560 B.R. 77
Bankr. E.D.N.Y.2016Background
- Debtor filed Chapter 13 on November 29, 2015 and moved to strip TD Bank’s second mortgage on her Oceanside, NY residence as wholly unsecured under 11 U.S.C. §§ 506(a), 506(d), and 1322(b)(2).
- Senior mortgage balance at petition date: $352,635; Bank’s second-mortgage balance: $206,992.58.
- Debtor submitted an appraisal valuing the property at $350,000 (amended from earlier figures); Bank submitted an appraisal valuing the property at $460,000 (effective date ~6 months after petition).
- Both appraisers used the sales-comparison approach but selected materially different comparables (age, style, distance) producing a >$110,000 valuation gap.
- Court accepted both appraisers as qualified, evaluated comparables, methodology, and reliability, and placed initial burden of valuation on Debtor but ultimate burden of persuasion on the Bank.
- Court found the Bank’s appraisal more persuasive and concluded the property exceeded the first mortgage balance, so the second lien remained at least partly secured; Motion to strip was denied.
Issues
| Issue | Plaintiff's Argument (Debtor) | Defendant's Argument (Bank) | Held |
|---|---|---|---|
| Whether second mortgage is wholly unsecured and may be stripped under §§ 506(a), 506(d), 1322(b)(2) | Property worth $350,000 -> less than senior mortgage so second lien wholly unsecured | Bank’s appraisal shows higher market value (≈$460,000); thus at least $1 equity above first mortgage -> lien partly secured | Denied. Court found property value exceeded $352,635; second mortgage remains secured |
| Which appraisal is more reliable | Debtor’s appraiser used close-in proximity comps and relied on condition rather than age/style adjustments | Bank argued Debtor’s comps were dissimilar (age/style) and included listings/flip/short/bank sales making them unreliable | Court found Debtor’s comparables had more infirmities and questioned their reliability |
| Burden of proof on valuation | Debtor bears initial burden to propose valuation (met via appraisal) | Bank bears ultimate burden to overcome debtor’s valuation by preponderance | Bank met ultimate burden; its appraisal overcame Debtor’s valuation |
| Proper remedy if collateral retains value | Strip lien if wholly unsecured | If collateral secures any portion, lien cannot be stripped in Chapter 13 (antimodification) | Because collateral exceeded senior balance, §1322(b)(2) protects Bank’s lien; full lien treatment preserved |
Key Cases Cited
- United States v. Ron Pair Enters., Inc., 489 U.S. 235 (explains § 506(a) secured-claim valuation principle)
- Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122 (2d Cir.) (antimodification rule and treatment of lien-stripping in Chapter 13)
- Nobelman v. Am. Savs. Bank, 508 U.S. 324 (Chapter 13 cannot modify rights of mortgagee protected by §1322(b)(2))
- In re Heritage Highgate, Inc., 679 F.3d 132 (3d Cir.) (secured creditor bears ultimate burden to prove extent of lien and collateral value)