PUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 15-1800

In Re: GREGORY BIRMINGHAM,

Debtor.

--------------------------

GREGORY BIRMINGHAM,

Plaintiff - Appellant,

v.

PNC BANK, N.A.,

Defendant - Appellee.

Appeal from the United States District Court for the District of Maryland, at Greenbelt. Paul W. Grimm, District Judge. (8:15- cv-00108-PWG; 14-18432; 14-00378)

Argued: October 26, 2016 Decided: January 18, 2017

Amended: January 20, 2017

Before THACKER and HARRIS, Circuit Judges, and Gerald Bruce LEE, United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge Lee wrote the opinion, in which Judge Harris and Judge Thacker joined. ARGUED: John Douglas Burns, THE BURNS LAW FIRM, LLC, Greenbelt, Maryland, for Appellant. Daniel J. Tobin, BALLARD SPAHR LLP, Washington, D.C., for Appellee. ON BRIEF: Bryan J. Harrison, Matthew G. Summers, BALLARD SPAHR LLP, Baltimore, Maryland, for Appellee.

2 LEE, District Judge:

The anti-modification clause in

(b)(2) of

the Bankruptcy Code protects a mortgagee from having its claim

in a Chapter 13 bankruptcy proceeding modified, if the mortgage

is secured “only by a security interest in real property that is

the debtor’s principal residence.”

(b)(2). The

issue in this appeal is whether reference in the Deed of Trust

to escrow funds, insurance proceeds, or miscellaneous proceeds

constitute additional collateral or incidental property for

purposes of § 1322(b)(2). We hold that these items constitute

incidental property, which entitles Appellee to anti-

modification protection under § 1322(b)(2). The district

court’s determination is therefore affirmed.

I.

On May 23, 2014, Appellant Gregory John Birmingham

(“Birmingham”) filed a voluntary petition for Chapter 13

bankruptcy. J.A. 342-45. One of the claims against Birmingham

is a mortgage in the amount of $343,101.87 held by Appellee PNC

Bank, N.A. (“PNC”), and secured by a deed of trust (“Deed of

Trust”) on Birmingham’s primary residence at 11721 Chilcoate

Lane, Beltsville, Maryland 20705 (“Property”). J.A. 329.

According to the District of Maryland Claims Register, there is

an arrearage on the mortgage of $93,386.58 as of June 23, 2015.

J.A. 329.

3 Birmingham filed his Original Chapter 13 Bankruptcy Plan on

June 4, 2014. J.A. 378. At that point in time, the Property

was valued at only $206,400. J.A. 362. The Bankruptcy Plan

included a cram-down of PNC’s interest in the Property. J.A.

385-86. After a series of objections and amendments to the

Bankruptcy Plan, Birmingham filed a Complaint for Declaratory

Action pursuant to

;

(a),

506(a), 2201 (11721 Chilcoate Ln Beltsville, MD 20705). J.A.

378-400. Birmingham’s Complaint requested a declaration that

that PNC’s claim be treated as a partially unsecured claim

subject to modification. J.A. 399-400.

Birmingham argued that certain provisions of the Deed of

Trust required collateral other than real property, which would

remove the claim from

(b)(2)’s anti-modification

protection. J.A. 397-99. Birmingham cited three specific

provisions of the Deed of Trust, involving escrow items (Section

Three), property insurance proceeds (Section Five), and

miscellaneous proceeds (Section Eleven). J.A. 398. PNC filed a

Motion to Dismiss the Adversary Complaint and an accompanying

memorandum, contending that the items referred to in the Deed of

Trust provisions cited by Birmingham constituted “incidental

property,” which is part of a debtor’s principal residence.

J.A. 674. Consequently, PNC argued that the additional items

would not expose the PNC mortgage to a cram-down. J.A. 674.

4 After Birmingham filed a response to the motion to dismiss,

Bankruptcy Judge Wendelin I. Lipp granted the motion, noting

that “the issues raised by [Birmingham] were identical to

arguments that repeatedly have been denied by the Bankruptcy

Court for this District.” J.A. 674.

Birmingham then appealed the Bankruptcy Court’s decision to

the United States District Court for the District of Maryland.

J.A. 405. Birmingham raised the same arguments on appeal,

namely that the inclusion of miscellaneous proceeds, escrow

funds, and insurance proceeds in the Deed of Trust constitute a

waiver of the anti-modification provision of

(b)(2). J.A. 422. The district court affirmed the

bankruptcy court’s decision, holding that the miscellaneous

proceeds, escrow funds, and insurance proceeds provisions

describe “benefits which are merely incidental to an interest in

real property” and generally are not “additional security for

purposes of § 1322(b)(2).” J.A. 679. The district court

further noted that the items at issue do not “have any value of

their own separate and apart from the Property and the [PNC Deed

of Trust]; to the contrary, they all exist only to give effect

to the PNC’s security interest, which otherwise could be

frustrated by a superior lien or by destruction or condemnation

of the Property.” J.A. 681.

5 Birmingham filed a timely appeal before this circuit. J.A.

685-88. This case was consolidated with a nearly identical case

that similarly originated in the District Court of Maryland,

Akwa v. Residential Credit Solutions, Inc., No. 14-cv-02703-GJH,

(D. Md. 2015). The Akwa appeal was dismissed on

February 16, 2016. ECF No. 69-2. Accordingly, only the

Birmingham appeal is currently before the Court.

II.

This dispute requires us to determine whether the district

court properly concluded that the bankruptcy court did not err

in dismissing the adversary proceedings against PNC.

Specifically, we are to analyze whether the district court

correctly affirmed the bankruptcy court’s finding that PNC is

entitled to the anti-modification protections of

(b)(2).

Because the district court sits as an appellate tribunal in

bankruptcy, our review of the district court’s decision is

plenary. Bowers v. Atlanta Motors Speedway (In re Se. Hotel

Properties Ltd. P’ship),

(4th Cir. 1996)

(citation omitted). “We apply the same standard of review as

the district court applied to the bankruptcy court’s decision.”

“Findings of fact are reviewed for clear error, and

conclusions of law are reviewed de novo.”

(citation

omitted).

6 A.

The bankruptcy court granted PNC’s motion to dismiss

Birmingham’s complaint under Federal Rule of Civil Procedure

12(b)(6). J.A. 675. The district court applied this same

standard of review to the bankruptcy court’s decision.

A motion to dismiss under Federal Rule of Civil Procedure

12(b)(6) tests the legal sufficiency of the complaint. Papasan

v. Allain,

(1986). The motion should be

granted unless the complaint “states a plausible claim for

relief.” Walters v. McMahen,

(4th Cir. 2012)

(citing Ashcroft v. Iqbal,

(2009)). In

considering a Rule 12(b)(6) motion, the Court “must accept as

true all of the factual allegations contained in the complaint,”

drawing “all reasonable inferences” in the non-moving party’s

favor. E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc.,

(4th Cir. 2011) (citations omitted). The

court is not obligated to assume the veracity of the legal

conclusions drawn from the facts alleged. Adcock v.

Freightliner LLC,

(4th Cir. 2008) (citing

Dist. 28, United Mine Workers of Am., Inc. v. Wellmore Coal

Corp.,

(4th Cir. 1979)).

The complaint must contain sufficient factual allegations,

taken as true, “to raise a right to relief above the speculative

level” and “nudge [the] claims across the line from conceivable

7 to plausible.” Vitol, S.A. v. Primerose Shipping Co.,

(4th Cir. 2013) (quoting Bell Atl. Corp. v. Twombly,

(2007)). The facial plausibility

standard requires pleading of “factual content that allows the

court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Clatterbuck v. City of

Charlottesville,

(4th Cir. 2013) (quoting

Iqbal,

). The plausibility requirement imposes

not a probability requirement but rather a mandate that a

plaintiff “demonstrate more than a ‘sheer possibility that a

defendant has acted unlawfully.’” Francis v. Giacomelli,

(4th Cir. 2009) (quoting Iqbal,

).

Accordingly, a complaint is insufficient if it relies upon

“naked assertions” and “unadorned conclusory allegations” devoid

of “factual enhancement.”

(citations omitted). The

complaint must present “‘enough facts to raise a reasonable

expectation that discovery will reveal evidence’ of the alleged

activity.” US Airline Pilots Ass’n v. Awappa, LLC,

(4th Cir. 2010) (quoting Twombly,

).

In addition to the complaint, the court will also examine

“documents incorporated into the complaint by reference,” as

well as those matters properly subject to judicial notice.

Clatterbuck,

(citations omitted); see also

Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc.,

8 172, 176 (4th Cir. 2009) (quoting Tellabs, Inc. v. Makor Issues

& Rights, Ltd.,

(2007)).

B.

Certain provisions of the Bankruptcy Code are relevant to

this appeal. “Under Chapter 13 of the Bankruptcy Code,

individual debtors may obtain adjustment of their indebtedness

through a flexible repayment plan approved by a bankruptcy

court.” Nobelman v. Am. Sav. Bank,

(1993).

The relationship between

(a) and § 1322(b)(2) is

pertinent to this circuit’s review of the district court’s

decision to affirm the bankruptcy court’s dismissal of

Birmingham’s complaint. Section 506(a) is used in conjunction

with § 1322 to allow modification, or bifurcation, of a secured

creditor’s claim into secured and unsecured portions when the

claim exceeds the value of the secured property. Nobelman,

.

In Nobelman, the Supreme Court examined the nexus between

claim-bifurcation under § 506(a) and the anti-modification

provision of § 1322(b)(2) to ascertain whether a debtor could

bifurcate a single, under-secured residential mortgage claim

into secured and unsecured components pursuant to § 506(a). Id.

at 326. The debtor in Nobelman argued that § 1322(b)(2)’s anti-

modification provision applied only to the secured component of

her mortgage claim, as defined in § 506(a). Id.

9 Section 506(a) states that:

(a)(1) An allowed claim of creditor secured by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property . . . and is an unsecured claim to the extent that the value of such creditor’s interest is less than the amount of such allowed claim. 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.

(a). Accordingly, under § 506(a), “an allowed

claim secured by a lien on the debtor’s property is a secured

claim to the extent of the value of the property; to the extent

the claim exceeds the value of the property, it is an unsecured

claim.” Nobelman,

(internal quotation marks

omitted).

Notwithstanding, § 1322(b)(2) provides:

(b) Subject to subsections (a) and (c) of this section, the plan may—

. . .

Modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence . . . .

(b)(2). This “anti-modification” provision

precludes reduction or cramming down the value of a claim

secured by an interest in real property that is the debtor’s

principal residence. In other words, a claimant’s interest in

10 real property that is secured solely by the debtor’s principal

residence may not be bifurcated.

C.

Congress clarified the meaning of a key term in the anti-

modification clause, “debtor’s principal residence,” in the

Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCP

Act”) of 2005. The Bankruptcy Code now defines the term as “a

residential structure if used as the principal residence by the

debtor, including incidental property, without regard to whether

that structure is attached to real property.”

(13A)(A)(emphasis added). The BAPCP Act also defined

“incidental property,” as it relates to a debtor’s principal

residence, as follows:

(A) property commonly conveyed with a principal residence in the area where the real property is located;

(B) all easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil or gas rights or profits, water rights, escrow funds, or insurance proceeds;

(C) all replacements or additions.

(27B). The Code defines a security interest as a

“lien created by an agreement.”

(51). Moreover,

a lien is defined as a “charge against or interest in property

to secure a payment of a debt or performance of an obligation.”

(37).

11 With this framework in mind, and for the reasons that

follow, we hold that the district court’s decision to affirm the

bankruptcy court’s dismissal of Birmingham’s complaint was

correct. PNC’s loan was secured solely by Birmingham’s

principal residence and not any additional collateral. The

Bankruptcy Code’s anti-modification provision precluded the

bifurcation sought by Birmingham. Consequently, Birmingham’s

complaint was appropriately dismissed.

III.

The Birmingham Deed of Trust not only grants PNC a security

interest in the Property, but also provides additional

protections for PNC. However, saliently, the auxiliary

protections are not additional collateral and do not remove

PNC’s claim from the protection of § 1322(b)(2).

A.

Of particular importance to this Court’s analysis are

Sections 3, 5, and 11 of the Deed of Trust, all of which will be

analyzed in turn. Section 3 of the Deed of Trust pertains to

escrow funds and states, in pertinent part, the following:

Funds for Escrow Items. Borrower shall pay to Lender on the day Periodic Payments are due under the Note, until the Note is paid in full, a sum (the “Funds”) to provide for payment of amounts due for: (a) taxes and assessments and other items which can attain priority over this Security Instrument as a lien or encumbrance on the Property; (b) leasehold payments or ground

12 rents on the Property, if any; (c) premiums for any and all insurance required by Lender under Section 5; and (d) Mortgage Insurance Premiums, if any, or any sums payable by Borrower to Lender in lieu of the payment of the Mortgage Insurance premiums in accordance with the provisions of Section 10. These items are called “Escrow Items.”

. . .

If there is a surplus of Funds held in escrow, as defined under [the Real Estate Settlement Procedures Act (“RESPA”)], Lender shall account to Borrower for the excess funds in accordance with RESPA. If there is shortage of funds held in escrow, as defined under RESPA, Lender shall notify Borrower as requested by RESPA, and Borrower shall pay to Lender the amount necessary to make up the shortage in accordance with RESPA, but in no more than 12 monthly payments.

Deed of Trust § 3, J.A. 621-22.

Section 5 of the Deed of Trust addresses the topic of

property insurance, and provides as follows:

Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term “Extended coverage,” and any other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance . . . .

If Borrower fails to maintain any of the coverage described above, Lender may obtain insurance coverage, at Lender’s option and Borrower’s expense. Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower’s equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect.

. . . .

Borrower hereby assigns to Lender (a) Borrower’s rights to any insurance proceeds in an amount not to 13 exceed the amounts unpaid under the Note or this Security Instrument, and (b) any other of Borrower’s rights (other than the right to any refund of unearned premiums paid by Borrower) under all insurance policies covering the Property, insofar as such rights are applicable to the coverage of the Property. Lender may use the insurance proceeds either to repair or restore the Property or to pay amounts unpaid under the Note or this Security Instrument, whether or not then due.

Deed of Trust § 5, J.A. 623-24.

Lastly, Section 11 of the Deed of Trust discusses

miscellaneous proceeds and contains the following language:

Assignment of Miscellaneous Proceeds; Forfeiture. All Miscellaneous Proceeds are hereby assigned to and shall be paid to Lender.

. . . .

In the event of a partial taking, destruction, or loss in value of the Property in which the fair market value of the Property immediately before the partial taking, destruction, or loss in value is less than the amount of the sums secured immediately before the partial taking, destruction, or loss in value, unless the Borrower and Lender otherwise agree in writing, the Miscellaneous Proceeds shall be applied to the sums secured by this Securing Instrument whether or not the sums are then due.

Deed of Trust § 11, J.A. 626.

Miscellaneous Proceeds include:

[A]ny compensation, settlement, award of damages, or proceeds paid by any third party (other than insurance proceeds paid under the coverages described in Section 5) for: (i) damage to, or destruction of, the Property; (ii) condemnation or other taking of all or any part of the Property; (iii) conveyance in lieu of condemnation; or (iv) misrepresentations of, or omission as to, the value and/or condition of the Property.

14 Deed of Trust ¶ M.

The issue presented is whether these provisions of the Deed

of Trust constitute sufficient collateral so that PNC’s interest

is secured by more than Birmingham’s principal residence. We

hold that the aforementioned provisions do not entitle

Birmingham to the bifurcation sought.

B.

Birmingham argues that Sections 3, 5, and 11 of the Deed of

Trust provide additional security for PNC’s interest such that

it is no longer secured solely by an interest in real property.

Appellant Br. at 19-25. These items, however, are incidental

property frequently conveyed in a deed of trust and defined in

(27B) and 101(13A)(A) as part of a debtor’s

principal residence.

The case Allied Credit Corp. v. Davis (In re Davis),

(6th Cir. 1993) is illustrative. There, the Sixth

Circuit found that “[i]tems which are inextricably bound to the

real property itself as part of the possessory bundle of rights”

do not extend a lender’s security beyond the real property.

; see also Akwa,

(D. Md. 2015). On the

topic of insurance, the Davis court explained that “hazard

insurance is merely a contingent interest — an interest that is

irrelevant until the occurrence of some triggering event and not

an additional security interest for the purposes of §

15 1322(b)(2).” In re Davis,

(citation omitted)

(emphasis added). This reasoning similarly applies to

miscellaneous proceeds and escrow funds that are tied to the

real property at issue. See In re Ferandos,

(3d Cir. 2005) (“[F]unds for taxes and insurance, paid over and

placed in escrow, exist precisely for the purpose of paying said

taxes and insurance — a cost incurred by the debtor in

connection with the ownership of real property.”); see also

Kreitzer v. Household Realty Corp. (In re Kreitzer),

(Bankr. S.D. Ohio 2013) (holding that a security

interest which residential mortgage lender took in miscellaneous

proceeds was not an additional security interest that the lender

possessed other than in the residential mortgage property

itself).

The district court in Akwa, which involved the same

standard Fannie Mae/Freddie Mac deed of trust that is at issue

in this appeal, correctly noted:

[T]he lender may collect funds for escrow to ensure that all property-related payments, like taxes and ground rents, are paid. Likewise, the Deed of Trust also permits the lender to hold insurance proceeds if an insurer pays for repairs to the house to ensure that the lender’s investment — the real property — is repaired to lender’s satisfaction. The same is true for miscellaneous proceeds paid by a third party, which the lender can use for repairs or restoration.

Akwa,

.

16 PNC accurately states that this perspective has been

recognized by a number of courts in analogous circumstances.

See Abdosh v. Ocwen Loan Servicing (In re Abdosh),

(Bankr. D. Md. 2014), aff’d sub nom. Abdosh v. Ocwen Loan

Servicing, LLC, No. CIV. PJM 14-2916,

(D. Md.

July 30, 2015) (noting that “[t]here is no need to re-visit in

detail this clear legal issue”); In re Kreitzer,

(discussing miscellaneous proceeds); In re Mullins, No.

11-11176C-13G,

, at *2 (Bankr. M.D.N.C. July 3,

2012) (discussing escrow funds); In re Inglis,

(Bankr. S.D. Ind. 2012) (“[U]nder the express terms of

these provisions . . . a lender does not lose its § 1322(b)(2)

protection by taking a security interest in escrow funds as

‘escrow funds’ are part of the ‘incidental property’ which

comprise ‘the debtor’s principal residence.’”); In re Leiferman,

No. BR 10-40718,

, at *2 (Bankr. D.S.D. Jan 19,

2011) (analyzing miscellaneous proceeds).

In his opposition, Birmingham cites a series of cases where

courts have held that certain additional collateral existed

beyond real property. For instance, Birmingham cites the Third

Circuit’s decision Hammond v. Commonwealth Mortg. Corp. of Am.,

(3d Cir. 1994) for the proposition that “supplemental

collateral in a deed of trust will cause a waiver of the anti-

modification rights of

(b).” Appellant Br. at

17 43-44. However, the lien in Hammond explicitly “covered more

than the real property.” See Abdosh,

.

The security contrivance in Hammond created “an additional

security interest in: any and all appliances, machinery,

furniture and equipment (whether fixtures or not) of any nature

whatsoever.” Hammond,

(internal quotation

marks omitted). Here, the Deed of Trust does not expressly

attempt to take a security interest in additional collateral.

As the Akwa court concluded, the language found in these

provisions “explicitly ties the funds to ensuring that the

lender’s collateral — the real property — is preserved.” Akwa,

. Accordingly, Birmingham’s reliance on Hammond

is misplaced.

Relatedly, Birmingham’s arguments premised on the holdings

of other cases cited in his brief are inapposite for the same

reason: the security instruments at issue explicitly granted the

debtee an interest secured by more than just real property. For

example, In re Ennis – in which we found the anti-modification

clause of § 1322(b)(2) inapplicable to a security agreement for

personal property, i.e. a mobile home on leased property –

provides no guidance for a home mortgage that includes the

typical incidental benefits intended to protect the interest in

real property. See Ennis v. Green Tree Servicing, LLC (In re

Ennis),

(4th Cir. 2009); see also Scarborough

18 v. Chase Manhattan Mortg. Corp. (In re Scarborough),

(3d Cir. 2006) (holding that when a mortgage lender

takes an interest in real property that includes income

producing property, the lender’s interest is also secured by

property that is not the debtor’s principal residence, and its

claim may be modified); Lomas Mortg., Inc. v. Louis,

(1st Cir. 1996) (finding that § 1322(b)(2) does not bar

modification of a secured claim on a multi-unit property in

which one unit is debtor’s principal residence and the security

interest extends to other income-producing units); Sapos v.

Provident Inst. of Sav. in Town of Boston,

, 921 (3d

Cir. 1992) (holding that the anti-modification provision is

inapplicable where the note was also secured by wall-to-wall

carpeting, rents, and profits), overruled on other grounds by

Nobelman v. Am. Sav. Bank,

(1993); Wilson v.

Commonwealth Mortg. Corp.,

(3d Cir. 1990)

(finding § 1322(b)(2) not applicable where a mortgage agreement

stated that the lender had “a security interest in appliances,

machinery, furniture, and equipment”), abrogated on other

grounds by Nobelman,

.

Sections 3, 5, and 11 of the Deed of Trust do not create

‘‘separate or additional security interest[s], but [are] merely

[] provision[s] to protect the lender’s security interest in the

real property.’’ Akwa,

(quoting In re Kreitzer,

19

). Accordingly, the district court properly

found, as a matter of law, that escrow funds, insurance

proceeds, and miscellaneous proceeds are incidental property

that do not constitute separate security interests.

C.

Birmingham additionally relies on a line of cases from

North Carolina bankruptcy courts that ostensibly found “where an

assignment of alternative collateral exists in a deed of trust

other than real property, the lender will be subject to

modification of its secured debt.” Appellant Br. at 26 (citing

In re Bradsher,

(Bankr. M.D.N.C. 2010); Bradshaw v.

Asset Ventures, LLC (In re Bradshaw), Nos. 13-06176-8-RDD, 14-

00023-8-RDD,

(Bankr. E.D.N.C. June 4, 2014); In

re Murray, No. 10-10125-8-JRL,

(Bankr. E.D.N.C.

May 31, 2011); In re Martin,

(Bankr. M.D.N.C.

2011); In re Hughes,

(Bankr. M.D.N.C. 2005)). As

the district court in this case correctly stated, however, the

loan documents in both Bradsher and Hughes “expressly provided

that escrow payments constituted additional security for the

loan.” J.A. 680 (citing Bradsher,

(“[T]he

loan documents purport to provide a security interest for the

indebtedness secured by the deed of trust in escrow funds in

addition to a security interest in the residential land and

housing structure.”); Hughes,

(noting that the

20 loan documents “require the borrower to pledge the escrow funds

as ‘additional security’”)). Hence, the language of the loan

documents in both Bradsher and Hughes is unequivocally

distinguishable from the language present in the Birmingham Deed

of Trust. The holdings of Bradsher and Hughes therefore do not

apply to this case.

Moreover, in Mullins, the same judge who presided over

Bradsher held that nothing in the deed of trust “suggests that a

security interest is also being granted in escrow funds. Nor is

there any language in the escrow provisions [] purporting to

create a security interest in escrow funds to be paid by the

[debtors].” In re Mullins,

at *2. Further, in

Bynum v. CitiMortgage, Inc. (In re Bynum), Nos. 12-10660, 12-

2031,

(Bankr. M.D.N.C. July 19, 2012), the

bankruptcy judge found that a standard Fannie Mae/Freddie Mac

deed of trust “do[es] not contain elements required to create a

security interest in Escrow Funds.”

.

To the extent that Birmingham also relies upon In re

Daniels, No. 15-666-5-SWH,

(Bankr. E.D.N.C. Dec.

18, 2015), a case that addresses the district court decision

that is currently before us, the Court in Daniels stated that

“Birmingham involved a deed of trust that did not contain

explicit language creating a security interest in escrow funds.”

(citation omitted). Highlighting this difference, the

21 Court in Daniels found that “Birmingham’s rejection of Bradsher

and Murray is not instructive.”

In short, the North Carolina bankruptcy courts agree that

the anti-modification clause applies to the Fannie Mae/Freddie

Mac Deed of Trust before us in this case. We thus have no

occasion to consider the effect – if any – of additional

language in a deed purporting to create a separate security

interest in escrow funds, insurance proceeds, or miscellaneous

proceeds, in light of our interpretation of § 1322(b)(2).

D.

Birmingham also argues that both the bankruptcy court and

the district court should have looked to Maryland law to

determine whether the Deed of Trust created additional security

interests in escrow funds, insurance proceeds, and miscellaneous

proceeds as “real property.” Appellant Br. at 21-24. The

Bankruptcy Code, however, explicitly defines “incidental

property” to a debtor’s principal residence, which includes both

escrow funds and insurance proceeds.

(27B).

State laws are suspended if they conflict with the Bankruptcy

laws. Butner v. U.S.,

, 54 n.9 (1979). Thus, it is

not necessary for us to examine Maryland law on this issue.

Even if Maryland law were to apply, it is far from clear

that the resulting holding would be favorable for Birmingham. A

security interest is created, under Maryland law, when there is

22 language present in the security instrument that leads to the

logical conclusion that it was the intention of the parties to

create a security interest. Tilghman Hardware, Inc. v.

Larrimore,

(Md. 1993) (citation omitted). We

have already found that the Deed of Trust did not contain

language wherein a security interest was granted in escrow

funds, insurance proceeds, or miscellaneous proceeds.

Therefore, Birmingham’s argument with respect to the application

of Maryland law is unavailing.

Finally, the policy arguments that Birmingham puts forth

are similarly ineffective. Birmingham asks this circuit to

ignore various cases that characterize escrow funds, insurance

proceeds, and miscellaneous proceeds as “part and parcel” of

real property. Appellant Br. at 44 (citing In re Kreitzer,

; In re Ferandos,

; Davis,

; In re Rosen,

(D.N.J. 1997)).

Additionally, Birmingham relies on In re Escue,

(Bankr. M.D. Tenn. 1995) to contend that the bankruptcy court

erred by not finding that the pertinent incidental items at

issue constitute supplemental collateral, in light of the

legislative history of the Bankruptcy Code. Appellant Br. at

48-49. The Escue decision came before §§ 101(13A)(A) and (27B)

were enacted, however. Furthermore, as with many of the other

cases that Birmingham has cited, the deed of trust at issue in

23 Escue expressly created a security interest in certain fixtures

with granting language that is wholly absent from the Birmingham

Deed of Trust. Consequently, Birmingham’s reliance on Escue is

misplaced.

Characterizing escrow funds, insurance proceeds, and

miscellaneous proceeds as additional security for § 1322(b)(2)

“would completely eviscerate the anti-modification exception of

§ 1322(b)(2) because many deeds of trust which encumber improved

real property contain these provisions to protect the lender’s

investment in the real property.” Akwa,

(internal quotation marks omitted). Moreover, as the district

court noted, Congress did not intend for Birmingham’s position

and “this principle cannot be squared with an interpretation

that would render the anti-modification provision inapplicable

to virtually all residential mortgages.” J.A. 682.

IV.

The Deed of Trust on Birmingham’s residence is secured only

by real property that is also Birmingham’s principal residence.

Escrow funds, insurance proceeds, and miscellaneous proceeds do

not constitute additional collateral. Accordingly, Birmingham’s

complaint fails to state a claim for relief that is plausible.

For the foregoing reasons, the district court’s judgment is

affirmed.

AFFIRMED

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