Certiorari Denied in Lien Strip Case

Posted by NCBRC - March 31, 2014

The Supreme Court denied cert. in the lien strip case of Bank of America v. Sinkfield, No. 13-700, involving the issue of whether section 506(d) permits the strip off of a wholly unsecured lien in chapter 7.

Many courts have extended the holding in Dewsnup v. Timm, 502 U.S. 410 (1992), to preclude not only a strip-down of a partially secured lien, but to preclude strip-off of a wholly unsecured lien as well. See, e.g., Palomar v. First American Bank (In re Palomar), No. 12-3492 (7th Cir. July 11, 2013). See also Ryan v. Homecomings Fin. Network , 253 F.3d 778 (4th Cir. 2001); Talbert v. City Mortg. Serv., 344 F.3d 555 (6th Cir. 2003); Wachovia Mortg. v. Smoot, 478 B.R. 555 (E.D. N.Y. 2012).

The Eleventh Circuit broke with that trend in In re McNeal, No. 11-11352 (May 11, 2012), finding that Dewsnup is inapplicable to wholly unsecured liens and that its earlier precedent, Folendore v. United States Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989), permitting such strip-offs under section 506(d), remains good law. GMAC filed a petition for rehearing in McNeal which is still pending, and the issue is currently on appeal in several other cases in the Eleventh Circuit many of which have been consolidated under the lead case of In re Brown, No. 13-14298.

NCBRC filed an amicus brief in the Supreme Court on behalf of the NACBA membership arguing that certiorari should not be granted because the creditor bank avoided full analysis of the issue and hustled Sinkfield through the appeal process by stipulating to judgment in the courts below. Calling it an “unusual strategy [that] seems to be the right one” SCOTUS blog writer Ronald Mann applauded NACBA’s decision to file the brief. http://www.scotusblog.com/2014/03/commentary-parties-trade-strategic-jabs-in-high-stakes-bankruptcy-petition/. It seems the strategy paid off.

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