Alvarez et al v. HSBC Bank USA, National Association
Filing
6
DECISION ON APPEAL. Signed by Judge Marvin J. Garbis on 12/28/11. (mps, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
JOSE ALFREDO ALVAREZ, et al.
Appellants
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vs.
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HSBC BANK USA,
NATIONAL ASSOCIATION
CIVIL ACTION NO. MJG-11-2886
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Appellee
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DECISION ON APPEAL
The Court has before it Appellants' appeal from the July 20,
2011 Order issued by Bankruptcy Judge Lipp (misidentified as Catliota
by Appellants).
The Court has considered the entire file in this
matter and finds a hearing unnecessary.
I.
BACKGROUND
Appellant Jose Alvarez ("Husband") filed a voluntary Chapter
13 petition and identified his personal residence ("the Property")
as owned by tenants by the entireties with his wife, Appellant Meyber
L. Alvarez ("Wife").
The Property was valued at $440,000.00.
The
first lienholder, Chase Home Finance, filed a proof of claim seeking
payment of $447,572.84.
The second lienholder (with a stated debt
of $75,455.08), HSBC Mortgage Service ("HSBC"), did not file a proof
of claim.
Appellants jointly filed an adversary proceeding to avoid the
second lien.
HSBC did not respond to the adversary proceeding and
Appellants sought a default judgment.
Bankruptcy Clerk.
A default was entered by the
However, the Bankruptcy Judge denied the default
judgment, stating that "the subject property is owned as tenants by
the entirety and the Debtor's spouse is not a co-debtor in the
Debtor's bankruptcy case.
This is precisely the situation addressed
in the case of Hunter v. Citifinancial, Inc.(In re Hunter), 284 B.R.
806 (Bankr. E.D. Va. 2002), which this Court finds persuasive."
Appellants unsuccessfully sought reconsideration and have
brought the instant appeal.
II.
STANDARD OF REVIEW
When a District Court reviews a Bankruptcy Court final Order,
the District Court acts as an appellate court.
Matters within the
Bankruptcy Court's discretion are reviewed under an abuse of
discretion standard.
1986).
In re Arnold, 806 F.2d 937, 938 (9th Cir.
That is, the Bankruptcy Court's decisions within its
discretion will be reversed only if they were "based on an erroneous
conclusion of law or when the record contains no evidence on which
the [Bankruptcy Court] rationally could have based [the decisions]."
In re Windmill Farms, Inc., 841 F.2d 1467, 1472 (9th Cir. 1988)
(citing In re Hill, 775 F.2d 1037, 1040 (9th Cir. 1985)).
Accordingly, legal conclusions are reviewed de novo, whereas
findings of fact may be set aside only if clearly erroneous.
See
In re Bulldog Trucking, Inc., 147 F.3d 347 (4th Cir. 1998).
III.
DISCUSSION
The issue presented has not been addressed by the United States
Court of Appeals for the Fourth Circuit and is worthy of debate. See
Strausbough v. Co-op Services Credit Union (In re Strausbough), 426
B.R. 243 (Bankr. E.D. Mich. 2010).
However, the Court agrees with
the view expressed in Hunter and applied by the Bankruptcy Court.
A bankruptcy debtor can, pursuant to the rationale of Johnson
v. Asset Mgmt. Group, 226 B.R. 364 (D. Md. 1998), lien strip a second
lien that is wholly unsecured because the property is valued less
than the debt on a first lien.
In regard to solely-owned property,
the second lien debt would be stripped, and – after satisfaction of
the first lienholder – the debtor would own a property free of debt.
The second lienholder would not have the benefit of any equity in
the property so that, for example, if the property were thereafter
sold for an amount in excess of the first lien debt, the debtor would
have - and the second lienholder would not have – the excess proceeds.
This appears consistent with the concept that the second lienholder
had no value in the debtor's property rights as of the bankruptcy
filing and also that the debtor had to proceed through the bankruptcy
process with its attendant disclosure and other obligations.
In contrast, as to property owned by tenants by the entireties,
the debtor and the nondebtor spouse each have a bundle of rights.
Each has, for example, a survivorship interest and ownership rights
in the event the tenancy is severed.
If Appellants are correct, in
a tenants by the entireties context, not only would the debtor Husband
end up with an ownership interest in a property no longer subject
to the second lienholder's security interest, but the nondebtor
spouse would also.
Unless and until there is binding precedent to the contrary,
the Court will agree with the Bankruptcy Court and reach the same
result as the Hunter court.
IV.
CONCLUSION
For the foregoing reasons, the July 20, 2011 Order of the
Bankruptcy Court shall be affirmed.
SO DECIDED, on Wednesday, December 28, 2011.
/s/__________
Marvin J. Garbis
United States District Judge
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