In Re Smith

288 B.R. 675 (2003)

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Nature of the Case

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Facts

Smith is the owner of his residence at in the Town of Tonawanda, New York. Relying upon the town's tax assessment, Smith claims that the property has a full market value of $65,606. There are two mortgages on the property both of which are dated January 7, 1999. The larger of the mortgages was given to PCFS to secure a note in the amount of $68,000 and was recorded on January 12, 1999. As of the date of bankruptcy filing, the amount due on the PCFS note included a principal balance of $ 67,225.01, together with unpaid interest of more than $4,000, plus costs. Smith gave the smaller of the mortgages to Robert and Mary Jane Zak, to secure a note in the amount of $16,217. The Zaks were the prior owners of the property and apparently accepted the note as partial consideration for the transfer of title. They recorded their mortgage on January 22, 1999. The Zak mortgage contains no provision for subordination to the lien of PCFS, and the debtor has offered no proof of any other subordinating instrument. Smith owed approximately $ 15,000 to the Zaks on their note. Smith argues that the mortgage of PCFS was first recorded, and should, therefore, be deemed to constitute a prior lien. Because this obligation exceeds the fair market value of the property, Smith claims he can avoid the Zaks mortgage.