In re Coy

• Decision Date: 23 June 2016
• Docket Number: Case No. 6:15–bk–21958–SC
• Citation: 552 B.R. 199
• Parties: In re Sean Phillip Coy, Debtor.
• Court: U.S. Bankruptcy Court — Central District of California

552 B.R. 199

In re Sean Phillip Coy, Debtor.

Case No. 6:15–bk–21958–SC

United States Bankruptcy Court, C.D. California, Riverside Division .

Signed June 23, 2016

Date: May 10, 2016

Norma Duenas, Santa Ana, CA, for Debtor.

ORDER GRANTING MOTION TO AVOID ABSTRACT OF JUDGMENT AND MOTION TO AVOID “NOTICE OF LEVY” UNDER § 522(f) AND MEMORANDUM OF DECISION

Scott C. Clarkson

, United States Bankruptcy Judge

This matter is before the Court on two motions to avoid lien [Dks. 18, 19] (“Motions”) filed by debtor, Sean Phillip Coy (“Debtor”), the oppositions [Dks. 20, 21] (“Oppositions”) filed by creditor, Morgan Hill Homeowners Association (“Morgan Hills”), the Debtor's replies [Dks. 25, 26] (“Replies”), as well as the supplemental briefs filed by the Debtor [Dk. 40] and Morgan Hills [Dk. 41] (“Briefs”). The Motions originally came on for hearing on April 26, 2016, and the Court continued those hearings to May 10, 2016 to allow for additional briefing on whether the liens sought to be avoided were unavoidable under § 522(f) because they arise from the enforcement of a judgment for foreclosure of a homeowners' assessment lien. Appearances were as noted on the record.

Based upon the Motions, Oppositions, Replies, Briefs, the record as a whole, and for the reasons set forth on the record and as more fully discussed below, the Motions are GRANTED.

I. Introduction

The Debtor's first § 522(f) motion [Dk. 19] (“First Motion”) seeks to avoid the lien arising from an abstract of judgment (“Abstract of Judgment”) [Dk. 20, Exh. 10] for $8,018.78 recorded on October 27, 2009. The Debtor's second § 522(f) motion [Dk. 20] (“Second Motion”) seeks to avoid the alleged lien arising from a recorded notice of levy under writ of sale (“Notice of Levy”) [Dk. 20, Exh. 13] in the amount of $22,931.09 recorded on April 30, 2015. Both the Abstract of Judgment and the Notice of Levy arise from the same Judgment (defined below) for judicial foreclosure and money judgment entered on July 14, 2009 in the amount of $8,018.78.

II. Facts

Morgan Hills originally recorded a notice of assessment lien [Dk. 19, Exh. 8] (“Assessment Lien”) in the amount of $823.92 with the Riverside County Recorder on February 21, 2007. On July 14, 2009, Morgan Hills obtained a Judgment of Foreclosure of Real Property Assessment Lien and Money Judgment [Dk. 19, Exh. 13] (“Judgment”) in the amount of $8,018.78.¹ On October 27, 2016, Morgan Hills recorded the Abstract of Judgment. On April 6, 2015, Morgan Hills recorded a writ of sale [Dk. 19, Exh. 13] (“Writ of Sale”), and on April 30, 2015, Morgan Hills recorded the Notice of Levy. On December 14, 2016, the Debtor filed a chapter 7 bankruptcy, and the Debtor now seeks to avoid the Abstract of Judgment and Notice of Levy under § 522(f) as being “judicial liens.”

III. Discussion

In order to avoid a lien under § 522(f), the debtor must show: (1) that he has an interest in the homestead property; (2) he is entitled to a homestead exemption; (3) the asserted lien impairs that exemption; and (4) the lien is a judicial lien. See In re Morgan, 149 B.R. 147, 151 (9th Cir. BAP 1993)

. The burden is on the debtor, as movant. Id.

It is undisputed that the Debtor has an interest in the subject homestead property—the real property located at 44899 Mumm Street, Temecula, CA 92592 (“Residence”). It is also undisputed that the Debtor resided at the Residence as of the petition date. The value of the Residence, $460,000.00, is not disputed. Transcript 5/10/2016 at 11:44 a.m. It is also undisputed that the Debtor is entitled to a homestead exemption. The only disputed issues before the Court are (1) whether the association's asserted liens impair the Debtor's homestead exemption; (2) whether the liens sought to be avoided are judicial liens; and (3) whether the Motions are futile and brought in bad faith by the Debtor to harass Morgan Hills. These issues are discussed and analyzed in detail below.

A. Do the Liens Sought to Be Avoided “Impair” the Homestead Exemption?

Section 522(f)(2) provides a formula to determine whether a judicial lien “impairs” the debtor's exemption. It is undisputed that the § 522(f)(2) formula is met here with respect to both Motions. It is undisputed that the Debtor has claimed a $1.00 exemption in the Residence pursuant to California Code of Civil Procedure § 703.140(b)(1)

. See Schedule C [Dk. 18, Exh. 1]. As discussed on the record, it is also undisputed that the Residence is substantially undersecured. See Transcript 5/10/2016 at 11:50 a.m. The first deed of trust on the Residence was determined to be $550,000.00, and it is undisputed that the homeowners' assessment liens are subordinate to this first trust deed. See Transcript 5/10/2016 at 11:52 a.m. Accordingly, the Court finds that the § 522(f)(2) formula has been met.

Morgan Hills raises the argument, however, that the Debtor's claimed homestead exemption is not “impaired” by the Abstract of Judgment because the Judgment itself was not “solely ” a money judgment. Brief [Dk. 41, page 8, lines 1–3] (emphasis added). The Court disagrees. Under California law, the applicability of exemptions is not dependent on whether a judgment is “solely” a money judgment. California law makes no such distinction. Rather, the introductory statute governing “application of exemptions” simply states: “The exemptions provided by this chapter or by any other statute apply to all procedures for enforcement of a money judgment.” Cal.Civ.Proc.Code § 703.010(a)

. Indeed, the term “money judgment” is defined under California law as “that part of a judgment that requires the payment of money.” Cal.Civ.Proc.Code § 680.270 (emphasis added). Under California law, exemptions may be claimed by a debtor to protect against the enforcement of involuntary liens, including judgments, attachments, and execution liens. See

Polk v. Country of Contra Costa, 2014 WL 3940206, at *9 (E.D.Cal. Aug. 12, 2014) (citing In re Patterson, 139 B.R. 229, 232 (9th Cir. B.A.P. 1992) ; In re Pavich, 191 B.R. 838, 847 (Bankr.E.D.Cal.1996) ; In re Bunn–Rodemann, 491 B.R. 132, 136 (Bankr.E.D.Cal.2013) ).

Here, the Abstract of Judgment includes a money judgment component, and the Abstract of Judgment is an involuntary lien that arises from the Judgment. Therefore, under California law, the Abstract of Judgment impairs the Debtor's exemption.

B. Are the Abstract of Judgment or Notice of Levy Avoidable Under § 522(f) as Being “Judicial Liens”?

Section 522(f) allows a debtor to avoid either a judicial lien or a nonpossessory, nonpurchase-money security interest. 11 U.S.C. § 522(f)(1)

. The Debtor asserts that the Abstract of Judgment and Notice of Levy are both judicial liens. Morgan Hills does not dispute that the Abstract of Judgment is a judicial lien. With respect to the Notice of Levy, Morgan Hills concedes that it is “arguably” a judicial lien. Brief [Dk. 20, page 3, line 16]. For the reasons set forth below, the Court finds that the Abstract of Judgment and the Notice of Levy are judicial liens.

Abstract of Judgment

On October 27, 2009, Morgan Hills recorded with the Riverside County recorder's office an abstract of a money judgment against the Debtor's Residence. See Abstract of Judgment [Dk. 18–10]. Under California law, upon recording the Abstract of Judgment, a judgment lien was created against the Debtor's Residence. See Cal.Civ.Proc.Code § 697.310(a)

(“[A] judgment lien on real property is created under this section by recording an abstract of a money judgment with the county recorder.”). Under the Bankruptcy Code, a judgment lien is a judicial lien. See 11 U.S.C. § 101(36) (defining “judicial lien” as a “lien obtained by judgment ...”).

The Court finds that the Abstract of Judgment is an avoidable judicial lien within the meaning of § 522(f)

.

Notice of Levy

At first blush, a recorded notice of levy under writ of sale does not appear to be a lien at all. However, where a judgment for foreclosure includes a money judgment component, California law treats a writ of sale like a writ of execution with respect to the monetary aspects of the judgment. When a writ of execution is levied upon, an execution lien arises. An execution lien is an avoidable judicial lien. As analyzed below, the Court finds that the recordation of the Notice of Levy gave rise to an execution lien, which is avoidable under § 522(f)

.

Judgments for the sale of real property are generally enforced by writs of sale or possession, as opposed to writs of execution. See Cal. Prac. Guide Enf. J. & Debt Ch. 6D-2

§ 6:316 (“Judgments for possession or sale of real or personal property are enforced by writs of possession or sale, rather than by writs of execution.”). However, where a judgment for sale includes a money judgment component, the judgment creditor has the option of including the amount of the money judgment within the writ of sale. Cal.Civ.Proc.Code § 712.020(e) (“If the judgment for possession or sale includes a money judgment, the amount required to satisfy the money judgment on the date the writ is issued, and the amount of interest accruing daily on the principal amount of the judgment from the date the writ is issued may be included on the writ at the option of the creditor.”). In such instances, the writ of sale is enforced as though it were a writ of execution with respect to the money judgment aspect of the judgment (unless otherwise ordered in the judgment). See Cal.Civ.Proc.Code § 712.040(a) (“A writ of ... sale may be enforced as a writ of execution to satisfy any money judgment included in the judgment for ... sale.”); Cal.Civ.Proc.Code § 712.040(c) (“Notwithstanding subdivisions (a) and (b), if so ordered in a judgment for sale, a money judgment included in the judgment may only be enforced as ordered by the court.”). See also Cal. Prac. Guide Enf. J. & Debt Ch. 6I–5 (“If a money judgment is included in a judgment for ... sale ..., the writ of ... sale may be enforced by the levying officer as if it were a writ of execution to satisfy such...