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
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
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 Nationstar Mortgage v. Iliceto, No. 16-16815 (11th Cir. Dec. 11, 2017) (unpublished).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
Posted by NCBRC - October 16th, 2017
The mortgage creditor cancelled the underlying debt when it filed a “cancellation of debt” form with the IRS and the debtors paid income taxes on the cancelled debt. In re Lukaszka, No. 17-242 (Bankr. N.D. Ia. Aug. 4, 2017).
In their proposed chapter 13 plan, James and Darcey Lukaszka sought an order requiring First Federal Credit Union, a junior mortgagee, to release their mortgage lien on the basis that, four years earlier, First Federal had issued the debtors a “cancellation of debt” form, 1099-C, indicating that it was no longer seeking to collect on the debt. As a result, the Lukaszkas reported the almost $60,000.00 debt cancelation to the IRS as income and paid taxes on it.
First Federal objected to confirmation. Read More
Posted by NCBRC - October 4th, 2017
An unenforceable judgment lien on the debtor’s homestead property, which he owned as a tenancy in the entireties with his non-debtor spouse, was an inchoate lien which created a “cloud” over the title and therefore fell within section 522(f)’s purview for avoidance of a lien that impairs an exemption. CRP Holdings v. O’Sullivan, No.17-6012 (B.A.P. 8th Cir. Sept. 22, 2017).
The case came before the BAP upon appeal of the bankruptcy court’s order voiding the lien. The case was before the bankruptcy court for the second time after remand from the Eighth Circuit on the sole issue of whether CRP had a cognizable lien on Casey Drew O’Sullivan’s interest in the entireties property. CRP Holdings A-1, LLC v. O’Sullivan (In re O’Sullivan), 841 F.3d 786, 790 (8th Cir. 2016); In re O’Sullivan, 569 B.R. 163, 169 (Bankr. W.D. Mo. 2017). Read More
Posted by NCBRC - September 29th, 2017
Where the mortgage servicer’s proof of claim was disallowed for procedural rather than substantive reasons, the debtors were not entitled to have the underlying lien declared void under section 506(d). Kohout v. Nationstar Mortgage,LLC., No. 3:16-CV-1372 (N.D. N.Y. Sept. 11, 2017).
Chapter 13 debtors, Kevin and Susan Kohout, objected to the mortgage servicer’s proof of claim on the basis that it was not supported by proper documentation as required by Rule 3001(c). When Nationstar (through its predecessor-in-interest) failed to respond to the objection, the bankruptcy court disallowed the claim. The Kohouts then sought to void the lien that was the subject of the disallowed claim under section 506(d). The bankruptcy court granted summary judgment in favor of Nationstar. Read More
Posted by NCBRC - August 7th, 2017
Where the debtor has a right to due process prior to the fixing of a debt, the lien acquired by the clerk of court’s filing the certificate of the debt is a judicial lien subject to avoidance in bankruptcy. Arkansas Dept. of Workforce Serv. v. Leaks, No. 16-8036 (E.D. Ark. June 14, 2017).
Tilda Marie Chambers Leaks received two overpayments of unemployment benefits. The Arkansas Department of Workforce Service (ADWS) concluded that the overpayments were due to fraud. It filed with the county clerk’s office Certificates of Overpayments of Unemployment Benefits and certified that all appeal rights had been exhausted. When the clerk filed the certificates of debt, liens against Ms. Leaks’ property were automatically created. In her chapter 13 bankruptcy, Ms. Leaks sought to avoid both liens as judicial liens impairing an exemption under section 522(f). The bankruptcy court granted the motion. Read More
Posted by NCBRC - May 2nd, 2017
Escrow, insurance and rent do not constitute additional collateral in a deed of trust for purposes of stripping down a mortgage. Jeremy v. J.P. Morgan Bank, No. 15-2369 (4th Cir. March 9, 2017). In an unpublished opinion, the Fourth Circuit rejected Calvert and Jolita Jeremy’s argument that stripping down of their residential debt was not prohibited by the anti-modification provision of section 1322(b)(2) because the debt was collateralized by more than simply their residence. Specifically, the Jeremys pointed to the deed of trust which provided for supplemental collateral including escrow funds, insurance proceeds, and rent. Citing its decision in Birmingham v. PNC Bank, N.A., 846 F.3d 88 (4th Cir. 2017), the court found that the funds listed in the deed of trust were “incidental property” rather than additional collateral.
Jeremy 4th Cir. March 2017
Posted by NCBRC - February 6th, 2017
Cross-collateralized loans were not immune from cramdown where they did not have a “close nexus” to the purchase of the collateral vehicles for purposes of the 910-claim exception to cramdown, and motor vehicles are not “any other thing of value” for purposes of the second exception. In re McPhilamy, No. 16-10238 (Bankr. S.D. Tex. Jan. 31, 2017).
In their chapter 13 plan, the debtors, Sean and Bertha McPhilamy, sought to treat as unsecured five of the seven claims held by Rio Grande Federal Credit Union (RGFCU). The claims were based on loans cross-collateralized by two motor vehicles, a Honda Civic and a Chevy Camaro. The loans were executed at least within 910 days, and in some cases within one year, of the McPhilamy’s bankruptcy. The plan proposed to treat the other two of the seven claims (claims 10 and 12) as secured because they were for loans used to purchase the two vehicles at issue. Those two debts exceeded the value of the vehicles.
Though RGFCU did not object to confirmation, the trustee moved to dismiss or convert on the basis that the debtors had failed to propose a confirmable plan. Read More
Posted by NCBRC - January 23rd, 2017
Provisions in a deed of trust, including an obligation for the debtor to maintain an escrow account, are incidental to the residential security interest and do not remove the claim from bankruptcy’s anti-modification provision. Birmingham v. PNC Bank, No. 15-1800 (4th Cir. Jan 18, 2017).
Chapter 13 debtor, Gregory John Birmingham, filed an adversary complaint seeking to cram down his mortgage with PNC and arguing that the anti-modification provision did not apply because PNC’s claim was not secured solely by his residence. Specifically, Mr. Birmingham pointed to the provisions in the lending agreement requiring him to: 1) maintain an escrow account to cover obligations such as property taxes, 2) maintain property insurance, and 3) assign to PNC any proceeds from third parties arising out of judgments, settlements or other actions involving the property.
The bankruptcy court granted PNC’s motion to dismiss and the district court affirmed. Read More
