In Re Sieglinde M. Zimmer, Debtor, Sieglinde M. Zimmer v. Psb Lending Corporation

Appellant Sieglinde Zimmer, a Chapter 13 bankruptcy petitioner, filed suit against PSB Lending Corporation (“PSB Lending”) to avoid a Hen against her home. PSB Lending holds a second position deed of trust on Zimmer’s primary residence, which is entirely unsecured because the value of the first deed of trust exceeds the value of the home. The district court dismissed Zimmer’s complaint for failure to state a claim, finding that 11 U.S.C. § 1322 (b)(2) prohibits avoidance of any Hen on the debtor’s primary residence, even where the Hen is wholly unsecured. We reverse, joining with the majority of other jurisdictions in holding that a wholly unsecured Henholder is not entitled to the protections of 11 U.S.C. § 1322 (b)(2).

FACTUAL AND PROCEDURAL BACKGROUND

On or about October 8, 1997, Zimmer executed a promissory note for a $39,000 loan, secured by a deed of trust on Zim-mer’s residence in San Diego. Although different in form, a deed of trust is similar to a mortgage in purpose and effect. The deed of trust was assigned to PSB Lending; the outstanding loan value was $37,411.19 when Zimmer filed this case. Zimmer’s residence was already encumbered by a first deed of trust…