In re Mayer

541 B.R. 812, 2015 Bankr. LEXIS 3961, 61 Bankr. Ct. Dec. (CRR) 235, 2015 WL 7424327
CourtUnited States Bankruptcy Court, E.D. Louisiana
DecidedNovember 20, 2015
DocketCASE NO. 13-13220
StatusPublished
Cited by1 cases

This text of 541 B.R. 812 (In re Mayer) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.D. Louisiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Mayer, 541 B.R. 812, 2015 Bankr. LEXIS 3961, 61 Bankr. Ct. Dec. (CRR) 235, 2015 WL 7424327 (La. 2015).

Opinion

[813]*813 REASONS FOR DECISION

Elizabeth W. Magner, U.S. Bankruptcy Judge

This matter is before the Court pursuant to Melanie R. Mayer’s (“Debtor”) Motion to Reopen to Cancel Inseription/Avoid Judgment Lien,1 along with Debtor’s supporting memorandum2 and supplemental supporting memorandum.3 No opposition has been filed with respect to the instant motion.

I. Findings of Fact

Among Debtor’s assets was rental property located at 9295 Old Southwick Pass, Fulton County, Alpharetta, Georgia. The home had a fair market value of $650,000.00.4 JP Morgan Chase Bank, N.A. held a first mortgage over the property securing a debt with a balance of $1,100,000.00.5 A second mortgage was held by SunTrust and secured an additional debt with a balance of $298,178.00.6

Debtor filed a voluntary petition for relief under the United States Bankruptcy Code, Chapter 7, on November 21, 2013.7 Prior to the filing of Debtors’ bankruptcy proceeding, but subsequent to the recordation of the first and second mortgages, a •writ of execution in the amount of $180,000.00 plus interest, attorney’s fees and costs was recorded against Debtor in the records of the Clerk of Court for Fulton County, Georgia.8 The writ of execution, arising from a Judgment taken against Debtor by creditor Pat Huddle-ston, II, encumbers Debtor’s rental property but is subordinate in rank to the two (2) mortgage liens on the property. In re Register, 37 B.R. 708, 710 (Bankr.N.D.Ga. 1983) (In Georgia, the general rule is that liens are ranked according to the date they are recorded).

Once the amount of indebtedness secured by the mortgages is deducted from the value of Debtor’s rental property, the remaining equity or value in the property available to secure the judgment lien is $0. As such, Debtor asserts that the judicial lien should be avoided.

The issue before the Court is whether under Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 778, 116 L.Ed.2d 903 (1992), a nonconsensual judicial lien may be avoided if insufficient equity exists to secure its debt.

II. Analysis

In Dewsnup, a debtor sought to avoid a mortgage or consensual lien secured by his property. The value of the property was substantially less than the balance due. Citing 11 U.S.C. §• 506(d),9 the debtor asserted the right to avoid the lien to the extent it exceeded the value of his property.

In the context of a Chapter 7 proceeding, the Dewsnup Court held that § 506(d) does not allow a debtor to “strip down” or avoid a consensual mortgage lien, reasoning that the debt was secured and had been fully allowed under 11 U.S.C. § 502. [814]*814Id. at 417, 112 S.Ct. 773, 778.10 The Dewsnup Court specifically limited its holding to the facts before it, providing: “We ... focus upon the case before us and allow other facts to await their legal resolution on another day.” Id. at 416-17, 112 S.Ct. 773, 778. Unlike Dewsnup, this case involves a nonconsensual judicial lien.

Based upon the specific issue before the Supreme. Court, i.e., whether a consensual mortgage lien can be avoided, and the fact that the Court specifically limited its holding to the facts of the case, several courts have strictly interpreted Dewsnup, holding that it does not apply to nonconsensual judicial liens. See In re Blair, 2001 WL 36404548, *1-2 (Bkrtcy.S.D.Ga. Jan. 19, 2001) (nonconsensual judicial lien is not protected by safe harbor ruling in Dewsn-up); Butler v. Southern O Corporation, 196 B.R. 329, 830 (Bkrtcy W.D.Va. May 21, 1996) (Dewsnup not applied to nonconsensual judicial lien); In re Howard, 184 B.R. 644, 647 (Bkrtcy.E.D.N.Y. Aug. 2, 1995) (Dewsnup not applicable to defendant’s judicial lien); In re Jones, 166 B.R. 657, 662 n. 7 (Bkrtcy.N.D.Ill. April 22, 1994) (Dewsnup not applicable to a judicial lien); In re Prestegaard, 139 B.R. 117, 120 (S.D.N.Y. April 22, 1992) (Dewsnup inapplicable to judicial lien).11

After considering the various opinions interpreting Dewsnup and in accordance with Dewsnup’s instruction to confine its ruling to the facts before it, a narrow interpretation of its effect is warranted. To begin, § 506 provides a debtor with the right to “cram down” a secured claim to the value of the property encumbered. The remaining undersecured portion or deficiency is then treated as an unsecured claim. Chapter V is generally applicable to all chapters under bankruptcy.

The bankruptcy code does not define a secured claim except to provide in § 506, that a secured claim encumbers property of the estate. The Code defines an “allowed claim” as one to which “a party in interest” does not object. 11 USC § 502(a). Therefore, an allowed secured claim would be a claim to which no objection has been raised or granted and that is secured by property of the estate. By challenging the claim, a debtor necessarily is objecting to allowance. Thus, § 506 provides a mechanism for challenging the [815]*815extent of a secured claim’s reach over property of the estate.

Dewsnwp held that a secured, consensual lien could not be avoided because by its nature it was an allowed secured claim. The Dewsnup Court conflated consensual with “allowed,” failing to address the bankruptcy principle that an allowed claim is one not subject to objection. The interplay between the bankruptcy concepts of “allowance” and “secured claims” and the difference between them was not properly examined by the Dewsnup Court.

The Dewsnup Court also failed to explain how under its interpretation of § 506(a), § 506(d) could ever be applicable to any chapter of the bankruptcy code. 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 Dewsnup interpretation also violates the general rules of statutory construction which require courts give effect to the plain reading of a statute if to do so does not lead to absurd results. Mach Min., LLC v. Secretary of Labor, Mine Safety and Health Admin., 728 F.3d 643, 647 (7th Cir.2013), cert. denied, - U.S. -, 134 S.Ct. 1873, 188 L.Ed.2d 911 (2014) (cardinal rule of statutory interpretation is that courts must adhere to the plain meaning of the statutory language). The logical extension of Dewsnup’s holding also reads out any use of § 506(d) under any chapter.

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Cite This Page — Counsel Stack

Bluebook (online)
541 B.R. 812, 2015 Bankr. LEXIS 3961, 61 Bankr. Ct. Dec. (CRR) 235, 2015 WL 7424327, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-mayer-laeb-2015.