Bankruptcy Update – In Re McNeal Chapter 7 Stripping Unsecured 2nd Mortgage Lien

28 Feb Bankruptcy Update – In Re McNeal Chapter 7 Stripping Unsecured 2nd Mortgage Lien

11th Circuit photo

The saga continues for Chapter 7 bankruptcy practitioners in the 11th Circuit. The bankruptcy issue is whether a homeowner can strip a wholly unsecured second mortgage in a Chapter 7 bankruptcy proceeding. As we stand right now, the answer is Yes, we can. However, the 11th Circuit opinion in In Re McNeal 11-11352 was unpublished.

There has been a recent development in the McNeal case. If you haven’t been following the McNeal case, you probably don’t live in the 11th Circuit. But, I’m here to tell you that it doesn’t matter whether you are a creditors attorney, debtors attorney or a bankruptcytrustee you should be watching this case.

As a practitioner in Southwest Florida, I practice before Judge Caryl E. Delano. She has taken the position that the 11th Circuit’s unpublished opinion must be followed. Therefore, we are allowed to strip second mortgages and third mortgages in Chapter 7 cases if the circumstances allow. But, this decision is not followed by all Bankruptcy Judges in the Middle District. Specifically, there are other Judges in Georgia and Florida that are not willing to follow the decision because it was not a published opinion. The argument is simple: an unpublished opinion is only persuasive authority.

The most recent development came on January 30, 2013 wherein the 11th Circuit was asked to publish its opinion, and therefore, bring some finality to many cases being held open pending an appeal of the Mc Neal decision. The first problem here is that GMAC Mortgage has filed a motion for a rehearing in the 11th Ciruit; however, GMAC Mortgage is in bankruptcy itself, as part of the Residential Capital bankruptcy, and therefore, the automatic stay prevents the 11th Circuit from moving forward on the issue. So, until the stay is lifted in the Residential Capital bankruptcy, the 11th Circuit will not move forward on the motion for rehearing.

Second, the problem faced by many practitioners in Florida and Georgia is that their clients cases are being held in abeyance. Obviously, this restricts the ability of the debtors to receive their discharge and fresh start.

There will be more to come on this one.


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Carmen Dellutri is a proud member of the Florida Bar, and he is a Board Certified Consumer Bankruptcy Attorney, Certified by the American Board of Certification. He practices in the areas of Consumer Bankruptcy and Plaintiff's Personal Injury. He is the principal attorney at The Dellutri Law Group, P.A. The firm supports many charitable and civic causes by donating time and much needed capital to our community. Mr. Dellutri and the other attorneys in the firm routinely speak to students of all ages about various legal and societal issues.
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