A third party lender, ReTax paid the debtors real-estate taxes and took as consideration a promissory note from the debtor. ReTax objected to confirmation of the debtor’s Chapter 13 Plan. It argued that the debtor was not entitled to modify the interest rate on the promissory note because the anti-modification provision of 1322(b)2 for security interest, then the debtor’s principle residence should apply. Even if that provision did not apply, ReTax argued the protection against modification for tax claims under 511 should prevent the debtors from adjusting the interest rate under the Plan.
The court held that the anti-modification provision of 1322(b)2 did not apply since ReTax did not hold a security interest in the debtor’s principle residence. The court held that the transfer of tax liens ReTax received was not a “security interest” as defined by the Bankruptcy Code, and neither was the Deed of Trust they received. In the alternative, the court held that if the Deed of Trust were to qualify as a security interest, 13322(b)2’s anti-modification provision would still not apply because in that case the promissory note would not be secured by only a security interest, but by security interest in the transfer of tax liens. Therefore, since ReTax held only a tax lien, the anti-modification protection of 511 did not apply. The debtor was entitled to modify the interest rate on the promissory note.