The death of a bankruptcy bill (S. 1985) in the closing hours of the 102nd Congress should be a strong incentive for the U.S. Supreme Court to accept the petition for certiorari filed by the only plaintiffs to lose a cram-down case at the federal appellate level.
"Bless their hearts," Philip Palmer Jr.. attorney for Leonard and Harriet Nobleman. said of the House members who refused to pass the legislation under suspension of the rules on Oct. 8. The refusal of Congress to act left the issue open and federal appellate courts have disagreed on the matter.
"The Nobleman opinion also sent a strong signal that the Supreme Court should review the issue." he added.
The bankruptcy bill would have specifically banned cram-downs in cases brought under Chapter 13 of the Bankruptcy Code. The Supreme Court ruled in January that cram-downs were not permitted in Chapter 7 cases. But four U.S. circuit courts of appeals----the 2nd, 3rd, 9th and 10th circuits--ruled in favor of cram-downs before the 5th Circuit in New Orleans turned down the Noblemans on Aug. 13.
Palmer, partner in the Dallas firm of Palmer & Palmer. said he would permit the Federal Home Loan Mortgage Corporation to support the petition for certiorari even though Freddie Mac is on the opposite side of the issue. Freddie Mac was the loser in the 2nd Circuit case.
Michael J. Sehroeder, partner in Settle & Pou of Dallas. who represented the American Savings Bank of Stockton, Calif., on the winning side, said he had not yet decided whether to oppose the petition or to permit Freddie Mac to Join in the case. Under federal court rules, both sides must accept the intervention of third parties.
The petition was filed Oct. 13 and the parties have 30 days to object. A Supreme Court spokeswoman said that the high court has a record of acting quickly and could be expected to make a decision about whether to accept the case no later than 90 days after the filing of the petition.
Meanwhile, the 103rd Congress will be under pressure to settle the matter legislatively when it goes to work in January with more than 120 new members.
While there was strong support for resolving the cram-down issue. an even bigger incentive was the desire to extend Chapter 12 of the code. which offers special treatment to farmers. Chapter 12 is scheduled to expire Oct. 31. 1993.
In American Savings Bank vs. Nobleman. the plaintiffs sought to have their mortgage loan divided into secured and unsecured portions and then be relieved of the burden of paying off the unsecured portion. (For earlier story. see The Mortgage Marketplace, Sept. 7, page 2.)