Lien Avoidance

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This post assumes familiarity with my last three posts (Part 1, Part 2, and Part 3) this multi-part series.  Thus, while you can certainly read this post without reading those previous ones, you’ll get more out of it if you read those posts first.

Lien Valuation

We have already discussed motions to value liens.  What good are they?

First, if the goal is to strip off a wholly unsecured junior lien, it is important to establish that the junior lien really is wholly unsecured.  Therefore, getting a determination of the value of the senior lien(s) and an appraisal of the property is necessary to establishing the wholly unsecured status of the lien to be stripped.

Second, if the goal is to bifurcate the lien, one must have accurate values of the lien, any senior liens, and the property to get accurate values of the secured and unsecured portions.

Third, if the goal is to negotiate with the creditor, lien valuation fixes one of the starting points for those negotiations.
Continue Reading Lien Avoidance in Individual Cases – Part 4: Lien Valuation

This post assumes familiarity with my last post (part 1) of this multi-part series.  Thus, while you can certainly read this post without reading that previous one, you’ll get more out of it if you read that post first.

III.  Avoidance Of A Partially Or Wholly Unsecured Lien In Chapters 11 And 13

11 U.S.C. § 506 is used to determine the extent to which a claim is secured.  Rather than delving into the wording of the statute, let’s informally say that if the value of the collateral is less than the sum of the liens against it, then at least some of the liens are not fully secured, and some may even be wholly unsecured.

For example, suppose the collateral is a piece of real estate worth $500,000.  And suppose there are three liens against it.  The first recorded has a balance of $475,000, the second recorded has a balance of $50,000, and the third recorded has a balance of $50,000.  Then the first is fully secured because the property is greater in value than the balance of the first.  The second is partially secured:  $25,000 is secured by the house, and $25,000 is unsecured.  And the third is wholly unsecured.

I realize that in today’s real estate market, this scenario is unlikely.  However, some years ago it was fairly common.  And given the cyclic nature of things, we may see a repeat of the past —plus ça change, plus c’est la même chose.

   A.  Avoiding A Wholly Unsecured Lien

In Zimmer v. PBS Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. 2002) the Ninth Circuit held that a Chapter 13 debtor can avoid a wholly unsecured lien against the debtor’s principal residence.
Continue Reading Lien Avoidance in Individual Cases – Part 2: Avoidance of a Partially or Wholly Unsecured Lien in Chapters 11 and 13; The Chapter 7 Context

This post assumes familiarity with my last two posts (Part 1 and Part 2) of this multi-part series.  Thus, while you can certainly read this post without reading those previous ones, you’ll get more out of it if you read those posts first.

V.  Some Other Issues Associated With Liens

A.  Is The Lien Perfected?

Suppose the debtor and all the debt’s assets are in Los Angeles County at the time the creditor records a lien in Orange County against the debtor’s principal residence in Los Angeles.  Is the creditor’s claim secured?  No.  The lien must be recorded in the county where the asset is.  Therefore, if the lien is recorded in the wrong county, the creditor’s is not a perfected security interest.  See, e.g., Cal. Civ. Code § 1169 (“Instruments entitled to be recorded must be recorded by the County Recorder of the county in which the real property affected thereby is situated.”).

B.  Is The Lien To Be Stripped Really A Junior Lien?

Sometimes a debtor will buy a house with what is called an 80/20 loan because the debtor can’t come up with the 20% down payment.  If the 20% loan is recorded first, then the junior is the 80% loan, which has a much bigger value.  Given the relatively small size of the 20% loan, the junior lien may not be wholly unsecured.
Continue Reading Lien Avoidance in Individual Cases – Part 3: Other Issues Associated with Liens

This is the first of a four part series on lien avoidance.  I developed these notes for a presentation I gave to the Central District Consumer Bankruptcy Attorney’s Association, Los Angeles, California.

A lien is a claim or legal right against assets that are typically used as collateral to satisfy a debt.  A lien serves to guarantee an underlying obligation.  If the underlying obligation is not satisfied, the creditor may can seize the asset that is the subject of the lien.  In essence, a lien creates an in rem claim against the assets of a debtor against whom the creditor has an in personam claim.

There are many types of liens.  The most common liens against the assets of an individual debtor in bankruptcy are tax liens, liens arising from loans, mechanics liens, HOA liens, and judgment liens.  For those who may be new to dealing with liens in bankruptcy, here is some vocabulary:
Continue Reading Lien Avoidance in Individual Cases – Part 1: Avoidance of Liens Under § 522(f)