Presenting a live 90-minute webinar with interactive Q&A Lien Stripping in Consumer Bankruptcy Bringing or Defending Actions to Avoid Junior Mortgage Liens TUES DAY, OCTOBER 8, 2013 1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific Today’s faculty features: Monette W. Cope, Junior Partner, Weltman Weinberg & Reis , Chicago Richard S . Gendler, Principal, Law Offices of Richard S. Gendler , Miami Gardens, Fla. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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DEFENSES TO MORTGAGE LIEN STRIPPING IN CONSUMER BANKRUPTCY Presented by: Monette W. Cope Junior Partner Weltman, Weinberg, & Reis Co. L.P.A. 180 N. LaSalle St. Suite 2400 Chicago, I L 60601 312-782-9676 mcope@weltman.com
ULTIMATE DEFENSE: YOU HAVE AN "ALLOWED SECURED CLAIM" THE CLAIM SECURED BY YOUR LIEN IS CONSIDERED TO BE AN "ALLOWED SECURED CLAIM" UNDER ONE OR MORE OF THESE BANKRUPTCY CODE SECTIONS: 11 U.S.C. § 506(a) 11 U.S.C. § 502 11 U.S.C. § 1322(b)(2) 11 U.S.C. § 1325(a)(5) These sections protect liens on "ALLOWED SECURED CLAIMS" 6
STATUTORY BASIS TO VALUE SECURED CLAIM 11 U.S.C. § 506 Determination of secured status (a) (1) An allowed claim of a 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. § 506(a) (Emphasis added) Secured claims are valued under 506(a). The value of a secured claim is the value of the property which secures the claim. 506(a) allows secured claims to be bifurcated into secured and unsecured portions. How is a wholly unsecured mortgage lien valued under 506(a)? The secured value is $0. 7
"ALLOWED" CLAIM AS DEFINED BY § 502 11 U.S.C. § 502 Allowance of claims or interests (a) A claim or interest, proof of which is filed under section 501 ... is dee eem ed allo allow ed , unless a party in interest... objects. (b) Except pt as as pr provide ided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allo all allow such c claim laim in such amount, except to the extent that--... § 502 (Emphasis added) A claim is valid unless objected to. § 502 states all grounds under which a filed claim may be disallowed. A court may not disallow a claim if the value of an underlying lien is determined to be $0 because that is not one of the grounds for disallowing claims. A filed secured claim is an "allowed" claim. Because it has recourse to a lien, it is secured, no matter the value of the lien. 8
CLAIMS THAT ARE "NOT ALLOWED SECURED CLAIMS" ARE VOID 11 U.S.C. § 506 Determination of secured status ( d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim , such lien is void , unless-- ..... § 506(d) (Emphasis added) If a lien is valued at $0 under § 506(a), is it "not an allowed secured claim? Can this section be used to void a wholly unsecured mortgage lien? As an unsecured claim, it could be considered to be "not an allowed secured claim", and so, void. Does this section operate to void wholly unsecured liens on its own or in conjunction with 506(a)? 9
§ 506(d) MAY NOT BE USED TO VOID LIENS ALLOWED UNDER § 502 Dewsnup v. Timm , 502 U.S. 410, 417 (U.S. 1992) Chapter 7 debtor may not "strip down" a mortgage lien to the value of the real estate and declare void the remaining balance of the claim under 506(d). Ryan v. USA, In re Ryan , 2013 U.S. App. LEXIS 13710 (7 th Cir. 2013) Liens survive bankruptcy. 506(d) voids claims that are disallowed under § 502. 506(d) does not void claims that are not secured under a 506(a) valuation. A Chapter 7 debtor may not "strip down" a mortgage lien to the value of the property. The unsecured portion of a mortgage lien may not be voided under 506(d). "Allowed Secured Claim" does not have identical meaning in § 506(a) and § 506(d). "Allowed Secured Claim" may have a different meaning in another Code sections.101010 10
CHAPTER 7 DEBTORS MAY NOT STRIP OFF OR STRIP DOWN UNSECURED LEINS UNDER 506(D) Most Courts follow Dewsnup Palomar v. First American Bank, In re Palomar , 2013 U.S. App. LEXIS 13997 (7 th Cir. 2013) Wachovia Mortgage v. Smoot , 2012 U.S. Dist. LEXIS 135712 (E.D.N.Y. Sept. 20, 2012) In re Talbert , 344 F.3d 555 (6th Cir.2003) In re Ryan , 253 F.3d 778 (4th Cir. 2001) Laskin v. First National Bank of Keystone (In re Laskin) , 222 B.R. 872 (9th Cir. BAP 1998) In re Richins , 469 B.R. 375 (Bankr. D. Utah 2012) Cook v. IndyMac Bank (In re Cook), 449 B.R. 664 (D.N.J. 2011) In re Immel , 436 B.R. 538 (Bankr. N.D. Ill. 2010) 11
11 TH CIRCUIT PERMITS STRIP OFF IN CHAPTER 7 UNDER 506(D) McNeal v. GMAC Mortg., LLC (In re McNeal), 2012 U.S. App. LEXIS 9589 (11th Cir. Ga. May 11, 2012) a. Permits Chapter 7 debtor to strip off wholly unsecured mortgage under 506(d). Unpublished b. An 11th Cir. pre- Dewsnup case allowed strip off in Chapter 7. “Settled Circuit Law” only permits 11th Cir. to ignore its precedent if an intervening Supreme Court decision is “clearly on point”. Dewsnup is not because it is limited it to its precise issue: strip down, not strip off.
VALUATION OF LIENS UNDER 506(a) IN CHAPTER 13 BANKRUPTCY Nobelman v. American Sav. Bank , 508 U.S. 324 (U.S. 1993) Chapter 13 debtor may not strip down the mortgage lien to the secured value of his residence The interplay between § 506(a) and § 1322(b)(2). § 506(a) is used to value a claim secured by a mortgage lien. § 1322(b)(2) prohibits modification of a creditor's rights when its lien is "secured only by a security interest in the debtor's principal residence". If a lien is partially secured by a debtor's principal residence, then the creditor's rights may not be modified in a Chapter 13 plan. May not Strip Down (Bifurcate) a mortgage under § 506(a) that is "secured only by a security interest in the debtor's principal residence". 13
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