STEPHANI W. HUMRICKHOUSE, Bankruptcy Judge.
This matter came on to be heard upon the Trustee's Objection to the Claim of Bank of America filed on March 7, 2018 (Claim No. 13). A hearing was held on April 9, 2018 in Raleigh, North Carolina. The court upheld the trustee's objection in an order dated June 26, 2018. This Supplemental Order sets out the basis for the court's decision.
Rodney Allen McCowan filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on November 30, 2009. The debtor's schedules filed on December 21, 2009 indicate that the debtor owns real property located at 1211 Champions Point Drive, Durham, North Carolina (the "Property") valued at $90,000.00 (Schedule A), subject to a deed of trust in favor of Bank of America, N.A. ("Bank of America") in the amount of $268,121.00 (Schedule D). Additionally, the debtor's Chapter 11 Plan filed on March 1, 2010 separately classifies the Bank of America debt in the amount of $268,121.00 secured by the Property with a value of $248,000.00. The Plan proposed to abandon the debtor's interest in the Property.
The case was converted to chapter 7 on August 4, 2010 and Gregory B. Crampton was appointed trustee on the same date. On August 10, 2010, BAC Home Loan Servicing, LP f/k/a Countrywide Home ("BAC") filed Proof of Claim No. 13 in the amount of $288,121.27 (the "BAC Proof of Claim"), in which it stated that the claim was secured, and to which it attached a Deed of Trust recorded on February 24, 2003 in the Durham County Registry and a Promissory Note dated February 21, 2003 in the amount of $292,820.97.
Based upon the value of the Property as testified to by the debtor at his § 341 meeting (between $240,000 and $250,000), and as scheduled ($90,000), and the liens identified on both the debtor's schedules and on Bank of America's proof of claim (Bank of America's lien in the amount of $268,121) and in favor of Durham County ($4,483), the trustee determined there was no realizable value for the estate and filed a Notice of Trustee's Intent to Abandon Property on January 28, 2011 (the "Notice"). No objection to the Trustee's Notice was filed and the Property was therefore deemed abandoned. A Final Decree was entered in the chapter 7 case on February 16, 2011.
On July 19, 2016, Bank of America initiated an action and on August 3, 2016, filed a lis pendens in Durham County, North Carolina seeking a judicial foreclosure of the Property and money damages against the debtor. On October 4, 2016, the action was amended to remove the claim for money damages. On June 22, 2017, after learning of the existence and recordation of the Certificate of Satisfaction and Affidavit of Lost Note, the debtor moved to reopen his case to enable the trustee to administer the Property, which motion was granted on September 13, 2017, Dkt. 143. On September 25, 2017, the trustee filed a Motion to Revoke Abandonment, Dkt. 146, to which Bank of America responded in opposition on October 13, 2017. A hearing was held on November 29, 2017, and the court's Order Allowing Trustee's Motion to Revoke Abandonment was entered on February 9, 2018, Dkt. 165.
On March 7, 2018, the trustee filed an Objection to Claim contesting the secured status of Bank of America's Proof of Claim No. 13-1. The trustee posits several arguments in support of his objection:
Bank of America, on the other hand, asserts that:
For the reasons set forth below, the court will allow the objection of the trustee.
The court will first respond to Bank of America's contention that the trustee's objection to claim is not the appropriate mechanism to determine its secured status. Bank of America argues that the trustee can determine its secured status only through an adversary proceeding commenced pursuant to Rule 7001(2). The court disagrees.
An adversary proceeding is not required to contest secured status asserted in a proof of claim. The validity of a lien may be determined in a proceeding other than an adversary proceeding. 10 COLLIER ON BANKRUPTCY & 7001.03 (16th ed. 2018); In re Lengacher, No. 12-12512, 2015 Bankr. LEXIS 4441 (Bankr. N.D. Ind. Dec. 1, 2015). It is equally appropriate for the trustee to object to the claim. In re Gilchrist, No. 10-02851-8-SWH, 2011 Bankr. LEXIS 101 (Bankr. E.D.N.C. Jan. 10, 2011); In re Blue Water Land Dev., LLC, No. 08-00842-8-JRL, 2008 Bankr. LEXIS 4795 (Bankr. E.D.N.C. Oct. 21, 2008); Ashford v. Naimco, Inc. (In re Consol. Pioneer Mortg. Entities), No. 95-55491, 1996 U.S. App. LEXIS 17741 (9th Cir. July 15, 1996) (unpublished) (objection to claim unaccompanied by a counterclaim or other demand for relief does not require commencement of adversary proceedings); In re Mathiason, 16 F.3d 234, 237 (8th Cir. 1994); In re Barquet Grp., Inc., 486 B.R. 68 (S.D.N.Y. 2012) (a lien need not be avoided through an adversary proceeding where the claim objection did not seek to expunge the claim because of any purported lien, but rather sought to expunge the claim because the claimants assigned their interests in the claim to a third party and they never filed a claim asserting a lien). The trustee is not seeking to recover property; he is merely seeking disallowance of a secured claim.
Contrary to Bank of America's assertion, this is not a trustee strong-arm action pursuant to § 544, contesting the validity of a recorded deed of trust as a judgment lien creditor or a bona fide purchaser for value. If this had been a § 544 proceeding, Bank of America's argument that such an action is time barred pursuant to § 546(a), or that the filing of its lis pendens constituted a valid defense might be relevant. But in fact there is no deed of trust presently on the records of the Durham County Register of Deeds for the trustee to avoid, and thus no applicable statute of limitations for such avoidance, and no strong-arm powers maintained by the trustee to which the lis pendens defense could be asserted.
Furthermore, even if the trustee was attempting to assert his strong-arm powers pursuant to § 544, the statute of limitations found in § 546 does not bar his assertion defensively, i.e., as a basis for objecting to Bank of America's secured proof of claim. S. Bank & Tr. Co. v. Alexander (In re Alexander), Nos. 11-74515-SCS, 2014 Bankr. LEXIS 3048 (Bankr. E.D. Va. July 16, 2014)
Finally, Bank of America's arguments that cancellation of its deed of trust does not avoid its lien on the debtor's property, i.e., that recordation only goes to perfection not as the existence of the lien, will likewise not carry the day. Cancellation of the deed of trust did not only eradicate perfection; it constituted a satisfaction of the underlying debt and reconveyance of any rights Bank of America had in the Property to the debtor. N.C. Gen. Stat. § 45-37(g); Walston v Twiford, 248 N.C. 691 (1958).
Based upon the foregoing, the trustee's objection to the secured claim of Bank of America is