In re Depascale

• Decision Date: 08 August 2013
• Docket Number: No. 13–40768.,13–40768.
• Parties: In re Ronald B. DEPASCALE, Debtor.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio

496 B.R. 860

In re Ronald B. DEPASCALE, Debtor.

No. 13–40768.

United States Bankruptcy Court, N.D. Ohio.

Aug. 8, 2013.

Robert J. Delchin, Biales Delchin Law, Mentor, OH, for Debtor.

Melody Dugic Gazda, Richard G. Zellers & Associates, Canfield, OH, for Trustee.

Richard G. Zellers, Richard G. Zellers & Associates, Canfield, OH, Trustee.

MEMORANDUM OPINION REGARDING MOTION TO AVOID JUDICIAL LIENS

KAY WOODS, Bankruptcy Judge.

Consistent with established precedent, this Court has long applied the Ohio Homestead Exemption amount in effect on the date a voluntary bankruptcy petition is filed in considering avoidance of prior filed judicial liens. The Court today confronts a matter of first impression— i.e., whether Ohio Revised Code (“O.R.C.”) § 2329.66, as amended by Substitute House Bill No. 479 (“H.B. 479”), dictates a contrary result.

This cause is before the Court on Amended Motion of Debtor to Avoid Judgment Liens of Unifund CCR Partners and Landmark National II, Corp. Pursuant to Section 522(f)(1)(A) of the Bankruptcy Code (“Motion to Avoid Liens”) (Doc. # 13) filed by Debtor Ronald B. Depascale on May 3, 2013. The Debtor requests the Court to avoid two judicial liens on the basis that they impair the Debtor's homestead exemption as set forth in O.R.C. § 2329.66(A)(1)(b) ( “Homestead Exemption”). The Debtor contends that he is entitled to the Homestead Exemption in the amount of $132,900.00, which is the amount in O.R.C. § 2329.66 in effect when the Debtor filed his petition. The Debtor seeks to avoid (i) judgment lien filed January 25, 2010 by Unifund CCR Partners (“Unifund”) in the amount of $2,185.49 plus interest and costs (“Unifund Lien”); ¹ and (ii) judgment lien filed March 16, 2011 by Landmark National II, Corp. (“Landmark”) in the amount of $136,348.16 plus interest and costs (“Landmark Lien”).

Landmark filed Amended Objection to Debtor's Motion to Avoid Lien of Landmark National II, Corp. (“Objection”) (Doc. # 16) on May 10, 2013. In the Objection, Landmark argues that the Debtor may only claim the Homestead Exemption in the amount of $23,000.00, which is the amount in O.R.C. § 2329.66 in effect when Landmark filed the Landmark Lien.² Landmark asserts that the increased Homestead Exemption amount in H.B. 479 was not intended to apply to judicial liens filed before the effective date of March 27, 2013. Specifically, Landmark relies on the following language from Section 3 of H.B. 479 to support its position:

The amendments made by this act to sections 2329.66 and 2329.661 of the Revised Codeshall apply to claims accruing on or after the effective date of this act.... This act is not intended to impair any secured or unsecured creditors' claims that accrue prior to the effective date of this act.

H.B. 479 at 61 (emphasis added). Because the Landmark Lien was recorded before the March 27, 2013 effective date of H.B. 479, Landmark contends that the Landmark Lien is avoidable only in part.

On June 6, 2013, the Debtor filed Response to Landmark National II, Corp.'s Amended Objection to Avoid Judgment Lien (“Response”) (Doc. # 24). On June 12, 2013, Landmark filed Supplement to Amended Objection to Debtor's Motion to Avoid Lien of Landmark National II, Corp. to File Real Property Appraisal (“Supplement”) (Doc. # 26), to which was attached a multi-page appraisal indicating that the value of the Debtor's Residence (as defined infra at 4) is $228,000.00.

The Court held a hearing on the Motion to Avoid Liens on June 13, 2013, at which appeared Robert J. Delchin, Esq. on behalf of the Debtor and Craig W. Relman, Esq. on behalf of Landmark. At the hearing, the parties stipulated that, if the Debtor is entitled to a Homestead Exemption in the amount of $132,900.00, then all judgment liens, including the Landmark Lien, are avoidable. If the Debtor is entitled to a lesser Homestead Exemption amount, the parties agreed that the Court will need to conduct an evidentiary hearing to determine the fair market value of the Debtor's Residence.

Having considered the Motion to Avoid Liens, the Objection, the Response, the Supplement, applicable statutes and case law, the Court will grant the Motion to Avoid Liens for the reasons set forth herein.

This Court has jurisdiction pursuant to 28 U.S.C. § 1334 and the general order of reference (Gen. Order No. 2012–7) entered in this district pursuant to 28 U.S.C. § 157(a). Venue in this Court is proper pursuant to 28 U.S.C. §§ 1391(b), 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K). The following constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

I. BACKGROUND

The Debtor filed a voluntary petition pursuant to chapter 7 of Title 11, United States Code, on April 9, 2013 (“Petition Date”). The Debtor resides at 6019 New London Road, Ashtabula, Ohio (“Residence”) (Doc. # 1 at 1), which he claims has a fair market value of $144,900.00. (Mot. to Avoid Liens at 2.) The Debtor represents that his Residence is subject to the following encumbrances: (i) a mortgage in favor of HSBC/Ocwen Loan Servicing (“HSBC”) in the amount of $143,869.42,³ which was incurred in 2007; (ii) the Unifund Lien; and (iii) the Landmark Lien. ( Id.)

II. ARGUMENTS OF THE PARTIES

A. The Debtor's Arguments

The Debtor claims that he is entitled to the Homestead Exemption in his Residence in the amount of $132,900.00, which is the amount in O.R.C. § 2329.66 in effect as of the Petition Date. The Debtor argues that the plain language of O.R.C. § 2329.66 fixes a debtor's interest in the Homestead Exemption on the date that a debtor files a bankruptcy petition. The Debtor rejects the contention that Section 3 of H.B. 479 limits the increased exemption amount only to judicial liens filed after the effective date of the amendments. Rather, according to the Debtor:

[Section 3] simply means that a debtor cannot use the new homestead exemption to retroactively go get his/her money back after a creditor has already executed upon an old debt.... That is, what matters is when the debt is executed upon, i.e., satisfied, not when it is incurred.

( Id. at 3.) The Debtor further notes that, when the Homestead Exemption was previously amended to increase in amount, the increased exemption amount applied to preexisting liens. The Debtor thus contends that the amount of $132,900.00 applies to all debts, including those incurred prior to the enactment of H.B. 479.

The Debtor relies on a letter dated March 15, 2013 from Mark R. Schweikert, Executive Director of the Ohio Judicial Conference, to Mark Flanders, Director of the Ohio Legislative Service Commission (“Judicial Conference Letter”),⁴ which increased the amount of the Homestead Exemption to $132,900.00 effective April 1, 2013.⁵ The Debtor argues that the Ohio Judicial Conference's failure to publish adjustments for the former exemption amounts demonstrates its understanding that the former Homestead Exemption amount no longer exists. Finally, the Debtor argues that the former exemption amounts no longer apply because H.B. 479 repealed the prior version of O.R.C. § 2329.66.

Applying the $132,900.00 Homestead Exemption, the Debtor contends that the Landmark Lien and the Unifund Lien are avoidable. Specifically, the Debtor asserts that his Residence had a fair market value of $144,900.00 on the Petition Date, as evidenced by an April 26, 2013 market appraisal attached as Exhibit A to the Motion to Avoid Liens. In addition to the Landmark Lien and the Unifund Lien, the Debtor states that HSBC holds a mortgage against his Residence in the amount of $143,869.42. The Debtor contends that the HSBC mortgage and the Homestead Exemption in the amount of $132,900.00 do not leave any equity in the Residence to which the Unifund Lien and the Landmark Lien attach and, thus, both judicial liens may be avoided pursuant to 11 U.S.C. § 522(f)(1)(A).

B. Landmark's Arguments

Landmark argues that the Debtor may only claim the Homestead Exemption in the amount of $23,000.00— i.e., the amount applicable when the Landmark Lien was filed. Landmark relies on Section 3 of H.B. 479 to suggest that the Debtor may not claim the increased Homestead Exemption amount. According to Landmark:

[T]he last sentence of [Section 3] ... states that the law is not intended to impair secure [sic] or unsecured claims that accrue prior to the effective date of the statute. This language strongly suggests an intent for the new homestead exemption to be perspective [sic] only.

(Obj. at 2.)

Landmark further argues that there must be a clear legislative intent for an act to apply retroactively, which intent is absent from H.B. 479. Landmark states that to apply H.B. 479 retroactively would affect its substantive rights— i.e., its ability to enforce its judicial lien—in violation of the Ohio Constitution. Landmark contends that the Debtor is limited to the Homestead Exemption in the amount of $23,000.00 because the Landmark Lien was filed prior to the March 27, 2013 effective date of H.B. 479.

In addition to challenging the amount of the applicable Homestead Exemption, Landmark (i) disputes the Debtor's valuation of the Residence; (ii) contends that the Residence is worth at least $229,000.00; ⁶ and (iii) requests access to the Residence to conduct its own appraisal.⁷ Using its contentions that (i) the residence has a value of $229,000.00; and (ii) the Homestead Exemption is limited to $23,000.00, Landmark argues that there is $59,945.09 in equity in the Residence to which the Landmark Lien attaches. Accordingly, Landmark contends that its lien is avoidable only in part.

III. LAW & ANALYSIS

A. BANKRUPTCY CODE § 522 AND THE HOMESTEAD EXEMPTION

The Motion to Avoid Liens is based on 11 U.S.C. § 522(f), which states, in pertinent part:

(1) Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien...