Cole v. Fifth Third Bank, Inc. (In re Cole)Cole v. Fifth Third Bank, Inc. (In re Cole)
ORDER (I) GRANTING DEBTOR’S MOTION TO REVOKE TECHNICAL ABANDONMENT OF PROPERTY OF THE ESTATE AND (II) GRANTING DEBTOR’S MOTION TO DETERMINE SECURED STATUS OF CLAIM
This сase presents an issue of first impression: Can a fully administered, discharged, and closed Chapter 7 case be reopened by the debtor for the sole purpose of stripping off a wholly-unsecured junior lien on real property? For reasons explained below, the Court concludes it cаn, subject to limitations.
Jurisdiction over this action is set forth in 28 U.S.C. §§ 157(b) and 1334(b). The matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (K) and venue is proper.
I. PROCEDURAL AND FACTUAL BACKGROUND
Debtor filed a voluntary Chapter 7 case on October 22, 2013. (Doc. 1). On her Schedules, filed the next day, Debtor disclosed an ownership interest in a condominium unit located аt 873 Cannon Crossing, Marietta, GA, 30064 which was encumbered by several liens. (Schedule A, Doc. 7 at 9). Debtor’s Schedule A showed that the fair market value of the condominium unit was $43,210. (Id.). Debtor reported that the unit was subject to a first mortgage lien in the amount of $44,245, a second mortgage lien in the amount of $41,721, and an on-going homeоwners’ association assessment. (Schedule D, Doc. 7 at 14).
Debtor’s meeting of creditors was held on November 20, 2013, and the Chapter 7 Trustee filed a Chapter 7 Trustee’s Report of No Distribution on November 26, 2013. Debtor asserts that she intended to file a lien strip motion in the case prior to closure; however, оn January 13, 2014, her counsel suggested she obtain an appraisal other than the county’s tax appraisal because of the extremely narrow margin of the first mortgagee’s undersecured status. (Mot. Revoke Technical Abandonment (“T.A. Motion”) ¶ 12, Doc. 38). Debtor apparently did not retrieve this appraisal, and on February 2, 2014, she received her discharge and her case was closed. (Doc.
At the hearing, Richard Thomson appeared for Debtor, and Respondents Fifth Third Bank did not appear to contest the motion. The Court raised questions about whether it could grant Debtor’s motion, citing issues of laches, due process, and subject matter jurisdiction. The Court ordered briefing on those issues, and Debtor filed a Brief in Support of her Motion to Determine Secured Status on September 18, 2014 (Doс. 39).
On September 16, 2014, Debtor also filed a Motion to Revoke Technical Abandonment of Estate Property (Doc. 38), and set that for hearing on October 16, 2014. Richard Thomson again appeared for Debtor, and the Court took the matter under advisement at that time as well.
II. LEGAL ANALYSIS
For better or worse, it is settled in this сircuit that a debtor may strip off a wholly-unsecured junior mortgage lien in a Chapter 7 bankruptcy using Bankruptcy Code Section 506. In re McNeal,
A. Equity and Due Process
While the Court in this case has already reopened Debtor’s case, equitable considerations such as laches which pertain to motions to reopen are relevant when сonsidering granting relief in a reopened case. For example, “[w]hile the Bankruptcy Code does not provide a time limit for filing a motion to reopen, laches is a valid ground for denial.” In re Chandler, No. 02-65783-CRM,
Due process and fundamental fairness for the respondent are of further concern in contested matters in reopened cases. Due process requires “notice reasоnably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Mullane v. Cent. Hanover Bank & Trust Co.,
B. Subject Matter Jurisdiction and Statutory Authority
The second set of related inquiries reflects more pragmatic concerns — whether thе Court has jurisdiction and statutory authority to grant the requested relief. Code Section 554(c) provides that “[ujnless the court orders otherwise, any property scheduled under section 521(a)(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor.” This is often refеrred to as abandonment by operation of law, or “technical abandonment.” 5 Collier on BANKRUPTCY ¶ 554.02 (16th ed.); see also Adam I. Adler, Navigating the Morass: A Proposed Uniform, Standard to Determine the Revocability of Technical Abandon-ments, 27 Emory Bankr. Dev. J. 523 (2011). As abandoned property is no longer property of the estate, the first issue is whether the Court has subject matter jurisdiction to resolve disputes concerning the property.
The bankruptcy court’s jurisdiction is limited to “any or all cases under Title 11 and any or all proceedings arising under Title 11 or arising in or related to a case under Title 11.” 28 U.S.C. § 157(a); 28 U.S.C. § 1334(b). Administration of estate property is an example of a matter “arising in” a bankruptcy case. See In re Toledo,
Consequently, once property leaves the estate, a bankruptcy court loses jurisdiction to resolve disputes concerning that property, unless the dispute itself arises under the Code or the result of the dispute could have some effect on the bankruptcy case. In re Maxwell, No. 10-79479-CRM,
Even assuming the Court has subject matter jurisdiction over a dispute involving abandoned property which is nо longer property of the estate, Section 506(a) poses an additional problem. Section 506(a) determines the secured status of a claim and allows for an undersecured claim to be bifurcated. In relevant part, that section provides that that
[a]n allowed claim of a creditоr secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property ... is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such allowеd claim.
11 U.S.C. § 506(a) (emphasis added). Section 506(d) renders void any lien “[t]o the
All of the foregoing presumes that that upon closing and subsequent reopening of a case, technical abandonment has been irrevocably effectuated. However, Section 554(c) provides that technical abandonment occurs “[u]nless the court orders otherwise,” and аs Debtor has pointed out, the Court could simply “order otherwise” after the fact, bringing the property back into the estate. The Court next considers this possibility.
C. Revocation of Technical Abandonment
Several courts have addressed the possibility that an effectuated technical abandonment could subsequently be revoked, normally in the context of a trustee discovering value in abandoned property for the first time after a case is administered and closed. A small minority of courts have held technical abandonment is completely irrevocable. See e.g., Wallace v. Enriquez (Matter of Enriquez),
Other courts have held that the reopening of a case under Section 350 automatically revives the original case and negates any technical abandonments. E.g., Compass Bank for Sav. v. Billingham (In re Graves),
Instead, the Court agrees with the courts that have determined “[t]he better view is that reopening does not automatically revoke the abandonment and that the court may order that the property not be considered abandoned after a reopening based upon equitable circumstances.” In re O’Neal,
For example, the Court in In re Langley found that a motion to revoke abandonment must be based on some ground cognizable under Fed.R.Civ.P. 60(b). In re Langley,
Analyzing revocation of technical abandonment under this lens has the added benefit of setting a bright line one-year limitation on such motions without the necessity of a fact-intensive laches analysis in every cаse. See Adler, supra, at 556-57 (“Since the decision to reopen and the decision to revoke are separate inquiries, and since Rule 9024 does not exclude motions to revoke technical abandonments from the one-year limitation prescribed by Rule 60(c), that limitation should come into play when deciding thе merits of the motion to revoke.”). Revocation of the technical abandonment resolves the jurisdictional and statutory authority problems posed by the previous section of this Order.
Having concluded that the Court has authority to lift the technical abandonment and the proper standard to аpply is found in Rule 9024, the Court turns now to the facts of the instant case.
III. APPLICATION OF LAW TO THE FACTS
The Court holds that on the facts of this case, allowing Debtor to revoke the technical abandonment of her interest in the condominium unit located at 873 Cannon Crossing in order to strip Respondent’s lien is appropriate under Rule 9024. Like the trustee in Woods, Debtor has shown that the closure of her case prior to seeking the lien strip was due to inadvertence and actions outside of her control.
The Court also agrees with Debtor that in this case the eight-month delay was not unreasonable under the circumstances and in any case has not worked unfair prejudice on Respondent’s rights. In this case, Respondent has been properly served with Debtor’s Lien Strip Motion and had equal access to the appraisal methods Debtor has relied upon. Based on those appraisal methods and the assertions contained in the Lien Striр Motion, it appears that Respondent’s deed to secure debt is subor
ORDERED that Debtor’s Motion to Revoke Technical Abandonment of Estate Property (Doc. 38) is GRANTED.
It is FURTHER ORDERED that Debt- or’s Motion to Determine Secured Status of Claim of Junior Lien Holder Fifth Third Bank, Inc. (Doc. 36) is GRANTED. It is, therefore ORDERED as follows:
1. The juniоr lien on the condominium unit located at 873 Cannon Crossing (the “Property”) held by the Respondent is deemed void with respect to the interest of the Debtor in the Property and shall be extinguished automatically, without further court order; Debtor’s discharge having been previously entered.
2. In the event this case is converted to a case under another Chapter of the Bankruptcy Code, the rights of the Respondent with regard to its hen shall be governed by the provisions of the Bankruptcy Code applicable in the converted case such that the lien of the Respondent shall not be affected by this Order.
3. This Order is effective only as to Fifth Third Bank, Inc., and any party who succeeds to the position of Fifth Third Bank after the date of the entry of this Order.
The Clerk is directed to serve a copy of this Order upon Debtor, Counsel for Debt- or, and Respondent.
Notes
. A court considering a debtor’s motion to revoke a technical abandonment might likewise consider whether the only error committed by the debtor was a mistaken assumption that the senior lien was oversecured.