In Re Koessler (2021 WL 3375824) decided on August 3, 2021 in the Southern District of Florida is a solid win and sigh of relief for mortgage creditors in Florida bankruptcy proceedings. In Koessler, Chief Judge Laurel Isicoff was confronted with an interesting interplay between a state statute (Section 55.10 of Florida Statutes) and the Bankruptcy Code’s anti-modification provision found §1123(b)(5). Commonly referred to as the “general lien statute,” §55.10 Fla. Stat. grants a judgment creditor additional liens on other real property of a judgment defendant if a certified copy of the judgment is recorded by the judgment creditor.
In Koessler, it was undisputed that the property subject to the motion to value was the debtor’s primary residence at the time of the bankruptcy filing. Section 1123(b)(5) protects – from modification/valuation in a bankruptcy plan – creditors that hold first mortgages that are solely secured by a debtor’s primary residence. The debtor argued that because the creditor held a recorded final judgment, and because the debtor owned a condominium with equity at the time of the filing, the condominium served as additional security pursuant to the general lien statute, which – according to the debtor’s argument – made the anti-modification provision inapplicable.
Ruling in favor of the creditor (argument by ALAW counsel), the Court denied the debtor’s valuation attempt by following the 3rd District of Florida case (Sanchez v. Black, 911 So. 2d 201, 201-02 (Fla. 3d DCA 2005), which held that an existing, duly recorded mortgage, which ultimately results in a final judgment of foreclosure, is not the ‘judgment lien’ anticipated by [section 55.10]. Instead, said mortgage is a pre-existing lien that is not extinguished by the foreclosure judgment, and thus, section 55.10 is inapplicable. As a result, the creditor’s entire first mortgage was protected by the anti-modification provision.
In Florida, a large population of mortgage claims are associated with foreclosure judgments entered prior to a debtor’s bankruptcy filing. The Court’s ruling in Koessler confirms that the anti-modification protections of §§1123(b)(5) and 1322(b)(2) are still applicable in such scenarios.
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