The U.S. Bankruptcy Court for the Southern District of Florida recently held that a wholly unsecured second mortgage lien may be “stripped off,” even if the property encumbered by the lien is no longer part of the bankruptcy estate due to abandonment by the bankruptcy trustee.
The Bankruptcy Court did not specifically reference the consolidated cases now before the U.S. Supreme Court in Bank of Amer. v. Toledo-Cardona, and Bank of Amer. v. Caulkett, which should resolve the issue of whether a wholly unsecured lien may be stripped off in a Chapter 7 bankruptcy.
Dealing a major blow to the trustee’s efforts to recover fraudulent transfers on behalf of the bankruptcy estate of the company run by Bernard Madoff, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York held in SIPC v. Bernard L. Madoff Investment Securities LLC1 that the Bankruptcy Code cannot be used to recover fraudulent transfers of funds that occur entirely outside the United States.