Judge Rhodes wrote the decision,s on two consolidated cases.
In each case, worth less than the amount owed on the first mortgage; the home was underwater.
Each home also had a second mortgage on it.
Now, in both of these cases, the spouse not in Chapter 13 had previously filedand discharged any personal liability on each mortgage.
However, the Court said this had no effect in the outcome.
As with more than half of Michigan houses with a mortgage, the homes had no equity.
So, if the house were sold, it would not evern bring enough to pay the first mortgage.
Even in Chapter 13 cases, bankruptcy courts are powerless to modify the terms of a first mortgage securing the debtor’s home, that is, principal residence, it has not been uncommon for debtors to get rid of the second mortgage lien in Chapter 13 cases.
The second mortgage lien is stripped only if the debtor make all thepayments and gets a discharge.
Debtors must first file an, a separate lawsuit in the bankruptcy case, suing the second mortgage company, and proving that the second mortgage lien is unsecured.
11 USC 506 states that a claim is secured only up the the value of the collateral securing the lien.
So, in these cases, one house was worth 120,000, with a first mortgage of 131,117.98, and a second mortgage of 48,262.48.
The other was worth 100,000, with a first mortgage of 103,990.24 and a second mortgage of 45,598.48.
The second mortgage holders claimed that, because the homes were owned as tenants by the entireties, that is, husband and wife, by the filing debtor and the non-filing spouse, that the second mortgage lien could not be stripped in an adversary proceeding brought by only one of the married couple.
The court held that the bankruptcy estate had no interest in that property after carefully analyzing the precedents and facts, finding that there was no equity in the property in which the bankruptcy estate could have an interest.
Many cases have held that the bankruptcy estate includes whatever entireties property is available to pay off joint debts, that is, claims against both husband and wife.
However, Judge Rhodes held that even though the non-filing husband or wife benefits from the lien strip, both spouses do not have to be in the bankruptcy or adversary case.
It is the same as the non-filing spouse benefiting from a run of the mill chapter 13 bankruptcy case, in which one spouse can file and stop a foreclosure.
The deadline to appeal has not run yet.