                                                                                    PUBLISH

                  IN THE UNITED STATES COURT OF APPEALS

                             FOR THE ELEVENTH CIRCUIT                            FILED
                               ______________________                   U.S. COURT OF APPEALS
                                                                          ELEVENTH CIRCUIT
                                                                              JULY 13 2000
                                     No. 99-11895
                                                                           THOMAS K. KAHN
                               ______________________                           CLERK
                         D.C. Docket No. 98-00916-CIV-ORL-22

In Re:

PAMELA L. TANNER,

                                                                     Debtor.
--------------------------------------------------------------------------------------------

PAMELA L. TANNER,

                                                                     Plaintiff-Appellant,


         versus


FIRSTPLUS FINANCIAL, INC., f.k.a.
Remodelers National Funding,

                                                                     Defendant-Appellee.

                              __________________________

                       Appeal from the United States District Court
                           for the Middle District of Florida
                           __________________________
                                    (July 13, 2000)
Before BLACK, CARNES and KRAVITCH, Circuit Judges.

KRAVITCH, Circuit Judge:

       In the wake of Nobelman v. American Savings Bank, 508 U.S. 324, 113 S.

Ct. 2106 (1993), in which the Supreme Court held that the rights of an

undersecured homestead lender are protected from modification in Chapter 13

bankruptcy proceedings, we address whether this holding extends to wholly

unsecured homestead lenders.1 We conclude that it does not.

                I. BACKGROUND AND PROCEDURAL HISTORY

       In the fall of 1995, Plaintiff-Appellant Pamela Tanner (“Debtor”) purchased

her primary residence for $62,000.00 which was financed entirely by a mortgage

from Inland Mortgage Co. (“Inland Mortgage”). The following spring, Debtor

obtained a debt consolidation and home improvement loan from Defendant-

Appellee FirstPlus Financial, Inc. (“FirstPlus”)2 in the amount of $23,000.00. Both

mortgages were secured solely by Debtor’s residence. When Debtor subsequently

filed a voluntary petition under Chapter 13 of the Bankruptcy Code on September



       1
           In this context, an undersecured lender is one for whom the value of the underlying
collateral has fallen below the amount of the loan, and an unsecured lender is one for whom no
equity in the collateral supports its loan. Both types of lenders are therefore secured creditors only
in the sense that a security interest in collateral has been given to them by the debtor in exchange
for their loans.
       2
           FirstPlus was formerly known as Remodelers National Funding Corp.

                                                  2
17, 1997, her home was valued at $62,000.00.3 Inland Mortgage filed proof of its

secured claim for the existing balance of $62,880.01 on the senior mortgage, and

FirstPlus filed its secured claim of $22,968.65 for the junior mortgage. Debtor’s

proposed Chapter 13 plan contemplated paying Inland Mortgage in full and

treating FirstPlus’s claim as an unsecured claim entitled to a six-percent dividend.

Pursuant to that end, Debtor filed an adversary complaint in which she requested

that the bankruptcy court value FirstPlus’s interest in the residence at $0 and then

“strip off” the lien as unsecured.4 In its motion to dismiss, FirstPlus argued that it

was a secured creditor and that Debtor therefore could not “strip off” its claim.

The bankruptcy court, agreeing with FirstPlus, granted the motion to dismiss and

the district court affirmed. This appeal followed.

                                      II. DISCUSSION

       Debtor challenges the bankruptcy court’s holding that FirstPlus’s claim was

a secured claim immune from modification in her Chapter 13 plan. We review the

bankruptcy court’s findings of fact for clear error and the legal conclusions of the



       3
          Although the parties stipulated to this amount for purpose of the motion to dismiss,
FirstPlus contends that it would dispute the value of the home on remand. This does not change the
nature of the legal issue before us, however, because the bankruptcy and district courts’ decisions
were based on a stipulation that FirstPlus’s claim was wholly unsecured.
       4
          In bankruptcy parlance, a “strip down” of an undersecured lien reduces it to the amount of
its extant collateral and a “strip off” removes an unsecured claim in its entirety.

                                                 3
bankruptcy and district courts de novo. See Southeast Bank Corp. v. State of Fla.,

Dep’t of Revenue (In re Southeast Bank Corp.), 97 F.3d 476, 478 (11th Cir. 1996).

       This appeal lies at the intersection of two provisions of the bankruptcy code:

11 U.S.C. § 506(a) and 11 U.S.C. § 1322(b)(2). Section 506(a) defines the secured

and unsecured components of debts according to the value of the underlying

collateral:

       An allowed claim of a creditor secured by a lien on property in which the
       estate has an interest . . . is a secured claim to the extent of the value of
       such creditor’s interest in the estate’s interest in such property, . . . and
       is an unsecured claim to the extent that the value of such creditor’s
       interest or the amount so subject to setoff is less than the amount of such
       allowed claim.

11 U.S.C. § 506(a) (1999).

       Section 1322(b)(2) permits a Chapter 13 debtor’s plan to “modify the rights

of holders of secured claims, other than a claim secured only by a security interest

in real property that is the debtor’s principal residence.” 11 U.S.C. § 1322(b)(2)

(1999). The Supreme Court considered the interplay of these two provisions in

Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106 (1993), in

which the debtor sought to “strip down” the homestead lender’s secured claim of

$71,335.00 to the home’s reduced value of $23,500.00. The Court foreclosed this

option by holding that “§ 1322(b)(2) prohibits a Chapter 13 debtor from relying on

§ 506(a) to reduce an undersecured homestead mortgage to the fair market value of

                                            4
the mortgaged residence.” 508 U.S. at 325-26, 113 S. Ct. at 2108.5

Acknowledging that section 506(a) allows bifurcation of claims into secured and

unsecured components, the Court nevertheless concluded that the most sensible

interpretation of section 1322(b)(2) was that it protected even the unsecured

components of a partially secured claim. See Nobelman, 508 U.S. 330-32, 113 S.

Ct. at 2111. The concurring opinion found this result also comported with

Congress’s intent. See id. at 332, 113 S. Ct. at 2112 (Stevens, J., concurring)

(Section 1322 (b)(2)’s “legislative history indicate[s] that favorable treatment of

residential mortgagees was intended to encourage the flow of capital into the home

lending market.”).

       The Nobelman Court left open the issue before us in this appeal, that is,

whether its holding extends to wholly unsecured homestead mortgages.

Subsequent consideration of this issue has sharply divided bankruptcy and district

courts, see 5 Norton Bankruptcy Law and Practice 2d § 121:5, nn. 57 & 57.5

(2000) (citing cases), and bankruptcy scholars, compare 8 Collier on Bankruptcy

§ 1322.06 (Lawrence P. King ed., 15th ed. 2000) with Keith M. Lundin, Chapter


       5
         As part of the Bankruptcy Reform Act of 1994, Congress amended section 1322 to except
short-term and balloon mortgages from the antimodification clause’s reach, thereby overruling
Nobelman insofar as it applied to these types of mortgages. See 8 Collier on Bankruptcy § 1322.16
(Lawrence P. King ed., 15th ed. 2000). This amendment does not affect our disposition of this
appeal.

                                               5
14 Bankruptcy, § 4.46 (2d ed. 1994). This split is understandable in light of the

seemingly contradictory language used in Nobelman, dividing the courts into two

interpretive camps. The majority view has focused on the following language to

support its conclusion that the antimodification provision protects only

undersecured, and not wholly unsecured, homestead lenders: “even if we accept

petitioners’ valuation [under § 506(a)], the bank is still the ‘holder’ of a ‘secured

claim,’ because petitioners’ home retains $23,500 of value as collateral.”

Nobelman, 508 U.S. at 329, 113 S. Ct. 2110. Under this view, the antimodification

protection afforded by section 1322(b)(2) applies only when the creditor’s claim is

at least partially secured.

      The burgeoning minority view has instead relied on the Nobelman Court’s

emphasis on the “rights” of the homestead lender rather the valuation of its claim.

See id. (“[D]etermination [that a claim is undersecured] does not necessarily mean

that the ‘rights’ the bank enjoys as a mortgagee, which are protected by

§ 1322(b)(2), are limited by the valuation of its secured claim.”). According to this

interpretation, it is the status of the homestead lender, rather than the value of the

collateral underlying the lender’s claim, that shields its claim from modification.




                                           6
      Since this appeal was filed, two other courts of appeals have confronted this

issue and adopted the majority view. The Third Circuit resolved the apparent

tension in the Nobelman decision as follows:

      Perhaps the clearest explanation of how the Court’s discussion of the two
      sections can be reconciled is to point out that while the antimodification
      clause uses the term “claim” rather than “secured claim” and therefore
      applies to both the secured and unsecured part of a mortgage, the
      antimodification clause still states that the claim must be “secured only
      by a security interest in . . . the debtor’s principal residence.” If a
      mortgage holder’s claim is wholly unsecured, then after the valuation
      that [the Court] said that debtors could seek under § 506(a), the bank is
      not in any respect a holder of a [secured claim] . . . and the
      antimodification clause does not apply. On the other hand, if any part of
      the bank’s claim is secured, then, under [the Court]’s interpretation of the
      term “claim,” the entire claim, both secured and unsecured parts, cannot
      be modified.

McDonald v. Master Fin. Inc. (In re McDonald), 205 F.2d 606, 611-12 (3d Cir.

2000) (quoting 11 U.S.C. § 1322(b)(2)) (citation and emphasis omitted), petition

for cert. filed, 68 U.S.L.W. 3775 (U.S. June 7, 2000) (No. 99-1993). The Fifth

Circuit agreed and drew further support from the legislative history of section

1322(b)(2) and public policy considerations favoring only those mortgage lenders

involved with homestead purchases rather than home improvement or debt

consolidation. See Bartee v. Tara Colony Homeowners Assoc. (In re Bartee), No.

99-20463, – F.3d – , (5th Cir. May 15, 2000).




                                           7
      Although this is a close issue, we find the reasoning of the Third and Fifth

Circuits persuasive and adopt the majority view. We agree with those courts that

the only reading of both sections 506(a) and 1322(b)(2) that renders neither a

nullity is one that first requires bankruptcy courts to determine the value of the

homestead lender’s secured claim under section 506(a) and then to protect from

modification any claim that is secured by any amount of collateral in the residence.

See In re Bartee, In re McDonald, 205 F.3d at 611. Any claim that is wholly

unsecured, however, would not be protected from modification under section

1322(b)(2). To hold otherwise and extend the anti-modification clause to even

wholly unsecured claims would vitiate the Nobelman Court’s pronouncement that

“[debtors] were correct in looking to § 506(a) for a judicial valuation of the

collateral to determine the status of the bank’s secured claim.” 508 U.S. at 328,

113 S. Ct. at 2110.

      Contrary to FirstPlus’s contention, this holding does not derogate the

protected rights alluded to by the Nobelman Court, but rather recognizes that only

the rights secured by some remaining equity will be protected from modification.

Indeed,

      [a]n analysis of the state law “rights” afforded a holder of an unsecured
      “lien”, if such a situation exists, indicates these rights are empty rights
      from a practical, if not a legal, standpoint. A forced sale of the property


                                           8
      would not result in any financial return to the lienholder, even if a forced
      sale could be accomplished where the lien attaches to nothing.

Lam v. Investors Thrift (In re Lam), 211 B.R. 36, 40 (9th Cir. B.A.P. 1997), appeal

dismissed, 192 F.3d 1309 (9th Cir. 1999). Extending section 1322(b)(2)’s

protection to wholly unsecured junior mortgages would enlarge the rights afforded

to those lenders when the mortgagors are forced to file a Chapter 13 petition,

inviting unwelcome, and certainly unintended, consequences. See id. at 41. The

better reading of sections 506(a) and 1322(b)(2), therefore, protects only

mortgages that are secured by some existing equity in the debtor’s principal

residence.

                                III. CONCLUSION

      We REVERSE the district court’s judgment affirming the bankruptcy

court’s decision.




                                           9
