NEW YORK, NY - A chapter 7 debtor recently filed a motion before Bankruptcy Judge Alan Trust in the United States Bankruptcy Court for the Eastern District of New York seeking to avoid Pentagon Federal Credit Union's (PenFed) second mortgage (also known as "lien-stripping"). Weltman & Moskowitz successfully opposed debtor's motion on both procedural and substantive grounds, ensuring that PenFed's mortgage was enforced as written.

PenFed was earlier permitted relief from the automatic stay to continue its state court foreclosure action. First mortgagee later sought, and was granted, similar relief. Significantly, each motion pointed to property appraisals showing different values. As a result, debtor sought to capitalize on an earlier 2009 Eastern District Bankruptcy Court ruling by Hon. Dorothy Eisenberg (In re Lavelle, 2009 WL 4043089 (Bankr. E.D.N.Y. 2009), wherein the Court allowed a chapter 7 debtor to avoid a subordinate mortgage lien if wholly unsecured, under Section 506. Judge Grossman, the third judge sitting in the Central Islip bankruptcy court, issued a decision contrary to Lavelle, following the U.S. Supreme Court's precedent in Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992). Dewsnup holds that a debtor cannot lien strip a secured creditor's claim in a chapter 7 case. See In re Pomilio, 425 B.R. 11 (Bankr. E.D.N.Y. 2010).

After considering argument by debtor's attorneys and by Michael Moskowitz on behalf of PenFed, the court reserved decision. In March 2010, Bankruptcy Judge Trust denied debtor's attempt to modify PenFed's mortgage lien. In re Caliguri, 431 B.R. 324 (Bankr. E.D.N.Y. 2010). Judge Trust was persuaded to distinguish debtor's case from the facts in Lavelle. The court agreed PenFed's claim was partially secured and not subject to "lien stripping," and determined, as well, that debtor's motion was procedurally defective.

Ultimately, this underscores that creditors can obtain varying results from different judges sitting in the same courthouse. For this reason, the firm's bank and Credit Union clients look to Weltman & Moskowitz to help frame the facts and the law in the most advantageous possible light. This often makes the difference between success and failure.

Michael L. Moskowitz and Richard E. Weltman are members of Weltman & Moskowitz, LLP, a business - oriented law firm with offices in New York and New Jersey. The firm handles matters involving bankruptcy and creditor's rights, bankruptcy and business litigation, technology law, real estate, dispute resolution and many types of commercial disputes, buy-sell agreements, business divorce and transactional matters. They can be reached at 212.684.7800 or 201.794.7500, or by e-mail.