Henderson, Matter of

• Decision Date: 20 April 1994
• Docket Number: No. 93-8276,93-8276
• Citation: 18 F.3d 1305
• Parties: , 25 Bankr.Ct.Dec. 863, Bankr. L. Rep. P 75,823 In the Matter of E.C. HENDERSON and Phyllis Henderson, Debtors. E.C. HENDERSON and Phyllis Henderson, Appellee, v. Lee BELKNAP, Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1305

18 F.3d 1305

62 USLW 2718, 25 Bankr.Ct.Dec. 863, Bankr.

L. Rep. P 75,823

In the Matter of E.C. HENDERSON and Phyllis Henderson, Debtors E.C. HENDERSON and Phyllis Henderson, Appellee, v. Lee BELKNAP, Appellant.

No. 93-8276.

United States Court of Appeals, Fifth Circuit.

April 20, 1994.

James Samuel Wilkins, Jacobs, Willis & Wilkins, San Antonio, TX, for appellant.

Jess Vince Hightower, San Antonio, TX, for appellee.

Appeal from the United States District Court for the Western District of Texas.

Before POLITZ, Chief Judge, KING and DAVIS, Circuit Judges.

PER CURIAM:

E.C. and Phyllis Henderson (the Hendersons) filed a motion to avoid Lee Belknap's (Belknap) judicial lien on their homestead property pursuant to 11 U.S.C. Sec. 522(f)(1). The bankruptcy court denied the motion. The district court reversed the bankruptcy court's decision. Belknap appeals. We affirm.

I. FACTS AND PROCEDURAL HISTORY

On October 26, 1990, Belknap obtained a Texas state court judgment against the Hendersons in the amount of $197,667.21. On November 29, 1990, Belknap filed an abstract of judgment in Caldwell County, Texas, on all of the Hendersons' real property in Caldwell County.

On June 19, 1991, the Hendersons filed for relief under Chapter 7 of the Bankruptcy Code. At the time of the filing of the bankruptcy petition, the Hendersons owned 131 acres of real property in Caldwell County, Texas (Caldwell County property). The bankruptcy court determined that the Caldwell County property qualified as a rural homestead under Texas law. ¹

On June 17, 1992, the bankruptcy court denied the Hendersons a discharge under Sec. 727 of the Bankruptcy Code. After the bankruptcy court denied the discharge, the Hendersons filed a motion to avoid Belknap's judicial lien, pursuant to Sec. 522(f)(1), on their homestead property. The bankruptcy court denied the Hendersons' motion, and the Hendersons timely appealed to the district court.

On appeal to the district court, the district court concluded that the bankruptcy court had erred in dismissing the Hendersons' motion to avoid the judicial lien on their homestead. The district court determined that the "mere existence of a judgment lien, although not attaching to the exempt homestead, impairs the debtor's constitutional homestead exemption and, consequently, is avoidable under Sec. 522(f)(1)." The district court reasoned that courts which have determined that Sec. 522(f)(1) does not allow a debtor to avoid a judicial lien on homestead property because the lien has not attached offer a restrictive and unrealistic line of reasoning. According to the district court, the real and practical ramifications of a recorded judicial lien on all of the debtor's real property is that the lien places a "cloud" on the debtor's title to the homestead property and, therefore, "impairs" the debtor's homestead exemption. Additionally, the district court determined that allowing a debtor to avoid a judicial lien on his homestead property furthers the Bankruptcy Code's important objective of allowing the debtor to gain a fresh start in his financial life. Finally, the district court reasoned that because Texas courts have consistently acknowledged that the homestead law is entitled to the most liberal construction, the Hendersons should be allowed to avoid the lien.

II. STANDARD OF REVIEW

This court reviews findings of fact by the bankruptcy court under the clearly erroneous standard and decides issues of law de novo. Haber Oil Co. v. Swinehart (In re Haber Oil Co.), 12 F.3d 426, 434 (5th Cir.1994). "A finding of fact is clearly erroneous 'when although there is evidence to support it, the reviewing court on the entire evidence is left with a firm and definite conviction that a mistake has been committed.' " Wilson v. Huffman (In re Missionary Baptist Found. of Am., Inc.), 712 F.2d 206, 209 (5th Cir.1983) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)).

III. DISCUSSION

Section 522(f)(1) of the Bankruptcy Code provides:

Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is--

(1) a judicial lien[.]

In order for a debtor to avoid a lien on exempt property under Sec. 522(f)(1), a debtor must show: (1) that the lien is a judicial lien; (2) that the lien is fixed against an interest of the debtor in property; and (3) that the lien impairs an exemption to which the debtor would otherwise be entitled. Hart v. Hart (In re Hart), 50 B.R. 956, 960 (Bankr.D.Nev.1985). In this case, both parties agree that Belknap has a judicial lien and that the Caldwell County property is the Hendersons' homestead. The district court determined that even if Belknap's judicial lien did not attach to the Hendersons' homestead, the lien impairs an exemption of the debtor, and is therefore voidable under Sec. 522(f)(1). In support of this position, the district court primarily relied on Robinson v. Robinson (In re Robinson), 114 B.R. 716 (D.Colo.1990), and In re Watson, 116 B.R. 837 (Bankr.M.D.Fla.1990).

In In re Robinson, the Robinsons had filed for relief under Chapter 7 of the Bankruptcy Code and claimed their home as exempt under the Colorado homestead exemption. In re Robinson, 114 B.R. at 717. Charlotte Robinson had filed a judicial lien against the Robinsons' homestead. Id. The Robinsons filed a motion to avoid Charlotte Robinson's judicial lien pursuant to Sec. 522(f)(1). The bankruptcy court determined that the lien did not impair the Robinsons' homestead exemption and thus the Robinsons could not avoid the lien because "a judgment lien does not automatically attach to real property in Colorado." Id. at 717-18. The district court reversed the bankruptcy court's determination, reasoning that

[w]hile in the State of Colorado, exemptions to the bankruptcy [e]state are governed by state law, the availability of lien avoidance provisions is governed by federal law. In this case, it makes little sense to deny the debtors access to the Sec. 522(f)(1) lien avoidance provisions because of the vagaries of Colorado law under which a judicial lien does not attach to homestead property. To do so would deny the intent of the Bankruptcy Code in providing the debtors a fresh start and would leave debtors and creditors in limbo as to the status of judicial liens post-bankruptcy.

Id. at 720. Likewise, in In re Watson, the court held that the mere existence of a judicial lien impaired the homestead exemption and was therefore voidable under Sec. 522(f)(1) because "any potential enforcement of a judgment lien in the future is a present impairment of the exemption." 116 B.R. at 838-39. The courts in In re Robinson, In re Watson, and the instant case determined that whether the judicial lien "fixed" on the debtor's exempt property was irrelevant to the inquiry of whether the debtor could utilize Sec. 522(f)(1) to avoid a judicial lien. Rather, the courts concentrated solely on whether the lien's mere existence "impaired" the debtor's homestead exemption.

We do not agree that whether the judicial lien "fixed" is irrelevant to whether a debtor can utilize Sec. 522(f)(1). Section 522(f)(1) clearly provides that the debtor may "avoid the fixing of a lien on an interest of the debtor" in exempt property "to the extent that such lien impairs an exemption." See Farrey v. Sanderfoot, 500 U.S. 291, 295, 111 S.Ct. 1825, 1828, 114 L.Ed.2d 337 (1991) (stating that Sec. 522(f)(1) allows the debtor to avoid the fixing of a lien, i.e., the fastening of a liability, to an interest of the debtor in exempt property). We believe that the plain language of Sec. 522(f)(1) allows a debtor to avoid a lien only when the judicial lien fastens a liability to and impairs the debtor's exempt property.

Therefore, the initial question that we must answer in this appeal is whether the Belknap's lien "fixes" against the Hendersons' homestead. Numerous Texas cases have stated that a properly abstracted judgment never attaches to a homestead so long as it remains homestead property. E.g., Hoffman v. Love, 494 S.W.2d 591, 593-94 (Tex.Civ.App.--Dallas 1973) ("[A] judgment, though duly abstracted, never fixes a lien on the homestead so long as it remains homestead."), writ ref'd n.r.e. per curiam, 499 S.W.2d 295 (Tex.1973); Harms v. Ehlers, 179 S.W.2d 582, 583 (Tex.Civ.App.--Austin 1944, writ ref'd) (noting that "no abstract of judgment lien could or did attach" to the parties' homestead). Section 52.001 of the Texas Property Code provides:

Except as provided by Section 52.0011, a first or subsequent abstract of judgment, when it is recorded and indexed in accordance with this chapter, constitutes a lien on the real property of the defendant located in the county in which the abstract is recorded and indexed, including real property acquired after such recording and indexing.

TEX.PROP.CODE ANN. Sec. 52.001 (Vernon Supp.1994). ² Section 41.001 of the Texas Property Code provides that a homestead is "exempt from seizure for the claims of creditors." TEX.PROP.CODE ANN. Sec. 41.001 (Vernon Supp.1994). Reading these provisions without the benefit of Texas case law would certainly lead one to conclude that a judicial lien in Texas does fasten a liability on the homestead. At the same time, however, homestead property is exempt from the enforcement of a judicial lien. This reading of the relevant Texas statutes is supported by Exocet, Inc. v. Cordes, 815 S.W.2d 350 (Tex.App.--Austin 1991, no writ). In Exocet, the court explained that

[w]hen an abstract of judgment is recorded and indexed in accordance with chapter 52 of the Property Code, it "constitutes a lien on the real property of the defendant located in the county ..., including real property acquired after such recording and indexing."...