492 B.R. 211
Bankr. S.D.N.Y.2013Background
- Debtor James N. Wapshare filed a Chapter 13 petition in a Chapter 20 posture after a prior Chapter 7 discharge and seeks to modify an underwater second mortgage on his principal residence under §1322(b)(2).
- Orange County Trust Company (Bank) does not contest the use of §1322(b)(2) or the valuation showing the second mortgage is wholly unsecured, but objects to lien avoidance on plan-confirmation timing grounds.
- Second mortgage is determined to be wholly unsecured under §506(a) based on appraisal and Pond v. Farm Specialist Realty framework, so it does not become an ‘allowed secured claim.’
- There is a dispute about whether §1325(a)(5) applies to wholly unsecured claims and whether modification of the lien is permissible in a Chapter 20 case.
- The court follows Pond and related authority to hold that a wholly unsecured junior mortgage can be stripped in a Chapter 20 case, with permanence conditioned on plan completion.
- The debtor’s plan must be completed to keep the lien avoidance permanent; otherwise, upon dismissal or conversion, the lien can reinstate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can a wholly unsecured second mortgage be stripped in a Chapter 20 case? | Wapshare relies on Pond to strip unsecured lien under §1322(b)(2). | Bank argues plan confirmation requirements must align with other Code provisions, limiting stripping. | Yes; lien can be stripped as wholly unsecured under §1322(b)(2). |
| Does §1325(a)(5) restrict stripping when the claim is not an 'allowed secured claim'? | Pond framework shows no secured claim here, so §1325(a)(5) does not block confirmation. | §1325(a)(5) prescribes plan-confirmation protections for secured claims, potentially impacting stripping. | Not applicable; no 'allowed secured claim' exists for this lien. |
| Should the debtor’s motion to reclassify the second mortgage as unsecured be granted? | Value under §506(a) shows no collateral value, making the claim wholly unsecured. | Bank opposes reclassification pending plan and confirmation considerations. | Granted; the second mortgage is reclassified as unsecured. |
Key Cases Cited
- Pond v. Farm Specialist Realty, 252 F.3d 122 (2d Cir. 2001) (underwater mortgage not secured under 506(a); can be stripped in chapter 13/20)
- In re McDonald, 205 F.3d 606 (3d Cir. 2000) (modification of secured claim under §1322(b)(2) when value limits apply)
- In re Davis (Branigan v. Davis), 716 F.3d 331 (4th Cir. 2013) (protects lenders via §349(b) and discusses permanency of lien strip in chapter 20 context)
- Johnson v. Home State Bank, 501 U.S. 78 (U.S. Supreme Court 1991) (chapter 7 discharge; serial filing implications for chapter 20 access)
- Nobelman v. American Savings Bank, 508 U.S. 324 (U.S. Supreme Court 1993) (antimodification rule guidance for §1322(b)(2))