The Supreme Court has accepted cert in Bank of America, N.A. v. Caulkett agreeing to review the right of a chapter 7 debtor to strip off an entirely unsecured lien. In Los Angeles we call them “Lam Motions.” I expect oral argument some time in April, 2015 and I expect to be there. Nearly every court in the country has held that the Supreme Court case of Dewsnup requires denial of the strip off in chapter 7. My briefs of the cases follow.
Bank of America, N.A. v. Caulkett, (unpublished) (11th Cir., May, 2014)
Issue: May a chapter 7 strip off a wholly unsecured lien pursuant to sections 506(a) and 506(d)?
Holding: Yes.
The bankruptcy court here “void[ed] a wholly unsecured second priority lien on residential property owned by a Chapter 7 debtor. The issue on appeal is whether a Chapter 7 debtor is allowed to ‘strip off’ a second priority lien on his home, pursuant to 11 U.S.C. § 506(a) and (d), when the first priority lien exceeds the value of the property.” The district court affirmed.
The 11th Circuit affirmed in a very short opinion saying only that it is bound by its prior ruling in McNeal v. GMAC Mortg., LLC (In re McNeal), 735 F.3d 1263 (11th Cir. 2012).
McNeal v. GMAC Mortg., LLC (In re McNeal), 735 F.3d 1263 (11th Cir. 2012)
Issue: May a chapter 7 strip off a wholly unsecured lien pursuant to sections 506(a) and 506(d)?
Holding: Yes.
Per curiam
The debtor here filed chapter 7. “In her petition, McNeal reported that her home was subject to two mortgage liens: a first priority lien in the amount of $176,413 held by HSBC and a second priority lien in the amount of $44,444 held by Homecomings Financial, LLC, a subsidiary of GMAC Mortgage, LLC (collectively, “GMAC”). McNeal also reported that her home’s fair market value was $141,416. The parties do not dispute these factual allegations.” “McNeal then sought to ‘strip off’ GMAC’s second priority lien, pursuant to sections 506(a) and 506(d).” The bankruptcy court denied the request and the district court affirmed.
The 11th Circuit reversed also in a very short opinion. “That GMAC’s junior lien is both ‘allowed’ under 11 U.S.C. § 502 and wholly unsecured pursuant to section 506(a) is undisputed. To determine whether such an allowed—but wholly unsecured—claim is voidable, we must then look to section 506(d), which provides that ‘[t]o the extent that a lien secures a claim against a debtor that is not an allowed secured claim, such lien is void.’” The court distinguished Dewsnup saying, “[b]ecause Dewsnup disallowed only a ‘strip down’ of a partially secured mortgage lien and did not address a ‘strip off’ of a wholly unsecured lien, it is not [determinative of] the facts at issue in this appeal.”