In re Nefferdorf, Civ. A. No. 83-1217.

Decision Date28 June 1984
Docket NumberCiv. A. No. 83-1217.
Citation71 BR 217
PartiesIn re Margaret R. NEFFERDORF a/k/a Margaret Nefferdorf, Debtor. Margaret R. NEFFERDORF a/k/a Margaret Nefferdorf, Plaintiff, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendant.
CourtU.S. District Court — Eastern District of Pennsylvania

Irwin Trauss, Community Legal Services, Inc., Philadelphia, Pa., for appellant.

Esther Hornik, Philadelphia, Pa., for Federal Nat. Mortg. Ass'n.

MEMORANDUM

CLIFFORD SCOTT GREEN, District Judge.

Debtor-appellant, Margaret Nefferdorf, appeals the order of the bankruptcy court that dismissed her complaint for declaratory relief brought pursuant to 11 U.S.C. § 506(a) and (d). Mrs. Nefferdorf, whose petition for relief was filed under Chapter 7 of the Bankruptcy Code, sought a declaration that the mortgage lien of appellee, Federal National Mortgage Association, was void to the extent that it exceeded the value of debtor's real property located at 3441 Hurley Street, Philadelphia, Pennsylvania. Mrs. Nefferdorf and her husband purchased said property as tenants by the entireties and executed a purchase money bond and mortgage for $35,250.00 in favor of the lender Colonial Service Company. The mortgage was later assigned to creditor-appellee Federal National Mortgage Association ("FNMA"). Appellant and her husband failed to make payments as required by the mortgage loan document. Appellee filed a complaint for mortgage foreclosure in the Common Pleas Court of Pennsylvania. The husband thereafter filed a Chapter 7 bankruptcy petition resulting in a stay of the foreclosure action. After the husband's discharge in bankruptcy was granted, the appellant filed her separate petition under Chapter 7. She listed the Hurley Street property as one of her assets. Again, the foreclosure action was automatically stayed. Appellee filed in the bankruptcy court a complaint to modify the stay. This was followed by appellant's complaint for declaratory relief in which she seeks to void a portion of the mortgage lien on the property pursuant to §§ 506(a) and (d) of the Bankruptcy Code.1

The bankruptcy court received a report of no asset filed by the interim trustee and scheduled a hearing to take testimony regarding debtor's discharge in bankruptcy, the debtor's complaint for declaratory relief, and the creditor's complaint for an order of abandonment of the property. At the hearing, the court received evidence on the issue of the value of the debtor's premises and from the evidence found the fair market value of the real property to be $11,000. The court further found that FNMA had a valid first mortgage on the premises in the amount of $19,000 and that the debtor had no equity in the property. The court granted FNMA relief from the automatic stay pursuant to 11 U.S.C. § 362.

Appellant claims that the bankruptcy court erred in granting the motion of appellee to dismiss the complaint for declaratory relief. The bankruptcy judge acknowledged in his opinion that the debtor relied on § 506(d) of the Bankruptcy Code as authority for the lien avoidance sought. Section 506(d) provides:

To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless —
(1) a party in interest has not requested that the court determine and allow or disallow such claim under section 502 of this title; or
(2) such claim was disallowed only under section 502(d) of this title.

The bankruptcy court pointed to the legislative history concerning subsection (d) and observed that both the statute and the legislative history require the party seeking to avoid the lien to request the court to determine allowance or disallowance of the claim under § 502. Appellant's complaint does not set forth a reference to the specific provision in § 502 upon which the debtor relies. However, it is argued on appeal that the complaint presented to the bankruptcy judge falls within § 502(b)(1) which provides for the disallowance of a claim when "such claim is unenforceable against the debtor and unenforceable against property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured." 11 U.S.C. § 502(b)(1). The bankruptcy judge found that none of the reasons to disallow a claim pursuant to § 502 are present in this case. The court therefore concluded that the lien passed through the bankruptcy proceeding unaffected and was not voidable.

Bankruptcy Rule 8013 provides the standard of review for appeals from the bankruptcy court:

"On an appeal, the District Court ... may affirm, modify or reverse a Bankruptcy Court\'s judgment, order or decree or remand with instructions for further proceedings. Findings of fact shall not be set aside unless clearly erroneous, and
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