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Eighth Circuit Permits Lien Stripping

On Behalf of | Aug 28, 2014 | Bankruptcy, Chapter 13, Firm News

In a ruling issued August 28, 2014, the Eighth Circuit Court of Appeals followed the other seven federal appellate courts in permitting stripping of a wholly unsecured junior residential mortgage in a chapter 13 plan. Jamie and Keeley Schmidt owned a home valued at $140,000, with the first mortgage of $154,000, a second mortgage of $39,000, and a third mortgage of $26,000. They proposed a plan which treated the junior mortgages the same as other unsecured creditors since those junior mortgages had no equity against which their liens could attach.

Minnesota courts had long proscribed lien stripping, which became a minority position as lien stripping gained favor around the country through the earlier part of the millennium. The tide started to change as the housing market collapsed in 2007, and the Fisette case, 455 B.R. 177 (B.A.P. 8th Cir. 2011) pretty much sealed the fate, but the Eighth Circuit had not addressed the issue until now. In fact, even though Judge O’Brien granted the Motion to Value and lien stripping plan, he indicated on the record that he disagreed with it, but felt bound to follow it. The case was appealed to Federal District Court Judge Ann Montgomery, who affirmed Judge O’Brien’s ruling, and the Eighth Circuit Court of Appeals affirmed her ruling.

The appellate case number is 13-2447. The bankruptcy court number is 12-33918

read the full Opinion here