Memorandum of Decision Re: Tax Lien

IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re GLENN SCOTT WARNER,                                       No. 586-5195 R      Debtor. _____________________/
Memorandum of Decision
     The matter now before the Court is a dispute between the Internal Revenue Service and the debtor concerning a prepetition tax lien on the debtor's home, which he owned when he filed his Chapter 7 bankruptcy petition. The tax obligation itself was discharged, but under most circumstances the lien passes through bankruptcy unaffected. However, the debtor argues that he had no equity in his home when the bankruptcy was filed and that pursuant to section 506 of the Bankruptcy Code he may have the lien declared void to the extent that there was no value for the lien to attach to on the date of the bankruptcy filing.      There is a disagreement on the law in this matter, with the IRS arguing that the debtor has no rights under section 506. There is also a factual dispute as to the value of the property on the date of the filing. The Court must resolve the legal issue before determining if a valuation hearing is necessary.      The legal issue now before the Court has been recognized and squarely addressed at 3 Collier on Bankruptcy (15th Ed.), p. 506-71:
       The second unresolved area relates to the use of        section 506(d) in chapter 7 cases to avoid liens        on the debtor's real property to the extent the        claims secured thereby are not allowed secured        claims under section 506(a). A minority view has        developed that section 506(d) cannot be used for        this purpose because real property is not inclu-        ded in section 722 of the Code, which sets forth        the debtor's rights to redeem property in chapter        7 cases by paying the lienholder the amount of the        allowed secured claim. This view, while having        logical appeal, is directly contrary to the clear        language of section 506(d) and the majority of cases        which have considered the matter.
     This Court will follow the majority position as stated in the above passage from Collier and the cases cited in footnotes to the passage. See, e.g., In re Cleveringa (Bkrtcy.N.D.Ia.1985) 52 B.R. 56, in which the court allowed a debtor to avoid a mortgage lien to the extent it exceeded the appraised value of the debtor's home.      Counsel for the debtor shall obtain a hearing date before the Honorable Marilyn Morgan in San Jose for the purpose of determining the value of the property on the date the bankruptcy petition was filed and the amount of senior encumbrances on that date, and shall give at least 30 days' notice of said hearing to the IRS. All direct testimony shall be in the form of declarations filed and served at least 7 days before the hearing; the declarants will be available in court for cross-examination unless the other side waives its right to cross-examine in writing before the hearing.      Once Judge Morgan has fixed the value of the real property and the amount owed on senior encumbrances, counsel for the debtor shall submit a form of order to the undersigned declaring the IRS lien void to the extent that it was not secured by value in the property on the petition date.
Dated: June 29, 1988                                                                              ____________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy