Unsecured lien may be stripped from real property

A Chapter 13 debtor may strip off an unsecured lien from real property that is titled as joint tenants with rights of survivorship, where the joint tenant is not a joint debtor in the bankruptcy case.

Background

On May 15, 2019, the debtor filed a voluntary petition under Chapter 13 of the Bankruptcy Code. The debtor then filed a complaint to determine the validity, priority or extent of liens, thereby commencing this adversary proceeding against Specialized Loan Servicing LLC and trustees.

Trial was conducted Sept. 17, 2019. This memorandum opinion sets forth the court’s findings of fact and conclusions of law.

Analysis

The sole issue presented is whether a Chapter 13 debtor may strip off an unsecured lien from real property that is titled as joint tenants with rights of survivorship, where the joint tenant is not a joint debtor in the bankruptcy case.

The Fourth Circuit has held that the nature of title does affect the applicability of section 506(d) of the Bankruptcy Code where title is held as tenants by the entirety with a nonfiling spouse. But that result is dictated by the unique nature of the parties’ ownership interest in tenants by the entirety property. As stripping a lien off property held as tenants by the entirety would effectuate a unilateral severance of the entireties estate, it is impermissible.

No similar proscription applies to real property titled as a joint tenancy with right of survivorship. The plain language of the Bankruptcy Code controls. The second priority lien is void and may be stripped off the property without regard to whether the joint tenant has filed bankruptcy.

In the alternative, SLS suggested the court could adopt the reasoning of Harris v. Amerifirst Home Improvement, 494 B.R. 215 (Bankr. M.D. Pa. 2013), which involved issues similar issues. In Harris, the court limited the amount of the lien strip on jointly held property to the debtor’s one-half interest in the property. In reaching its decision, the bankruptcy court relied upon the Third Circuit’s decision in Miller v. Sul, 299 F.3d 183 (3d Cir. 2002). That reliance was misplaced. Accordingly, the court declines to follow the nonbinding decision from the Middle District of Pennsylvania in In re Harris, 494 B.R. 215.

While this court holds that the debtor may strip off the second priority lien from the property, “[i]n this circuit both a confirmed plan authorizing the lien avoidance action and an adversary proceeding resulting in a judgment avoiding the lien are necessary to strip-off a wholly unsecured deed of trust lien.” Thus, in order to strip off the second priority lien from the property, the debtor must propose and obtain confirmation of a Chapter 13 plan that also provides for the stripping of SLS’s lien, and then the debtor must successfully complete such plan.

Lopez v. Specialized Loan Servicing LLC, No. 19-03046, Oct. 7, 2019. EDVA Bankr. at Richmond (Huennekens). VLW No. 019-4-029, 8 pp.