Stripping in San Antonio

John Rao, NACBA Vice President, and Judge Leif Clark presented the program on lien stripping.

John Rao: language in Nobelman points to 506(a) to determine the creditor’s status. Are they really a secured creditor subject to the modification prohibition of 1322(b)? If not, they can be stripped. 

Remember this isn’t 522(f) lien avoidance. Exemptions play no part in analysis for 506 lien strip;  they are not a deduction from value to determine status of junior lien.

If a creditor has a dollar of security on the debtor’s residence the lien can’t be stripped.

Get the total payoff on the senior lien, not just the principal balance and arrears, but also advances and charges. One court even included the prepayment penalty as part of the claim. 

Don’t forget property taxes if senior to the claim you want to strip. 

Judge Clark: consider whether using questionable charges as a part of the senior lien in lien strip may estop you from contesting them later. 

How do you prove the amount of the payoff?. Most courts accept the POC.

Procedure: not specifically addressed in the Rules. Different approaches: plan, motion, adversary

Whatever you do, satisfy constitutional due process requirement by giving good notice.

1327(c) confirmation revests property in debtor free and clear of liens provided for in the plan.  That’s what, at the end, effectuates the lien strip.

Clark thinks it’s done by motion since what you’re doing is valuation, and that’s done by motion. 

What’s the end game: need something enforceable outside of bankruptcy court when the property is sold.  Needs to pass title company muster.

Clark referred to 5th Cir. Chapter 11 case (brand new today perhaps) where secured creditor’s claim was given nothing in plan. Didn’t protest. 1141 (like 1327(c)). Held: claim was dealt within the plan and it was gone at confimation.

No counterpart to 1142 in Chapter 13 for implementation. Use 105 to get it implemented. 

Rule 7070 allows judge to divest title to property; 9014 incorporates adversary rules. 

Rao: you want some sort of enhanced notice. Use 7004(h) if  holder of lien is regulated institution. 

Who’s the proper party?

Ways to get info:

Send TILA request

RESPA QWR

Dodd Frank 2605(k)

Don’t rely on land records.

Serve everyone so you can argue that they are bound by actions of agent.

Proving Value

Valuation date: could be:  petition date, effective date of the plan, flexible approaches

Judge: don’t rely on testimony of debtor-owner. It’s admissible but not satisfying to judge required to make the decision.

The debtor’s testimony as to the condition of the property may be useful.

Comparable sales approaches most often used.

Ask if the properties are truly similar? Same school district? More affluent or desireable. More than a mile away in non rural area probably isn’t comparable. 

If they are comparable, then you attack the adjustment factors.

If gross adjustments are more than 25%, by industry standards it’s suspect.

Look at the timing of the sales. Industry standard is that comp shouldn’t be more than 6 months old. 

Can’t use listing prices or pending sales as comparable sale.

In a stressed market, if sales are REO and bank is providing favorable financing.

Tax assessor’s appraisals may be useful but should not be relied upon solely.

Watch where appraisers are relying on features that appear in listing agreement without real property.

Look at non permitted changes and adjust downward if threat that must be rectified to be sold.

Chapter 20

Rao:  Don’t rely on 506(d)- get there by 506(a), etc.

Is it bad faith to stip in non-discharge 13

  • look for other reasons for 13- look at J. Markell decision in materials

Be selective in your choice of cases to try this

 

J. Clark- If the statute permits you to do it, it’s hard to argue that it’s bad faith to do so

 

Rao

issue: joint ownership of properties – can you strip off when only one co owner is in bankruptcy

 

 

 

 

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