Case Summary:
Plaintiffs Gina and Jessie Larson filed this action to avoid the second wholly unsecured mortgage lien held by Nationstar under 11 U.S.C. § 1322(b)(2). The Supreme Court previously held in Dewsnup v. Timm, 502 U.S. 410 (1992) that a lien could not be avoided in a Chapter 7 case under 11 U.S.C. § 506(d). The Supreme Court had also previously held in Nobelman v. American Sav. Bank, 508 U.S. 324 (1993), that a Chapter 13 debtor could not use 11 U.S.C. § 506(a) to divide a mortgage into secured and unsecured portions in order to strip off the unsecured portion. While Nobleman did not address a wholly unsecured second lien in a Chapter 13, all eight circuit courts that have addressed it have held that a wholly unsecured second lien may be avoided under 11 U.S.C. § 1322(b)(2). First the court must use 11 U.S.C. § 506(a) to determine the secured status of the lien. If there is no value to secure the lien, then § 1322(b)(2)’s anti-modification provision does not prevent the lien from being avoided. The recent Supreme Court decision in Bank of America v. Caulkett, 135 S. Ct. 1995 (2015), another Chapter 7 case, does not affect this analysis. Debtors may use 11 U.S.C. § 1322(b)(2) to modify a claim that has no secured component.

Statute/Rule References:
11 U.S.C. § 506(a) -- Determination of Secured Status
11 U.S.C. § 1322(b)(2) -- Modification of Rights of Secured Claimants

Key Terms:
Determination of Secured Status
Lien Avoidance