The long-awaited rehearing of In re McNeal has been given the green light from an unlikely source – a New York Bankruptcy Court Judge. The Chapter 7 lien stripping saga has been well documented in previous posts, and as we had noted, last February the Eleventh Circuit ordered that all proceedings – including a pending motion for rehearing and another for publication – were to be stayed indefinitely.

After the May 2012 opinion in McNeal, the original mortgage lender GMAC, whose wholly unsecured lien was stripped by the bankruptcy court’s decision, filed for Chapter 11 bankruptcy relief in the Southern District of New York. Because of the automatic stay in the GMAC’s New York bankruptcy case, the Eleventh Circuit stayed all pending actions in the Circuit Court case, noting that McNeal must “stand still for awhile.”

On July 22, 2013 the Bankruptcy Court for the Southern District of New York modified the automatic stay in GMAC’s bankruptcy case to specifically authorize the Eleventh Circuit to resolve any pending appeals and motions stayed by the February order. On August 2nd, the Eleventh Circuit ordered that the motion for rehearing could proceed. Further, the August 2nd order granted the pending motion to publish the “decisive opinion” in McNeal.

What does the August 2nd order mean for lenders?

As previously discussed, when a circuit court issues an unpublished, per curiam opinion, lower courts are not strictly bound to follow the case’s holding, although the opinion is “persuasive” and given significant deference. A published opinion, on the other hand, is binding, and failure to apply the opinion is reversible error. Thus, the lower bankruptcy courts which were hesitant to apply McNeal and strip liens in Chapter 7 proceedings have little, if any, discretion at this juncture.

Perhaps more importantly in the long run, the order opens the door for rehearing by an en banc panel of circuit court judges. En Banc rehearings are reserved for cases with particular distinction, which McNeal has garnered – albeit negatively. The order clarifies that no decision regarding the petition for rehearing en banc will be made until thirty days after the opinion has been published.

Within the next few months, we should have a better idea whether McNeal will live on, or if the Eleventh Circuit will acknowledge the overwhelming weight of authority from other federal circuits and reverse McNeal. Stay tuned to the Florida Banking Law Blog, as we will post updates as soon as they are available.