UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

In re:

SUSAN G. BROWN,

Case No. 15-11017

Debtor. Hon. Denise Page Hood

_____________________________________

SUSAN G. BROWN,

(Bankruptcy Case No. 14-48421)

Appellant,

v.

DOUGLAS ELLMANN, TRUSTEE,

Appellee.

______________________________________/

OPINION AND ORDER DISMISSING BANKRUPTCY APPEAL,

DENYING AS MOOT THE MOTION TO STAY PENDING APPEAL,

and CLOSING CASE

I. BACKGROUND

Appellant Susan G. Brown, Debtor, filed an appeal from a Bankruptcy Court

order entitled, “Order Granting Trustee’s Application for Authority to Sell Certain

Property Free and Clear of Liens, Claims, Encumbrances and Other Interests at

Auction Sale and Transferring Liens, Encumbrances and Other Interests to Proceeds

of Sale; to Evict Debtor; and Approving Broker’s Fees and Costs.” (Doc. No. 1) On

appeal, Brown arguesthat the BankruptcyCourt erred in failing to recognize Brown’s

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property interest in the foreclosure redemption rights with respect to her home and

that the Bankruptcy Court erred in denying Brown an exemption for her property

interest. The Appellant Bankruptcy Trustee Douglas Ellmann responds that Brown

has no contingent foreclosure redemption right exemption and that the Bankruptcy

Court’s Order should be affirmed.

On May 15, 2014, Brown filed a petition under chapter 7 of the United States

Bankruptcy Code. (Doc. No. 5, Pg ID 24-62) Brown listed in Schedule A-Real

Property, a home in Ypsilanti, Michigan, with a value of $170,000.00 and

$219,000.00 of secured claimagainst the property. (Doc. No. 5, Pg ID 29) Brown did

not initially list in Schedule C-Property Claimed as Exempt, any exemption related

to the property. (Doc. No. 5, Pg ID 33) In Schedule D-Creditors Holding Secured

Claims, Brown listed two mortgages: Everhome Mortgage (serviced by Green Tree,

LLC), with a value of $182,000.00, and First Tennessee Bank, a value listed at

$37,000.00. (Doc. No. 5, Pg ID 34) Brown filed a Statement of Intent with the

Bankruptcy Court indicating she intended to surrender the property. (Doc. No. 5, Pg

ID 225-226)

The Bankruptcy Court entered an Order on August 19, 2014 discharging

Brown. (Doc. No. 5, Pg ID 65) On September 16, 2014, Green Tree obtained an

order lifting the automatic stay to exercise any remedy Green Tree may have under

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state law. (Doc. No. 5, Pg ID 100) On February 5, 2015, the Bankruptcy Trustee

filed an application before the Bankruptcy Court for approval of the sale, the

authority to evict Brown from the property with 30 days’ notice, and to distribute the

proceeds of the sale. (Doc. No. 5, Pg ID 101-104) The Bankruptcy Trustee entered

into an agreement to sell the property to a third party for the purchase price of

$160,000.00. The Bankruptcy Trustee stated that the first mortgage creditor had

agreed to a “shortsale,” agreeing to $148,220.43 in full satisfaction of the balance of

$189,020.74 owed by Brown on the first mortgage. The first mortgage creditor also

agreed to the distribution of $6,000.00 to the second mortgage creditor. The

remaining balance of the proceeds would pay the real estate broker, closing costs and

the bankruptcy estate for distribution to Brown’s other creditors. (Id. and Pg ID 119-

129)

On February 24, 2015, Brown filed an objection to the Bankruptcy Trustee’s

application to sell the Ypsilanti property. (Doc. No. 5, Pg ID 137) On March 1,

2015, supplemented on March 23, 2015, Brown amended Schedule C claiming an

exemption of the property under 11 U.S.C. § 522(d)(1) in the amount of $11,470.00

and under 11 U.S.C. § 522(d)(5) in the amount of $11,675.00. (Doc. No. 5, Pg ID

193-195) Brown did not amend Schedule A.

On March 3, 2015, the BankruptcyCourt issued itsfindings and order granting

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the Bankruptcy Trustee’s application to sell and distribute the proceeds of the sale. 

(Doc. No. 5, Pg ID 181-185) The Bankruptcy Court denied Brown’s March 1, 2015

amended exemptions to the property. (Doc. No. 5, Pg ID 185) On April 1, 2015, the

Bankruptcy Court denied Brown’s Motion for Order Staying Distribution Pending

Appeal. (Doc. No. 5, Pg ID 199-215) This appeal followed. The parties have filed

briefs and a hearing held on the matter.

II. ANALYSIS

A. Standard of Review on Appeal

District courts have jurisdiction over appeals from “final judgments, orders,

and decrees” of the bankruptcy courts. 28 U.S.C. § 158(a)(1). “For purposes of

appeal, an order is final if it ends the litigation on the merits and leaves nothing for

the court to do but execute the judgment.” In re Janna W. Cundiff, 227 B.R. 476, 477

(6th Cir. BAP 1998); Catlin v. United States, 324 U.S. 229, 233 (1945). An order

denying an exemption in a bankruptcy proceeding is a final, appealable order. In re

Cottrell, 876 F.2d 540, 542 (6th Cir. 1989) (citations omitted); Wicheff v. Baumgart

(In re Wicheff), 215 B.R. 839, 840 (6th Cir. BAP 1998).

Findings of fact are reviewed under the clearly erroneous standard. Fed. R.

Bankr. P. 8013; Fed. R. Civ. P. 52(a). “If the bankruptcy court’s factual findings are

silent or ambiguous as to an outcome determinative factual question, the [reviewing

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court] may not engage in its own factfinding but, instead, must remand the case to the

bankruptcy court for the necessary factual determination.” Helfrich v. Thompson (In

re Thompson), 262 B.R. 407, 408 (6th Cir. BAP 2001). A bankruptcy court’s

conclusions of law are reviewed de novo. Adell v. John Richards Homes Bldg. Co.

(In re John Richards Homes Bldg. Co.), 439 F.3d 248, 254 (6th Cir. 2006); In re

Downs, 103 F.3d 472, 476-77 (6th Cir. 1996). 

B. Exemptions

Brown argues on appeal that the Bankruptcy Court erred in denying her

exemption rights of foreclosure and redemption under Michigan’sforeclosure statute,

M.C.L. 600.3240. She asserts that the foreclosure rights became property of the

bankruptcy estate on the date of petition under 11 U.S.C. 541 and that a debtor may

exempt such property of the estate under 11 U.S.C. 522. The Bankruptcy Trustee

argues on appeal that because there was no foreclosure proceeding, there can be no

redemption right to exempt. Brown rejects the Bankruptcy Trustee’s argument

asserting that Michigan has recognized a redemption right even before a foreclosure

sale occurs. 

A review of a bankruptcy court’s disallowance of an exemption is a ruling on

a matter of law, which is reviewed de novo. In re Darrohn, 615 F.3d 470, 474 (6th

Cir. 2010). At the commencement of the bankruptcy case, a debtor’s legal and

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equitable interest in all property become property of the bankruptcy estate. 11 U.S.C.

§ 541(a)(1). A debtor may exempt certain types of property pursuant to either state

law exemptions or federal law exemptions as set forth in 11 U.S.C. § 522(d). 

Exemptions are determined as of the bankruptcy case filing date. Wolf v. Salvern (In

re Wofl), 248 B.R. 365 (B.A.P 9th Cir. 2000). Exempt property is protected against

unsecured debts. 11 U.S.C. § 522(c). However, property subject to secured liens in

excess of the value of the property may not be exempted and any such claimed

exemptions are subordinate to a secured creditor’s lien on the property. 11 U.S.C. §

522(c)(2). A debtor can only claim an exemption if there is equity in the property,

and, if the sale proceeds are insufficient to satisfy the mortgages, there is no equity

for a debtor to exempt. Baldridge v. Ellmann (In re Baldridge), 553 F. App’x 598,

599 (6th Cir. 2014). The Sixth Circuit in reviewing the same argument raised by

Brown’s counsel in the Baldridge case, noted that “the Trustee had the authority to

waive the right of redemption as a condition of the sale of the property.” Id. at 599. 

The Sixth Circuit further noted that even if the mortgagee agreed to remit a portion

of the sale of the property to the Bankruptcy Trustee, there still exited a deficiency

on the balance owed to the mortgagee. Id. The Sixth Circuit ruled that, “inasmuch

as the sale proceeds were insufficient to satisfy the prior obligations owed to the

secured creditors, there was no residual equity in the property to which debtors’

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exemptions could attach. Debtors’ novel argument to the contrary lack both factual

and legal support.” Id.

The Sixth Circuit Baldridge decision is persuasive. The same arguments were

raised by Brown’s counsel in that case as in the instant case. The only new argument

Brown’s counsel raises in this case is that the Supreme Court case in Law v. Siegel,

134 S. Ct. 1188 (2014), which was issued after the Sixth Circuit issued its decision

in Baldridge, overturns the Baldridge decision. In Siegel, the issue before the

Supreme Court was whether a surcharge for increased administrative costs of the

estate could be assessed against a debtor’s exemptions due to a debtor’s bad faith

conduct in hiding certain assets from the bankruptcy trustee. The Supreme Court

ruled that the bankruptcy court had no authority to surcharge the debtor’s bankruptcy

exemptions because it contravened a specific provision of the Bankruptcy Code. 

Siegel, 134 S.Ct. at 1195. Section 522(b)(3)(A) allowed the debtor a $75,000

exemption of the equity of the debtor’s home under California law. Id. The Supreme

Court ruled that the bankruptcy court’s surcharge on the debtor’s homestead

exemption under California law violated § 522's express terms.

Siegel does not apply to the facts and law of the instant case. The issue before

the Bankruptcy Court and this Court does not involve a surcharge on Brown’s equity

exemption of foreclosure and redemption. In this case, as alleged by Brown in her

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Petition, there were two mortgages on the Brown’s property and that the amount

Brown owed on the two mortgages exceeded the value of the property. Brown

intended to surrender the property instead of affirming the mortgages or redeeming

the property. At the time the Bankruptcy Trustee sought approval for the sale of the

property, the purchase price of the property was $160,000, which still exceeded the

amount owed by Brown under the first mortgage which was $189,020.74 as of

February 3, 2015, in addition to the lower priority second mortgage. (Doc. No. 5, Pg

ID 121) The BankruptcyCourt’sruling that there was no equity in the property which

did not allow Brown any equity exemption on the property, was not in error. Based

on Baldridge, if a debtor has no equity in the property, the debtor is not entitled to

any equity exemption on the property. Siegel did not address this issue.

Even giving credence to Brown’s argument that Siegel stands for the broader

proposition that the Bankruptcy Court had no authority to allow the Bankruptcy

Trustee to distribute any of the proceeds to itself because such proceeds are the

property of the estate which may then be exempted by Brown under § 522 (with

which the Court does not agree Siegel so stands), Siegel is still inapplicable to this

case. The Sixth Circuit ruled in Baldridge, that the funds which the trustee “carved

out” for itself upon the closing of the sale, was not property of the debtor’s estate

because the funds did not exist at the time the bankruptcy case was commenced and

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that the trustee had the authority to waive the right of redemption as a condition of

the sale of the property. Baldridge, 553 F. App’x at 599. The Sixth Circuit noted,

“irrespective of the reason” why the bank agreed to remit a portion of its recovery to

the trustee, “inasmuch as the sale proceeds were insufficient to satisfy the prior

obligations owed to the secured creditors, there was no residual equity on the property

to which debtors’ exemptions could attach.” Id. The Court agrees with the Sixth

Circuit’s reasoning that the “carved out” funds did not exist at the time the debtor

filed the petition, and therefore could not be property of the estate. In this case, the

$6,000.00 the third party purchaser paid to the Estate at the end of the closing in this

case did not exist at the time Brown filed her petition and is not property of the

Estate. Siegel is inapplicable to this case.

Even if the $6,000.00 was not distributed to the Estate and was instead

distributed to the first mortgage creditor, there would still be a deficiency owed on

the first mortgage since the amount owed by Brown to the first mortgage creditor at

the time of the Bankruptcy Trustee’s request to sell the property was $189,020.74,

and the purchase price of the property was $160,000.00. Brown’s two asserted

exemptions, totally $23,145.00 ($11,470.00 + $11,675.00) muststill be denied since

there is no equity to which the exemptions could attach. Siegel did not hold for the

proposition that even if there is no equity on a secured property, a debtor’s equity

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exemption should still be allowed. The Bankruptcy Code expressly states that

secured liens in excess of the value of the property may not be exempted and that any

such claimed exemptions are subordinate to a secured creditor’s lien on the property. 

11 U.S.C. § 522(c)(2). This is true in the instant case. Siegel is not applicable in this

case since the Bankruptcy Court’s finding that there was no equity to attach Brown’s

claimed exemptions did not contravene any law. The Bankruptcy Court in fact

followed the dictates of § 522(c)(2). The Court affirms the Bankruptcy Court’s

rulings and order that Brown is not entitled to any exemptions as to the real property

located in Ypsilanti, Michigan.

III. AMENDED MOTION TO STAY PENDING APPEAL

Brown seeks an order to stay any distribution of the funds of the Estate pending

the Court’s ruling on this appeal. The Bankruptcy Trustee had yet to distribute the

funds until the Bankruptcy Trustee filed a Notice of Intent to File Final Report on

April 22, 2016. Brown claims this Notice is the firststep in the process necessary for

the Bankruptcy Trustee to distribute the fundsto the creditors. In light of the Court’s

ruling set forth above, the instant motion is denied as moot.

IV. CONCLUSION

For the reasons set forth above, the Court finds that the Bankruptcy Court did

not err in denying Brown’s claimed exemptions.

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Accordingly,

IT IS ORDERED that the Bankruptcy Court is AFFIRMED.

IT IS FURTHER ORDERED that the Debtor Susan G. Brown’s bankruptcy

appeal is DISMISSED with prejudice.

IT IS FURTHER ORDERED that the Debtor’s Amended Motion to Stay

Pending Appeal (Doc. No. 19) is DENIED as MOOT.

IT IS FURTHER ORDERED that this bankruptcy appeal action is designated

CLOSED on the Court’s docket.

s/Denise Page Hood 

Denise Page Hood

Chief Judge, United States District Court

Dated: May 31, 2016

I hereby certify that a copy of the foregoing document was served upon counsel of

record on May 31, 2016, by electronic and/or ordinary mail.

s/LaShawn R. Saulsberry 

Case Manager

TED:

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