When the debtors filed for chapter 7 bankruptcy, they had two outstanding mortgages on their residence. The first was partially secured and the second was fully underwater. The debtors filed an adversary complaint seeking to strip down the partially secured senior lien. The bankruptcy court, compelled by Dewsnup v.Timm, 502 U.S. 410 (1992) and Bank of America, N.A. v. Caulkett, 575 U.S. 790 (2015), granted the creditor’s motion to dismiss. In re Vasquez, No. 19-1841, Adv. Proc. No. 19-100 (Bankr. E.D. N.C. March 25, 2020). Agreeing with the bankruptcy court’s “thorough analysis and conclusions,” the district court affirmed. In re Vasquez, No. 20-62 (E.D. N.C. Aug. 2020). Read More
Tag Archive: Lien Stripping
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Challenge to Dewsnup Moving Up
Posted by NCBRC - September 22nd, 2020
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Court Relies on, then Discusses Problems with, Dewsnup
Posted by NCBRC - April 21st, 2020
Finding that the case was governed by Dewsnup, a bankruptcy court granted the lien creditor’s motion to dismiss the chapter 7 debtors’ complaint seeking to strip down its partially unsecured lien. Vasquez v. JPMorgan Chase Bank, No. 19-1841, Adv. Proc. No. 19-100 (Bankr. E.D. N.C. March 25, 2020).
The chapter 7 debtors initiated a challenge to the controversial decision in Dewsnup v.Timm, 502 U.S. 410 (1992), when they sought to strip down a partially underwater lien held by JPMorgan. Given that, in 1992, the Supreme Court prohibited chapter 7 lien stripping of partially secured liens, the bankruptcy court did the only thing it could do and dismissed the complaint. Acknowledging the problematic nature of the decision in Dewsnup, however, the court went on to examine that case more closely. Read More
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No Equitable Subordination of Liens in Pennsylvania
Posted by NCBRC - March 20th, 2020
Neither Pennsylvania nor the Third Circuit apply the doctrine of equitable subordination to reprioritize a junior lien over a modified senior lien. Hamilton v. Pa. Hous. Fin. Agy., No 18-5417 (E.D. Pa. March 5, 2020).
The debtors had a home mortgage for $145,000. They defaulted on their mortgage and applied for Homeowner’s Emergency Mortgage Assistance (HEMAP). Through that program, they entered into an open-ended mortgage with the Pennsylvania Housing Finance Agency (PHFA) which operated as a line of credit with a principal of $51,000. PHFA then satisfied the mortgage arrearage and maintained the mortgage through April, 2013. In May, 2013, the then-current mortgage holder obtained a judgment of foreclosure against the debtors in the amount of $139,447.26. After that, the debtors and the mortgage assignee, entered into a modified agreement which the debtors later defaulted on. When the creditor sought to foreclose, the debtors filed for chapter 13 bankruptcy. PHFA filed a claim for over $18,000 and the mortgage creditor filed a claim for over $189,000. Because the mortgage lien exceeded the value of the property, the debtors moved the bankruptcy court to find the PHFA junior debt wholly unsecured under section 506(a). Read More
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No Sovereign Immunity in Strip of State Tax Lien
Posted by NCBRC - October 25th, 2019
An action to strip off a wholly unsecured State tax lien is an in rem proceeding that does not implicate the State’s Eleventh Amendment immunity. Commonwealth of Pa. v. Berger, No. 19-417 (W.D. Pa. Oct. 21, 2019).
The debtors entered chapter 13 bankruptcy with outstanding State tax liens on their real property. Because the property was subject to mortgage liens amounting to more than its value, the debtors filed an adversary proceeding seeking to strip off the State’s tax lien as wholly unsecured. The bankruptcy court rejected the State’s Eleventh Amendment argument and denied its motion to dismiss. The State immediately appealed the denial to the district court as authorized by Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 147 (1993). Read More
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Fourth Circuit Overturns Anti-Modification Precedent Witt v. United Cos. Lending Corp.
Posted by NCBRC - May 29th, 2019
The en banc fourth circuit panel overturned a twenty-two-year-old precedent to join the majority of courts finding that section 1322(c)(2) “authorizes modification of covered homestead mortgage claims, not just payments, including bifurcation of undersecured homestead mortgages into secured and unsecured components.” Hurlburt v. Black, No. 17-2449 (4th Cir. May 24, 2019) (en banc). NACBA and NCBRC participated as amici in support of the debtor.
In Witt v. United Cos. Lending Corp. (In re Witt), 113 F.3d 508 (4th Cir. 1997), the Fourth Circuit held that section 1322(c)(2)’s exception to the anti-modification provision in section 1322(b)(2) was limited to permitting a chapter 13 debtor to extend the final payments on his mortgage over the course of the plan even though the terms of the lending agreement would have those payments due earlier. Thus, the Witt court found that section 1322(c)(2) does not permit a chapter 13 debtor to modify the amount owed on the claim by bifurcating the claim into secured and unsecured portions, but could alter only the timing of payments on that claim. Read More
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Petition Date Controls Property-Use Determination
Posted by NCBRC - May 23rd, 2018
An addition to the debtor’s residential property, which he constructed post-mortgage and pre-bankruptcy petition and which he used as a rental unit, made the property multi-use and rendered the anti-modification provision inapplicable. In re Berkland, No. 17-10821 (Bankr. D. Mass. April 6, 2018).
Kenneth Berkland took out a mortgage to purchase his residential property. He later built an addition to the property to be used rent-free by his in-laws. His brother-in-law later moved in and paid $300 per month in rent. At the time he filed for chapter 11 bankruptcy, the value of his property was less than the amount owed on his mortgage and he sought to strip down the debt into secured and unsecured portions under section 1123(b)(5), a provision that mirrors section 1322(b)(2). The servicer for the mortgagee, Specialized Loan Servicing, LLC, objected on the basis that the property was subject to the anti-modification provision applicable to debt secured “only by” the debtor’s residence. Read More
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Court Adopts Predominate-Use Test for 910-Day Vehicle Analysis
Posted by NCBRC - May 2nd, 2018
When Jamie Denise McGinness filed for chapter 13 bankruptcy, she owed $27,867.56 on her Nissan Altima. She sought to strip-down the unsecured portion of the debt. Nissan Motor Acceptance Corporation objected to confirmation of her plan citing the hanging paragraph of section 1325(a)(5) which provides that a loan made to secure the purchase of a vehicle bought for personal use within 910 days of filing for bankruptcy may not be stripped down. The court overruled Nissan’s objection. In re McGinness, No. 17-14746 (Bankr. E.D. Tenn. March 2, 2018). Read More
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One Mortgage Securing Three Debts Equals Three Liens for Strip-Off Purposes
Posted by NCBRC - April 13th, 2018
Three separate debts secured by one mortgage are properly treated as three liens and those junior liens that are wholly unsecured may be stripped in chapter 13. Poole v. First National Bank of Middle Tennessee, No.17-8 (E.D. Tenn. March 19, 2018).
David and Mary Poole took out three separate loans from First National Bank of Middle Tennessee (FNB) each of which were secured by the Pooles’ residence pursuant to an Open End Mortgage provision in the Deed of Trust providing security for future indebtedness. In their chapter 13 plan, the Pooles proposed to treat each loan as a separate secured debt and strip the two wholly unsecured junior liens under section 1322(b)(2). FNB objected arguing that there were not three liens, but one partially-secured lien that could not be modified. The bankruptcy court overruled the objection and confirmed the Pooles’ plan. Read More
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Fourth Circuit Reverses Bad Decision on Chapter 13 Lien Stripping
Posted by NCBRC - April 3rd, 2018
Finding that a wholly unsecured lien may be stripped in chapter 13 even where no proof of claim was filed the Fourth Circuit reversed the district court’s holding to the contrary. Burkhart v. Grigsby (In re Burkhart), No. 16-1971 (4th Cir. March 29, 2018).
Chapter 13 debtors, Edwin and Teresa Burkhart’s, home was subject to several liens, two of which were held by Community Bank of Tri-County and were wholly unsecured. Tri-County did not file a proof of claim in the Burkharts’ bankruptcy. The Burkharts filed an adversary complaint seeking to strip off the wholly unsecured liens under section 1322(b). Relying on section 506(d), the bankruptcy court held Tri-County’s liens could not be stripped because they had not filed proofs of claim. (The court stripped the wholly unsecured lien held by PNC because PNC had filed a timely proof of claim). The district court affirmed (blogged here). Read More
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How Much Notice is Enough?
Posted by NCBRC - January 31st, 2018
The Eleventh Circuit found that even though Nationstar did not receive notice of the debtor’s objection to its claim, it was enough that Nationstar had actual notice of a court-ordered change in the status of its claim from secured to unsecured and failed to take timely action to protect its interest. Nationstar Mortgage v. Iliceto, No. 16-16815 (11th Cir. Dec. 11, 2017) (unpublished).
Robert Iliceto filed for chapter 13 bankruptcy listing U.S. Bank as his mortgage creditor. Nationstar filed a transfer of claim establishing itself as the assignee of the mortgage from U.S. Bank. Nationstar listed both its street address and a P.O. Box as “preferred” addresses. Mr. Iliceto filed a claim on Nationstar’s behalf in his chapter 13 bankruptcy and, at the same time, objected to the claim on the basis that Nationstar was not a proper assignee. Mr. Iliceto failed to serve the objection on Nationstar as required by Rule 3007(a) and section 502 of the Code. Read More
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HAVEN Act Guide
The Honoring American Veterans in Extreme Need Act of 2019 (“HAVEN Act”) excludes certain benefits paid to veterans or their family members from the definition of current monthly income (“CMI”) found in the Bankruptcy Code. The HAVEN Act amends § 101(10A) of the Bankruptcy Code and supplements the 2005 amendments to the Code that excluded other government benefits, such as social security income.
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