Chapter 18-2 Mortgagee's Interest in Bankruptcy Proceedings

18-2 Mortgagee's Interest in Bankruptcy Proceedings

The interests of creditors in bankruptcy proceedings are either "secured claims" or "unsecured claims." Mortgagees have a secured claim on account of the mortgage lien. However, if the total mortgage debt exceeds the fair market value of the mortgaged property, the mortgagee may be entitled to an unsecured deficiency claim in the bankruptcy case.⁵ As a general principal, the mortgage itself, as an in rem claim, survives the bankruptcy case, unless otherwise affected.⁶

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^[5] However, as explained more fully in Section 18-5, it is important that the mortgagee must take some action notifying the mortgagor or the trustee of the mortgagee's intention to assert an unsecured claim. See, e.g., In re Brooks, 407 B.R. 429, 433 (Bankr. M.D. Fla. 2009) (allowing amendment to wholly secured proof of claim to assert unsecured deficiency component where debtor was on notice that mortgagee might assert an unsecured component to proof of claim); c.f. In re Jackson, 482 B.R. 659, 664 (Bankr. S.D. Fla. 2012) (disallowing amendment to wholly secured proof of claim to assert unsecured deficiency component where mortgagee provided no indication that it might assert an unsecured component to proof of claim).

^[6] Johnson v. Home State Bank, 501 U.S. 78, 84 (1991) ("[A] bankruptcy discharge extinguishes only one mode of enforcing a claim, namely, an action against the debtor in personam, while leaving intact another, namely, an action against the debtor in rem."). This general rule applies so long as the mortgagor does not invalidate the lien during the course of the bankruptcy case (see strip offs and strip downs...