Bankruptcy -
Ability of Chapter 7 debtor to "strip off" wholly unsecured junior
mortgage lien -- Certiorari Denied
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Denying
certiorari, the United States Supreme Court has let stand an unpublished
Eleventh Circuit decision that summarily affirmed a district court order
summarily affirming a bankruptcy court order that granted a Chapter 7
debtor's motion to "strip off," or void, a junior lien on the
debtor's house where the debt owed to the senior lienholder exceeded the
house's current value. <p>According to the junior lienholder's petition
for a writ of certiorari, the debtor, who had two mortgages on his house,
filed a motion to strip off the junior lien, which was completely underwater.
In light of In re McNeal, 735 F.3d 1263 (C.A.11-Ga. 2012), in which the
Eleventh Circuit concluded that its decision in Matter of Folendore, 862 F.2d
1537 (C.A.11-Ga. 1989), which permitted a Chapter 7 debtor to strip off a
wholly underwater mortgage, remained binding precedent in the circuit,
notwithstanding Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903
(1992), in which the Supreme Court concluded that a Chapter 7 debtor could
not "strip down" a partially secured lien under 11 U.S.C.A. 506(d),
the parties in the present case agreed to resolve the debtor's motion by
stipulated order, while preserving the junior lienholder's right to seek
appellate review. On appeal, the parties successfully filed a joint motion
for summary affirmance, again expressly preserving the lienholder's right to
seek further appellate review. Following the district court's summary
affirmance, the parties jointly filed a motion requesting that the Eleventh
Circuit panel summarily affirm the district court, so that the junior
lienholder could seek en banc review and/or certiorari. Although the Court of
Appeals granted the joint motion for summary affirmance, thus upholding the
order stripping off the junior lien on the authority of McNeal and Folendore,
the court treated the lienholder's petition for rehearing en banc as a motion
for reconsideration, which was denied. <p>In its certiorari petition,
the junior lienholder noted that the circuits are split over whether a
Chapter 7 debtor may strip off a junior lien that is completely underwater.
"In holding that a Chapter 7 debtor may strip off a lien in such
circumstances, the Eleventh Circuit disregarded the Supreme Court's holding
and reasoning in Dewsnup--which should have dictated the opposite
conclusion--and expressly rejected the contrary holdings of the Fourth,
Sixth, and Seventh Circuits," the petition asserted. <p>The
National Association of Consumer Bankruptcy Attorneys (NACBA), as amicus
curiae, agreed with the debtor that certiorari should be denied because the
Bankruptcy Code plainly allows debtors to void mortgage liens that are
unsupported by value in the underlying collateral. Section 506(d) provides,
in pertinent part, that "to the extent that a lien secures a claim
against the debtor that is not an allowed secured claim, such lien is
void." The fact that the junior lienholder had stipulated to judgment
against it throughout the lower court proceedings also weighed against granting
review in this case, the NACBA argued. (Case below: Bank of America, N.A. v.
Sinkfield, No 13-12141 (C.A.11-Ga. July 30, 2013).)
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Tuesday, April 29, 2014
Chapter 7 Strip Off of " Below Water" Mortgages Issue - US Supreme Court Denies Review
