The Court has before it Appellant Mozelle E.Johnson’s appeal from the United States Bankruptcy Court for the District of Maryland’s Order dismissing the Debtor’s Objection to the Amended Proof of Claim and the materials submitted by the parties relating thereto. The Court finds that a hearing is unnecessary.
I. BACKGROUND
In June of 1995, Mozelle E. Johnson obtained a $55,000 home loan. The lender secured the loan with a first deed of trust on *365 Ms. Johnson’s home and primary residence. Six months later Ms. Johnson obtained a home improvement loan from Homefix Corporation for $8000. Homefix Corporation, in turn, received a second deed of trust encumbering Ms. Johnson’s residence.
By August 1997, Ms. Johnson had defaulted on the first mortgage. On August 12, 1997, ContiMortgage, now in possession of the first mortgage, sent Ms. Johnson a Notice of Default and Acceleration and informed her that she now owed over $57,000. In September 1997, a housing counselor appraised the Johnson home at $48,000. Ms. Johnson then sought protection under the bankruptcy laws and filed under Chapter 13 on October 1,1997.
Within two weeks, Asset Management Group, LLC (“Asset Management”), now the holder of the home improvement lien; filed a Proof of Claim, asserting a secured claim against the bankruptcy estate. As amended, Asset Management’s claim totaled $10,226.57. Ms. Johnson filed an Objection to the Proof of Claim.
The parties agree to the relevant facts. Ms. Johnson does not dispute the amount of her debt to Asset Management. Also the parties have stipulated that the value of Ms. Johnson’s residence is less than the balance owed on the first deed of trust.
The only dispute involves the legal consequence that flows from the agreed facts. 1 According to the United States Bankruptcy Code, 2 11 U.S.C. § 506(a), Asset Management’s lien would be considered completely unsecured. Yet, Asset Management asserts that because they hold a “claim secured only by a security interest on the debtor’s principal residence” under § 1322(b)(2), their rights and the lien are not subject to modification. Ms. Johnspn asserts that § 1322(b)(2) protects only the rights of a claim holder whose claim is at least partially secured. Thus, Ms. Johnson argues, the Asset Management lien could be modified or even “stripped off.” 3
On May 11, 1998, the Bankruptcy Court held a hearing on the Claim and Objection. The Bankruptcy Judge ruled that § 1322(b)(2) protects junior homestead liens such as 'Asset Management’s, even when the value of the collateral is more than consumed by a senior lien. Thus, the Court dismissed Ms. Johnson’s Objection and allowed Asset Management’s Claim as filed. Ms. Johnson appealed the Bankruptcy Court’s Order to this Court.
II. LEGAL STANDARD '
When a District Court reviews a Bankruptcy Court final order, the District Court acts as an appellate court. Accordingly, legal conclusions are reviewed
de novo,
whereas findings of fact may be set aside only if “clearly erroneous.”
See In re Bulldog Trucking, Inc.,
III. DISCUSSION
The issue presented by this case is whether a debtor’s Chapter'13 bankruptcy payment plan may strip off the lien of a creditor holding a junior lien that is both: (1) wholly “unsecured” in terms of § 506(a); and (2) “secured only by a security interest in real property that is the debtor’s principal residence,” § 1322(b)(2). For the reasons stated herein, this Court concludes that a strip off is permissible.
A Chapter 13 bankruptcy requires a debt- or to formulate a payment plan. This plan *366 must comply with the guidelines set forth in § 1322(b). The statute provides:
Subject to subsections (a) and (c) of this section, the plan may -
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or holders of unsecured claims, or leave unaffected the rights of holders of any class of claims.
§ 1322(b).
Section 506(a) determines whether a claim that is “secured” under commercial law is, or is not, a “secured claim” in the context of the Bankruptcy Code. Section 506(a) states:
An allowed claim of a creditor 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, ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such allowed claim.
The issue of the interplay between §§ 506(a) and 1322(b)(2) in the context of completely unsecured junior homestead hens is one of first impression for this Court. Moreover, the issue also has not been directly addressed in any published opinion of the United States Court of Appeals for the Fourth Circuit. The issue has, however, been much debated in bankruptcy court and three district court opinions. The courts have divided on the issue, with the majority deciding that such liens may be stripped off.
See, e.g., In re Lam,
The split in decisions arises from different interpretations of
Nobelman v. American Savings Bank,
First, the
Nobelman
Court held that when a creditor’s lien is at least partially secured, § 506(a) does not operate to eliminate the creditor’s rights in the unsecured claim component.
Id.
at 328-29,
This interpretation fails to take adequate account of § 1322(b)(2)’s focus on “rights.” That provision does not state that a plan may not modify “a claim secured only by” a home mortgage. Rather, it focuses on the modification of the “rights of holders” of such claims.... Petitioners were correct in looking to § 506(a) for a judicial valuation of the collateral to determine the status of the bank’s secured claim.... But even if we accept petitioners’ valuation, the bank is still the “holder” of a “secured claim,” because petitioners’ home retains *367 $23,500 of value as collateral_[Hjowever, that determination does not necessarily mean that the “rights” the bank enjoys as a mortgagee, which are protected by § 1322(b)(2), are limited by the valuation of its secured claim.
Id.
at 328,
Second, the
Nobelman
Court rejected the debtor’s assertion that the anti-modification provision in § 1322(b)(2) applied only to secured claim components. The Court held that “a claim secured only by a” homestead lien refers “to the lienholder’s entire claim, including both the secured and the unsecured components of the claim.”
Id.
at 331,
Those courts that prohibit a strip off of completely unsecured junior homestead liens, that is, those' expressing the minority view, focus on the Supreme Court’s “rights” analysis and what they find to be the “plain language” of § 1322(b)(2). These courts find that the mortgage contract alone creates “rights” which may not be modified regardless of whether a claim is secured or unsecured.
See In re Tanner,
Certainly a mortgage contract does create rights for the creditors.
See Nobelman,
The courts in the minority too easily dismiss the role of a § 506(a) valuation.
See, e.g., In re Lam,
The courts in the minority cite the Supreme Court’s rejection of the “rule of the last antecedent” as supporting their refusal to strip off wholly unsecured junior homestead liens.
See In re Neverla,
The argument that if “claim” does not mean “secured claim,” then it must mean
any
claim fails to put the
Nobelman
decision in context.
See In re Cerminaro,
Court did not thereby “implicitly dismiss [] the necessity” of § 506(a) analysis);
In re Hornes,
Section 506 is a statute that applies to bankruptcy proceedings under Chapters 7, 11, 12, and 13. 11 U.S.C. § 103(a). “Bifurcation is generally permitted under” § 506(a).
In re Witt,
The courts prohibiting strip offs argue that it is unreasonable to rely overly much on valuations. Because valuations are unscientific, these courts find it irrational that lien-holders’ rights could turn on the difference of a single dollar in valuation. See
In re Tanner,
However, as stated above, § 506(a) valuations occur in bankruptcy proceedings under Chapters 7,11,12, and 13. § 103(a). In each of those cases where more than one lien exists the junior lien risks being “unsecured.” The fact that courts may be concerned with drawing sharp lines with harsh effects does not excuse the need for doing so.
See, e.g., In re Kerwin,
Additionally, a junior lienholder has no “right” to be treated more favorably in bankruptcy than in foreclosure.
In re Tanner,
Asset Management holds a completely unsecured junior homestead lien. In the view of this Court, the Supreme Court’s No-belman decision does not prohibit the stripping off of such a lien. Code sections 1322(b)(2) and 506(a) provide that such a lien may be stripped off and the rights of the unsecured creditor modified.
IV. CONCLUSION
For the foregoing reasons:
1. The June 8, 1998 Order dismissing Ms. Johnson’s Objection to the Amended Proof of Claim and allowing Asset Management Group’s Proof of Claim as filed shall be REVERSED.
2. This case shall be REMANDED to the Bankruptcy Court for further proceedings consistent herewith.
Notes
. In their brief, Asset Management asserts that, procedural!/, a strip off cannot occur by way of an Objection to a claim and that an adversary proceeding must occur. However, because the procedural issue was not raised below, Asset Management acknowledges that it cannot be presented on appeal.
. All statutory references herein are to the Bankruptcy Code, 11 U.S.C., unless otherwise indicated.
. In a "strip off” the entire lien is removed, whereas in a "strip down" a lien is bifurcated into secured and unsecured claims with only the unsecured claim component being removed.
See In re Lam,