In re Leicht, BAP No. MW 97-067.

• Citation: 222 BR 670
• Decision Date: 07 July 1998
• Docket Number: BAP No. MW 97-067.
• Parties: In re Gregory J. LEICHT and Sara A. Leicht, Debtors. BRUIN PORTFOLIO, LLC, Appellant, v. Gregory J. LEICHT and Sara A. Leicht, Appellees.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, First Circuit

222 B.R. 670 (1998)

In re Gregory J. LEICHT and Sara A. Leicht, Debtors.

BRUIN PORTFOLIO, LLC, Appellant, v. Gregory J. LEICHT and Sara A. Leicht, Appellees.

BAP No. MW 97-067.

United States Bankruptcy Appellate Panel of the First Circuit.

July 7, 1998.

Jeffrey D. Ganz, Riemer & Braunstein, Boston, MA, for Appellant.

John A. Burdick, Jr., Burdick & DiLeo, P.C., for Appellees.

Before GOODMAN, HAINES, CARLO, U.S. Bankruptcy Judges.

HAINES, Bankruptcy Judge.

Bruin Portfolio, LLC "Bruin" appeals the bankruptcy court's order avoiding its judicial lien on Gregory and Sara Leicht's "Leicht" residence. After considering carefully Bruin's challenges to the order, we affirm.

Jurisdiction

The bankruptcy court's lien avoidance order is a final order. See In re Weinstein, 217 B.R. 5, 6 (D.Mass.1998), appeal pending; see also East Cambridge Sav. Bank v. Silveira (In re Silveira), 141 F.3d 34 (1st Cir. 1998)(court of appeals reviewing lien avoidance order without discussion of jurisdiction); see generally In re Saco Local Dev. Corp., 711 F.2d 441, 442-48 (1st Cir.1983)(Breyer, J.)(discussing bankruptcy appellate jurisdiction); Fleet Data Processing Corp. v. Branch (In re Bank of New England Corp.), 218 B.R. 643 (1st Cir. BAP 1998)(same). We have jurisdiction under 28 U.S.C. § 158(a)(1) and (b).

Scope of Review

Bruin's challenge to the bankruptcy court's lien avoidance order raises legal issues exclusively. We review de novo the lower court's legal conclusions. See Krikor Dulgarian Trust v. Unified Management Corp. Of Rhode Island, Inc. (In re Peaberry's Ltd.), 205 B.R. 6, 7 (1st Cir. BAP 1997). See also LaRoche v. Amoskeag Bank (In re LaRoche), 969 F.2d 1299, 1301 (1st Cir.1992).

Background

The Leichts, Chapter 7 debtors, executed a $272,000.00 promissory note to Home National Bank of Milford on July 8, 1988. Bruin eventually succeeded to the bank's interest by assignment via the Federal Deposit Insurance Corporation.

The Leichts purchased a home in Westborough, Massachusetts on February 13, 1992, and, pursuant to state statute, recorded a declaration of homestead for the property on October 12, 1994.

Bruin initiated suit on its promissory note in state court and obtained a writ of attachment, recorded as a lien against the Leichts' real estate on April 4, 1995. The state court issued judgment in Bruin's favor on August 30, 1996.

The Leichts filed a voluntary Chapter 7 petition on April 7, 1997. They scheduled their Westborough residence, held in joint tenancy, but did not claim an exemption in the property on Schedule C. They did, however, indicate their choice to utilize Massachusetts state exemption rights. On June 26, 1997, the Leichts filed a motion seeking to avoid Bruin's lien under § 522(f) of the Bankruptcy Code,¹ asserting that the lien impaired their homestead exemption. Bruin opposed the motion, pointing out, among other things, the Leichts' failure to schedule their exemption claim. The Leichts quickly filed a motion to amend their Schedule C to set forth the homestead exemption claim on July 16, 1997.

On August 12, 1997, after a nonevidentiary hearing, the bankruptcy court granted the Leichts' lien avoidance motion. This appeal ensued.

Discussion

Bruin's attack on the bankruptcy court's lien avoidance order proceeds on two fronts. First, it argues that the court misapprehended the substance of the Massachusetts homestead exemption, leading, in turn, to a misapplication of § 522(f). Second, it urges that, if § 522(f) operates to avoid its lien, the statute effects a "taking" offensive to the United States Constitution's Fifth Amendment. We will address each argument in turn.

I.

Section 522(f) and the Massachusetts Homestead Statute

a. The Lay of the Land

We begin by noting that, under § 522(b), debtors in bankruptcy may elect to utilize either the Bankruptcy Code exemptions set forth in § 522(d) or the exemptions provided by their state of residence together with those provided by federal, nonbankruptcy law. If a state has "opted out" of the federal exemption scheme, its resident debtors are restricted to the latter option.² Massachusetts permits its debtors to elect between the state and federal exemption alternatives. The Leichts selected the Massachusetts exemption scheme and claimed the Massachusetts statutory homestead exemption.³

b. The Statutory Geography

1. The Massachusetts Homestead Statute

We begin by examining the Massachusetts homestead statute. It provides:

§ 1. Right to acquire; exemptions; definitions

An estate of homestead to the extent of one hundred thousand dollars in the land and buildings may be acquired pursuant to this chapter by an owner or owners of a home or one or all who rightfully possess the premise by lease or otherwise and who occupy or intend to occupy said home as a principal residence. Said estate shall be exempt from the laws of conveyance, descent, devise, attachment, levy on execution and sale for payment of debts or legacies except in the following cases:

(1) sale for taxes;

(2) for a debt contracted prior to the acquisition of said estate of homestead;

(3) for a debt contracted for the purchase of said home;

(4) upon an execution issued from the probate court to enforce its judgment that a spouse pay a certain amount weekly or otherwise for the support of a spouse or minor children;

(5) where buildings on land not owned by the owner of a homestead estate are attached, levied upon or sold for the ground rent of the lot whereon they stand;

(6) upon an execution issued from a court of competent jurisdiction to enforce its judgment based upon fraud, mistake, duress, undue influence or lack of capacity.

For the purposes of this chapter, an owner of a home shall include a sole owner, joint tenant, tenant by the entirety or tenant in common; provided, that only one owner may acquire an estate of homestead in any such home for the benefit of his family; and provided further, that an estate of homestead may be acquired on only one principal residence for the benefit of a family. For the purposes of this chapter, the word "family" shall include either a parent and child or children, a husband and wife and their children, if any, or a sole owner.

Mass. Gen. Laws ch. 188, § 1 (Supp.1998).

A property owner "acquires" the homestead by declaration, either in the deed by which the debtor obtains the property, or by a subsequently recorded instrument. Id. § 2. Chapter 188 also provides that, in case of marital separation, the probate court may order use and occupation of the homestead by the spouse who is not the declared "owner" of the homestead, minor children of the marriage, or both. Id. § 3 (1991). The homestead "continues for the benefit of a surviving spouse and minor children" following the declared owner's death. Id. § 4. Mortgagees and encumbrancers of the homestead realty are protected against a subsequent homestead declaration, see id. § 5, but the homestead estate will prevail as against a third party who acquires the equity of redemption on execution. See id. § 6. The homestead may be terminated by deed or recorded declaration signed by the record homestead owner and his or her spouse. See id. § 7.

2. Section 522(c)

Although Bruin's appeal raises § 522(f) lien avoidance issues, § 522(c) is critical to our analysis. It establishes the post-bankruptcy relationship between "property exempted" and debts that arose (or that are treated as having arisen) before the commencement of the bankruptcy case:

(c) Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such debt had arisen, before the commencement of the case, except —

(1) a debt of a kind specified in section 523(a)(1) or section 523(a)(5) of this title; or

(2) a debt secured by a lien that is —

(A)(i) not avoided under subsection (f) or (g) of this section or under section 544, 545, 547, 548, 549, or 724(a) of this title; and (ii) not voided under section 506(d) of this title; or

(B) a tax lien, notice of which is properly filed; or

(3) a debt of a kind specified in section 523(a)(4) or 523(a)(6) of this title owed by an institution-affiliated party of an insured depository institution to a Federal depository institutions regulatory agency acting in its capacity a conservator, receiver, or liquidating agent for such institution.

§ 522(c). See Davis v. Davis (In re Davis), 105 F.3d 1017 (5th Cir.1997)(describing operation of § 522(c) vis-a-vis state exemption provisions), rehearing granted en banc, 131 F.3d 1120 (5th Cir.1997).⁴

3. Section 522(f)

Section 522(f)'s operation is at the center of this appeal. It provides debtors the ability to avoid (i.e. to reduce or eliminate) certain liens, including judicial liens, as is Bruin's, that encumber exempt property. It states:

(f)(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 impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is —

(A) a judicial lien, other than a judicial lien that secures a debt —

(i) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement; and

(ii) to the extent that such debt —

(I) is not assigned to another entity, voluntarily, by operation of law, or otherwise; and

(II) includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support; or

(B) a nonpossessory, nonpurchase-money security interest in any —

(i)

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