Our Riverside County foreclosure defense attorneys were interested to see an appeals court decision affirming a victory for a mortgage borrower who sought to strip off a lien on her manufactured home. In Dickson v. Countrywide Home Loans, Countrywide unsuccessfully appealed a bankruptcy court's determination that Nancy Dickson of Kentucky could avoid (or strip off) Countrywide's lien. Dickson's case is unusual in that she did not borrow money to buy the home; she borrowed from Countrywide against a piece of land, and purchased a manufactured home to put on that land. Countrywide later obtained a lien on the home itself through a lawsuit in state court. The Sixth U.S. Circuit Court of Appeals upheld its own Bankruptcy Appellate Panel and the bankruptcy court when it ruled that Dickson could avoid the lien. Dickson bought real property in 1997 and borrowed $79,000 against it, from Countrywide, in 1998. Countrywide's lien was against the real property and all improvements, easements, fixtures or appurtenances that could be made on it. She then bought a manufactured home with the proceeds of the loan. In 1999, she filed for Chapter 7 bankruptcy and the trustee filed notice of attempt to abandon both the home and the land. Dickson received a discharge later that year and never reaffirmed the debt to Countrywide. She later defaulted on the debt, and Countrywide began foreclosure proceedings in 2006. In state court, Countrywide alleged that the parties had always intended the mortgage to secure a lien on the home, and moved to convert the home to real property, then sell the real property to satisfy the debt. Dickson did not oppose this and the motion was granted. Two months later, Dickson filed for Chapter 13 bankruptcy. Countrywide moved for relief from the stay in order to sell the property, and Dickson and the trustee opposed this on the grounds that Countrywide never perfected its lien on the manufactured home. There followed cross-motions for summary judgment on several issues, resolved by briefing. The bankruptcy court ultimately found that Countrywide had never perfected its lien by noting it on the title; and that even if perfected, the lien was still avoidable as a preference. The Bankruptcy Appellate Panel upheld the decision, and Countrywide appealed again. The Sixth Circuit upheld the ruling in part. Kentucky law requires a lien against any personal property, including a manufactured home, to be noted on the title, it said — but it can be converted to an improvement on real estate to allow perfection by first recording without noting the lien on the title. In this case, the plain language of the mortgage contract did not give Countrywide a lien on the home directly. The state court's judgment in the foreclosure case did convert the home to an improvement and thus subject it to a lien. Thus, the Sixth held that Dickson's home is subjected to a perfected lien. However, it ruled in Dickson's favor that she had standing to avoid the lien. Under the bankruptcy code, debtors may avoid liens that trustees may avoid under certain conditions, including when the transfer was not voluntary for the debtor. Because this case meets that standard, Dickson was free to try to avoid the lien. Finally, the Sixth ruled that the lien was properly avoided because it was a preference — meaning a transfer of property made within 90 days of filing for bankruptcy and enables the creditor to receive more payment than it would otherwise. Because the state-court judgment was well within the 90 days, the lien was a preference and could legitimately be avoided. Thus, it upheld both lower courts. Our Anaheim foreclosure defense lawyers believe the important parts of this ruling apply to conventional home mortgages as well as those for manufactured homes. The bankruptcy code provisions about standing and preferences apply regardless of what property is involved; indeed, the transfer was ruled a preference after the manufactured home was converted to an improvement on real property. Thus, this case may have useful lessons for Californians seeking to avoid liens on conventional homes. As Oceanside foreclosure defense attorneys, we also noted that this is yet another case of a major mortgage lender failing to meet basic paperwork requirements to show ownership of a loan; the issue is not central in this case, but it became a major issue in the lower court. By failing to perfect a lien, lenders like Countrywide — which is especially notorious as a predatory lender — run the risk that courts will rule they have no ownership at all and decline to allow them to foreclose.
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