By: J. Ellsworth Summers, Jr. Scott St. Amand

Mortgage modification has long been an angst-ridden topic for consumer creditors. The issue once again rose to the forefront in May of 2012, when the Eleventh Circuit issued the unpublished opinion of In re McNeal , wherein the court allowed a Chapter 7 debtor to “strip off,” or avoid, a wholly unsecured junior mortgage. As discussed in previous posts, this decision was particularly troublesome to creditors and their counsel, as the vast majority of courts throughout the country had held Chapter 7 “strip offs” to be prohibited by the Supreme Court’s decision of Dewsnup v. Timm .

On January 18, 2013, the Bankruptcy Court for the Southern District of Florida became only the second court within the Eleventh Circuit to issue an opinion directly addressing the impact of McNeal. In the case of In re Bertan , the debtor obtained a Home Equity Line of Credit in the amount of $200,000, secured by a junior mortgage on its homestead property. Relying on the value of the property, as determined by the Miami-Dade County Office of the Property Appraiser, the debtors asserted that the collateral was worth only $262,834.00. No creditor objected to this valuation . Because the property was encumbered by a senior mortgage in the amount of $291,557.00, the debtors argued that the junior mortgage was wholly unsecured.

Judge A. Jay Cristol of the Southern District of Florida acknowledged the Eleventh Circuit’s holding in McNeal , but noted correctly that lower courts within the Circuit are not bound to follow unpublished decisions. Nevertheless, Judge Cristol held that the court was bound by Folendore , a published Eleventh Circuit decision, which McNeal held to be controlling law within the Circuit.