by In an opinion succinctly pointing out the primary faults of the much-maligned Dewsnup decision, Bankruptcy Judge Magner narrowly interpreted and distinguished Dewsnup to find that a wholly unsecured, nonconsensual judicial lien may be stripped in chapter 7. In re Mayer, 2015 WL 7424327, No. 2:13-bk-13220 (Bankr. E.D. La. Nov. 20, 2015).
Ms. Mayer’s residence was undersecured as to the first mortgage and wholly unsecured as to the second. She sought to strip off a third, judicial lien obtained against the property after the first and second mortgages had been recorded.
Dewsnup found that a consensual, partially secured lien could not be stripped down in chapter 7 under section 506(d). The case was implicitly upheld by the Supreme Court in Bank of America, N.A. v. Caulkett, 135 S.Ct. 1995 (2015).
In finding that the lien was subject to strip-off, the court devoted much of its discussion to reasons for limiting Dewsnup v. Timm, 502 U.S. 410 (1992), to its facts. The court began with Dewsnup’s own limitation of his holding when it said, “We . . . focus upon the case before us and allow other facts to await their legal resolution on another day.” Turning to the language of section 506(d) which renders void a claim that is not “an allowed secured claim,” the court found a statutory basis for stripping liens that are either partially or wholly unsecured under section 506(a). She therefore turned to the issue of whether the holding in Dewsnup required a different result.
In Judge Magner’s opinion, the Dewsnup Court erroneously conflated “consensual” with “allowed” noting that an allowed claim is one to which no objection has been lodged, and that a debtor’s challenge to a claim constitutes an objection to allowance notwithstanding the consensual nature of the lien. Pulling no punches the court said, “By holding that an undersecured claim was by definition an allowed secured claim, no secured claim could ever be bifurcated. Thus, Dewsnup’s interpretation effectively eliminated any application of § 506(d) which, by its very terms, is employed to reduce undersecured claims to the value of the property.” The court found that Dewsnup violated well-established rules of statutory construction to justify its ultimate conclusion by failing to give effect to the plain language of the statute and by resolving “ambiguity” in such a way that section 506(d) was rendered useless.
The court concluded: “It is for these reasons that this Court finds Dewsnup’s directive to limit its application narrowly and on its facts to be both warranted and preferable. Dewsnup’s holding is limited to the avoidance of consensual mortgage liens. Therefore, nonconsensual judicial liens are avoidable.”
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