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In re Salamon

United States Court of Appeals, Ninth Circuit

April 20, 2017

In re James Harry Salamon; Jeanne Fixler Salamon, Debtors,
v.
James Harry Salamon; Jeanne Fixler Salamon, Appellees. Peter J. Mastan, Chapter 7 Trustee, Appellant,

          Argued and Submitted February 8, 2017 Pasadena, California

         Appeal from the Ninth Circuit Bankruptcy Appellate Panel BAP No. 14-1334 Kirscher, Pappas, and Taylor, Bankruptcy Judges, Presiding

          John N. Tedford, IV (argued) and Aaron E. De Leest, Danning Gill Diamond & Kollitz LLP, s Los Angeles, California, for Appellant.

          Michael R. Totaro (argued) and Maureen J. Shanahan, Totaro & Shanahan, Pacific Palisades, California, for Appellees.

          Before: Mary M. Schroeder, Andre M. Davis, [*] and Mary H. Murguia, Circuit Judges.

         SUMMARY[**]

         Bankruptcy

         The panel affirmed the Bankruptcy Appellate Panel's decision affirming the bankruptcy court's order disallowing a claim in a Chapter 11 case.

         Under 11 U.S.C. § 1111(b), those who hold non-recourse liens on real property are granted recourse against the bankruptcy estate upon the filing of the bankruptcy petition. Those protected are creditors who have "a claim secured by a lien on property of the estate." The panel held that a creditor does not continue to have a right of recourse after there has been a non-judicial foreclosure, so that the property is no longer part of the estate and the liens have been extinguished.

          OPINION

          SCHROEDER, Circuit Judge:

         In this bankruptcy appeal we consider for the first time some of the key provisions of 11 U.S.C. § 1111(b) that apply to Chapter 11 proceedings. They provide that those who hold non-recourse liens on real property are granted recourse against the bankruptcy estate upon the filing of the bankruptcy petition. Those protected are creditors who have "a claim secured by a lien on property of the estate." The issue before us is whether the creditor continues to have a right of recourse after there has been a non-judicial foreclosure, so that the property is no longer part of the estate and the liens have been extinguished. The Bankruptcy Appellate Panel ("BAP") in a well-reasoned decision said no and we affirm. Mastan v. Salamon (In re Salamon), 528 B.R. 171, 175-78 (B.A.P. 9th Cir. 2015).

         BACKGROUND

         In April of 2009, Jeanne Salamon purchased a piece of real property located at 716 South Westlake Avenue, Los Angeles, California ("the Westlake Property") from David Behrend. The Westlake Property was already subject to two liens. Rather than fund the purchase price at the time of closing, Salamon executed a wrap-around mortgage in the amount of $1, 030, 000 in favor of Behrend called the "All Inclusive Note Secured by a Deed of Trust" (the "All-Inclusive Note") and funded the balance of the purchase price with a "Note Secured by Deed of Trust" ("the Note") in the amount of $325, 000 in favor of Behrend. Under the terms of these notes, Salamon would make monthly payments to an entity designated by Behrend, and that entity would make monthly payments to the senior lienholders.

         Behrend, the seller, filed a Chapter 11 bankruptcy petition on March 25, 2010, and on March 1, 2011, Peter Mastan, the appellant, became the Behrend estate's Chapter 11 trustee; the proceeding was later converted into a Chapter 7 bankruptcy with Mastan remaining the trustee. On June 8, 2012, Salamon, the buyer, and her husband James, the appellees, also filed a Chapter 11 bankruptcy petition. On October 3, 2012, Mastan filed a timely proof of claim on behalf of the Behrend estate for the two liens secured by the Westlake Property. On October 19, 2012, the bankruptcy court ...


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