McNeal v. GMAC Mortgage, LLC (In re McNeal)

Citation: 
Lorraine McNeal v. GMAC Mortgage, LLC, et al., Case No.:11-11352 (11th Cir. May 11, 2012)(unpublished)(per curiam).
Ruling: 
The Eleventh Circuit held that a wholly unsecured junior lien on a Chapter 7 debtor's home may be "stripped off" pursuant to Section 506(d) of the Bankruptcy Code.
Procedural context: 
Appeal from the United District Court for the Northern District of Georgia, affirming a decision from the United States Bankruptcy Court for the Northern District of Georgia.
Facts: 
Chapter 7 debtor Lorraine McNeal filed a motion to “strip off” a wholly unsecured junior lien against her home, pursuant to Sections 506(a) and (d) of the Bankruptcy Code. The junior mortgage was held by Homecomings Financial, LLC, a subsidiary of GMAC Mortgage, LLC (collectively, “GMAC”). There was no dispute between the parties that GMAC's junior lien was both allowed and wholly unsecured pursuant to Section 506(a) of the Bankruptcy Code. The only question before the Court was whether such a claim was voidable under Section 506(d) of the Bankruptcy Code. Although the Eleventh Circuit noted that "several courts" have applied the United States Supreme Court's decision in Dewnsup v. Timm, 112 S. Ct. 773 (1992), to prevent Chapter 7 debtors from “stripping off” wholly unsecured junior liens, the Eleventh Circuit Court distinguished Dewnsup from the instant case because Dewsnup involved a Chapter 7 debtor who sought to “strip down” the value of a partially secured junior lien, rather than “strip off” a wholly unsecured lien. Accordingly, the Eleventh Circuit felt compelled to adhere to the “present controlling precedent” of its decision in Folendore v. United States Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989), which held “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).” Finding that the District Court had committed reversible error by holding otherwise, the Court reversed and remanded.
Judge(s): 
TJOFLAT, EDMONDSON, and CARNES