In re Saal, 05-48814-SBB.
| Decision Date | 01 March 2006 |
| Docket Number | No. 05-48814-SBB.,05-48814-SBB. |
| Parties | In re Peter Lew SAAL and Isabel Brones, Debtors. Peter Lew Saal and Isabel Brones, Movants, v. Helping People Succeed, Inc., d/b/a Express Personnel Services, Respondent. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado |
Barton S. Balls, Balis & Barrett, P.C., Boulder, CO, for Movants.
ORDER GRANTING MOTION TO AVOID FIXING OF JUDICIAL LIEN OF HELPING PEOPLE SUCCEED, INC. PURSUANT TO 11 U.S.C. 522(f)(1)(A) (DOCKET # 16)
THIS MATTER comes before the Court on Motion to Avoid Fixing of Judicial Lien of Helping People Succeed, Inc. ("Creditor") Pursuant to 11 U.S.C. § 522(f)(1)(A) ("Motion") filed by Peter Lew Saal and Isabel Brones ("Debtors") on January 18, 2006 (Docket # 16). The Court, having reviewed the file and being advised in the premises, makes the following findings of fact, conclusions of law and Order.
For the reasons stated herein, the Court GRANTS the Debtor's Motion.
A certificate of non-contested matter was filed with respect to the Motion. It appears that service was proper on the Creditor and that no response to the Motion was filed. Therefore, the following recitation of facts is not contested.1
The Creditor has a judicial lien on the Debtors' interest in real property located at 1745 Orchard Avenue, Boulder, CO 80304 ("Property"). The judicial lien attached to the Debtors' interest in the Property on September 24, 2004, by the recording of a Transcript of Judgment in the real estate records of the Clerk and Recorder of Boulder, Reception Number 2629953. The judgment lien secures an indebtedness presently past due and owing to the Creditor in the approximate amount of $9,036.00, plus accrued interest.
Debtors assert that the Property has a market value of $640,000.00. The Property is encumbered by a consensual first lien in the amount of $592,776.00. The Debtors have claimed a homestead exemption in the Property in Schedule C of their schedules in the amount of $45,000.00 in accordance with COLO.REV.STAT. § 38-41-201, 201.5.2
The question before the Court is whether a debtor can avoid a judicial lien, in its entirety or only "to the extent that such lien impairs an exemption," when only part, or a portion, of the lien actually impairs the debtor's exemption. For the reasons set forth herein, the Court concludes that a debtor can avoid the entire lien that only, in part, impairs the exemption in accordance with the formula set forth in 11 U.S.C. § 522(f)(2).
In accordance with 11 U.S.C. § 522(f)(1)(A), the Debtors may avoid the fixing of a lien on an interest of the Debtors in property, to the extent that such lien impairs an exemption to which the Debtors would have been entitled. For the purposes of section 522(f),
a lien shall be considered to impair an exemption to the extent that the sum of —
(i) the lien;
(ii) all other liens on the property; and
(iii) the amount of the exemption that the debtor could claim if there were no liens on the property; exceeds the value that the debtor's interest in the property would have in the absence of any liens.3
The Honorable Charles E. Matheson, former Chief Judge of the Bankruptcy Court for the District of Colorado, set forth the equation in ascertaining impairment in his Pepper decision.4 There, he held:
in making the section 522(f)(2)(A) analysis, one is to add the amount of the allowed homestead, the amount of the judgment and the outstanding balance of the debt secured by all other liens. To the extent this sum exceeds the value of the property, the judgment lien "impairs" the exemption and may be avoided.5
In this case, utilizing Judge Matheson's analysis and 11 U.S.C. § 522(f)(2)(B), the equation is as follows:
1. Judicial Lien: $ 9,036.00
2. First Consensual Lien: $592,776.00
3. Homestead Exemption: $ 45,000.00
4. Total of Liens Plus Exemption: $646,812.00
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5. Value of the Property in Absence of
Liens: $640,000.00
Thus, including the judicial lien, the liens plus the homestead exemption exceed the value that the Debtor's interest in the Property would have in the absence of any liens.6
In 1994, Congress amended 11 U.S.C. § 522(f)(2) to resolve difficulties and inconsistencies in construing what constituted an impairment.7 Leading up to the amendment, the Supreme Court addressed the appropriate calculation to ascertain whether a lien impairs an exemption.8 In so doing, the Supreme Court favorably cited the case of In re Brantz,9 "[f]or a more precise formulation."10 The Brantz case utilized the following formula:
1. Determine the value of the property on which a judicial lien is sought to be avoided.
2. Deduct the amount of all liens not to be avoided from (1).
3. Deduct the Debtors' allowable exemptions from (2).
4. Avoidance of all judicial liens results unless (3) is a positive figure.
5. If (3) does result in a positive figure, do not allow avoidance of liens, in order of priority, to that extent only.11
Congress seemingly adopted this calculation in the enactment of 11 U.S.C. 522(f)(2)(A).12 However, the Brantz calculation would lead to a different result here, as the calculation would be as follows:
1. Value of the Property: $640,000.00
2. Less All Liens Not to Be Avoided
(First Consensual Lien): $592,776.00
3. Less Homestead Exemption: $ 45,000.00
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4. Total (Amount Which Cannot Be
Avoided): $ 2,224.00
Since the total is a positive figure, the Court should, using this equation, only allow the avoidance of $6,812.00 of the $9,036 sought to be avoided because that is the extent to which the exemption is impaired. Thus, $2,224.00 of the lien would survive. However, that result would seem to conflict with the legislative history and the express language of 11 U.S.C. § 522(f)(2)(A).
The express mathematical formula of section 522(f)(2)(A) seems to be intended.13 As the commentator in Collier states:
[s]pecifically, liens impair an exemption to the extent that the sum of all liens on the property, including the lien under consideration, together with the value that the debtor could claim as exempt in the absence of liens on the property, exceed the value of the debtor's interest in the property if it were totally unencumbered.14
This conclusion makes sense because if the Debtor were to later sell his homestead, a portion of the judicial lien would remain after discharge. The judicial lien would have to be satisfied at the time of the sale in order to transfer clear title. "Thus, the mere existence of a judicial lien impairs the homestead exemption because it constitutes a cloud on the title."15 In this instance, utilizing the calculation of 11 U.S.C. § 522(f)(2), the entire judicial lien must be avoided.16
The courts have followed the legislative history of the 1994 Act and have avoided liens in their entirety if the total of the liens on the property and the debtor's exemption exceeds the fair market value of the property. Importantly for debtors, this has the effect of protecting the debtor', the property into the future as well. Once the lien is avoided, it does not reattach to the property to reach any future increase in value or other "equity" in the property that might accrue.17
IT IS THEREFORE ORDERED that the judicial lien of the Creditor is hereby avoided and that said judicial lien is therefor VOID.
1. The reason this Court delves into this case with some care, despite being non-contested, is because this Court usually receives from this counsel fairly detailed calculations of lien impairment in a formula or equation. The pleading filed, while detailed, was not in a formula or equation and upon initial impression appeared to result in a judicial lien that was potentially not avoidable. Upon further reflection, calculation, research and study of this case, case law, 11 U.S.C. § 522(f)(2)(A), and the legislative history thereto, the Court concludes that the judicial lien does impair the homestead exemption of this Debtor. Moreover, with the crush of filings leading up to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 effective date, this Court has received innumerable motions to void lien wherein this issue has arisen.
2. Citation to COLO.REV.STAT. § 38-41-201.5 is curious. Debtor appears to own real property, but COLO.REV.STAT. § 38-201.5 deals with mobile homes. In addition, in Debtors' Motion, the Debtors reference COLO.REV.STAT. § 38-42-201. This appears to be a typographical error.
3. 11 U.S.C. § 522(f)(2)(A).
5. Id.
6. The Court in Pepper and In re Newell, 311 B.R. 268 (Bankr.D.Colo.2004) did not address, as other courts have, the attachment of a judgment lien under Colorado law. In Colorado, a judgment lien only attaches to the debtor's net equity after deduction of the homestead exemption amount. In effect, in the absence of equity beyond the homestead exemption, a judgment lien never attaches to the property. See In re Dickinson, 185 B.R. 840, 841 (Bankr.D.Colo.1995); see also, Shatner v. Aurora National Bank South (In re Shall ner), 82 F.3d 426, 1996 WL 98809 at *2 (10th Cir.1996)(unpublished opinion) and In re Cisneros, 257 B.R. 332, 336 (Bankr.N.M. 2000). The courts found application of I U.S.C. § 522(f) superfluous when state law exemptions prohibit the attachment of a judicial lien to the homestead.
7. 4 Collier on Bankruptcy ¶ 522.11[3], at 522-80 (Alan N. Resnick & Henry J. Sommer, ed., 15th ed.rev.2003).
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In re Pearson
...it constitutes a cloud on the title." 21 Nonetheless, the majority of the courts addressing § 522(f) partial avoidance hold contrary to the In re Saal opinion.22 For this reason the Court believes a fresh review of the conclusions reached in In re Saal, including the language of § 522(f), i......