In re Richard Lane

A claim must be disallowed based on the invalidity of the debt before the associated lien can be voided under Section 506(d), the Ninth Circuit ruled in upholding the BAP.

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Case Type:
Consumer
Case Status:
Affirmed
Citation:
18-60059 (9th Circuit, Jun 01,2020) Published
Tag(s):
Ruling:
A bankruptcy court may not void a lien under §506(d) when a claim relating to the lien is disallowed because the creditor who filed the proof of claim did not prove that it was entitled to enforce the debt the lien secures.
Procedural context:
Appeal from the Ninth Circuit Bankruptcy Appellate Panel; reviewed de novo.
Facts:
Debtor filed a chapter 13 bankruptcy and disclosed that he owned real property subject to a secured claim. Debtor's plan contemplated payments on the secured claim, but, as debtor "disputed" the claim, debtor intended to "bank" the payments until someone proved that it was the real party in interest. The trustee for a mortgage-backed security ("BONY") objected to confirmation of debtor's plan, alleging that the trust had a secured interest in debtor's real estate. BONY filed a proof of claim, to which debtor objected, claiming that it failed to establish standing and failed to establish that BONY was entitled to enforce payment on the claim. After BONY's attorney failed to file a timely response, the bankruptcy court sustained the objection and disallowed the claim. After debtor received a discharge, debtor filed an adversary proceeding asking the court to declare the lien void under §506(d). The bankruptcy court voided the lien; on appeal, the Ninth Circuit BAP reversed. The Ninth Circuit determined that because the bankruptcy court had found that BONY was not entitled to enforce the mortgage debt, §506(d) did not void the deed of trust securing that debt.
Judge(s):
Paez, Bea, Adelman

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