Go to listing of articles
by David Brian Lally,
The Wolf Firm
(USFN Report July/August 1998)
A disturbing trend in Southern California bankruptcies is the attempt
by debtors to strip wholly unsecured junior deeds of trust from their personal residences.
In the Lam decision, currently on appeal to the Ninth Circuit Court of Appeals, the value
of the debtor's principal residence was less than the amount owned under the senior deeds
of trust, thus rendering the fourth deed of trust entirely unsecured. Under the Code and
the Supreme Court decision in Nobleman, a debtor cannot modify a loan solely secured by
the principal residence of the debtor. In Lam, the court determined that a loan which was
wholly unsecured at the time of the filing was not entitled to protection from
modification even though it was secured by the principal residence of the debtor and thus
granted the debtor's adversary action to strip the lien. Unsecured debt in Chapter 13
Plans are generally paid little to nothing. Thus, the order stripping the lien acted to
wipe out the junior trust deed.
Servicers holding junior deeds of trust are now in jeopardy under the
Lam decision; where possible debtors will now argue that the amount of the senior liens
exceed the value of the property and attempts will be made to strip the junior lien even
though it is the principal residence of the debtor at the time of the filing. In addition,
there are a number of complex servicing issues raised by the case. For example, if a lien
is stripped, how does one service the loan? Can any collection activity occur if the plan
provides for no payment on unsecured debt? Does the security interest survive if the
chapter 13 discharge never occurs?
(See In re Lam 211 B.R. 36 (Bkrtcy.C.D.Cal. 1997), where the BAP distinguished the holding
in Nobelman v. American Sav. Bank, 113 S.Ct. 2106 (1993), because the debt in Nobleman was
a purchase money security interest and partially secured.)
For further information please contact:
The Wolf Firm, A Law Corporation, is an "AV" rated law firm which concentrates on providing superior legal services to the mortgage banking industry. The firm's national clientele includes many of the largest mortgage bankers in the country, as well as a variety of savings banks, commercial banks, commercial finance companies, credit unions, and the Resolution Trust Corporation. With a staff of approximately forty individuals, including attorneys, certified paralegals, legal secretaries, administrators, clerical personnel, and a full time computer systems analyst, the firm represents its clients on a wide range of matters including all aspects of both residential and commercial/multifamily mortgage loan origination and servicing, securitization, regulatory compliance, bankruptcy, and litigation related to the foregoing in both federal and state courts throughout California. For more routine matters, such as residential bankruptcies, evictions and receiverships, The Wolf Firm has developed extremely cost-effective and efficient programs using specially trained paralegals and computer technology to assist its attorneys in handling these matters at rates that are the most competitive in the State of California and, through its membership in the USFN, the Firm is able to arrange similar services in virtually every state in the nation.
Copyright- All rights reserved
The Wolf Firm
A Professional Law Corporation
18 Corporate Plaza Drive
Newport Beach, California 92660
(949) 720-9200 Phone
(949) 720-9250 Fax
E-Mail us at Alan_Wolf@wolffirm.com
| Home | What's New | Firm Profile | Firm Resume | Firm Publications |
| Library | Bookstore | Missing Assignment Database | Mortgage Banking Training |
| Employment | Guestbook | Industry News | Industry Calendar | Search |
| Forms | Photo Albums | Miscellaneous | Disclaimer | Contact us! |
Last Revised On
© 1996-2001 The Wolf Firm. All rights reserved.