- The court held that, if § 1322(c)(2) applies, the debtor may modify the home-mortgage claim, including through § 506(a) valuation and bifurcation.
- Because the residence value was disputed, the court set an evidentiary hearing to determine value and the extent (if any) of Commercial’s secured claim.

## Legal Principles

- Section 1322(b)(2) generally bars modification of the rights of a creditor holding a claim secured only by the debtor’s principal residence.
- Section 1322(c)(2) creates a limited exception: when the last payment on the original schedule for a principal-residence mortgage claim is due before the plan’s final payment, the plan may provide for payment of the claim “as modified.”
- Under a claim-focused reading of § 1322(c)(2), modification may include § 506(a) valuation and bifurcation, not merely rescheduling of payments.
- When valuation is contested, confirmation objections turning on secured status require an evidentiary determination of the property’s value to apply § 506(a).

## Conclusion

The bankruptcy court held that § 1322(c)(2) can permit modification of certain short-term principal-residence mortgage claims through § 506(a) valuation and bifurcation despite § 1322(b)(2), and it continued confirmation for a valuation hearing to decide whether the junior mortgage was secured or wholly unsecured.


In re Mattson, 210 B.R. 157 (Bankr. D. Minn. 1997)