In re: TERRY R. TALBERT and LAHNA L. TALBERT v. City Mortgage Services

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2003 FED App. 0343P (6th Cir.)
File Name: 03a0343p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
In re: TERRY R. TALBERT and
LAHNA L. TALBERT,
Debtors.
______________________
TERRY R. TALBERT and
LAHNA L. TALBERT,
Plaintiffs-Appellants,
v.
CITY MORTGAGE SERVICES,
Defendant-Appellee.
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No. 02-1845
Appeal from the United States District Court
for the Western District of Michigan at Grand Rapids.
No. 01-00795—Richard A. Enslen, District Judge.
Submitted: September 19, 2003
Decided and Filed: September 24, 2003
Before: SILER, BATCHELDER, and COOK, Circuit
Judges.
2 In re Talbert, et al. No. 02-1845
_________________
COUNSEL
ON BRIEF: Marshall A. Yee, KEMPF & YEE, Lansing,
Michigan, for Appellants.
_________________
OPINION
_________________
SILER, Circuit Judge. This bankruptcy appeal presents
purely a legal question that has split the bankruptcy and
federal district courts, namely, whether a debtor who has filed
for Chapter 7 bankruptcy may avoid a valueless lien under
§ 506(d) of the Bankruptcy Code, 11 U.S.C. § 506(d).
Because the Supreme Court’s reasoning in Dewsnup v. Timm,
502 U.S. 410 (1992), applies with equal force and logic to the
issue at hand, we hold that a Chapter 7 debtor may not use
§ 506 to “strip off” an allowed junior lien where the senior
lien exceeds the fair market value of the real property in
question. Accordingly, we AFFIRM the judgment of the
district court.
I.
Debtors Terry and Lahna Talbert (the “Talberts”) filed an
adversary proceeding against Defendant City Mortgage
Services (“City Mortgage”) to avoid City Mortgage’s lien on
their residence pursuant to 11 U.S.C. § 506(d). Although
properly served with process, City Mortgage failed to file an
answer or other responsive filing in the bankruptcy court, a
strategy to which City Mortgage adhered before the district
court, and continues to employ before this court. At the
hearing for default judgment, the bankruptcy court raised sua

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No. 02-1845 In re Talbert, et al. 3
1The term “strip off” is used when a junior mortgage is totally
unsecured, whereas the term “strip do wn” is used when a m ortgage is
partially unsecured and p artially secured. See In re Fitzmaurice, 248 B.R.
356, 357 n.2 (Bankr. W .D. Mo . 2000) (citation omitted).
sponte the issue of whether, as a legal matter, § 506(d)
permits the “strip off” of an allowed unsecured lien.1
For purposes of its analysis, the court accepted as true that
at the time of the Talberts’ bankruptcy filing, they owned a
residence located in Lansing, Michigan, which had a fair
market value of $88,000. The court also accepted that the
residence was encumbered by a first mortgage in the amount
of $90,633, and that City Mortgage held a junior mortgage in
the amount of approximately $33,110. It was thus undisputed
that City Mortgage held a “valueless” lien since the Talberts’
property had a market value that was $2,633 less than the
amount of the lien securing the first mortgage. The
bankruptcy court concluded that § 506(d) does not permit the
“strip off” of a valueless junior lien from real estate. See
Talbert v. City Mortgage Servs. (In re Talbert), 268 B.R. 811,
814 (Bankr. W.D. Mich. 2001). In reaching this conclusion,
the court focused in large part on the claims allowance
process, an analytical approach not followed by the district
court, which affirmed the bankruptcy court based on the
Supreme Court’s statutory interpretation of § 506 as
pronounced in the watershed case of Dewsnup v. Timm.
We have jurisdiction under 28 U.S.C. § 158(d). Of course,
the order by the bankruptcy court, affirmed by the district
court, that a junior valueless lien is not voidable by a debtor
under 11 U.S.C. § 506(d) is a conclusion of law, which we
review de novo. Wesbanco Bank Barnesville v. Rafoth (In re
Baker & Getty Fin. Servs. Inc.), 106 F.3d 1255, 1259 (6th Cir.
1997).
4 In re Talbert, et al. No. 02-1845
II.
A. City Mortgage’s Failure to File an Appellate Brief
First, we must determine what consequences, if any, City
Mortgage faces for not filing a brief in this appeal. Although
not a situation we confront often, on a previous occasion, we
have addressed the effects of this unhelpful and highly risky
form of appellate advocacy:
An initial question presented . . . is the effect of appellee
Allgeier’s failure to file a brief on appeal. While Allgeier
did not file a brief, his counsel was present at oral
argument and offered to answer any questions the panel
might have. Neither the Federal Rules of Appellate
Procedure nor our local rules suggest that an appellee’s
failure to file a brief should be penalized by a decision in
favor of the appellant. Instead, Fed. R. App. P. 31(c)
provides in such a case that “the appellee will not be
heard at oral argument except by permission of the
court.” See, e.g., H.C. by Hewett v. Jarrard, 786 F.2d
1080, 1083 n. 1 (11th Cir.1986). Our court rules do not
address this issue. . . . While Rule 31(c) also authorizes
us to dismiss the appeal where the appellant fails to file
a brief to support his burden of persuasion, see id., we
believe that an appellee's failure to file a brief should
normally carry with it only the oral argument sanction
called for by the Rule. However, we do not address the
power of the court to impose additional sanctions should
it specifically order the filing of a brief and the appellee
without adequate reason fails to comply.
Allgeier v. United States, 909 F.2d 869, 871 n.3 (6th Cir.
1990) (emphasis in original). In this appeal, City Mortgage
has not flouted the authority of this court. Accordingly,
pursuant to Allgeier, and, like the proceedings below, a
decision in favor of the Talberts, or, in the alternative, the
imposition of some other sanction against City Mortgage, is
not compelled.

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No. 02-1845 In re Talbert, et al. 5
B. “Strip Off” in Chapter 7
The question of whether a Chapter 7 debtor may use 11
U.S.C. § 506(d) to “strip off” a valueless junior lien from real
property has divided the bankruptcy and federal district
courts. Compare Webster v. Key Bank (In re Webster), 287
B.R. 703 (Bankr. N.D. Ohio 2002); Bessette v. Bank One,
Mich. (In re Bessette), 269 B.R. 644 (Bankr. E.D. Mich.
2001); In re Davenport, 266 B.R. 787 (Bankr. W.D. Ky.
2001); In re Fitzmaurice, 248 B.R. 356 (Bankr. W.D. Mo.
2000); Cunningham v. Homecomings Fin. Network (In re
Cunningham), 246 B.R. 241 (Bankr. D. Md. 2000), aff’d sub
nom. Ryan v. Homecomings Fin. Network, 253 F.3d 778 (4th
Cir. 2001); Cater v. American Gen. Fin. (In re Cater), 240
B.R. 420 (M.D. Ala. 1999); In re Virello, 236 B.R. 199
(Bankr. D.S.C. 1999); Swiatek v. Pagliaro (In re Swiatek),
231 B.R. 26 (Bankr. D. Del. 1999); Laskin v. First Nat’l Bank
of Keystone (In re Laskin), 222 B.R. 872 (B.A.P. 9th Cir.
1998) (all finding that a debtor who has filed Chapter 7
bankruptcy may not “strip off” an allowed valueless junior
lien pursuant to 11 U.S.C. § 506(d)), with Farha v. First Am.
Title Ins. (In re Farha), 246 B.R. 547 (Bankr. E.D. Mich.
2000); Warthen v. Smith (In re Smith), 247 B.R. 191 (W.D.
Va. 2000), aff’d, 1 Fed. Appx. 178 (4th Cir. 2001)
(unpublished decision), overruled by Ryan, 253 F.3d at 782;
Zempel v. Household Fin. Corp. (In re Zempel), 244 B.R. 625
(Bankr. W.D. Ky. 1999); Yi v. Citibank (Md.), N.A. (In re Yi),
219 B.R. 394 (E.D. Va. 1998), overruled by Ryan, 253 F.3d
at 782; Howard v. National Westminister Bank, U.S.A. (In re
Howard), 184 B.R. 644 (Bankr. E.D.N.Y. 1995) (all finding
that notwithstanding the Supreme Court’s decision in
Dewsnup, a Chapter 7 debtor may “strip off” an allowed
secured claim if there is no value in the collateral to cover any
part of the subject lien). The Fourth Circuit is the only
federal appellate court to discuss this debate, and it has sided
with those courts that hold that § 506 does not permit the
“stripping off” of liens in Chapter 7 proceedings. See Ryan,
253 F.3d at 783 (“[W]e hold that an allowed unsecured
consensual lien may not be stripped off in a Chapter 7
6 In re Talbert, et al. No. 02-1845
2Section 50 6(a) provides in relevant part:
An allowed claim of a creditor secure d by a lien on p roperty 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 p roperty . . . and is an unsecured claim to the
extent that the value of such creditor’s interest . . . is less than the
amo unt of suc h allowed claim.
11 U .S.C. § 506 (a).
3Section 506(d) provides in pertinent part that “to the extent that a
lien secures a claim against the debtor that is not an allowed secured
claim, such lien is void.” 11 U.S.C. § 50 6(d).
4In the Talberts own w ords, “[p]ursuant to the definition of a secured
claim under 11 U.S.C. § 50 6(a), a creditor only has a secured claim to the
extent of the value of such cred itor’s interest in the estate’s interest in
such property.” They continue, “[i]n the case at bar, because of
Appellee’s default, it is undisputed that the amount of the first mortgage
exceeds the value of Appellant’s residence. It therefore cannot be
gainsaid that the App ellee does not have a secured claim.”
proceeding pursuant to the provisions of 11 U.S.C. §§ 506(a)
and (d).”). We agree with the Fourth Circuit.
As did the debtors in Ryan, the Talberts argue that the
secured status of a claim is determined by the security-
reducing provision of § 506(a),2 and that pursuant to this
provision, their junior lien is completely unsecured, and, thus,
according to § 506(d),3 may be “stripped off.”4 See Ryan,
253 F.3d at 781. A similar argument was rejected by the
Supreme Court in the analogous context of a debtor’s attempt
to “strip down” an under-collateralized creditor’s lien in a
Chapter 7 case. In Dewsnup, the debtors owned farmland
encumbered by deed of trust securing a debt of $120,000.
The farmland was valued at approximately $39,000. This
arrangement left an unsecured deficiency of approximately
$81,000, which the debtors sought to avoid pursuant to
§ 506(d). The lower courts would not grant this relief, and
the Supreme Court affirmed.

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No. 02-1845 In re Talbert, et al. 7
5A claim o r interest is deemed “allowed ” if proof thereof is timely
filed pursuant to Code § 501, and (1) no objection is made by a party in
interest, or (2) the bankruptcy court, after notice and a hearing, determines
the validity of the claim, thereby overruling the objection of a pa rty in
interest. 11 U.S.C. § 502.
In its analysis, the Court laid out in detail the different
readings that could be given to the thorny statutory
interpretation question presented by the perceived interplay of
§§ 506(a) and 506(d). See Dewsnup, 502 U.S. at 414-16.
One interpretation, which was urged by the debtors, was that
“§§ 506(a) and 506(d) are complementary and to be read
together.” Id. at 414. According to this argument,
“[b]ecause, under § 506(a), a claim is secured only to the
extent of the judicially determined value of the real property
on which the lien is fixed, a debtor can void a lien on the
property pursuant to § 506(d) to the extent the claim is no
longer secured and thus is not ‘an allowed secured claim.’”
Id. Although not without merit, see id. at 420-36 (Scalia, J.,
dissenting) (filing a sharp dissent criticizing the majority for
brushing aside the plain language of § 506 and employing an
unorthodox method of statutory interpretation), this argument
was rejected in favor of an analysis advanced by the creditors,
and joined by the United States as amicus curiae, namely, that
the words “‘allowed secured claim’ in § 506(d) need not be
read as an indivisible term of art defined by reference to
§ 506(a), which by its terms is not a definitional provision.”
Id. at 415.
Under this construction, “allowed secured claim” “should
be read term-by-term to refer to any claim that is, first,
allowed,5 and, second, secured.” Id. (footnote added). The
Court continued, “[b]ecause there is no question that the
claim at issue here has been ‘allowed’ pursuant to § 502 of
the Code and is secured by a lien with recourse to the
underlying collateral, it does not come within the scope of
§ 506(d), which voids only liens corresponding to claims that
have not been allowed and secured.” Id. (emphasis in
8 In re Talbert, et al. No. 02-1845
original). This reading, the Court explained, “gives the
provision the simple and sensible function of voiding a lien
whenever a claim secured by the lien itself has not been
allowed.” Id. at 415-16. Thus, although limited to the facts
of the case, the Court’s holding was quite clear: “[w]e hold
that § 506(d) does not allow petitioner to ‘strip down’
respondent’s lien, because respondents’ claim is secured by
a lien and has been fully allowed pursuant to § 502.” Id. at
417.
Three considerations constituted the analytical
underpinnings of the Court’s holding, namely, that: (1) any
increase in the value of the property from the date of the
judicially determined valuation to the time of the foreclosure
sale should accrue to the creditor; (2) the mortgagor and
mortgagee bargained that a consensual lien would remain
with the property until foreclosure; and (3) liens on real
property survive bankruptcy unaffected. Id. at 417-18. In the
Court’s own words
The practical effect of petitioner’s argument is to freeze
the creditor’s secured interest at the judicially determined
valuation. By this approach, the creditor would lose the
benefit of any increase in the value of the property by the
time of the foreclosure sale. The increase would accrue
to the benefit of the debtor, a result some of the parties
describe as a “windfall.”
We think . . . that the creditor’s lien stays with the real
property until the foreclosure. That is what was
bargained for by the mortgagor and the mortgagee. The
voidness language sensibly applies only to the security
aspect of the lien and then only to the real deficiency in
the security. Any increase over the judicially determined
valuation during bankruptcy rightly accrues to the benefit
of the creditor, not to the benefit of the debtor and not to
the benefit of other unsecured creditors whose claims
have been allowed and who had nothing to do with the
mortgagor-mortgagee bargain. . . .

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No. 02-1845 In re Talbert, et al. 9
This result appears to have been clearly established
before the passage of the 1978 Act. Under the
Bankruptcy Act of 1898, a lien on real property passed
through bankruptcy unaffected. This Court recently
acknowledged that this was so. See Farrey v.
Sanderfoot, 500 U.S. 291, 297, 111 S.Ct. 1825, 1829,
114 L.Ed.2d 337 (1991) (“Ordinarily, liens and other
secured interests survive bankruptcy”); Johnson v. Home
State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 2154, 115
L.Ed.2d 66 (1991) (“Rather, a bankruptcy discharge
extinguishes only one mode of enforcing a claim--
namely, an action against the debtor in personam--while
leaving intact another--namely, an action against the
debtor in rem”). . . .
Congress must have enacted the Code with a full
understanding of this practice. See H.R.Rep. No.
95-595, p. 357 (1977), U.S.Code Cong. & Admin. News
1978, pp. 5787, 6313 (“Subsection (d) permits liens to
pass through the bankruptcy case unaffected”).
When Congress amends the bankruptcy laws, it does not
write “on a clean slate.” See Emil v. Hanley, 318 U.S.
515, 521, 63 S.Ct. 687, 690-691, 87 L.Ed. 954
(1943). . . . [T]o attribute to Congress the intention to
grant a debtor the broad new remedy against allowed
claims to the extent that they become “unsecured” for
purposes of § 506(a) without the new remedy’s being
mentioned somewhere in the Code itself or in the annals
of Congress is not plausible, in our view, and is contrary
to basic bankruptcy principles.
Id. at 417-20.
The Supreme Court’s reasoning for not permitting “strip
downs” in the Chapter 7 context applies with equal validity to
a debtor’s attempt to effectuate a Chapter 7 “strip off.” See
Ryan, 253 F.3d at 782 (“[W]e discern no principled
distinction to be made between the case sub judice and that
10 In re Talbert, et al. No. 02-1845
decided in Dewsnup. The Court’s reasoning in Dewsnup is
equally relevant and convincing in a case like ours where a
debtor attempts to strip off, rather than . . . strip down, an
approved but unsecured lien.”); In re Webster, 287 B.R. at
708 (“Contrary to the Yi court’s reasoning, . . . [the ‘strip-
down’ versus ‘strip-off’ distinction] is a distinction without a
difference according to the majority of courts post-Dewsnup.
The analysis does not change depending on the available
equity in the collateral to which the lien attaches.”); In re
Davenport, 266 B.R. at 790 (“We agree with the Fourth
Circuit that Dewsnup’s reasoning is equally applicable in a
case where a debtor attempts to strip off a wholly unsecured
consensual mortgage.”); In re Cater, 240 B.R. at 423
(“Although the lien at issue in Dewsnup was secured by at
least some equity in the debtor’s property, that factual
distinction is not relevant. What is relevant is the Supreme
Court’s construction of § 506(d).”); In re Virello, 236 B.R. at
205 (“This Court . . . is of the opinion that for Dewsnup to
have meaning, it must be applied to instances of ‘strip off’ of
liens as much as it does to the ‘strip down’ of liens, the
difference being primarily one of degree.”); In re Swiatek,
231 B.R. at 29-30 (“Although in Dewsnup the claim was
undersecured, not totally unsecured, we think the same result
obtains under the Dewsnup rationale when the claim is
completely unsecured in a chapter 7 and no objection to the
claim has been filed and sustained.”). In fact, one court has
gone so far as to describe this conclusion as “flawless.” In re
Davenport, 266 B.R. at 790.
As in the case of a “strip down,” to permit a “strip off”
would mark a departure from the pre-Code rule that real
property liens emerge from bankruptcy unaffected. Also, as
in the case of a “strip down,” a “strip off” would rob the
mortgagee of the bargain it struck with the mortgagor, i.e.,
that the consensual lien would remain with the property until
foreclosure. In fact, in Dewsnup, the Court was persuaded by
the creditors’ argument that “‘the fresh start’ policy cannot
justify an impairment of respondents’ property rights, for the
fresh start does not extend to an in rem claim against property

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No. 02-1845 In re Talbert, et al. 11
but is limited to a discharge of personal liability.” 502 U.S.
at 416. Finally, as was true in the context of “strip downs,”
Chapter 7 “strip offs” also carry the risk of a “windfall” to
the debtors should the value of the encumbered property
increase by the time of the foreclosure sale. As one court
observed, “[w]ho knows what the real estate market will be
tomorrow? By the time of sale in the future, a piece of real
estate may have increased in value to cover a second-
mortgage lien not covered by the property’s value today.” In
re Cater, 240 B.R. at 424; see also Ryan, 253 F.3d at 783
(“[W]e are acutely aware that in the volatile, modern real
estate market, substantial price variations occur with weekly
or monthly regularities.”).
It is true that the Court’s opinion has not escaped scholarly
criticism, see Cunningham, 246 B.R. at 246 (compiling law
review articles that have criticized the Dewsnup decision),
and that some courts have been unwilling to extend Dewsnup
to its logical conclusion, see, e.g., In re Yi, 219 B.R. at 397;
In re Howard, 184 B.R. at 646. However, notwithstanding
the dissatisfaction of some, we are not at liberty to ignore the
Supreme Court’s reasoning, which Congress has made no
apparent attempt to modify or correct through legislative
action. See Virello, 236 B.R. at 204-05 (The “Supreme Court
has interpreted the statute . . . and Congress has made no
apparent attempt to correct that interpretation or clarify the
statute. Under the doctrine of stare decisis, this Court is
constrained to follow . . . Dewsnup. [To do otherwise] . . .
would effectively render the Supreme Court’s reasoning in
Dewsnup meaningless.”).
In the instant case, the Talberts do not challenge that City
Mortgage’s claim is allowed pursuant to § 502. Also,
regardless of the fact that the current value of the real
property is insufficient to recover City Mortgage’s junior lien,
the claim is nonetheless “secured in the ordinary sense, that
is, . . . [it] is backed up by a security interest in property,
whether or not the value of the property suffices to cover the
claim.” Cater, 240 B.R. at 422. As Dewsnup teaches, that is
12 In re Talbert, et al. No. 02-1845
6The bankruptcy court reached this same conclusion, although by
different reasoning. According to the bankruptcy co urt, 11 U.S.C. § 506
is meaningless in Chapter 7 proceed ings unless the debtor is redeeming
property and needs § 506(d) to avoid any residual lien the creditor might
claim in the property once the allowed secured claim has been paid.
Because the Talberts were not redeeming the property, the court reasoned
that they could no t use § 506(d) to “strip off” City Mortgage’s lien on the
property. The ban kruptcy court noted that § 506 (d) is need ed in
reorganization proceedings to classify secured claims as allowed or
disallowed in order to determine who gets paid. Acco rding to the co urt,
however, there is no need for such a determination in a Chapter 7
proceeding because the trustee’s job does not include making distributions
to holders o f secured claim s; a trustee’s job in a Chapter 7 pro ceed ing is
to distribute property of the estate, d efined as the legal or eq uitable
interests of the debtor in the property. 11 U.S.C. § 5 41. From this
all that is required; the Talberts may not utilize § 506(a) and
(d) to “strip off” City Mortgage’s lien. See Dewsnup, 502
U.S. at 415 (“Because there is no question that the claim at
issue here has been ‘allowed’ pursuant to § 502 of the Code
and is secured by a lien with recourse to the underlying
collateral, it does not come within the scope of § 506(d),
which voids only liens corresponding to claims that have not
been allowed and secured.”) (emphasis removed); see also
Cater, 240 B.R. at 423 (“[B]ecause [the creditor’s] claim is
allowed under § 502 and is secured by a valid lien, the same
result obtains. The fact that the value of the property is
insufficient to cover the debt does not warrant a different
result.”).
“Section 506 was intended to facilitate valuation and
disposition of property in the reorganization chapters of the
Code, not to confer an additional avoiding power on a
Chapter 7 debtor.” Ryan 253 F.3d at 783 (quoting Laskin,
222 B.R. at 876). When a debtor proceeds under Chapter 7,
creditors are “entitled to their lien position until foreclosure
or other permissible final disposition is had.” Id. Thus, we
conclude that a Chapter 7 debtor may not use 11 U.S.C. § 506
to “strip off” an allowed junior lien where the senior lien
exceeds the fair market value of the real property.6

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No. 02-1845 In re Talbert, et al. 13
definition, the bankruptcy court found that secured claims do not qualify
as property of the estate, thus avoiding the need to classify the claims as
allowed or disallowed.
After reviewing this question of law de novo , we agree with the
district cour t that the more prudent analytical approach to resolving the
“strip-off” question presented in this matter is to affirm on the basis of the
statutory interpretation analysis contained in Dewsnup–and on that basis
only. We thus express no opinion o n the bankrup tcy court’s analysis.
AFFIRMED.

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