IN RE WOLF

MEMORANDUM OPINION

STEPHEN A. STRIPP, Bankruptcy Judge.

This constitutes the court's decision on the parties' cross-motions for summary judgment. The plaintiff in this adversary proceeding, Lee Servicing Co., filed a five-count complaint against the debtors and the chapter 13 trustee to determine the extent and validity of its lien. Lee Servicing held a second mortgage on the debtors' primary residence. Lee Servicing maintains that the debtors' confirmed chapter 13 plan providing for cram down and cancellation of Lee Servicing's lien was improper or ineffective to avoid the lien. Lee Servicing filed a motion for summary judgment determining that it retains a valid lien and modifying the plan to provide for payment of its claim. The debtors filed a cross-motion for summary judgment dismissing the complaint of Lee Servicing and directing Lee Servicing, Alliance Funding and Princeton Bank and Trust Co. to cancel their mortgage and assignments on the record. The trustee also filed a cross-motion for summary judgment dismissing the complaint or alternatively, dismissing the complaint against the trustee. This court has jurisdiction under 28 U.S.C. §§ 1334(b), 151 and 157(b)(1). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (K), (L) and (O). These motions raise the following issues: (1) the effect on a secured creditor's lien of a confirmed chapter 13 plan providing for the cram down and cancellation of such lien; (2) whether a second mortgagee's lien can be modified under § 1322(b)(2); and (3) whether a lien can be modified by a chapter 13 plan without conducting an adversary proceeding to determine the validity of such lien.

I. STATEMENT OF FACTS

The essential facts of this matter are undisputed. The debtors filed a voluntary petition under chapter 13 of title 11, United States Code ("Bankruptcy Code" or "Code") on May 29, 1992. The debtors' petition listed their residence at 183 Carr Avenue, Keansburg, NJ ("the property") with a market value of $30,000.1 First Town Mortgage Corporation ("First Town"), which is not a party to this action, holds a first mortgage on the property for approximately $30,000.2 Lee Servicing, the plaintiff, holds a second mortgage on the property for approximately $28,000.3

The plan proposed to cure the default on the first mortgage by paying First Town $4,140. at the rate of $120. per month. The plan provided that Lee Servicing's second mortgage would "be crammed down to zero and cancelled on the record".

This treatment of Lee Servicing's claim was stated in the Notice of Commencement of Case Under Chapter 13 of the Bankruptcy Code, Meeting of Creditors, and Fixing of Dates ("the Notice"), which was issued on June 25, 1992 and alerted creditors that the meeting of creditors would be held on July 10, 1992, the deadline to file a proof of claim was October 8, 1992 and that the confirmation hearing would be held on October 27, 1992. The Notice also included the following provisions:

        NAME      COLLATERAL     MO. PAYMENT    DEFAULT TO CURE
  FIRST TOWN      RESIDENCE        $120.00         $4,140.00
  THE 2ND MTG. TO LEE SERVICING SHALL BE CRAMMED DOWN TO ZERO &
  CANCELLED ON THE RECORD. THE JUDGEMENT LIEN OF NJ NATURAL
  GAS, DOCKET # UJ-116610-91, KEANSBURG M.U.A. FOR $519.00 SHALL BE PAID
  THROUGH THE TRUSTEE.
  PAYMENTS: $120.00 TO TRUSTEE MONTHLY; TO UNSECURED CREDITORS —
  0% THE PLAN WILL BE COMPLETED IN 43 MONTHS.

Lee Servicing and their law firm timely received the Notice.

On September 23, 1992, Lee Servicing filed an objection to confirmation. The objection stated:

Notice of Objection by Attorneys for Secured Creditor.

The court held a confirmation hearing on October 27, 1992 and entered an order on November 16, 1992 confirming the plan. Lee Servicing did not appear at the confirmation hearing and, therefore, its objection to confirmation was not considered at the hearing. The order confirming the plan was not appealed and is therefore final.

The confirmed chapter 13 plan provides for payments of $120. per month to the trustee for 43 months. The plan further provides that "Holders of allowed secured claims shall retain the liens securing such claims and shall be paid as follows: The arrearage to First Town in the amount of $4,140. shall be cured by payment to the Trustee. The 2nd mortgage to Lee Servicing shall be crammed down to zero & cancelled on the record." The unsecured creditors (which would include Lee Servicing by virtue of the cram down of its mortgage) receive no payment under the plan. After confirmation, the debtors commenced state court proceedings to discharge Lee Servicing's mortgage.

On April 16, 1993, Lee Servicing filed a five-count complaint in this court to determine the extent and validity of its lien, alleging on various grounds that the plan was ineffective to modify its lien. On July 21, 1993 Lee Servicing moved for summary judgment determining that its lien remain valid. The debtors filed a cross-motion for summary judgment dismissing the complaint of Lee Servicing and directing Lee Servicing, Alliance Funding and Princeton Bank and Trust Co. to cancel their mortgage and assignments on the record. The trustee also filed a cross-motion for summary judgment dismissing the complaint or alternatively, dismissing the complaint against the trustee. For the following reasons, the plaintiff's motion for summary judgment is denied, the defendants' cross-motions for summary judgment are granted in part and denied in part, and the plaintiff's complaint is dismissed.

II. CONCLUSIONS OF LAW

A motion for summary judgment is granted where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." FED.R.CIV.P. 56(c). Federal Rule of Civil Procedure 56(c) is incorporated by reference in the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"). FED.R.BANKR.P. 7056. On the motions before the court, none of the parties argue that there is a genuine issue as to any material fact. Therefore, the court must only determine which party or parties are entitled to judgment as a matter of law.

A. Effect of Confirmed Plan

The first issue is the effect of confirmation on Lee Servicing's claim and lien. Code section 1327 provides:

11 U.S.C. § 1327(a). "Under § 1327, a confirmation order is res judicata as to all issues decided or which could have been decided at the hearing on confirmation." In re Szostek, 886 F.2d 1405, 1408 (3d Cir.1989) (emphasis added). The plan provided for cram down and cancellation of Lee Servicing's lien based on the value of the property which was decided at confirmation.4 These plan provisions bind Lee Servicing.

To grant the relief requested by Lee Servicing, the court would effectively have to revoke the confirmed plan.5 Code section 1330 permits revocation of an order of confirmation only "if such order was procured by fraud." 11 U.S.C. § 1330. The plaintiff has not alleged that the debtors procured the confirmation order by fraud. Once a plan is confirmed it is final under Code section 1327 and the order of confirmation may only be challenged as procured by fraud under § 1330(a). See In re Szostek, 886 F.2d at 1413.

This court holds that the plaintiff is bound by the terms of the confirmed plan and that the plan is res judicata as to all issues that could have been raised at confirmation. Id.; see also Midlantic National Bank v. Kouterick (In re Kouterick), 161 B.R. 755 (Bankr. D.N.J.1993). However, because the plaintiff has made numerous allegations regarding the plan's compliance with the Code, the proper procedure for cancelling liens, and the scope of this court's obligations when confirming a chapter 13 plan, the court will explain why confirmation was proper under the circumstances of this case.

B. Modification of Lee Servicing's Lien

Lee Servicing argues that its claim was either partially secured or fully secured and, therefore, cram down and cancellation of its lien was impermissible under Code section 1322(b)(2). Code section 1322 permits the modification of the rights of secured creditors except "a claim secured only by a security interest in real property that is the debtor's principal residence." 11 U.S.C. § 1322(b)(2). The provisions of § 1322 are mandatory prerequisites to confirmation.6 In re Szostek, 886 F.2d at 1411. Prior to the Supreme Court's opinion in Nobelman v. American Savings Bank, ___ U.S. ___, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) and under the law applicable in this Circuit at the time of confirmation in this case, a chapter 13 debtor was permitted under Code sections 1322 and 506(a) to "cram down" a lien, i.e., bifurcate it into an unsecured portion and a secured portion based on the value of the collateral and void the unsecured portion of the lien. See Sapos v. Provident Institution of Savings, 967 F.2d 918, 925 (3d Cir.1992). Such bifurcation of a mortgagee's claim under Code section 506(a) was not considered a modification of "the rights of holders of secured claims under § 1322(b)(2)," subject to the limitation for interests secured only by the debtor's principal residence. Sapos v. Provident Institution of Savings, 967 F.2d at 925.

In this case, Lee Servicing's claim was completely unsecured because the first mortgagee's claim equalled or exceeded the value of the property. The petition listed the value of the subject property as $30,000. and the first mortgage debt as $30,000. There were no objections to the debtors' valuation of the property or the first mortgage. The court confirmed the plan, accepting the debtors' valuations of the property and of Lee Servicing's secured claim. Because Lee Servicing was completely unsecured by any value above the amount due on the first mortgage, the debtors were not precluded from modifying the rights of Lee Servicing under Code section 1322(b)(2) and, therefore, did not have to provide for payment of Lee Servicing's claim or retention of the lien in the plan.

Lee Servicing is bound by the debtors' valuation of the property and terms of the confirmation order because Lee Servicing did not file a timely objection to valuation nor appear at the confirmation hearing. See In re Szostek, 886 F.2d at 1414. The plaintiff filed an objection to confirmation, but did not object to the cram down of the creditor's lien to zero and cancellation of the lien. Rather, the objection addressed the debtors' monthly payments outside their chapter 13 Plan. Moreover, the plaintiff's objection specifically stated that if the plaintiff did not appear at confirmation, then the objection could be deemed waived. Even if this objection could be construed as an objection to the cram down of the creditor's claim and cancellation of its lien, the court holds that Lee Servicing waived its objection by failing to appear at the chapter 13 confirmation hearing. Moreover, even if the objection had not expressly stated that it should be considered waived if Lee Servicing failed to appear at the confirmation hearing, this court holds that a party who wishes to prosecute an objection to confirmation must appear at the confirmation hearing or the objection is deemed waived or abandoned.7

Lee Servicing also alleges that even absent any objections to valuation, the court and/or the trustee must raise the issue and a valuation hearing must be held. Record at 16-22. Discussing the duty of the court and the trustee to ensure that a chapter 13 plan meets the requirements of the Bankruptcy Code, the Third Circuit stated that:

In re Szostek, 886 F.2d at 1414. The bankruptcy court is required only to ensure that a chapter 13 plan meets the minimal requirements of § 1322(a). Id. In this case, accepting the debtors' valuation of the property at $30,000, Lee Servicing had an unsecured claim which the plan could permissibly modify without violating the requirements of § 1322. Contrary to the plaintiff's arguments, the court is not required to raise sua sponte objections to a debtor's valuation of his or her assets and hold a separate valuation hearing. The value of a creditor's allowed secured claim can be determined at a confirmation hearing. 11 U.S.C. § 506(a) ("Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest.") (emphasis added). Absent any objections, neither the court nor the trustee had any reason or duty to question the debtors' valuation of the subject property at $30,000. The plan complied with the provisions of Code section 1322(a) and, therefore, the court properly confirmed the plan.

The plaintiff also argues that the Supreme Court's recent decision in Nobelman v. American Savings Bank, ___ U.S. ___, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) applies retroactively to the confirmation of the debtors' plan and, therefore, the plan could not modify Lee Servicing's claim or lien. This court confirmed the chapter 13 plan based on the then current law of the Third Circuit allowing cram down and lien stripping in chapter 13 cases. Sapos v. Provident Institution of Savings, 967 F.2d at 925. On June 1, 1993 the United States Supreme Court decided Nobelman, holding that Code section 1322(b)(2) prohibits the bifurcation of a home mortgagee's undersecured claim into an unsecured claim and a secured claim where the only security for the claim is the mortgage. The Supreme Court did not hold that the Nobelman decision was to be applied retroactively.

The Supreme Court has held that "when the Court has applied a rule of law to the litigants in one case it must do so with respect to all others not barred by procedural requirements or res judicata." James B. Beam Distilling Co. v. Georgia, ___ U.S. ___, ___, 111 S.Ct. 2439, 2447, 115 L.Ed.2d 481 (1991) (emphasis added). The Supreme Court explained that retroactivity is limited by finality and that "once suit is barred by res judicata or by statutes of limitation or repose, a new rule cannot reopen the door already closed." Id., ___ U.S. at ___, 111 S.Ct. at 2446. The door has surely closed on Lee Servicing and has been forever locked by res judicata. The court holds that the Nobelman decision does not apply retroactively where a final order of confirmation has previously approved lien-stripping under a plan.8

C. Procedure to Modify Rights of Secured Creditor

Having concluded that the debtors could properly modify the plaintiff's secured claim and cancel its lien under the relevant sections of the Code, the final issue is whether the hearing on confirmation of the debtors' plan was a proper procedure for modifying the plaintiff's rights. Lee Servicing maintains that absent objections to a secured claim, the secured claim is allowed and, therefore, the plan must provide for payment of its claim. Lee Servicing alleges that the provisions of a plan cannot modify the rights of a secured creditor absent an adversary proceeding or hearing to disallow the creditor's claim. Lee Servicing also argues that absent an adversary proceeding, the modification of its claim by the plan violated the plaintiff's due process rights.

Generally, liens pass through bankruptcy unaffected unless some action is taken by the debtor to modify the lien. Estate of Lellock v. Prudential Insurance Co. of America, 811 F.2d 186, 189 (3d Cir.1987). A secured creditor may choose not to participate in the bankruptcy process, not to file a proof of claim, and look solely to its lien for satisfaction. Id. ("[V]alid liens that have not been disallowed or avoided survive the bankruptcy discharge of the underlying debt.").

Consistent with this general principle, a chapter 13 plan must address the creditor's lien or it will be unaffected by the bankruptcy proceeding. See In re Glow, 111 B.R. 209 (Bankr.N.D.Ind.1990) (Court held that although in personam liability to mortgagee was discharged upon completion of chapter 13 plan, liens passed through bankruptcy unaffected where they were not voided by a provision of the debtor's plan.); In re Thomas, 91 B.R. 117, 124 (N.D.Ala.1988) (Debtors could have filed a proof of claim for secured creditor so secured creditor would be "provided for in their plan," but in the absence of proof of claim or provision in plan, secured creditor's lien unaffected by bankruptcy.), aff'd, 883 F.2d 991 (11th Cir.1989), cert. denied, 497 U.S. 1007, 110 S.Ct. 3245, 111 L.Ed.2d 756 (1990); In re Sansone, 99 B.R. 981 (Bankr.C.D.Cal.1989) (Lien survived bankruptcy process where debtors took no steps in the plan or otherwise to avoid the lien). Code section 1327, which sets forth the effects of confirmation of a chapter 13 plan on a creditor's liens, incorporates this principle. Upon confirmation:

11 U.S.C. § 1327. Although under Code section 1327(a) a secured creditor is bound by the plan regardless of whether the creditor is provided for by the plan, this does not mean that a debtor can void or otherwise extinguish a creditor's lien without addressing the lien in the plan. See In re Beard, 112 B.R. 951, 954 (Bankr.N.D.Ind.1990) ("Even where confirmed without objection, a plan will not eliminate a lien simply by failing or refusing to acknowledge it or by calling the creditor unsecured.") (citing In re Simmons, 765 F.2d 547, 554-59 (5th Cir.1985)). Code section 1327(c) requires a plan to "provide for" a creditor in order for the plan to vest property in the debtor free and clear of the creditor's liens.

If a secured creditor is "provided for"9 in the chapter 13 plan, upon confirmation the property of the estate will vest in the debtor free and clear of liens only to the extent not "otherwise provided in the plan."10 In this case, however, the plan did not have to "otherwise provide" for the retention of Lee Servicing's lien because Lee Servicing was completely unsecured and did not hold an allowed secured claim. Therefore, upon confirmation the property vested in the debtors free and clear of Lee Servicing's lien.

An adversary proceeding is not required to modify a secured creditor's rights in chapter 13. The advisory committee notes to Bankruptcy Rule 3012 explain that "[a]n adversary proceeding is commenced when the validity, priority, or extent of a lien is at issue as prescribed by Rule 7001. That proceeding is relevant to the basis of the lien itself while valuation under Rule 3012 would be for the purposes indicated above." FED. R.BANKR.P. 3012 advisory committee's note.

Nor is a separate motion under Bankruptcy Rule 3012 necessary to modify a secured creditor's rights in chapter 13. Bankruptcy Rule 3012 provides that:

FED.R.BANKR.P. 3012. Bankruptcy Rule 3012 is permissive, not mandatory.11 5 Collier on Bankruptcy, ¶ 1327.01 (15th ed. 1989). The Rule provides a procedural mechanism to raise valuation issues in contexts not otherwise provided for by the Code.12 In re Pourtless, 93 B.R. 23, 25 (Bankr.W.D.N.Y. 1988) ("[I]t is clear from the Code itself that a valuation hearing is anticipated as part and parcel of a confirmation hearing . . . Bankruptcy Rule 3012 . . . does address valuation issues, but it is intended only to provide a general procedure when a valuation determination may be important in a context not anticipated by the Code."). Bankruptcy Rule 3012 is an alternative avenue for a debtor, creditor or other party to raise the issue of the value of a secured creditor's claim. For example, in a chapter 13 case, a debtor could file a motion under Bankruptcy Rule 3012 as the procedural mechanism to void a lien under Code section 506(d) where a secured creditor has not filed a proof of a claim and the plan contemplates post-confirmation proceedings to determine value.13 Where, however, a plan does propose to determine the value of secured claims, such valuation of secured claims for the purposes of § 506(a) is properly part of the confirmation proceeding and no separate motion under Bankruptcy Rule 3012 is required. In re Fox, 142 B.R. 206, 207-08 (Bankr.S.D.Ohio 1992); In re Pourtless, 93 B.R. 23, 25 (Bankr.W.D.N.Y. 1988).

Finally, no separate objection to the allowance of a secured claim is required to modify a secured creditor's rights in a chapter 13 plan.14 See e.g. In re Demoff, 109 B.R. 902 (Bankr.N.D.Ind.1989); In re Calvert, 907 F.2d 1069, 1072 (11th Cir.1990). Code section 506(a) permits bifurcation of a secured creditor's claim into an allowed unsecured claim and an allowed secured claim. 11 U.S.C. § 506(a). The chapter 13 plan and confirmation process determines the amount of the allowed secured claims and no separate proceeding for allowance is required. Still v. Tennessee, Department of Revenue (In re Rogers), 57 B.R. 170, 172 (Bankr. E.D.Tenn.1986).15 This court holds that a debtor may modify a secured creditor's claim and cancel its lien to the extent permitted under Code section 506(a) and 1325 by so providing in a chapter 13 plan without an adversary proceeding, objection to claim or motion under Bankruptcy Rule 3012.16

Permitting a debtor to void a creditor's lien through a provision in a plan without filing an adversary proceeding or other motion does not violate the creditor's due process rights. A summary of the plan's terms in the notice to creditors puts the creditor on notice that its rights will be modified by the chapter 13 plan. That creditor has the opportunity to object or otherwise assert its rights at the confirmation hearing. This notice and opportunity to be heard at the confirmation hearing is sufficient to satisfy the requirements of due process.17

In this case, the Notice to the creditors, which Lee Servicing admittedly received, clearly indicated that the plan proposed to cram down Lee Servicing's lien to zero and cancel the lien of record. The debtors' statement of intention in the petition and their plan also indicated the modification of Lee Servicing's lien. The plaintiff had an opportunity to object to the treatment of its claim at the confirmation hearing. The debtors were not required to bring a separate adversary proceeding under these circumstances. In a case such as this, where the creditor is given ample notice of the modification of its lien and fails to object to the treatment of its lien at confirmation, the creditor is deemed to have accepted such modification. The court holds that notice to a creditor which explicitly states the intention to cram down and cancel the creditor's lien is procedurally sufficient to modify the lien and does not violate due process.

The final procedural issue is at what point in the chapter 13 case should the lien be canceled. The plaintiff maintains that even if the lien is cancelled pursuant to the plan, the lien should remain in place until the debtors complete payment under the plan because if the case is dismissed then the lien will be reinstated under Code section 349(b)(1)(C). The court agrees. If the debtors do not complete all payments required by the plan, they are not entitled to have any liens cancelled of record, any more than they are entitled to a discharge under Code section 1328. Otherwise, the debtors might not have sufficient incentive to complete the plan payments after the liens are cancelled. The debtors may therefore apply for cancellation of Lee Servicing's mortgage when they complete their plan and obtain their discharge.

III. CONCLUSION

For the foregoing reasons, the court concludes that the Lee Servicing is bound by the terms of the confirmed plan. The full amount of its claim will be treated as an unsecured claim and its lien cancelled of record in accordance with the plan when the plan is completed. The motion of Lee Servicing for summary judgment is denied. The trustee's cross-motion for summary judgment seeking dismissal of the plaintiff's complaint is granted. The debtors' cross-motion for summary judgment seeking dismissal of Lee Servicing's complaint is granted, but their request for an order directing Lee Servicing Company, Alliance Funding and Princeton Bank and Trust Co. to cancel their mortgage and assignments on the record is denied. Lee Servicing's complaint is dismissed.

The attorney for the debtors shall submit an order consistent with this opinion within 10 days under D.N.J.Bankr.Ct.R. 4(c).