Trustee Blog

Chapter 13 Claims Objection and Stripped Lien

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Recently Judge Houle ruled on a claims objection in Chapter 13. I relay his comments from his tentative. The issue revolved around whether a second mortgage that had not been paid on for over four years, may also be disallowed for violating the California Statute of limitations.

Debtor stripped the second and the second mortgage filed an unsecured claim, but in the claim it said that debtors had not made a payment in over four years before the filing of the bankruptcy case. Normally in an unsecured claim, this violates the Statute of Limitations and renders the debt uncollectable.

Here something different happened….Judge Houle wrote in his tentative ruling:

“On December 17, 2014 (“Claimant”) filed a claim of $129,905.27 for a mortgage loan (“Claim No. 4”).

On January 31, 2015, (“Debtors”) filed the instant motion, objecting to Claim No. 4 (“Objection”). Debtors object to Claim No. 4 on the grounds that it is barred by the statute of limitations, and request that Claim No. 4 be disallowed in its entirety.

II. DISCUSSION

Section 502(b)(1) provides that a claim is deemed allowed, unless such claim is unenforceable against the Debtors and property of the Debtors under applicable law. Debtors request that Claim No. 4 be disallowed because it is time barred by the four year statute of limitations set forth under Cal. Code of Civ. Pro. § 337. On October 24, 2014, the Court entered an order avoiding the lien which secured the debt under Claim No. 4, but the avoidance of the lien is only effective upon Debtors’ discharge. Here, Debtors have not received their discharge, thus the lien securing Claim No. 4 has not been avoided. Moreover, ¶ 4(b)(4) and (5) of Order avoiding Claimant’s lien provide that Claimant’s claim shall be treated as an unsecured claim to be paid through the plan with other unsecured claims, and trustee may treat any claim filed by Claimant (secured or unsecured) as unsecured upon entry of the order.

As Claim No. 4 is still secured by the deed of trust, and there is no evidence that Claimant has not exercised its rights under the deed of trust to foreclose on the Property, the time periods under Cal. Civ. Code § 882.020 regarding expiration of security interests, instead of those under Cal. Code of Civ. Pro. § 337, govern the statute of limitations for Claim No. 4. Cal. Civ. Code § 882.020 provides that Claimant’s lien expires (1) 10 years after the final maturity date or the date last date fixed for payment of the debt, or (2) 60 years after the deed of trust was recorded if the final maturity date or last date fixed for payment is not ascertainable, or if there is no final maturity date or last date fixed for payment. Here, the deed of trust reflects that the maturity date is May 1, 2036, which date has not passed. The Court notes that § 337, which applies to written obligations, may only apply to Claimant’s note after Claimant exercises its right to foreclose under the deed of trust. See Miller v. Provost, 26 Cal. App. 4th 1703, 1708-1709 (Cal. App. 1st Dist. 1994); and Bank of America Nat’l Trust & Sav. Asso. v. Dennison, 8 Cal. App. 2d 173, 176 (Cal. App. 1935). Therefore, the Court finds that Claim No. 4 is not barred by the applicable statute of limitations.

Based on the foregoing, the Court’s tentative ruling is to OVERRULE the Objection.

Practice Pointer: The Lien remains in a secured claim in Chapter 13 that is treated as unsecured for plan purposes until discharge.

 

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