Beardsley v. Rabobank (In re Beardsley)

Citation:
9th Cir. BAP No. NC-14-1230-DKiTa (August 28, 2015) (unpublished)
Tag(s):
Ruling:
Bank held a 2nd position deed of trust and filed a secured proof of claim. It later became clear the lien had no value, and it was a solvent estate. The Bank made a motion under § 506(a) seeking to re-characterize its secured claim as wholly unsecured. The bankruptcy court denied the motion on the grounds that it had granted the Trustee's Motion to Abandon, and thus the estate no longer had an interest in the property. The BAP affirmed.
Procedural context:
The Bank made a motion under § 506(a) seeking to re-characterize its secured claim as wholly unsecured. The motion was heard on the same day as the Chapter 7 trustee's Motion to abandon the property. The bankruptcy court granted the motion to abandon, and then denied the Motion under § 506(a). Bank appealed the order denying the § 506 motion, and the BAP affirmed.
Facts:
The Bank held a second position deed of trust on the Debtors' property, and filed a secured proof of claim. The Trustee initially sought to sell the property but was unsuccessful. The Bank later obtained an appraisal that showed the lien was underwater and amended its proof of claim as an unsecured claim. There was $330,000 in the estate to distribute on account of unsecured claims that the Bank wanted to share in. The Trustee made a Motion to Abandon the property, and the Bank made a motion under § 506(a) seeking to re-characterize its secured claim as wholly unsecured. The bankruptcy court granted the Trustee's Motion to Abandon, and then turned to the motion under § 506(a) and denied it on the grounds that the estate no longer had an interest in the property. The issues on appeal included whether the Bank was attempting to "strip off" its own lien (not permitted under Supreme Court precedent), and whether California's one-action and security-first laws prevented the Bank from asserting an unsecured claim in the case. A concurring opinion would have remanded the case for additional findings.
Judge(s):
DUNN, KIRSCHER AND TAYLOR, Bankruptcy Judges.

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