Palomar v. First American Bank

Federal 7th Circuit Court
Civil Court
Case Number: 
No. 12-3492
Decision Date: 
July 11, 2013
Federal District: 
N.D. Ill., E. Div.
In Chapter 7 bankruptcy proceeding, Bankruptcy Ct. did not err in dismissing adversary action by debtor seeking under section 506(a) of Bankruptcy Code to “strip off” second mortgage on debtor’s home under circumstances where value of home was less than outstanding balance of first mortgage. Instant second mortgage held by creditor could not be voided under section 506(a) where, as here, creditor did not file claim in instant bankruptcy proceeding, and thus creditor is free to foreclose its lien outside of bankruptcy when, as practical matter, value of debtor’s home exceeds amount of first mortgage. Moreover, under Dewsnup, 502 US 410, section 506(d) of Bankruptcy Code does not allow Bankruptcy Ct. to “squeeze down” fully valid lien to current value of property to which it is attached.