In re Williamson

Decision Date10 August 1984
Docket NumberBankruptcy No. 82C-01703.
Citation43 BR 813
PartiesIn re John H. WILLIAMSON, Debtor.
CourtU.S. Bankruptcy Court — District of Utah

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Joel R. Dangerfield of Roe, Fowler & Moxley, for Claude Hawk Corp.

Robert C. Miner of Thomas J. Klc and Associates, Inc., Salt Lake City, Utah, for mechanics' lienholders Maxfield Plumbing, Rite Cabinet, Inc., Jim Williams dba J.W. Electric, and James D. Featherstone dba J & J Tile Co.

Ronald C. Barker, Salt Lake City, Utah, for mechanics' lienholders Stringham Lumber Co. and V & H Enterprises.

Marcella L. Keck, Salt Lake City, Utah, for mechanic's lienholder Jeff Merchant dba Artistic Landscaping.

Bruce A. Maak of Rooker, Larsen, Kimball & Parr, Salt Lake City, Utah, for State Sav. and Loan Ass'n.

Sid Siverson pro se.

Alan D. Frandsen, Salt Lake City, Utah, for Parley White dba Parley White Realty.

Wendell P. Ables, Salt Lake City, Utah, for debtor, John H. Williamson.

Theodore E. Kanell of Hanson, Russon & Dunn, Salt Lake City, Utah, the trustee, on his own behalf.

MEMORANDUM OPINION

GLEN E. CLARK, Bankruptcy Judge.

CASE SUMMARY

In this case, the court is called upon to determine the priority of certain liens and encumbrances against proceeds of the sale of property of the estate. The issue of priority turns upon four questions: (1) whether or not certain statutory mechanics' liens are valid and enforceable under Utah law and (2), if so, what distributive priority they may have in this case; (3) whether a recorded document constitutes an independent second trust deed with a separate and inferior priority standing of its own or whether it is, instead, a notice of the advance of additional funds secured by the first trust deed, made in favor of the lender and having a priority superior to all other liens and encumbrances; and (4) whether or not the debtor's claimed homestead exemption is valid and, if so, what priority it has in this case; or, in the alternative, whether the debtor is entitled to payment of a real estate commission as an administrative expense for his role as a listing agent in the sale of the property of the estate.

FACTS, PROCEDURAL BACKGROUND, AND ARGUMENTS

On July 14, 1982, debtor John H. Williamson filed a petition for relief under Chapter 11 of the Bankruptcy Code. The case was converted to one under Chapter 7 on June 8, 1983.

On July 21, 1983, the Chapter 7 trustee, pursuant to Section 363(c) and (f) of the Code, noticed his intent to sell, free and clear of liens, the real property belonging to the estate. The trustee stated in his notice of this sale that the liens encumbering the property would be "transferred" to the sale proceeds.

On August 15, 1983, the court approved the sale of the property for $335,000.00. The sale was closed pursuant to the trustee's notice. On August 15, the court further ordered the following payments to be made from the sale proceeds:

(a) $200,000.00 to State Savings & Loan Association ("State Savings"), pursuant to its first trust deed recorded June 4, 1981;

(b) $10,050.00 to the real estate agency of Gump & Ayres as payment of its 3 percent sales commission;

(c) $3,500.00 in full payment of the outstanding real estate taxes due for 1981, 1982, and, as prorated, for 1983.

Pursuant to the court's order, the balance of the proceeds, $121,450.00, was to be held in trust, pending further determination of the priority of the remaining liens which, by virtue of the trustee's notice and the court's order, had attached to these proceeds.1

On August 29, 1983, the debtor was discharged.

On December 19, 1983, Claude Hawk Corporation ("Claude Hawk") moved this court for distribution of the remaining proceeds and for an order determining the distributive priority of the claims that have attached thereto, pursuant to the notice of the trustee and order of the court.2

In its motion, Claude Hawk contended that the following mechanics' lien notices, in the amounts shown, are invalid:

(1) Rite Cabinets, Inc. for $8,454.00
(2) Gunner Anderson for $3,500.00
(3) Sid Siverson dba S & S Construction for $5,800.00
(4) Jim Williams dba J.W. Electric for $2,414.00
(5) James D. Featherstone dba J & J Tile Co. for $6,800.00
(6) Jeff Merchant dba Artistic Landscaping for $3,346.00 (two lien notices)
(7) Fred Levin dba Fred\'s Glass Shop for $1,617.00
(8) Tom Williams dba Tom Williams Construction for $2,400.00
(9) Maxfield Plumbing, Inc. for $6,156.00
(10) Edward H. Poulsen dba AJAX Insulation for $720.25
(11) V & H Enterprises for $4,720.03
(12) Stringham Lumber Co. for $2,369.88
(13) Jerry D. Jackson of Rain Gutter and Aluminum Products for $463.65
(14) Earl J. Hemmert, Sr. dba Aire Flo Heating and Electric for $669.64

Claude Hawk admits that these liens, arising under Utah law, would ordinarily take priority over its own trust deed because each of them relates back in time to June 4, 1981, when the first work began on or the first materials were furnished to the subject property. However, Claude Hawk argues that, in this case, the lien notices are invalid for the following technical reasons: the first twelve (12) claimants filed notices containing fatally defective acknowledgments or certificates; claimant number thirteen (13) in the list filed his notice after the 100 day deadline established by controlling Utah law; and the last claimant in the list, number fourteen (14), filed a notice that does not contain an accurate description of the property against which the lien is charged.

The holders of these allegedly defective and invalid lien notices filed responses arguing, on the contrary, that any defects in these notices are de minimus, that the notices are in substantial compliance with Utah law, and that the claims of these mechanics' lienholders have priority over the claim of Claude Hawk because their liens relate back to June 4, 1981, a time before Claude Hawk's trust deed was recorded.

State Savings argues only that, regardless of the outcome of the priority battle between Claude Hawk and the mechanics, the priority standing of State Savings is superior to all other interest holders because both its original loan of $200,000.00 and its subsequent loan of $45,000.00 are secured by the first trust deed which holds top priority. State Savings denies the existence of any second trust deed and asserts that the second loan was an advance of additional funds secured by the first trust deed, pursuant to the provisions contained in the pertinent loan documents and as allowed by Utah law.

On January 19, 1984, a hearing was held before this court.3 At this hearing, Claude Hawk withdrew its objection to the mechanics' liens of Stringham Lumber Co. and V & H Enterprises and stated that the remaining judgment lien of Parley White, though technically valid, was recorded in Salt Lake County on May 6, 1982, after the Claude Hawk trust deed was recorded. The court also heard arguments on behalf of certain of the parties. Then, upon request of debtor's counsel, the debtor was granted leave to brief the issue of the validity and priority of debtor's homestead exemption and debtor's alternative claim for a real estate commission for the work performed as listing agent in the sale of the property of the estate. Other parties were granted leave to file opposing briefs. The court took all matters addressed at the hearing under advisement.

On January 31, 1984, pursuant to the leave of court, the debtor filed a motion for allowance of his homestead exemption or, in the alternative, for the allowance of his real estate commission as an administrative expense. The debtor argued that he filed his notice of homestead exemption on August 26, 1982 and waived his claim for real estate commission provided he would obtain that exemption. He also asserted that there was no objection to his exemption until the "final gasp of the oral argument" on January 19, 1984.

Claude Hawk filed its memorandum in opposition to the debtor's motion for the allowance of his homestead exemption, arguing that such exemption is inferior in priority to the lien of Claude Hawk and that the debtor is not entitled, in the alternative or otherwise, to any real estate commission for the sale of the property of the estate.

The debtor replied to the memorandum in opposition of Claude Hawk, arguing that Claude Hawk had knowledge of debtor's role as a listing agent and waived its objection to debtor's alternative claim for a real estate commission by failing to object thereto and that debtor, as a "disinterested person" within the context of Section 101(13) of the Code, is entitled to a nunc pro tunc order approving his professional services for which compensation should be paid as an administrative expense.

Stringham Lumber Co. and V & H Enterprises, creditors and mechanics' lienholders (to whose liens Claude Hawk withdrew its objection) filed their own objections to the allowance of the debtor's claim for homestead exemption, arguing that the debtor waived his claim for real estate commission, that his application for commission (made in the alternative) is not timely, and that the homestead exemption, under Utah law, is inferior to mechanics' liens securing sums owed for improvements on residential property.

THE ISSUES

The issues to be resolved are:

(1) whether or not certain mechanics' liens, which now constitute liens on the proceeds of the sale of estate property, sold free and clear of liens pursuant to Section 363 of the Code, are valid and enforceable under Utah law, and

(2) if so, whether or not they have priority superior to the lien of Claude Hawk;

(3) whether or not the document of State Savings recorded in Salt Lake County on December 2, 1981 as Entry No. 3628145 in the sum of $45,000.00 (reduced by $10,000.00 representing funds not advanced) constitutes an independent second trust deed with a separate priority standing inferior to the valid mechanics' liens...

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