The issue in the current case is whether the Debtor may “strip off” a wholly unsecured junior lien on her homestead property, even though she is not eligible for a Chapter 13 discharge. The decision of the Eleventh Circuit Court of Appeals in In re Tanner, 217 F.3d 1357 (11th Cir.2000), governs the resolution of this case. In Tanner, the Eleventh Circuit determined that a wholly unsecured lien on a debtor's residence is not protected from modification under § 1322(b)(2).
The residence was encumbered by a first mortgage held by Farmers Home Administration ("FHA") and a second mortgage held by AGF. FHA filed a proof of claim in the amount of $59,889.74, and AGF filed a proof of claim in the amount of $21,432.06. The district court noted that there had been a split among bankruptcy courts, district courts and bankruptcy scholars regarding the interpretation the Supreme Court's holding in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), superseded in part by statute on other grounds as stated in In re Tanner, 217 F.3d 1357, 1359 n. 5 (11th Cir. 2000), and its application to the question of whether creditors whose claims are wholly unsecured pursuant to § 506(a) were entitled to the protection provided under § 1322(b)(2). The district court reasoned that the language of § 1322(b)(2), the Supreme Court's interpretation of § 1322(b)(2) in Nobelman, and the uncertainty inherent in establishing a value for a debtor's residence supported the conclusion that § 1322(b)(2) protects all claims secured only by the debtor's principal residence, even if such a claim would be considered unsecured under a § 506(a) valuation.
FN19. See, e.g.,Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220, 1222–23 (9th Cir.2002); Lane v. W. Interstate Bancorp (In re Lane), 280 F.3d 663, 669 (6th Cir.2002); Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122, 127 (2d Cir.2001); Tanner v. First–Plus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1359–60 (11th Cir.2000); Bartee v. Tara Colony Homeowners Ass'n (In re Bartee), 212 F.3d 277, 288–91 (5th Cir.2000); McDonald v. Master Fin. Inc. (In re McDonald), 205 F.3d 606, 609–612 (3d Cir.2000); Griffey v. U.S. Bank (In re Griffey), 335 B.R. 166, 167–70 (10th Cir. BAP 2005); Domestic Bank v. Mann (In re Mann), 249 B.R. 831, 840 (1st Cir. BAP 2000); Fisette v. Keller (In re Fisette), 455 B.R. 177, 181–83 (8th Cir. BAP 2011). FN20.
Judge Markell refers to ‘allowed secured claim’ being a term of art in comparing bankruptcy law to non-bankruptcy law. FN3. Nwogbe, 451 B.R. at 93–94 (citing Zimmer, 313 F.3d at 1227; In re Lane, 280 F.3d 663, 667–69 (6th Cir.2002); Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122, 126 (2d Cir.2001); Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1359–60 (11th Cir.2000); In re Bartee, 212 F.3d 277, 288, 295 (5th Cir.2000); McDonald v. Master Fin. Inc. (In re McDonald), 205 F.3d 606, 611 (3d Cir.2000). Bankruptcy Appellate Panels have also reached this same result.
2002); In re Pond, 252 F.3d 122, 124–27 (2d Cir.2001); In re Tanner, 217 F.3d 1357, 1358–60 (11th Cir.2000); In re Bartee, 212 F.3d 277, 284–95 (5th Cir.2000); In re McDonald, 205 F.3d 606, 609–15 (3d Cir.2000).
First, the antimodification provision in § 1322(b)(2) does not apply because Appellant's lien is not a "secured claim" within the meaning of the Bankruptcy Code. Justice Thomas' analysis in Nobleman clearly indicated that the proper starting point in this analysis is the valuation in § 506(a), not the exception contained in § 1322(b)(2). See Bartee v. Tara Colony Homeowners Ass'n, 212 F.3d 277, 290 (5th Cir. 2000); Tanner v. FirstPlus Fin., Inc., 217 F.3d 1357, 1360 (11th Cir. 2000) ("the only reading of both sections 506(a) and 1322(b)(2) that renders neither a nullity is one that first requires bankruptcy courts to determine the value of the homestead lender's secured claim under section 506(a) and then to protect from modification any claim that is secured by any amount of collateral in the residence"). Without first demonstrating that it has an allowed secured claim, a creditor cannot invoke the antimodification protection in § 1322(b)(2).
This language in Nobelman has been interpreted to mean that claims are deemed unsecured if they are secured solely by inadequate equity in the debtor's residence. Bartee v. Tara Colony Homeowners Ass'n (In re Bartee), 212 F.3d 277, 291-93 (5th Cir. 2000) (holding a claim to be unsecured if secured by inadequate equity in the debtor's principal residence); McDonald v. Master Fin., Inc. (In re McDonald), 205 F.3d 606, 611 (3d Cir. 2000) (same); Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1360 (11th Cir. 2000) (same); Domestic Bank v. Mann (In re Mann). 249 B.R. 831, 833 (B.A.P. 1st Cir. 2000) ("[A]n allowed secured claim cannot exceed the value of the collateral."); Lam v. Investors Thrift (In re Lam), 211 B.R. 36, 38 (B.A.P. 9th Cir. 1997) (same). Here, the senior mortgage fully encumbers Holloway's home, leaving no equity to secure its mortgage.
The Chapter 13 Trustee (hereinafter the “Trustee”) objected to both. The Debtors contend that a Chapter 13 debtor is allowed to utilize the “lien-strip” process enunciated by the Eleventh Circuit in Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1360 (11th Cir.2000) to change the secured status of a secured creditor after confirmation of the plan. The Chapter 13 Trustee rejects the Debtors' argument and believes that the res judicata effect of a confirmed Chapter 13 Plan prevents the Debtors, now, from stripping the lien.
"Section 506(a) defines the secured and unsecured components of debts according to the value of the underlying collateral." Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1358 (11th Cir. 2000). Where a lien is "wholly unsecured" it is subject to "stripoff" pursuant to 11 U.S.C. Section 506(d).
For the purposes of this opinion, the parties do agree that the amount of CitiMortgage's lien is more than the value of its collateral. 6. Nobelman v. Am. Savs. Bank, 508 U.S. 324, 328–29, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993); Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1360 (11th Cir.2000). Section 506(a) provides: