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66 partially avoid a lien – strip the lien down to the value of the property. e court's analysis noted that the provisions of the code were subject to competing interpretations which could not be resolved by the legislative history itself, that under long standing bankruptcy principles most liens pass through bankruptcy unaffected such that any increase in the value of the collateral accrues to the benefit of the lien holder, and that in the case of a consensual mortgage lien the parties had agreed that the lien ran with the property until foreclosed or paid in full. e Dewsnup court concluded that the value of the real estate securing the mortgage was irrelevant and the lien could not be avoided as long as it was enforceable under state law. Even though Dewsnup was decided in the context of a partial avoidance, since the decision an overwhelming majority of courts have held that the same reasoning controls with respect to wholly unsecured mortgages, and that no mortgage lien can be avoided in Chapter 7 regardless of the value of the property. In 2012, the U.S. Court of Appeals for the Eleventh Circuit had an opportunity to revisit the issue and its Folendore decision. In the McNeal case, the borrower attempted to avoid a wholly unsecured junior mortgage. e bankruptcy court which initially heard the McNeal case, denied her attempt to avoid the mortgage concluding that pursuant to the Supreme Court's decision in Dewsnup, the code did not permit a Chapter 7 borrower to avoid even a wholly unsecured junior mortgage. e District court affirmed the decision of the bankruptcy court. On appeal, however, the Eleventh Circuit held that since the Supreme Court decision in Dewsnup only addressed a "strip down" case rather than a "strip off " case7, it was not directly on point and had not abrogated or overruled the Eleventh Circuit's prior decision in Folendore. e Eleventh Circuit did not attempt to resolve the difference between the reasoning in Dewsnup and the reasoning Folendore, but merely relief on its on precedential rule that it must follow its own prior decisions unless a Supreme Court decision was "clearly on point" and found that since Dewsnup dealt with a partially unsecured lien instead of a wholly unsecured lien, it was not clearly on point. After the Eleventh Circuit's decision in McNeal, there was a dramatic increase in the number of bankruptcy lien avoidances in bankruptcy courts in Florida, Alabama, and Georgia. In its brief in the Caulkett case, Bank of America asserted that thousands of motions and complaints to strip off wholly underwater junior liens, including hundreds brought against Bank of America alone, resulted from the McNeal decision. As the Eleventh Circuit continued to permit Chapter 7 borrowers to avoid such liens, the industry looked to the U.S. Supreme Court to resolve this issue, and the Court granted certiorari in two Eleventh Circuit cases. Analysts debated what actions the Supreme Court would take as several actions were possible. Some thought the Supreme Court would reverse the Eleventh Circuit decision, effectively ruling that applies both to strip downs and strip offs. is would be the best ruling for the mortgage industry as it would end the spike in strip down proceedings in the Eleventh Circuit and prevent similar other Circuits from making similar rulings. Others were concerned that the Supreme Court might affirm the decision of the Eleventh Circuit and effectively hold that Dewsnup only applied to strip downs. is outcome would have had a much more negative impact on the industry, as it would permit the Chapter 7 strip off litigation to not only continue in Florida, Alabama, and Georgia, but would allow the spread of such litigation to other states. is fear was supported during oral arguments, when Justice Scalia said "I dissented in Dewsnup, and I continue to believe that dissent was correct. Why should I not limit Dewsnup to the facts that it involved, which is a partially underwater mortgage?" Another more extreme possibility was that the Supreme Court would overrule Dewsnup entirely. Indeed, the National Association of Consumer Bankruptcy Attorneys and the AARP argued in their Amicus Brief that the court's opinion in Dewsnup should be reversed. ey argued that lien avoidance was central to the proper operation of bankruptcy, and that many provisions of the bankruptcy code permit the avoidance or modification of liens in Chapter 7. If the court had decided to reverse Dewsnup entirely, the effect on the mortgage industry would have been staggering. Instead of thousands of lien avoidance actions in the Eleventh Circuit, the industry could have been facing tens of thousands of actions throughout the United States as well as a dramatic upsurge in Chapter 7 filings. e amicus brief filed by the American Bankers Association and the Loan Syndications and Trading Association asserted that the lending industry had relied on Dewsnup for decades and that an adverse decision by the Supreme Court could affect some $40 billion in outstanding junior loans. e idea that Dewsnup could be completely overturned did not seem farfetched given the tenor the Supreme Court justices remarks during oral arguments. At one point, for example, Justice Kagan in criticizing an attorney's argument as being unpersuasive, stated "But the only thing that may be less persuasive is Dewsnup itself." Justice Kagan went on to say, "And so the so the question, to me, is or at least one question is whether we should bite the bullet and overturn Dewsnup". THE COURT'S UNANIMOUS DECISION Fortunately for the industry, the court did not affirm the Eleventh Circuit or its reverse prior opinion in Dewsnup. On June 1, 2015, the Supreme Court issued its opinion in Bank of America v. Caulkett. Justice omas delivered the unanimous opinion of the court.8 e court reversed the judgment of the Eleventh Circuit Court of Appeals and declined to limit the Dewsnup decision to cases in which liens were partially unsecured as opposed to wholly unsecured. Accordingly, the decision in Dewsnup remains binding throughout the United States and as long as the lender has a loan secured by a valid mortgage, then its lien remains intact and unaffected by chapter 7 proceedings regardless of the value of the real estate serving as collateral. e court's decision should immediately result in resolution of pending Chapter 7 lien avoidance actions in the Florida, Alabama, and Georiga in favor of the lenders as well as a dramatic reduction in such actions in future cases there. e decision should also alleviate concerns of mortgage holders that if the decision had gone the other way, we might see a glut of Chapter 7 filings in which borrowers attempt to strip down junior mortgages. It should be noted, however, that the decision does not preclude the possibility that the Supreme Court might not consider reversing Dewsnup in the future. Justice omas' opinion discusses a long history of criticism of Dewsnup, and based on the tenor of remarks of various Justices during oral arguments, the court itself may not have a great deal of deference for the analysys in Dewsnup. e Caulkett opinion does not necessary endorse the court's prior decision in Dewsnup, but it instead declines to find that the reasoning in that opinion is limited to partially unsecured liens. e court placed a huge emphasis on the fact that the borrower did not really argue that Dewsnup should be overturned, but only that it should be limited to the narrow facts of that case and to partially unsecured mortgages as opposed to wholly unsecured mortgages. e court in its conclusion states that "e debtors here have not asked us to overrule Dewsnup, and we decline to adopt the artificial distinction they propose instead." It would be interesting to see the court's opinion in a case which more directly challenged the opinion in Dewsnup, and what might result from such a challenge. 1 In re McNeal, 735 F.3d 1263 (11th Cir., 2012).2 Bank of America, N.A. v. Caulkett, 575 U.S. ____ (2015)3 11 U.S.C. §506(a)4 11 U.S.C. §506(d)5 In re Folendore, 862 F.2d 1537 (11th Cir. 1989)6 Dewsnup v. Timm, 502 U.S. 410 (1992).7 "In bankruptcy terms, a "strip down" of an undersecured lien reduces the lien to the value of the collateral to which it attaches and a "strip off " removes a wholly unsecured lien in its entirety." McNeal8 ree justices only concurred in the opinion with the exception of a footnote which discussed ongoing criticism of the Dewsnup opinion.

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