       RECOMMENDED FOR FULL-TEXT PUBLICATION
            Pursuant to Sixth Circuit Rule 206            2    In re Talbert, et al.                       No. 02-1845
   ELECTRONIC CITATION: 2003 FED App. 0343P (6th Cir.)
               File Name: 03a0343p.06                                         _________________
                                                                                   COUNSEL
UNITED STATES COURT OF APPEALS
                                                          ON BRIEF: Marshall A. Yee, KEMPF & YEE, Lansing,
              FOR THE SIXTH CIRCUIT                       Michigan, for Appellants.
                _________________
                                                                              _________________
In re: TERRY R. TALBERT and X
                                                                                  OPINION
LAHNA L. TALBERT ,                -
                                                                              _________________
                       Debtors. -
                                  -   No. 02-1845            SILER, Circuit Judge. This bankruptcy appeal presents
______________________            -
                                   >                      purely a legal question that has split the bankruptcy and
                                  ,                       federal district courts, namely, whether a debtor who has filed
TERRY R. TALBERT and              -                       for Chapter 7 bankruptcy may avoid a valueless lien under
LAHNA L. TALBERT ,                -                       § 506(d) of the Bankruptcy Code, 11 U.S.C. § 506(d).
          Plaintiffs-Appellants, -                        Because the Supreme Court’s reasoning in Dewsnup v. Timm,
                                  -                       502 U.S. 410 (1992), applies with equal force and logic to the
            v.                    -                       issue at hand, we hold that a Chapter 7 debtor may not use
                                  -                       § 506 to “strip off” an allowed junior lien where the senior
                                  -                       lien exceeds the fair market value of the real property in
CITY MORTGAGE SERVICES,           -                       question. Accordingly, we AFFIRM the judgment of the
           Defendant-Appellee. -                          district court.
                                  -
                                 N                                                      I.
       Appeal from the United States District Court          Debtors Terry and Lahna Talbert (the “Talberts”) filed an
  for the Western District of Michigan at Grand Rapids.   adversary proceeding against Defendant City Mortgage
    No. 01-00795—Richard A. Enslen, District Judge.       Services (“City Mortgage”) to avoid City Mortgage’s lien on
                                                          their residence pursuant to 11 U.S.C. § 506(d). Although
            Submitted: September 19, 2003                 properly served with process, City Mortgage failed to file an
                                                          answer or other responsive filing in the bankruptcy court, a
       Decided and Filed: September 24, 2003              strategy to which City Mortgage adhered before the district
                                                          court, and continues to employ before this court. At the
 Before: SILER, BATCHELDER, and COOK, Circuit             hearing for default judgment, the bankruptcy court raised sua
                    Judges.




                           1
No. 02-1845                                 In re Talbert, et al.         3    4      In re Talbert, et al.                         No. 02-1845

sponte the issue of whether, as a legal matter, § 506(d)                                                        II.
permits the “strip off” of an allowed unsecured lien.1
                                                                               A. City Mortgage’s Failure to File an Appellate Brief
   For purposes of its analysis, the court accepted as true that
at the time of the Talberts’ bankruptcy filing, they owned a                     First, we must determine what consequences, if any, City
residence located in Lansing, Michigan, which had a fair                       Mortgage faces for not filing a brief in this appeal. Although
market value of $88,000. The court also accepted that the                      not a situation we confront often, on a previous occasion, we
residence was encumbered by a first mortgage in the amount                     have addressed the effects of this unhelpful and highly risky
of $90,633, and that City Mortgage held a junior mortgage in                   form of appellate advocacy:
the amount of approximately $33,110. It was thus undisputed
that City Mortgage held a “valueless” lien since the Talberts’                     An initial question presented . . . is the effect of appellee
property had a market value that was $2,633 less than the                          Allgeier’s failure to file a brief on appeal. While Allgeier
amount of the lien securing the first mortgage. The                                did not file a brief, his counsel was present at oral
bankruptcy court concluded that § 506(d) does not permit the                       argument and offered to answer any questions the panel
“strip off” of a valueless junior lien from real estate. See                       might have. Neither the Federal Rules of Appellate
Talbert v. City Mortgage Servs. (In re Talbert), 268 B.R. 811,                     Procedure nor our local rules suggest that an appellee’s
814 (Bankr. W.D. Mich. 2001). In reaching this conclusion,                         failure to file a brief should be penalized by a decision in
the court focused in large part on the claims allowance                            favor of the appellant. Instead, Fed. R. App. P. 31(c)
process, an analytical approach not followed by the district                       provides in such a case that “the appellee will not be
court, which affirmed the bankruptcy court based on the                            heard at oral argument except by permission of the
Supreme Court’s statutory interpretation of § 506 as                               court.” See, e.g., H.C. by Hewett v. Jarrard, 786 F.2d
pronounced in the watershed case of Dewsnup v. Timm.                               1080, 1083 n. 1 (11th Cir.1986). Our court rules do not
                                                                                   address this issue. . . . While Rule 31(c) also authorizes
  We have jurisdiction under 28 U.S.C. § 158(d). Of course,                        us to dismiss the appeal where the appellant fails to file
the order by the bankruptcy court, affirmed by the district                        a brief to support his burden of persuasion, see id., we
court, that a junior valueless lien is not voidable by a debtor                    believe that an appellee's failure to file a brief should
under 11 U.S.C. § 506(d) is a conclusion of law, which we                          normally carry with it only the oral argument sanction
review de novo. Wesbanco Bank Barnesville v. Rafoth (In re                         called for by the Rule. However, we do not address the
Baker & Getty Fin. Servs. Inc.), 106 F.3d 1255, 1259 (6th Cir.                     power of the court to impose additional sanctions should
1997).                                                                             it specifically order the filing of a brief and the appellee
                                                                                   without adequate reason fails to comply.
                                                                               Allgeier v. United States, 909 F.2d 869, 871 n.3 (6th Cir.
                                                                               1990) (emphasis in original). In this appeal, City Mortgage
                                                                               has not flouted the authority of this court. Accordingly,
                                                                               pursuant to Allgeier, and, like the proceedings below, a
    1
      The term “strip off” is used when a junior mortgage is totally           decision in favor of the Talberts, or, in the alternative, the
unsecured, whereas the term “strip do wn” is used when a m ortgage is          imposition of some other sanction against City Mortgage, is
partially unsecured and p artially secu red. See In re Fitzmaurice, 248 B.R.   not compelled.
356, 357 n.2 (Bankr. W .D. Mo . 2000) (citation omitted).
No. 02-1845                           In re Talbert, et al.    5    6        In re Talbert, et al.                                  No. 02-1845

B. “Strip Off” in Chapter 7                                         proceeding pursuant to the provisions of 11 U.S.C. §§ 506(a)
                                                                    and (d).”). We agree with the Fourth Circuit.
   The question of whether a Chapter 7 debtor may use 11
U.S.C. § 506(d) to “strip off” a valueless junior lien from real      As did the debtors in Ryan, the Talberts argue that the
property has divided the bankruptcy and federal district            secured status of a claim is determined by the security-
courts. Compare Webster v. Key Bank (In re Webster), 287            reducing provision of § 506(a),2 and that pursuant to this
B.R. 703 (Bankr. N.D. Ohio 2002); Bessette v. Bank One,             provision, their junior lien is completely unsecured, and, thus,
Mich. (In re Bessette), 269 B.R. 644 (Bankr. E.D. Mich.             according to § 506(d),3 may be “stripped off.”4 See Ryan,
2001); In re Davenport, 266 B.R. 787 (Bankr. W.D. Ky.               253 F.3d at 781. A similar argument was rejected by the
2001); In re Fitzmaurice, 248 B.R. 356 (Bankr. W.D. Mo.             Supreme Court in the analogous context of a debtor’s attempt
2000); Cunningham v. Homecomings Fin. Network (In re                to “strip down” an under-collateralized creditor’s lien in a
Cunningham), 246 B.R. 241 (Bankr. D. Md. 2000), aff’d sub           Chapter 7 case. In Dewsnup, the debtors owned farmland
nom. Ryan v. Homecomings Fin. Network, 253 F.3d 778 (4th            encumbered by deed of trust securing a debt of $120,000.
Cir. 2001); Cater v. American Gen. Fin. (In re Cater), 240          The farmland was valued at approximately $39,000. This
B.R. 420 (M.D. Ala. 1999); In re Virello, 236 B.R. 199              arrangement left an unsecured deficiency of approximately
(Bankr. D.S.C. 1999); Swiatek v. Pagliaro (In re Swiatek),          $81,000, which the debtors sought to avoid pursuant to
231 B.R. 26 (Bankr. D. Del. 1999); Laskin v. First Nat’l Bank       § 506(d). The lower courts would not grant this relief, and
of Keystone (In re Laskin), 222 B.R. 872 (B.A.P. 9th Cir.           the Supreme Court affirmed.
1998) (all finding that a debtor who has filed Chapter 7
bankruptcy may not “strip off” an allowed valueless junior
lien pursuant to 11 U.S.C. § 506(d)), with Farha v. First Am.
Title Ins. (In re Farha), 246 B.R. 547 (Bankr. E.D. Mich.                2
2000); Warthen v. Smith (In re Smith), 247 B.R. 191 (W.D.                 Section 50 6(a) provides in relevant part:
Va. 2000), aff’d, 1 Fed. Appx. 178 (4th Cir. 2001)                      An allowed claim of a creditor secure d by a lien on p roperty in
                                                                        which the estate has an interest . . . is a secured claim to the
(unpublished decision), overruled by Ryan, 253 F.3d at 782;             extent of the value of such creditor’s interest in the estate’s
Zempel v. Household Fin. Corp. (In re Zempel), 244 B.R. 625             interest in such p roperty . . . and is an unsecured claim to the
(Bankr. W.D. Ky. 1999); Yi v. Citibank (Md.), N.A. (In re Yi),          extent that the value of such creditor’s interest . . . is less than the
219 B.R. 394 (E.D. Va. 1998), overruled by Ryan, 253 F.3d               amo unt of suc h allowed claim.
at 782; Howard v. National Westminister Bank, U.S.A. (In re         11 U .S.C. § 506 (a).
Howard), 184 B.R. 644 (Bankr. E.D.N.Y. 1995) (all finding                3
that notwithstanding the Supreme Court’s decision in                      Section 506(d) provides in pertinent part that “to the extent that a
                                                                    lien secures a claim against the debtor that is not an allowed secured
Dewsnup, a Chapter 7 debtor may “strip off” an allowed              claim, such lien is void.” 11 U.S.C. § 50 6(d).
secured claim if there is no value in the collateral to cover any
part of the subject lien). The Fourth Circuit is the only                4
                                                                          In the T alberts own w ords, “[p]ursuant to the definition of a secured
federal appellate court to discuss this debate, and it has sided    claim under 11 U.S.C. § 50 6(a), a creditor only has a secured claim to the
with those courts that hold that § 506 does not permit the          extent of the value of such cred itor’s interest in the estate’s interest in
“stripping off” of liens in Chapter 7 proceedings. See Ryan,        such property.” They continue, “[i]n the case at bar, because of
253 F.3d at 783 (“[W]e hold that an allowed unsecured               Appellee’s default, it is undisputed that the amount of the first mortgage
                                                                    exceeds the value of Appellant’s residence. It therefore cannot be
consensual lien may not be stripped off in a Chapter 7              gainsaid that the App ellee does not have a secured claim.”
No. 02-1845                                  In re Talbert, et al.         7    8      In re Talbert, et al.                        No. 02-1845

  In its analysis, the Court laid out in detail the different                   original). This reading, the Court explained, “gives the
readings that could be given to the thorny statutory                            provision the simple and sensible function of voiding a lien
interpretation question presented by the perceived interplay of                 whenever a claim secured by the lien itself has not been
§§ 506(a) and 506(d). See Dewsnup, 502 U.S. at 414-16.                          allowed.” Id. at 415-16. Thus, although limited to the facts
One interpretation, which was urged by the debtors, was that                    of the case, the Court’s holding was quite clear: “[w]e hold
“§§ 506(a) and 506(d) are complementary and to be read                          that § 506(d) does not allow petitioner to ‘strip down’
together.” Id. at 414. According to this argument,                              respondent’s lien, because respondents’ claim is secured by
“[b]ecause, under § 506(a), a claim is secured only to the                      a lien and has been fully allowed pursuant to § 502.” Id. at
extent of the judicially determined value of the real property                  417.
on which the lien is fixed, a debtor can void a lien on the
property pursuant to § 506(d) to the extent the claim is no                       Three considerations constituted the analytical
longer secured and thus is not ‘an allowed secured claim.’”                     underpinnings of the Court’s holding, namely, that: (1) any
Id. Although not without merit, see id. at 420-36 (Scalia, J.,                  increase in the value of the property from the date of the
dissenting) (filing a sharp dissent criticizing the majority for                judicially determined valuation to the time of the foreclosure
brushing aside the plain language of § 506 and employing an                     sale should accrue to the creditor; (2) the mortgagor and
unorthodox method of statutory interpretation), this argument                   mortgagee bargained that a consensual lien would remain
was rejected in favor of an analysis advanced by the creditors,                 with the property until foreclosure; and (3) liens on real
and joined by the United States as amicus curiae, namely, that                  property survive bankruptcy unaffected. Id. at 417-18. In the
the words “‘allowed secured claim’ in § 506(d) need not be                      Court’s own words
read as an indivisible term of art defined by reference to
§ 506(a), which by its terms is not a definitional provision.”                      The practical effect of petitioner’s argument is to freeze
Id. at 415.                                                                         the creditor’s secured interest at the judicially determined
                                                                                    valuation. By this approach, the creditor would lose the
   Under this construction, “allowed secured claim” “should                         benefit of any increase in the value of the property by the
be read term-by-term to refer to any claim that is, first,                          time of the foreclosure sale. The increase would accrue
allowed,5 and, second, secured.” Id. (footnote added). The                          to the benefit of the debtor, a result some of the parties
Court continued, “[b]ecause there is no question that the                           describe as a “windfall.”
claim at issue here has been ‘allowed’ pursuant to § 502 of
the Code and is secured by a lien with recourse to the                              We think . . . that the creditor’s lien stays with the real
underlying collateral, it does not come within the scope of                         property until the foreclosure. That is what was
§ 506(d), which voids only liens corresponding to claims that                       bargained for by the mortgagor and the mortgagee. The
have not been allowed and secured.” Id. (emphasis in                                voidness language sensibly applies only to the security
                                                                                    aspect of the lien and then only to the real deficiency in
                                                                                    the security. Any increase over the judicially determined
                                                                                    valuation during bankruptcy rightly accrues to the benefit
    5                                                                               of the creditor, not to the benefit of the debtor and not to
      A claim o r interest is deemed “allowed ” if proof thereof is timely
filed pursuant to Code § 501, and (1) no objection is made by a party in            the benefit of other unsecured creditors whose claims
interest, or (2) the bankruptcy court, after notice and a hearing, determines       have been allowed and who had nothing to do with the
the validity of the claim, thereby overruling the objection of a pa rty in          mortgagor-mortgagee bargain. . . .
interest. 11 U.S.C. § 502.
No. 02-1845                         In re Talbert, et al.      9   10   In re Talbert, et al.                        No. 02-1845

  This result appears to have been clearly established             decided in Dewsnup. The Court’s reasoning in Dewsnup is
  before the passage of the 1978 Act. Under the                    equally relevant and convincing in a case like ours where a
  Bankruptcy Act of 1898, a lien on real property passed           debtor attempts to strip off, rather than . . . strip down, an
  through bankruptcy unaffected. This Court recently               approved but unsecured lien.”); In re Webster, 287 B.R. at
  acknowledged that this was so. See Farrey v.                     708 (“Contrary to the Yi court’s reasoning, . . . [the ‘strip-
  Sanderfoot, 500 U.S. 291, 297, 111 S.Ct. 1825, 1829,             down’ versus ‘strip-off’ distinction] is a distinction without a
  114 L.Ed.2d 337 (1991) (“Ordinarily, liens and other             difference according to the majority of courts post-Dewsnup.
  secured interests survive bankruptcy”); Johnson v. Home          The analysis does not change depending on the available
  State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 2154, 115           equity in the collateral to which the lien attaches.”); In re
  L.Ed.2d 66 (1991) (“Rather, a bankruptcy discharge               Davenport, 266 B.R. at 790 (“We agree with the Fourth
  extinguishes only one mode of enforcing a claim--                Circuit that Dewsnup’s reasoning is equally applicable in a
  namely, an action against the debtor in personam--while          case where a debtor attempts to strip off a wholly unsecured
  leaving intact another--namely, an action against the            consensual mortgage.”); In re Cater, 240 B.R. at 423
  debtor in rem”). . . .                                           (“Although the lien at issue in Dewsnup was secured by at
                                                                   least some equity in the debtor’s property, that factual
  Congress must have enacted the Code with a full                  distinction is not relevant. What is relevant is the Supreme
  understanding of this practice. See H.R.Rep. No.                 Court’s construction of § 506(d).”); In re Virello, 236 B.R. at
  95-595, p. 357 (1977), U.S.Code Cong. & Admin. News              205 (“This Court . . . is of the opinion that for Dewsnup to
  1978, pp. 5787, 6313 (“Subsection (d) permits liens to           have meaning, it must be applied to instances of ‘strip off’ of
  pass through the bankruptcy case unaffected”).                   liens as much as it does to the ‘strip down’ of liens, the
                                                                   difference being primarily one of degree.”); In re Swiatek,
  When Congress amends the bankruptcy laws, it does not            231 B.R. at 29-30 (“Although in Dewsnup the claim was
  write “on a clean slate.” See Emil v. Hanley, 318 U.S.           undersecured, not totally unsecured, we think the same result
  515, 521, 63 S.Ct. 687, 690-691, 87 L.Ed. 954                    obtains under the Dewsnup rationale when the claim is
  (1943). . . . [T]o attribute to Congress the intention to        completely unsecured in a chapter 7 and no objection to the
  grant a debtor the broad new remedy against allowed              claim has been filed and sustained.”). In fact, one court has
  claims to the extent that they become “unsecured” for            gone so far as to describe this conclusion as “flawless.” In re
  purposes of § 506(a) without the new remedy’s being              Davenport, 266 B.R. at 790.
  mentioned somewhere in the Code itself or in the annals
  of Congress is not plausible, in our view, and is contrary         As in the case of a “strip down,” to permit a “strip off”
  to basic bankruptcy principles.                                  would mark a departure from the pre-Code rule that real
                                                                   property liens emerge from bankruptcy unaffected. Also, as
Id. at 417-20.                                                     in the case of a “strip down,” a “strip off” would rob the
                                                                   mortgagee of the bargain it struck with the mortgagor, i.e.,
  The Supreme Court’s reasoning for not permitting “strip          that the consensual lien would remain with the property until
downs” in the Chapter 7 context applies with equal validity to     foreclosure. In fact, in Dewsnup, the Court was persuaded by
a debtor’s attempt to effectuate a Chapter 7 “strip off.” See      the creditors’ argument that “‘the fresh start’ policy cannot
Ryan, 253 F.3d at 782 (“[W]e discern no principled                 justify an impairment of respondents’ property rights, for the
distinction to be made between the case sub judice and that        fresh start does not extend to an in rem claim against property
No. 02-1845                          In re Talbert, et al.   11    12       In re Talbert, et al.                               No. 02-1845

but is limited to a discharge of personal liability.” 502 U.S.     all that is required; the Talberts may not utilize § 506(a) and
at 416. Finally, as was true in the context of “strip downs,”      (d) to “strip off” City Mortgage’s lien. See Dewsnup, 502
Chapter 7 “strip offs” also carry the risk of a “windfall” to      U.S. at 415 (“Because there is no question that the claim at
the debtors should the value of the encumbered property            issue here has been ‘allowed’ pursuant to § 502 of the Code
increase by the time of the foreclosure sale. As one court         and is secured by a lien with recourse to the underlying
observed, “[w]ho knows what the real estate market will be         collateral, it does not come within the scope of § 506(d),
tomorrow? By the time of sale in the future, a piece of real       which voids only liens corresponding to claims that have not
estate may have increased in value to cover a second-              been allowed and secured.”) (emphasis removed); see also
mortgage lien not covered by the property’s value today.” In       Cater, 240 B.R. at 423 (“[B]ecause [the creditor’s] claim is
re Cater, 240 B.R. at 424; see also Ryan, 253 F.3d at 783          allowed under § 502 and is secured by a valid lien, the same
(“[W]e are acutely aware that in the volatile, modern real         result obtains. The fact that the value of the property is
estate market, substantial price variations occur with weekly      insufficient to cover the debt does not warrant a different
or monthly regularities.”).                                        result.”).
   It is true that the Court’s opinion has not escaped scholarly     “Section 506 was intended to facilitate valuation and
criticism, see Cunningham, 246 B.R. at 246 (compiling law          disposition of property in the reorganization chapters of the
review articles that have criticized the Dewsnup decision),        Code, not to confer an additional avoiding power on a
and that some courts have been unwilling to extend Dewsnup         Chapter 7 debtor.” Ryan 253 F.3d at 783 (quoting Laskin,
to its logical conclusion, see, e.g., In re Yi, 219 B.R. at 397;   222 B.R. at 876). When a debtor proceeds under Chapter 7,
In re Howard, 184 B.R. at 646. However, notwithstanding            creditors are “entitled to their lien position until foreclosure
the dissatisfaction of some, we are not at liberty to ignore the   or other permissible final disposition is had.” Id. Thus, we
Supreme Court’s reasoning, which Congress has made no              conclude that a Chapter 7 debtor may not use 11 U.S.C. § 506
apparent attempt to modify or correct through legislative          to “strip off” an allowed junior lien where the senior lien
action. See Virello, 236 B.R. at 204-05 (The “Supreme Court        exceeds the fair market value of the real property. 6
has interpreted the statute . . . and Congress has made no
apparent attempt to correct that interpretation or clarify the
statute. Under the doctrine of stare decisis, this Court is             6
constrained to follow . . . Dewsnup. [To do otherwise] . . .              The bankruptcy court reached this same conclusion, although by
                                                                   different reasoning. According to the bankruptcy co urt, 11 U.S.C. § 506
would effectively render the Supreme Court’s reasoning in          is meaningless in Chapter 7 proceed ings unless the debtor is redeeming
Dewsnup meaningless.”).                                            property and needs § 506(d) to avoid any residual lien the creditor might
                                                                   claim in the property once the allowed secured claim has been paid.
   In the instant case, the Talberts do not challenge that City    Because the Talberts were not redeeming the property, the court reasoned
Mortgage’s claim is allowed pursuant to § 502. Also,               that they could no t use § 506(d) to “strip off” City Mortgage’s lien on the
                                                                   property. The ban kruptcy court noted that § 506 (d) is need ed in
regardless of the fact that the current value of the real          reorganization proceedings to classify secured claims as allowed or
property is insufficient to recover City Mortgage’s junior lien,   disallowed in order to determine who gets paid. Acco rding to the co urt,
the claim is nonetheless “secured in the ordinary sense, that      however, there is no need for such a determination in a Chapter 7
is, . . . [it] is backed up by a security interest in property,    proceeding because the trustee’s job does not include making distributions
whether or not the value of the property suffices to cover the     to holders o f secured claim s; a trustee’s job in a Chapter 7 pro ceed ing is
                                                                   to distribute pro perty o f the estate, d efined as the legal or eq uitable
claim.” Cater, 240 B.R. at 422. As Dewsnup teaches, that is        interests of the debtor in the property. 11 U.S.C. § 5 41. F rom this
No. 02-1845                                  In re Talbert, et al.        13

  AFFIRMED.




definition, the bankruptcy court found that secured claims do not qu alify
as property of the estate, thus avoiding the need to classify the claims as
allowed or disallowed.
     After reviewing this question of law de novo , we agree with the
district cour t that the more prudent analytical approach to resolving the
“strip-off” question presented in this matter is to affirm on the basis of the
statutory interpretation analysis contained in Dewsnup–and on that basis
only. W e thus express no opinion o n the bankrup tcy court’s analysis.
