Orkwis v. MERS (In Re Orkwis)
457 B.R. 243
Bankr. E.D.N.Y.2011Background
- Debtors filed Chapter 13 and own a residence valued at $230,000, encumbered by a first mortgage and a second mortgage held by MERS as Nominee for Countrywide with Bank of America as Servicer.
- Debtors seek to avoid the second mortgage lien as wholly unsecured and treat it as unsecured in the Chapter 13 plan.
- Defendant defaulted in the adversary proceeding; Debtors' plan contemplates paying unsecured creditors over 48 months with at least 1% to unsecureds.
- The court previously granted default judgment but reserved on whether the lien could be avoided as of the date of default.
- Debtors urge application of In re Mulder to treat lien avoidance as occurring outside the plan, whereas the court analyzes under 506(a), 1322(b)(2), and 1325(a)(5).
- Court must determine whether a wholly unsecured junior lien can be removed in Chapter 13 through the plan process or only upon discharge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §522(f) framework applies to stripping a wholly unsecured junior mortgage outside the plan. | Orkwis: Mulder applies; lien avoidance is independent of discharge. | MERS/BofA: lien avoidance must occur within the plan process and discharge acts as the trigger. | Not adopted; lien removal modality governed by plan and discharge, not independent §522(f) mechanism. |
| Role of §506(a) valuation in treating the second lien as unsecured and effect on plan treatment. | Valuation creates unsecured status allowing plan-based modification under §1322(b)(2). | Valuation does not strip or strip-off liens; lien remains until discharge per §1325(a)(5). | Valuation does not strip liens; lien treatment is determined in plan and discharge. |
| When is a wholly unsecured lien removed in Chapter 13—upon discharge or earlier in the plan? | Removal upon plan completion or earlier when treated as unsecured. | Removal only upon discharge; plan cannot strip a junior lien absent discharge. | Lien removal occurs upon entry of the debtor's discharge; not earlier on default judgment or plan issuance. |
| How do §§ 1325(a)(5) and 348 interact with lien retention where the lien is classified as unsecured? | Lien should be stripped/off at or before plan confirmation regardless of discharge. | Lien retention remains until discharge; §1325(a)(5) governs lien retention even if secured claim is treated unsecured. | Discharge is required for lien removal; sections are harmonized to retain lien until discharge. |
Key Cases Cited
- In re Pond, 252 F.3d 122 (2d Cir.2001) (wholly unsecured lien not protected by antimodification; plan governs removal)
- Nobelman v. American Savings Bank, 508 U.S. 324 (U.S. 1993) (antimodification protection; value does not limit secured rights in plan)
- Dewsnup v. Timm, 502 U.S. 410 (U.S. 1992) (§506 cannot strip down a partially secured lien in Chapter 7)
- In re Gerardin, 447 B.R. 342 (Bankr.S.D.Fla.2011) (discharge under Chapter 13 is necessary condition for stripping unsecured lien)
- In re Fenn, 428 B.R. 494 (Bankr.N.D.Ill.2010) ( §1325(a)(5) governs lien retention; discharge required for lien removal)