In re Isaacs
16-8041
| 6th Cir. | Jul 3, 2017Background
- Linda Isaacs and her husband executed a home-equity line and a second mortgage in Feb 2003; the mortgage stated “The lien of this Mortgage will attach on the date this Mortgage is recorded.”
- The Isaacses filed chapter 7 in Mar 2004, listed the debt as secured; GMAC did not record the mortgage until June 2004 (while the stay was in effect) and never sought relief from stay or avoidance during the chapter 7.
- The chapter 7 closed with a discharge in Aug 2004; the Isaacses later reopened briefly to avoid two judgment liens and closed again in Jan 2006.
- RoundPoint (successor to GMAC) obtained a default foreclosure judgment in Kentucky state court in Aug 2014 finding the mortgage a valid second mortgage; no appeal was taken.
- Isaacs filed chapter 13 in Sept 2014 and an adversary complaint seeking to avoid the mortgage under 11 U.S.C. § 544(a)(1) and (a)(3) and to vacate the state-court foreclosure judgment as violating her chapter 7 discharge; the bankruptcy court ruled for Isaacs, declaring the state-court judgment void.
- The Bankruptcy Appellate Panel reversed and remanded with instructions to dismiss for lack of subject-matter jurisdiction under the Rooker–Feldman doctrine, holding the mortgage was a valid prepetition lien that survived the discharge as an in rem interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court had jurisdiction to review and vacate the state-court foreclosure judgment under Rooker–Feldman | Isaacs: the mortgage was unsecured at petition date (because recording occurred post-petition), so the chapter 7 discharge eliminated personal and in effect the lien; the state judgment impermissibly modified the discharge and is void | Mortgagee: the state-court foreclosure adjudicated a valid prepetition lien; Rooker–Feldman bars federal review of a state in rem foreclosure judgment | Court: Rooker–Feldman bars review because the foreclosure enforced a valid prepetition, unavoided lien that survived the discharge; dismissal for lack of jurisdiction |
| Whether the mortgage attached before the chapter 7 petition (instrument construction) | Isaacs: mortgage language (“lien…will attach on the date this Mortgage is recorded”) means the lien did not attach until recording, so debt was unsecured at petition | Mortgagee: mortgage is valid between parties upon execution; recording affects priority as to third parties only; thus lien attached prepetition | Court: mortgage was effective between the parties upon execution under Kentucky law and the instrument read as a whole; lien was prepetition and unavoided |
| Whether a state in rem foreclosure can ever modify a chapter 7 discharge so as to fall within the Hamilton exception to Rooker–Feldman | Isaacs: yes, if the lien never existed prepetition and the state court creates or revives security for a discharged debt, that would modify the discharge | Mortgagee: in rem foreclosure enforces property rights and does not impose personal liability; discharge protects only personal liability | Court: declined to broadly decide, but held Hamilton exception inapplicable because lien was prepetition and foreclosure did not modify discharge |
| Whether Isaacs had statutory/derivative standing to bring § 544 avoidance claims without trustee consent | Mortgagee: Isaacs lacked derivative standing absent trustee action/approval | Isaacs: she had derivative standing to pursue avoidance in her chapter 13 | Court: addressed standing but resolved case on Rooker–Feldman jurisdictional grounds before reaching merits of derivative-standing dispute |
Key Cases Cited
- Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) (origin of Rooker–Feldman doctrine prohibiting lower federal courts from acting as appellate tribunals over state-court judgments)
- District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983) (further defining limits on federal review of state-court decisions)
- Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005) (frames Rooker–Feldman as barring suit by state-court losers seeking federal review of state judgments)
- Johnson v. Home State Bank, 501 U.S. 78 (1991) (bankruptcy discharge does not avoid prepetition liens; liens pass through bankruptcy)
- Dewsnup v. Timm, 502 U.S. 410 (1992) (clarifies limits on avoiding liens through bankruptcy discharge)
- Hamilton v. Herr (In re Hamilton), 540 F.3d 367 (6th Cir. 2008) (recognizes limited exception where a state-court judgment impermissibly modifies a bankruptcy discharge)
- McCormick v. Braverman, 451 F.3d 382 (6th Cir. 2006) (standard of review and application of Rooker–Feldman in bankruptcy context)