Mastan v. Salamon (In re Salamon)
Ninth Circuit says deemed recourse terminates when the estate no longer owns the collateral.
- Rochelle Quick TakeView Rochelle Summary
- Case Type:
- Case Status:
- No. 15-60031 (9th Circuit, Apr 20,2017) Published
- 9th Circuit affirmed BAP ruling affirming bankruptcy court's order disallowing deficiency claim following non-judicial foreclosure. Out of bankruptcy foreclosure extinguished creditor's lien, and creditor holding nonrecourse claim was not entitled to further claim in bankruptcy. Section 1111(b) did not override extinguishing of lien following foreclosure. Claim must be secured by lien on real property for 1111(b) to apply and allow treatment of non-recourse claim as recourse. Once lien is extinguished, even after petition date, section 1111(b) cannot apply to transform non-recourse claim.
- Procedural context:
- Debtors objected to creditor's proof of claim for deficiency following foreclosure sale. Bankruptcy court granted motion to disallow. Creditor appealed to BAP, which affirmed. Creditor appealed to 9th Circuit.
- Debtors purchased real property in Los Angeles; seller received mortgage junior to two senior liens. Debtors filed chapter 11 petition that was later converted to chapter 7. Junior lienholder filed proof of claim as secured. Following relief from stay by senior lendor, foreclosure, and partial payment from foreclosure sale, junior lienholder filed amended proof of claim for balance of deficiency claim. Debtors objected to claim, based on non-recourse terms of note. Creditor sought to apply 11 USC 1111(b) to convert non-recourse debt into recourse.
- Schroeder, Davis, Murguia