A lien holder has a "secondary claim" or "unsecured claim" when the lien holder's interest in the collateral has no economic value. Therefore, when a debtor's property is "under water," a second lien holder holds an unsecured claim regardless of the fact that the second mortgage was secured by a lien on the debtor's home.

The debtors in this case are not unlike many homeowners at the present time. Their home had a fair market value of $555,000; however, their first mortgage owed to Wells Fargo Bank, N.A. was in the amount of $661,851.62. They had a second mortgage, held by First Mariner Bank ("First Mariner") in the amount of $83,000, of which only about $1,000 had been paid. The debtors filed for bankruptcy and sought to avoid the second mortgage lien. The bankruptcy court concluded that the lien was avoidable, pursuant to 11 U.S.C. § 506(a), because the debtors' home was "under water," citing Johnson v. Asset Management Group, LLC, 226 B.R. 364 (D. Md. 1998). First Mariner appealed and the debtors did not file a response.

First Mariner attempted to argue that § 1322 (b)(2) prohibits the modification of any claims secured by a lien on real property, including a debtor's principal residence. First Mariner further argued that the Johnson Court did not give proper weight to the legislative intent behind § 1322 (b)(2) as recognized by Justice Stevens' concurrence in Nobleman v. American Savings Bank, 508 U.S. 324, 332 (1993) (Stevens, J., concurring).

The United States District Court for the District of Maryland found that the anti-modification provision in § 1322 (b)(2) did not apply because First Mariner's lien was not a secured lien within the meaning of the Bankruptcy Code. The court was quick to point out that the meaning of the terms "secured liens" and "unsecured claims," as used in the Bankruptcy Code, depend on whether the lien holder's interest in the collateral has economic value. It was clear that First Mariner Bank's lien was an unsecured claim because the fair market property value of the debtors' home was less than the first mortgage. Second, the court found First Mariner's policy argument unpersuasive. Although there is a congressional policy in favor of promoting home lending, the courts that have interpreted Justice Stevens' recognition of this policy in Nobleman have found that the policy applied only to first mortgages. Courts have stated that since second mortgages are rarely used to purchase a home, making wholly unsecured second mortgages subject to the anti-modification clause of § 1322 (b)(2) would only have, at best, a minimal impact on the home buying market.

The court blatantly rejected First Mariner's argument that permitting its lien to be modified would create an "absurd result." This case, therefore, serves as a warning to banks seeking to offer second mortgages to homeowners. That is, that the banks should be aware that if they lend money to homeowners whose primary mortgages exceed the value of the homes and the homeowners file for bankruptcy, then the second mortgages can be modified by Chapter 13 Plans pursuant to § 1322 (b)(2).