Mark T Lavelle and Sandra S. Lavelle

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
-------------------------------------------------------x
In re:
Chapter 7
Mark T. Lavelle and Sandra S. Lavelle,
aka Sandra S. Correa, aka Sandra S. Krauss,
aka Sandra S. Gontigo
Case No.: 09-72389-478
Debtors.
------------------------------------------------------x
AMENDED1 MEMORANDUM DECISION AND ORDER
Appearances:
Mendelson & Associates
Attorneys for the Debtors
By: Norman M. Mendelson, Esq.
2014 Grand Avenue, Suite 202
Baldwin, New York 11510
Steven J. Baum, P.C.
Attorneys for Bank of America, NA
By: Marin L. Buczkowski, Esq.
900 Merchant’s Concourse, Suite 412
Westbury, New York 11590
Honorable Dorothy T. Eisenberg, United States Bankruptcy Judge
1 This Amended Memorandum Decision and Order amends the Court’s Memorandum Decision and Order issued on
November 19, 2009 to correct mostly typographical errors. Nothing in this Amended Memorandum Decision and
Order changes the Court’s prior substantive rulings.
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36

22
Before the Court is the Debtors’ cross-motion to void the lien of the second mortgagee
against the Debtors’ real property. At issue is whether a second mortgage that is wholly
unsecured by virtue of the first mortgage exceeding the value of the property may be “stripped
off” pursuant to 11 U.S.C. 506(d). The Court has jurisdiction pursuant to 28 U.S.C. § 1334(a)
and (b). This contested matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (K), and (O)
and 11 U.S.C. §§ 105(a) and 506. The following constitutes the Court’s finding of fact and
conclusions of law.
FACTS
The Debtors filed for bankruptcy relief under chapter 7 of the Bankruptcy Code on April
9, 2009. The Debtors obtained their discharge on July 8, 2009.
The Debtors reside at a home in Levittown, New York (the “Property”). The Property is
owned by the debtor husband. The Debtors listed the Property in their Schedules A and D to the
bankruptcy petition as having a value of $400,000. The Debtors listed a first mortgage against
the Property held by Bank of America, N.A. (“BOA”) in the amount of $411,183 on the petition
date and a second mortgage also held by Bank of America in the amount of $9,904. As of May
2009, the outstanding balance on the second mortgage has grown to $10,127.99.
On May 12, 2009, BOA filed a motion seeking relief from stay, based on their second
mortgage lien, in order to commence foreclosure proceedings on the basis that, inter alia, the
Debtors have no equity in the Property. On June 1, 2009, the Debtors filed opposition to the
motion for relief from stay and a cross motion seeking to avoid Bank of America’s second lien
on the basis that under 11 U.S.C. § 506(a), a creditor has a secured claim only to the extent of the
value of its collateral and an unsecured claim for the balance. Because the second mortgage is
fully unsecured, no one challenges the fact that there is no value in the property beyond the first
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36

33
mortgage lien as of the date of the filing of the petition. The Debtors argue that the lien is not an
allowed secured claim and thus, under § 506(d), such an unsecured claim is not a lien against the
property and, therefore, such lien is void. Although this is a chapter 7 case, the Debtors argue
that the ability of the Court to modify wholly unsecured liens against a debtor’s residence in a
chapter 13 case under 11 U.S.C. § 1322(b)(2) should be extended to chapter 7 cases because (1)
there is no reason why unsecured liens can only be “stripped off” in a chapter 13 case and not in
a chapter 7 and (2) the Debtors could obtain such relief by putting the Property into foreclosure
and then immediately filing a chapter 13 case to achieve the same result.
Bank of America filed opposition to the Debtors’ cross-motion on July 30, 2009. A
hearing was held on September 22, 2009. At the hearing, the Debtors concede that
notwithstanding their cross-motion, the automatic stay did not apply to Bank of America’s
attempts to proceed with a foreclosure sale because the automatic stay terminated upon the
Debtors obtaining their discharge of debt on July 8, 2009. Bank of America is awaiting this
Court’s decision as to whether this wholly unsecured lien can be “stripped off”.
DISCUSSION
The Court notes that the Debtors’ application should have been brought as an adversary
proceeding rather than by motion, as Rule 7001(2) of the Federal Rules of Bankruptcy
Procedures provides that an adversary proceeding includes “a proceeding to determine the
validity, priority, or extent of a lien or other interest in property, other than a proceeding under
Rule 4003(f).”
Notwithstanding the inappropriate form of the application for the relief sought, the
Debtors seek to avoid BOA’s wholly unsecured second mortgage lien on the Property based
upon 11 U.S.C. §§ 506 (a) and (d). In effect, the Debtors are objecting to the claim filed and
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36

44
seek a determination that the claim should not be allowed as a secured claim, but should be
allowed only as an unsecured claim.
Section 506 provides in relevant part:
(a)(1) 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. Such value shall
be determined in light of the purpose of the valuation and of the proposed
disposition or use of such property, and in conjunction with any hearing
on such disposition or use or on a plan affecting such creditor's interest.”
. . .
(d) To the extent that a lien secures a claim against the debtor that is not an
allowed secured claim, such lien is void, unless – (1) such claim was
disallowed only under section 502(b)(5) or 502(e) of this title; or (2) such
claim is not an allowed secured claim due only to the failure of any entity
to file a proof of such claim under section 501 of this title.
11 U.S.C. §§ 506 (a)(1), (d)(1-2). None of the exceptions to § 506(d) are applicable in this case.
The issues before the Court are: (1) whether BOA’s mortgage lien is an allowable
secured claim; and (2) if it is not an allowed secured claim, can the lien be stripped off as a
secured claim pursuant to sections 506(a) and 506(b).
Section 502 provides in relevant part:
(a) A claim or interest, proof of which is filed under section 501 of
this title, is deemed allowed, unless a party in interest, including a
creditor of a general partner in a partnership that is a debtor in a
case under chapter 7 of this title, objects.
(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of
this section, if such objection to a claim is made, the court, after
notice and a hearing, shall determine the amount of such claim in
lawful currency of the United States as of the date of the filing of
the petition, and shall allow such claim in such amount, except to
the extent that--
(b)(1) [S]uch claim is unenforceable against the debtor and
property of the debtor, under any agreement or applicable law for a
reason other than because such claim is contingent or unmatured.
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36

55
11 U.S.C. §§502 (a)-(b)(1).
The Debtors argue that because a creditor’s lien on property is secured only to the extent of the
value of such creditor’s interest where the creditor is wholly unsecured under § 506(a), then such
lien is void under § 506(d), because it is not an “allowed secured claim.” 	BOA’s response relies
on the U.S. Supreme Court’s decision in Dewsnup v. Timm, 502 U.S. 410 (1992).
After § 506 was enacted into the Bankruptcy Code in 1984, courts generally held that
“the plain language of § 506(a) meant that a creditor held a secured claim for the amount of the
lien up to the value of the collateral and an unsecured claim for any amount of the lien over the
amount of the value of the collateral.” In re Smith, 247 B.R. 191, 195 (W.D. Va. 2000) (quoting
Crossroads of Hillsville v. Payne, 179 B.R. 486, 490 (W.D. Va. 1995)). These courts further held
that according to the plain language of § 506(d), the unsecured portion of a creditor's lien is to be
voided. See In re Folendore, 862 F.2d 1537 (11th Cir. 1989); In re Mays, 85 B.R. 955 (Bankr.
E.D. Pa. 1988); In re Lindsey, 823 F.2d 189 (7th Cir. 1987); In re O'Leary, 75 B.R. 881 (Bankr.
D. Or. 1987). When a lien is voided, any post-petition property appreciation inures to the benefit
of the debtor under bankruptcy fresh start principles. See In re Crouch, 76 B.R. 91 (Bankr. W.D.
Va. 1987).
Analysis of Dewsnup
In Dewsnup, the only mortgage on debtor’s property was partially secured. The issue in
that case was whether it was proper to strip off the unsecured portion of the claim held by the
mortgagee. The Court held that there is ambiguity in the text, and it is uncertain whether the
words “allowed secured claim” in § 506(d) has the same meaning as in § 506(a). Id. at 417.
Given such ambiguity, the Court was not convinced that Congress intended to depart from the
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36

66
pre-Bankruptcy Code rule that liens pass through bankruptcy unaffected. Id. In a majority
opinion, the Supreme Court held that § 506(d) did not apply to a first lien securing a claim that
was fully allowed under 11 U.S.C. § 502, but rather only voids claims that have not been allowed
as secured.
Justice Scalia, joined by Justice Souter, strongly dissented, arguing that:
Read naturally and in accordance with other provisions of the
statute, [506(d)] automatically voids a lien to the extent the claim it
secures is not both an "allowed claim" and a "secured claim" under
the Code. In holding otherwise, the Court replaces what Congress
said with what it thinks Congress ought to have said -- and in the
process disregards, and hence impairs for future use, well
established principles of statutory construction.
Id. at 420 (Scalia, J., dissenting). Section 506(a) says that an "allowed claim" is also a "secured
claim" ‘to the extent of the value of [the] creditor's interest in the estate's interest in [the
securing] property.’ Id. at 420-21 (quoting United States v. Ron Pair Enterprises, Inc., 489 U.S.
235, 239, 109 S. Ct. 1026, 103 L. Ed. 2d 290 (1989)).
Justice Scalia further points out that the phrase “allowed secured claim[s]” used in other
subsections of § 506 and in other Bankruptcy Code sections invariably means what § 506(a)
describes: “the portion of a creditors allowed claim that is secured after the calculation required
by that provision have been performed.” Id. at 421. See 11 U.S.C. § 506(b); 11 U.S.C. § 722; 11
U.S.C. § 1225(a)(5); 11 U.S.C. § 1325(a)(5).
Justice Scalia further asserts that the Supreme Court holds that plain meaning of the
Bankruptcy Code is dispositive to the exclusion of legislative history and judicial policy
considerations. See Ron Pair Enterprises, Inc., 489 U.S. at 241. When the words of a statute are
unambiguous, then, this first canon is also the last: ‘judicial inquiry is complete.’ Rubin v. United
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36

77
States, 449 U.S. 424, 430 (1981); see also Ron Pair Enterprises, 489 U.S at 241.
While Dewsnup is subject to substantial judicial and scholarly criticism, “it remains the
law of the land”. In re Cunningham, 246 B.R. 241, 246 (Bankr. D. Md. 2000) (citing Lawrence
Ponoroff & F. Stephen Knippenberg, The Immovable Object Versus the Irresistible Force:
Rethinking the Relationship Between Secured Credit and Bankruptcy Policy, 95 M ICH. L. REV.
2234 (1997); Margaret Howard, Secured Claims in Bankruptcy: An Essay on Missing the Point,
23 CAP . U. L. REV. 313 (1994); Barry E. Adler, Creditors Rights After Johnson and Dewsnup, 10
BANKR. DEV. J. 1 (1993); Margaret Howard, Dewsnupping the Bankruptcy Code, 1 J. BANKR. L.
& PRAC. 513 (1992)).
Distinguishing Dewsnup
However, Dewsnup is not applicable to every permutation of § 506(d) cases, as Dewsnup
itself stated, “we therefore focus upon the case before us and allow other facts to await their legal
resolution on another day.” Dewsnup, 502 U.S. at 416-17 (majority opinion).
The Debtor distinguishes Dewsnup from the present case advancing two arguments. First,
Dewsnup holds that a Chapter 7 debtor may not “strip down” a first mortgage to the fair market
value of the property. Second, Dewsnup disallowed a “strip down”; it did not address a “strip
off”, which would remove a wholly unsecured junior lien, as opposed to a “strip down”, which
reduces an under-secured lien to the fair market value of the collateral. In re Arrieta, No. 09 B
12052, 2009 Bankr. LEXIS 1683, at *2 - 3 (Bankr. N.D. Ill. June 22, 2009). Here, the Bank of
America second mortgage is wholly unsecured, because the value of the collateral does not even
secure the entire first mortgage lien. Debtor therefore argues that the wholly unsecured second
lien is voidable under § 506(d), and should be “stripped off”.
While the Debtor’s first argument, that Dewsnup dealt with first mortgage liens is
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36

88
factually true, as an independent argument this fails to advance a rationale why a second
mortgage is different than a first mortgage under Dewsnup. If any part of the second mortgage
lien is secured by some property, there is no authority that supports holding second mortgages to
be outside of Dewsnup. There is no distinction based on Dewsnup that stripping down a second
mortgage is different than stripping down a first mortgage. In re Poirier, 214 B.R. 528, 529
(Bankr. D. Conn. 1997) (citing In re Willis, 157 B.R. 617, 621 (Bankr. N.D. Ohio 1993) (holding
that under Dewsnup, the debtor could not avoid an allowed second mortgage under § 506(d),
even though little or no equity remained in the property for the second mortgagee)). As long as
the second mortgage had any value, Dewsnup would apply. Debtor’s second argument,
distinguishing the instant case from Dewsnup because the second mortgage is wholly unsecured,
is the issue before this Court.
Treatment of wholly unsecured consensual liens by other courts
Since Dewsnup, the issue of whether wholly unsecured liens with respect to consensual
loans may be “stripped off”, as opposed to “stripped down” as addressed by Dewsnup, has been a
contentious issue between various bankruptcy and district courts and their respective Courts of
Appeals.
The Fourth, Sixth and Ninth Circuits apply Dewsnup equally to both stripping down and
stripping off of consensual liens. See Ryan v. Homecomings Fin. Network, 253 F.3d 778 (4th Cir.
2001); Talbert v. City Mortgage Servs., 344 F.3d 555 (6th Cir. 2003); In re Laskin, 222 B.R. 872
(B.A.P. 9th Cir. 1998).
In Dewsnup, where a portion of the value of the claim at issue exceeded the value of the
property, the claim was both 1) allowed and 2) secured, albeit undersecured, for purposes of
§ 506(d). Because part of the claim was secured, it was considered a “secured claim” under
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36

99
§ 506(a). Thus Dewsnup, does not allow the unsecured portion to be stripped down under
§ 506(d). However, where the claims are totally unsecured, there is no equity whatsoever for the
junior lien to attach for purposes of § 506(a) because a creditor’s claim is secured only “to the
extent of the value of such creditor’s interest in such property”. With respect to a wholly
unsecured lien, the creditor de facto only has an unsecured claim under § 506(a). Accordingly,
the wholly unsecured claims cannot qualify as “allowed secured claims” under § 506(d), and
must be voided. In re Zempel, 244 B.R. 625, 629-30 (Bankr. W.D. Ky. 1999).
In regard to Chapter 13, the Supreme Court in Nobelman, Nobelman v. American Savings
Bank, 508 U.S. 324 (1993), held that § 1322(b)(2) barred a Chapter 13 debtor from relying on §
506(a) to bifurcate an undersecured homestead mortgage to secured and unsecured components.
In reaching this conclusion, the Supreme Court held it appropriate to look to § 506(a) as a
preliminary matter to determine whether the claim in question was secured. See id. at 328-32.
Because the mortgage in Nobleman was partially secured, under § 1322(b)(2) the claim is
considered secured and may not be modified. This is consistent with Dewsnup. However,
Nobelman is only applicable where the collateral retains some value. If the creditors are wholly
unsecured under § 506(a), than § 1322(b)(2) will allow a debtor to reduce the claim to a general
unsecured claim. In re Yi, 219 B.R. 394, 399 (E.D. Va. 1998)(citing Wright v. Commercial
Credit Corp., 178 B.R. 703, 706-07 (E.D. Va 2005)); See In re Geyer, 203 B.R. 726, 729
(holding that “unless there is some equity to which a creditor’s lien attaches, there is no allowed
secured claim” under § 506(a)). The majority of circuits and bankruptcy courts limit Nobelman
to a partially secured lien. Where the creditors are wholly unsecured, looking first to § 506(a),
the lien that is wholly without equity is an unsecured claim, and thus open to being void under §
506(d), and § 1322(b)(2) does not bar modification of a wholly unsecured lien. See In re Zimmer,
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36

10	10
313 F.3d 1220, 1221 (9th Cir. 2002); In re Pond, 252 F.3d 122, 126 (2d Cir. 2001); In re
McDonald, 205 F.3d 606, 615 (3d Cir. 2000); In re Tanner, 217 F.3d 1357 (11th Cir. 2000); In
re Mann, 249 B.R. 831, 840 (B.A.P. 1st Cir. 2000); First Mariner Bank v. Johnson, 411 B.R.
221, 224-225 (D. Md. 2009); In re Sette, 164 B.R. 453, 456 (Bankr. E.D.N.Y. 1994); In re
Hornes, 160 B.R. 709 (Bankr. D. Conn. 1993). These holdings in a Chapter 13 context clearly
demonstrate that under the Code it is appropriate under § 506(a) and § 506(d) to distinguish
partially secured liens from wholly unsecured liens. Once it is established that Dewsnup is
distinguished, there is no reason why in a Chapter 7 context the same language in §§ 506(a) and
(d) should not void the lien of a wholly unsecured claim.
The present case is easily distinguished from Dewsnup, therefore the wholly unsecured
lien cannot qualify as an “allowed secured claim” under § 506(a), and is void under § 506(d).
First, the Bank of America second mortgage cannot be considered a secured claim under
§ 506(a), because the junior claim is wholly unsecured. Accordingly, the plain meaning of
§ 506(d) requires the lien to be voided. Second, the Supreme Court itself limited Dewsnup to its
specific facts, and in light of the persuasive argument of Justice Scalia in the dissent regarding
the requirement to interpret a seemingly unambiguous statute according to its plain textual
meaning, Dewsnup should be narrowly interpreted. Because this case is substantially
distinguished from Dewsnup, there is no reason for this Court to read § 506(a) and § 506(d) in
any way other than their plain textual meaning. The plain meaning is applied to Chapter 13
section 1322(b)(2) analysis where the lien is wholly unsecured, and there is no logical reason to
read the text differently when applied to Chapter 7 wholly unsecured liens.
Arguments that debtors will benefit from possible windfalls, are not persuasive. Markets
are uncertain, and it is not certain such a scenario will ever occur. Secondly, the creditors’ right
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36

11	11
to foreclose will not result in any present monetary gain for the creditor since there is no value in
the property for them. Bankruptcy is not intended to benefit either the creditor in securing a
potential increase in property value, or the debtor. However, where the future is unknown,
bankruptcy principles of giving the debtor a fresh start should apply. While these issues of
debtors’ and creditors’ rights are the subject of long standing philosophical debate, in light of the
unambiguous, clear language of §§ 506(a) and (d), § 506(d) requires this Court to void the lien as
a matter of law regardless of any possible further potential debtor benefits.
CONCLUSION
BOA’s second mortgage claim is not an allowed secured claim pursuant to section 502 of
the Bankruptcy Code, since it has no collateral to support its claim. It is an allowed unsecured
claim.
Based upon the foregoing, the Debtors’ cross-motion to void Bank of America’s second
mortgage lien pursuant to 11 U.S.C. §§ 506(a) and 506(d) against the Property is granted.
So ordered.
Dated: Central Islip, New York
November 25, 2009 	s/Dorothy Eisenberg___________
Dorothy Eisenberg
United States Bankruptcy Judge
Case 8-09-72389-dte Doc 37 Filed 11/25/09 Entered 11/25/09 12:29:36