In Re Mayer: Debtor May Avoid Fully Underwater, Nonconsensual Judicial Liens

Case AnalysisSheetul Hassan

In re Mayer, 541 B.R. 812, 813 (Bankr. E.D. La. 2015).

Opinion issued: Nov. 20, 2015.

Written by: Sheetul Hassan, Staff Member

The debtor had a rental property encumbered by two mortgages.[1] Prior to the Chapter 7 bankruptcy filing, a writ of execution was recorded against the property.[2] Since the writ was filed after the mortgage, the creditor’s writ was subordinate to both mortgagers.[3] The debtor requested the judgment to be voided because, upon subtracting the mortgage debt from the value of the rental property, the debtor’s remaining property value was $0.[4]

The issue before the court was whether a “nonconsensual judicial lien may be avoided if insufficient equity exists to secure its debt.”[5] The court analyzed the case under Dewsnup v. Timm, and found this case to be unlike Dewsnup because this case involves a nonconsensual judicial lien.[6] In Dewsnup, a debtor tried to avoid a consensual lien secured by his property because the lien exceeded the value of his property.[7] The Dewsnup Court held a debtor is not allowed to strip down a consensual mortgage lien under 11 U.S.C. § 506.[8] This court rejected the Dewsnup reasoning because it was a narrow interpretation and failed to fully examine the connection between an “allowance” and “secured claim.” Here, since the lien was not consensual, the court held the Debtor could use the avoiding powers enumerated in § 506.[9] Since the value of the home would not satisfy even the first mortgage, the court avoided the judgment lien.[10]

Moving forward, practitioners should note that Dewsnup precedent preventing strip-down on underwater mortgages may not apply to nonconsensual liens, as it was limited to consensual mortgage liens.[11]

[1] In re Mayer, 541 B.R. 812, 813 (Bankr. E.D. La. 2015).

[2] Id.

[3] Id.

[4] Id. at 814.

[5] Id. at 813.

[6] Id. at 814.

[7] Id. at 813.

[8] Id. at 814.

[9] Id. at 815–16.

[10] Id.

[11] See Nicole Holland,  Bank of America v. Caulkett: Chapter 7 Debtors May Not Void A Creditor's Secured Lien in Real Property, Bankruptcy Bulletin (Sept 7, 2015), http://www.bankruptcybulletin.org/bankruptcy-bulletin/2015/9/7/bank-of-america-v-caulkett-135-sct-1995-chapter-7-debtors-may-not-void-a-creditors-secured-lien-in-real-property.