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Ninth Circuit Finds That 1111(b) Deemed-Recourse Rights Do Not Survive Foreclosure Of Underlying Property

By Craig S. Ganz and Michael A. DiGiacomo

The U.S. Circuit Court of Appeals for the Ninth Circuit recently announced in Mastan v. Salamon (In re Salamon) that a secured creditor with a nonrecourse mortgage cannot assert a claim for any deficiency if the underlying property is foreclosed on during the bankruptcy case. 854 F.3d 632 (9th Cir. 2017).

Section 1111(b)(1)(A) grants the holder of a claim “secured by property of the estate” the same rights as the holder of a recourse mortgage, regardless of whether or not the creditor has such recourse rights against the debtor outside of bankruptcy. See 11 U.S.C. § 1111(b)(1)(A) (“A claim secured by a lien on property of the estate shall be allowed or disallowed under section 502 of this title the same as if the holder of such claim had recourse against the debtor on account of such claim, whether or not such holder has such recourse … “).

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