In re Hoffman
| Decision Date | 18 March 1983 |
| Docket Number | 81-2-0022-L,81-0201.,Bankruptcy No. 80-2-0816-L,Adv. No. 81-0029 |
| Citation | 28 BR 503 |
| Parties | In re Alfred Rhineholt HOFFMAN, Jr. and Paula Anne Hoffman, Debtors. Alfred Rhineholt HOFFMAN, Jr. and Paula Anne Hoffman, Plaintiffs, v. INTERNAL REVENUE SERVICE, et al., Defendants. In re Barbara Jean HAIRSTON, Debtor. Barbara Jean HAIRSTON, Plaintiff, v. MITCHELL FUR COMPANY, et al., Defendants. |
| Court | U.S. Bankruptcy Court — District of Maryland |
Mitchell Stevan, Baltimore, Md., for plaintiffs Alfred Rhineholt Hoffman, Jr. and Paula Anne Hoffman.
Mark Davis, Baltimore, Md., for plaintiff Barbara Jean Hairston.
Charles Zuravin, Baltimore, Md., for defendant Internal Revenue Service.
Joel I. Sher, Baltimore, Md., for defendant York Corrugating Co.
Robert C. Prem, Baltimore, Md., John W. Stitt, York, Pa., for defendant Schumacher & Seiler, Inc.
David C. Brown, Annapolis, Md., for defendant Comptroller of the Treasury of the State of Md.
Lawrence D. Coppel, Baltimore, Md., for the Trustee in Bankruptcy in Hairston.
Gary R. Greenblatt, Baltimore, Md., for the Trustee in Bankruptcy in Hoffman.
The adversary proceeding in the Hoffman case was instituted by the debtors' complaint filed on January 21, 1981, seeking avoidance of certain judicial liens pursuant to 11 U.S.C. § 522(f)(1) (Supp. V 1981). The defendants Internal Revenue Service "I.R.S.", Schumacher & Seiler, Inc. "Schumacher", and York Corrugating Company "York", filed answers, and the matter was set down for hearing with other cases presenting similar legal issues concerning § 522(f). Following a hearing before the Honorable Harvey M. Lebowitz, which was held on March 12, 1981, a decision in all the related cases was held sub curia. Judge Lebowitz' opinion in the case of In re Coleman, 10 B.R. 772, 773 n. 2 (Bkrtcy.D.Md.1981), which was filed on April 29, 1981, disposed of all pending matters save the instant controversies, which remained undecided when he resigned on January 31, 1982. Counsel thereafter consented to a decision upon the record and the transcript of the hearing.
The parties stipulated to the following facts. Pursuant to an Order of this Court dated October 1, 1980, Riverside Federal Savings and Loan Association "Riverside", the mortgagee of the Hoffmans' residence at 3126 Hernwood Road, Woodstock, Maryland, was permitted to proceed with a foreclosure action pending in the Circuit Court for Baltimore County. Following a sale of the property, Riverside turned over to the Bankruptcy Trustee the surplus shown in the Auditor's Amended Report and Account in the amount of $71,093.44. Four creditors claimed an interest in the fund: (1) the I.R.S. under a lien recorded March 15, 1979 in the amount of $15,844.99; (2) Schumacher under a judicial lien dated July 10, 1979 in the amount of $64,947.78; (3) York under a judicial lien dated September 4, 1979 in the amount of $21,448.67; and (4) the Comptroller of the Treasury for the State of Maryland (the "Maryland Comptroller") under a lien recorded December 20, 1979 in the amount of $3,756.82.
The first three liens sought to be avoided were created during the so-called "gap period" —the interval between the November 6, 1978 enactment date and the October 1, 1979 effective date of the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2683 (1978) (). The Maryland Comptroller's lien arose after the effective date of the Reform Act. He has filed a belated answer consenting to the avoidance of his lien.
The Hairston case was heard by Judge Lebowitz on July 14, 1981 upon the debtor's amended complaint to avoid a judicial lien. A motion for judgment by default was filed by the debtor upon the failure of the defendants to answer or otherwise defend. As in Hoffman, the resignation of Judge Lebowitz, occurred while a decision on the merits was pending.
Barbara Jean Hairston filed a voluntary Chapter 7 petition in this Court on January 5, 1981. She claimed as exempt her residence at 2009 Greenmount Avenue, Baltimore, Maryland, pursuant to the federal homestead exemption provided by 11 U.S.C. § 522(d)(1) which permits an exemption not to exceed $7,500. She has assigned to her home a value of $6,530 as indicated on her Amended Schedule B-4 which she filed on May 20, 1981. Her residential real property is unencumbered except for a judicial lien in the amount of $1,722 which was obtained by the Defendant Mitchell Fur Company ("Mitchell") on May 19, 1977, prior to the enactment date of the Reform Act on November 6, 1978. She filed this complaint to avoid the lien on February 23, 1981.
1. What is the effect of 11 U.S.C. § 522(f)(1) upon the judicial lien in Hairston which was perfected prior to the enactment of the Bankruptcy Code on November 6, 1978, and upon the judicial liens in Hoffman which were perfected during the period between the enactment of the Bankruptcy Code on November 6, 1978 and the date the Code became effective on October 1, 1979?
2. Do the various liens which encumber the debtors' properties impair exemptions which the debtors are entitled to claim?
3. Assuming that the liens are determined to impair exemptions, will the liens be avoided on a pro rata basis or in the inverse order of their priority?
4. What is the proper disposition to be made of the interest which has accrued during the pendency of these proceedings upon the proceeds of sale which were escrowed in Hoffman?
In this district, 11 U.S.C. § 522(f)(2) has been held to be constitutional when it is applied to avoid nonpossessory, nonpurchase-money security interests in household goods and furnishings during the "gap period". In re Coleman, supra. In that opinion, Judge Lebowitz recognized the continuing viability of Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935) in declaring as violative of the Due Process Clause of the Fifth Amendment the retroactive application of § 522(f)(2) to destroy consensual liens created prior to the enactment date of the Code on November 6, 1978.
In the recent case of United States v. Security Industrial Bank, 459 U.S. ____, 103 S.Ct. 407, 74 L.Ed.2d 235, 9 B.C.D. 1071 (1982), the Supreme Court of the United States agreed with Judge Lebowitz that pre-enactment consensual liens could not be avoided by the Code, albeit employing a somewhat different rationale for its conclusion. Without reaching the constitutional issue, the Court held that where the retroactive application of a bankruptcy statute raises substantial constitutional questions, it will not be so applied to destroy preexisting property rights, in the absence of a clear statement of congressional intent. Finding no such statement of intent that § 522(f)(2) be applied to avoid nonpossessory, nonpurchase-money security interests existing before the enactment date of the Code, the Court denied retroactive effect to the subsection.
In light of this ruling, two weeks later, the Court vacated the decision of the Third Circuit Court of Appeals in the case of In re Ashe, 669 F.2d 105 (3 Cir.1982), which had held constitutional the application of § 522(f)(1) to avoid preenactment judicial liens. Commonwealth National Bank v. Ashe, 459 U.S. ____, 103 S.Ct. 563, 74 L.Ed.2d 235 (1982). The implication of the Court in Ashe and its unequivocal holding in Security Industrial Bank leads this Court to conclude that § 522(f)(1) may not be retroactively applied to destroy the preenactment judicial lien in Hairston.
In several cases, the Maryland Court of Appeals has discussed the nature of the interests acquired by judgment creditors in debtor's property in this state. In Lee v. Keech, 151 Md. 34, 133 A. 835, 46 A.L.R. 1488 (1926), the Court characterized the interest as one "rather in the nature of a remedy, than of an estate," deciding that one who holds a judgment against an heir does not possess a sufficient interest in the debtor's real property to attack the will by which it was devised to him. The opinion contains dicta to the effect that because the right to a judgment lien is conferred by statute in Maryland, "it may be changed by statute without violating any constitutional inhibition." Id. 151 Md. at 38, 133 A. at 836. In Union Trust Co. v. Biggs, 153 Md. 50, 137 A. 509 (1927), it was held that because a judgment creates only a general, non-specific lien, a judgment lien creditor is not a bona fide purchaser for value, and must stand behind a holder of a prior, specific lien. In Messinger v. Eckenrode, 162 Md. 63, 67-68, 158 A. 357, 358 the Court stated that a judgment lien:
. . . Extends not only to presently owned, but to after-acquired property (Poe\'s Practice, sec. 374; Ahern v. White, 39 Md. 409, 417), is effective from the date of its entry, and as amongst "several judgments against the same debtor they take effect according to their date and are entitled to be satisfied in the order of their seniority, without reference to the date of their execution, or the time at which it may be placed in the hands of the sheriff." Poe\'s Practice, sec. 378.
And in the most recent case touching upon the subject of judicial liens, namely Liquor Dealers v. Comptroller, 241 Md. 656, 661, 217 A.2d 571, 574 (1966), the Court stated:
Since a lien predicated upon the rendition or entry of a judgment did not exist at common law, a judgment is not, in and of itself, a lien on either real or personal property. The right a judgment creditor has to a lien is therefore wholly statutory. Caltrider v. Caples, 160 Md. 392, 394, 153 Atl. 445 (1931). Furthermore, a judgment creates a lien on real property (and certain leasehold estates) only because the land is made liable, formerly by statute but now by rule, to be seized and sold on execution. Messinger v. Eckenrode, 162 Md. 63, 158 Atl....
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