MCNEAL vs. GMAC MORTGAGE, LLC, HOMECOMINGS FINANCIAL 11th Circuit| "Strip Off" Second Lien, GMAC's lien is voidable under section 506(d)


MCNEAL vs. GMAC MORTGAGE, LLC, HOMECOMINGS FINANCIAL 11th Circuit| “Strip Off” Second Lien, GMAC’s lien is voidable under section 506(d)

MCNEAL vs. GMAC MORTGAGE, LLC, HOMECOMINGS FINANCIAL 11th Circuit| “Strip Off” Second Lien, GMAC’s lien is voidable under section 506(d)

No. 11-11352
Non-Argument Calendar

D. C. Docket Nos. 1:10-cv-01612-TCB; 09-BKC-78173-PWB

In Re:



a GMAC company,

Appeal from the United States District Court
for the Northern District of Georgia
(May 11, 2012)
Before TJOFLAT, EDMONDSON, and CARNES, Circuit Judges.

Lorraine McNeal appeals the district court’s affirmance of the bankruptcy
court’s denial of McNeal’s “Motion to Determine the Secured Status of Claim.”
In her motion, McNeal sought to “strip off”1 a second priority lien on her home,
pursuant to 11 U.S.C. § 506(a) and (d). Reversible error has been shown; we
reverse and remand for additional proceedings.

McNeal filed a voluntary petition for bankruptcy under Chapter 7 of the
Bankruptcy Code. In her petition, McNeal reported that her home was subject to
two mortgage liens: a first priority lien in the amount of $176,413 held by HSBC
and a second priority lien in the amount of $44,444 held by Homecomings
Financial, LLC, a subsidiary of GMAC Mortgage, LLC (collectively, “GMAC”).

McNeal also reported that her home’s fair market value was $141,416. The parties
do not dispute these factual allegations.

McNeal then sought to “strip off” GMAC’s second priority lien, pursuant to
sections 506(a) and 506(d). McNeal contended that, because the senior lien
exceeded the home’s fair market value, GMAC’s junior lien was wholly unsecured
and, thus, void under section 506(d). The bankruptcy court denied the motion,
concluding that section 506(d) did not permit a Chapter 7 debtor to “strip off” a
wholly unsecured lien. The district court affirmed.

When the district court affirms the bankruptcy court’s order, we review only
the bankruptcy court’s decision on appeal. Educ. Credit Mgmt. Corp. v. Mosley,
494 F.3d 1320, 1324 (11th Cir. 2007). And we review the bankruptcy court’s
legal conclusions de novo. Hemar Ins. Corp. of Am. v. Cox, 338 F.3d 1238, 1241
(11th Cir. 2003).

That GMAC’s junior lien is both “allowed” under 11 U.S.C. § 502 and
wholly unsecured pursuant to section 506(a) is undisputed.2 To determine whether
such an allowed — but wholly unsecured — claim is voidable, we must then look to
section 506(d), which provides that “[t]o the extent that a lien secures a claim
against a debtor that is not an allowed secured claim, such lien is void.” See 11
U.S.C. § 506(d).

Several courts have determined that the United States Supreme Court’s
decision in Dewsnup v. Timm, 112 S. Ct. 773 (1992) — which concluded that a
Chapter 7 debtor could not “strip down” a partially secured lien under section
506(d) — also precludes a Chapter 7 debtor from “stripping off” a wholly
unsecured junior lien such as the lien at issue in this appeal. See, e.g., Ryan v.
Homecomings Fin. Network, 253 F.3d 778 (4th Cir. 2001); Talbert v. City Mortg.
Serv., 344 F.3d 555 (6th Cir. 2003); Laskin v. First Nat’l Bank of Keystone, 222
B.R. 872 (B.A.P. 9th Cir. 1998). But the present controlling precedent in the
Eleventh Circuit remains our decision in Folendore v. United States Small Bus.
Admin., 862 F.2d 1537 (11th Cir. 1989). In Folendore, we concluded that an
allowed claim that was wholly unsecured — just as GMAC’s claim is here — was
voidable under the plain language of section 506(d).3 862 F.2d at 1538-39.

A few bankruptcy court decisions within our circuit — including the
decision underlying this appeal — have treated Folendore as abrogated by
Dewsnup. See, e.g., In re McNeal, No. A09-78173, 2010 Bankr. LEXIS 1350, at
*9-12 (Bankr. N.D. Ga. Apr. 9, 2010); In re Swafford, 160 B.R. 246, 249 (Bankr.
N.D. Ga. 1993); In re Windham, 136 B.R. 878, 882 n.6 (Bankr. M.D. Fla. 1992).
But Folendore — not Dewsnup — controls in this case.

“Under our prior panel precedent rule, a later panel may depart from an
earlier panel’s decision only when the intervening Supreme Court decision is
‘clearly on point.’” Atl. Sounding Co., Inc. v. Townsend, 496 F.3d 1282, 1284
(11th Cir. 2007). Because Dewsnup disallowed only a “strip down” of a partially
secured mortgage lien and did not address a “strip off” of a wholly unsecured lien,
it is not “clearly on point” with the facts in Folendore or with the facts at issue in
this appeal.

Although the Supreme Court’s reasoning in Dewsnup seems to reject the
plain language analysis that we used in Folendore, “‘[t]here is, of course, an
important difference between the holding in a case and the reasoning that supports
that holding.’” Atl. Sounding Co., Inc., 496 F.3d at 1284 (citing Crawford-El v.
Britton, 118 S. Ct. 1584, 1590 (1998)). “[T]hat the reasoning of an intervening
high court decision is at odds with that of our prior decision is no basis for a panel
to depart from our prior decision.” Id. “As we have stated, ‘[o]bedience to a
Supreme Court decision is one thing, extrapolating from its implications a holding
on an issue that was not before that Court in order to upend settled circuit law is
another thing.” Id. In fact, the Supreme Court — noting the ambiguities in the
bankruptcy code and the “the difficulty of interpreting the statute in a single
opinion that would apply to all possible fact situations” — limited its Dewsnup
decision expressly to the precise issue raised by the facts of the case. 112 S. Ct. at

Because — under Folendore — GMAC’s lien is voidable under section
506(d), we reverse and remand for additional proceedings consistent with this


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