Nancy Evans v. David Marshall Douglas (In re: David Marshall Douglas); Adv. Case No. 05-5575; Case No. 05-12373 (Nugent) (January 12, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §523(a)(2)(A)
Facts:
Plaintiff sought to except its claim against debtor from discharge. Debtor ran a sole proprietorship contracting company. In 2000 Debtor contracted to construct an addition to plaintiff’s home. Plaintiff paid Debtor $18,000.00 over the life of the project, but was unhappy with the quality and pace of the work. Plaintiff testified that her principal complaint was the poor work quality – she did not point to any statement or series of false statements that she alleged Debtor knowingly made and upon which she relied. Plaintiff initially filed a state court lawsuit based upon breach of contract, but later attempted to amend her petition to state a claim for conversion and fraud.
Holding:
Debts for money obtained by fraud, false pretenses, or false representations are excepted from discharge by virtue of 11 U.S.C. §523(a)(2)(A). To prevail under 11 U.S.C. §523(a)(2)(A), a creditor must prove by a preponderance of the evidence that the debtor made a false representation with the intent to deceive the creditor; that the creditor reasonably relied on the misrepresentation; and, the misrepresentation caused the creditor to sustain a loss.
In this case the Court did not doubt the work was incomplete and done poorly. However, the Court ruled that Plaintiff did not meet the burden of proof that Debtor defrauded her or made a misrepresentation to her. The Court ruled that without evidence of fraudulent conduct it could not premise excepting a debt from discharge in what appears to be a contract or warranty claim. Judgment was entered for the Debtor.
Jan Hamilton v. Washington Mutual Bank, FA (In re: Jorge Colon, JR and Antoinette Valentina Ortiz-Colon); Adv. Case No. 05-7032; Case No. 04-42174 (Karlin) (January 26, 2007)
MEMORANDUM AND ORDER
• 11 U.S.C. §544
•
K.S.A. §58-2222
Facts:
The Chapter 12 Trustee filed and action to avoid the mortgage lien of the Defendant, Washington Mutual Bank (the “Bank”) on Debtor’s home, and to preserve the lien for the benefit of the estate.
Debtors purchased a home in May of 2001, and executed a mortgage at that time. The mortgage contained the correct legal description and was properly recorded with the Register of Deeds. Debtors then refinanced their home and granted a mortgage to Thaylor, Bean & Whitaker Mortgage Corporation. This mortgage was later reassigned to Washington Mutual and recorded on April 14, 2003. The mortgage recorded in April 2003 described the incorrect lot number in the legal description.
Debtors filed for Chapter 13 relief in August 2004, and claimed the subject real property as their exempt homestead. The Trustee then initiated this action in effort to use his strong arm power under 11 U.S.C. §544 to avoid the lien on Debtor’s homestead and to preserve it for the benefit of the estate.
Holding:
The Trustee sought to avoid the mortgage on Debtor’s home pursuant to 11 U.S.C. §544(a), which allows trustees to avoid unperfected secured interests. The determination of whether a creditor’s security interest is perfected and therefore avoidable under 11 U.S.C. §544(a) is determined by state law. As the moving party the Trustee bears the burden of proving that he meets the requirements of a bonafide purchaser (“BFP”) under 11 U.S.C. §544(a)(1).
The main issue presented was whether a BFP, in researching the records maintained by the register of deeds, should have found the erroneous mortgage, within that office, notwithstanding its reference to an incorrect lot number; and reasonably determined it to be a cloud of title.
The Court ruled that the Trustee could avoid the mortgage held by Washington Mutual under 11 U.S.C. §544(a). The Court ruled that the real estate description in the mortgage did not sufficiently describe the property in question, and it did not impart constructive knowledge of is existence to the Trustee in his capacity as a bona fide purchaser. Accordingly, the Court ruled the Trustee could avoid the mortgage as a hypothetical lien creditor under 11 U.S.C. §544(a)(1) or as a BFP 11 U.S.C. §544(a)(3).
Christopher J. Redmond, Kansas Express International v. Ashraf Fouad Hassan, et. al. (In re: Ashraf Fouad Hassan, Irina Hassan); Adv. Case No. 05-6215; Case No. 04-20332-7 (Somers) (January 23, 2007)
RECOMMENDATION TO THE DISTRICT COURT TO GRANT THE MOSERS’ MOTION
TO WITHDRAW THE REFERENCE OF THIS ADVERSARY PROCEEDING FOR PURPOSES OF TRIAL,
BUT TO DENY IT FOR PRETRIAL MATTERS
• Bankruptcy Rule 9015(a)
• Fed. R. Civ. P. 38
•
28 U.S.C.A. §157(d)
Facts:
The reader is encouraged to review the Court’s decision, to obtain a comprehensive review of the facts. In summary, this proceeding was before the Court on a motion by four of the Defendants to withdraw reference of the proceeding and to immediately transfer it to the District Court.
The Court previously recommended that the District Court grant a motion to withdraw reference that was filed by two of the other Defendants.
Holding:
The Court recommended that the District Court conclude that some of the Defendants’ claims were legal ones on which the Defendants were entitled to a jury trial, and that some claims were equitable in nature and the Defendants were not entitled to a jury trial on those claims.
The Court ruled that a jury trial should be held on some of the claims, and the District Court must withdraw reference of any jury trial it orders to be held. The Court ruled that it intends to carry on with pretrial matters until the District Court rules on certain motions filed by certain of the Defendants. The Court also recommended that the District Court consider trying all the claims, both legal and equitable, in one proceeding as it would promote judicial economy and prevent cumulative presentation of evidence.
Walter H. Hubbard and Margaret E. Hubbard; Case No. 05-10343-12 (Somers) (January 25, 2007)
MEMORANDUM AND ORDER GRANTING MOTION FOR SUMMARY JUDGMENT FILED BY INTERNAL
REVENUE SERVICE AND REQUIRING FILING OF AMENDED CHAPTER 13 PLAN
• Fed.
R. Civ. P. 56(c)
•
26 U.S.C. §6502
Facts:
This matter was before the Court on the Motion for Summary Judgment filed on behalf of the IRS. The IRS had three federal tax liens on file with the Finney County, Kansas, Register of Deeds, against the Debtor’s property. The issue was whether the IRS’s secured claim arising from the tax year 1992 was barred by the 10 year statute of limitations.
Holding:
Pursuant to 26 U.S.C. §6502(a), collections on federal income taxes are generally limited to 10 years from the date of assessment by the IRS. However, the Court ruled that the Debtors did file an appeal of the rejection of their offer in compromise (“OIC”). Filing of the OIC and the resulting appeal, combined with the filing of the bankruptcy case, tolled the statute of limitations. The Court ruled the Debtor’s Chapter 12 Plan must provide for payment of the 1992 taxes. The Court granted summary judgment to the IRS.
Russell G. Helmers, Kathy J, Helmers; Case No. 06-11599-11 (Nugent) (January 30, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §1112(b)
Facts:
This matter was before the Court on the motion of the United States Trustee pursuant to 11 U.S.C. §1112(b), in an effort to convert this Chapter 11 case to a proceeding under Chapter 7 for cause. The Court’s main concern was whether the creditors’ and the estate’s best interest would be served by either a conversion or dismissal. The Debtors opposed conversion to Chapter 7, arguing instead that dismissal was appropriate. The United States Trustee argued that the best interests of the creditors and the estate require the case be converted and not dismissed.
Holding:
11 U.S.C. §1112(b) provides that once cause for relief is established, the Court has a choice between converting the case or dismissing the case – whichever “is in the best interests of creditors and the estate.” Where the parties disagree on the conversion or dismissal alternatives, the Court must determine which alternative is appropriate, considering the following factors:
(1) whether some creditors received preferential payments, whether equality of distribution would be better served by conversion rather than dismissal; (2) whether there would be a loss of rights granted in the case if it were dismissed rather that converted; (3) whether the debtor would simply file a further case upon dismissal; (4) the ability of the trustee in a chapter 7 case to reach assets for the benefit of creditors; (5) in assessing the interest of the estate, whether conversion or dismissal of the estate would maximize the estate’s value as an economic enterprise; (6) whether any remaining issues would be better resolved outside the bankruptcy forum; (7) whether the estate consists of a “single asset,”; (8) whether the debtor had engaged in misconduct and whether the creditors are in need of a chapter 7 case to protect their interests; (9) whether a plan has been confirmed and whether any property remains in the estate to be administered; and (10) whether the appointment of a trustee is desirable to supervise the estate and address possible environmental and safety concerns.
Based on the facts of the case, the Court ruled that the United States Trustee failed to carry its burden that conversion of the case was in the best interests of the creditors and the estate. The Court concluded that the best interests of the creditors and the estate would be served by an order dismissing the Debtors’ case as provided in 11 U.S.C. §1112(b).
J. Michael Morris v. Home Pride Finance Corporation, 21st Mortgage Corporation and Southside Homes, Inc. (In re: Mary Ann Villa); Case No. 05-13309; Adv. Case No. 05-5737 (Somers) (January 31, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §544
•
11 U.S.C §551
•
K.S.A. §84-9-311(a)
•
K.S.A. §58-4204
Facts:
The Trustee exercised his hypothetical lien creditor avoidance power to challenge the timeless of Defendant’s efforts to perfect its security interest in Debtor’s mobile home pursuant to K.S.A. §58-4204(g). The Debtor purchased a manufactured home from a dealer in June 2003. She executed a note and security agreement, granting a purchase money security interest in the mobile home to the dealer. Immediately thereafter, the dealer assigned its paper to Home Pride Finance Corp. The dealer never delivered any title to the mobile home to Debtor. Instead, on or about June of 2003, the dealer mailed the certificate of title to Home Pride, transferring ownership of the mobile home to debtor. A certificate of title was never issued listing Debtor as owner of the mobile home. In August 2003, a properly completed NOSI, reflecting a lien to Home Pride, was filed with the Kansas Department of Revenue, along with the requisite fee. Debtor filed this bankruptcy case in May of 2005.
Holding:
Mobile homes are subject to certificate of title statutes, and a secured party claiming a security interest need not file a financing statement to perfect its interest. Rather, the lienholder must comply with the certificate of title statutes. K.S.A. §84-9-311(a) renders the filing of a financing statement unnecessary in cases involving certificate of title property. A security interest in a mobile home can only be perfected by compliance with the applicable certificate of title statute, as set out in K.S.A. §58-4204(g).
The Court held that 21st Mortgage Corporation failed to perfect its security interest in the mobile home by complying with K.S.A. §58-4204(g). The Court ruled that the Trustee could avoid the lien using his hypothetical lien creditor powers under 11 U.S.C. §544(a).
Kelly James Torline; Case No. 05-12251 (Somers) (February 02, 2007)
SUPPLEMENTAL MEMORANDUM AND ORDER FOLLOWING TRIAL ON OBJECTION TO CONFIRMATION OF DEBTOR’S THIRD AMENDED PLAN ADDRESSING RENT CLAIM OF CHILDREN’S TRUSTS
Facts:
The Court conducted a trial in November, 2006, a trial was held on objections to confirmation of the Debtor’s Third Amended Chapter 12 Plan of Reorganization. The Court addressed all issues other than the Debtor’s objection to the rent claim of the Children’s Trust. The Court reserved the Debtor’s objection to the rent claim, as evidence on this claim was not made available to the Debtor until the first day of trial.
Holding:
The Court ultimately allowed the unsecured claim of the Children’s Trust in the amount of $10,800.00. The Court noted that there was no evidence that the parties agreed to an open, running account. In absence of such evidence, the Court concluded that the method of accounting used was not appropriate to evaluate the claim, and that the statute of limitations for the recovery of rent accrued when the rent was due. The Court found the only rent outstanding for years within either the five or three year limitations period was for year 2003, for which the unsecured proof of claim was filed. The Court ruled any amended plan filed by the Debtor must treat the claim of the Children’s Trusts accordingly.
Timothy J. Durler, Kimberly S. Durler Case No. 03-16992-12 (Somers) (February 2, 2007)
OPINION DETERMINING THAT DEBTORS’ RESTITUTION PAYMENTS MUST
BE SET OFF AGAINST THEIR NONDISCHARGEABLE DEBT AND OTHER UNSECURED DEBT TO
FIRST NATIONAL
BANK OF SPEARVILLE
• 11 U.S.C. §523(a)(2)(A)
•
11 U.S.C. §523(a)(6)
•
11 U.S.C. §1229(a)(3)
Facts:
When the Debtors’ Chapter 12 Plan was confirmed, a criminal case concerning Debtors’ alleged prepetition impairment of the Bank’s security interests was pending in a Kansas State Court. After confirmation, the Debtor was convicted on three counts and ordered to pay $10,000.00 in restitution, which he did. The Debtors sought to have the $10,000.00 restitution payment credited against their obligations under the plan, relief which the Bank opposed. The matter came before the Court for resolution.
Holding:
The Court only resolved the issue of whether the restitution the Debtor paid
in the state criminal case should be credited against the payments the Debtors
owe under their Chapter 12 plan, and if so how it should be credited.
The Court concluded that the Debtors were entitled to amend their plan, as allowed by 11 U.S.C. §1229(a)(3), to credit Debtors’ restitution payment against their obligations to the Bank. The Court noted that restitution cannot, however, be credited against either of the secured claims the Debtors were paying to the Bank.
Telechia Marie White v. Centax Home Equity Company, L.L.C. n/k/a Nationstar Mortgage, L.L.C. v. Netco, Inc. (In re: Telechia Marie White) (Berger) ( February 9, 2007)
JUDGMENT ON COMPLAINT TO ENFORCE THE TRUTH-IN-LENDING ACT
• Truth-in-Lending Act (“TILA”)
Facts:
Debtor claimed Centex violated the TILA by failing to provide her with a statement of material TILA disclosures, and by failing provide her with the requisite number of copies of the applicable notice to rescind. Debtor alleged she had a continuing right to rescind the loan for up to three years from the date of the transaction because of Centex’s violations.
On December 14, 2001, Debtor, through her attorney, sent a letter to Centex advising Centex she was rescinding the loan. Debtor filed for Chapter 13 protection on December 17, 2001 and subsequently commenced this adversary proceeding seeking a determination that she properly rescinded the loan and that, as a result, Centex no longer had an enforceable mortgage on her residence.
Holding:
The TILA regulates disclosure of the terms of consumer credit transactions in order “to aid unsophisticated consumers and to prevent creditors from misleading consumers as to the actual cost of financing.” To encourage compliance, TILA violations are measured by a strict liability standard, so even minor or technical violations impose liability on the creditor.
The Court ruled that Centex violated theTILA. First, Centex provided Debtor only one copy of the notice of the right to rescind in violation of TILA Regulation Z §226.23, which requires a creditor to provide a debtor with two copies of the notice. Second, Centex failed to provide a statement of material disclosures required by TILA §1635(h) and Regulations Z §226.23(b)(2).
The Court ruled that the Debtor had an extended period of three years to rescind. Under the TILA, the borrower is entitled to a right a rescind the transaction for three days so long as the lender gives the borrower the disclosures required by the TILA, and two copies of the notice of the right to rescind. However, the right to rescind lasts up to three years if the lender fails to give the borrower the disclosures and notice.
The Court ruled the Debtor was entitled to rescind the loan, to statutory damages, and to attorney’s fees and costs.
Carl B. Davis v. Emprise Bank and Carl Lee Jackson (In re: Carl Lee Jackson); Adv. Case No. 06-5101; Case No. 05-15181 (Somers) (January 31, 2007)
MEMORANDUM AND ORDER DENYING COMPLAINT FOR AVOIDANCE OF NON-PERFECTED SECURITY
INTEREST
• 11 U.S.C. §544
•
K.S.A. §58-4214(b)
•
K.S.A. §84-9-311(a)(2)
Facts:
This was an action by the Chapter 7 Trustee to avoid a lien in the Debtor’s mobile home pursuant to 11 U.S.C. §544 because the interest was unperfected on the date of the Debtor’s filing. The Trustee alleged the lien was unperfected due to certain transfers and refinancing of the initial purchase money loan. Emprise asserted that its interest was perfected.
Holding:
The right of the Trustee to avoid Emprise’s lien on the mobile home is determined by whether the bank had a lien on the home securing the May 2003 note as of the date of filing, August 2005, and if so, whether that lien was perfected. Both parties to this action agreed Emprise had a lien. The determanitive issue was whether that lien was perfected. Emprise contended that the NOSI prepared and filed by Humboldt, the prior lienholder, perfected its lien. The Trustee contended that after the refinancings, change of creditors, and passage of time, the NOSI was no longer effective. The Court concluded that the Debtor’s obligation never lost its character as a purchase money obligation and the NOSI which perfected Humboldt’s security interest in 1994 never lost its effectiveness. Revised Article 9 expressly provides that, “a purchase money security interest does not lose its status as such, even if the purchase money obligation has been renewed, refinanced, consolidated, or restructured.” Upon renewal, the lender is entitled to the same rights and remedies as available on the original note.
The Court held that the 2003 note, like the initial 1994 note, was a purchase money obligation, secured by a perfected security interest in the mobile home by virtue of the 1994 NOSI. The Court denied the Trustee’s complaint to avoid Emprise’s lien.
J. Michael Morris v. Joshua Wheeler and Brandi Wheeler (In re: Joshua Wheeler and Brandi Wheeler); Adv. Case No. 06-5420; Case No. 05-19166 (Somers) (February 14, 2007)
MEMORANDUM AND ORDER DENYING TRUSTEE’S COMPLAINT FOR TURNOVER
AND TO REVOKE DISCHARGE OF BRANDI WHEELER
• 11 U.S.C. §727(d)(3)
•
11 U.S.C. §727(a)(6)(A)
Facts:
Brandi and Joshua Wheeler filed a pro se Chapter 7 bankruptcy on October
14, 2005. At the 341 meeting, Debtors stated that they had filed their 2005
tax returns and would receive a refund. They were advised not to spend any
refunds as the Trustee was entitled to a portion of the refund. On February
2, 2006, the Trustee wrote a letter to the Debtors reminding them not to spend
any income tax refunds until he had received and reviewed the income tax returns
and made a determination if the bankruptcy estate was entitled to a portion
of the refund. The Debtors received their discharge on February 23, 2006.
The Trustee was given copies of the Debtor’s 2005 State and Federal Income
Tax returns. The Trustee obtained an order requiring the Debtors to turn over
$5,743.93 to the Trustee. The refunds were never turned over to the Trustee.
On September 14, 2006, the Trustee filed this adversary action seeking turnover
and revocation of Debtors’ discharge pursuant to 11 U.S.C. §727(d)(3)
for failure to turn over to the Trustee his portion of the 2005 income tax
refunds. In her answer, Brandi stated that Joshua spent a majority of the tax
refund on illegal drugs.
Holdings:
The Court noted that, “The purpose of section 727(d)(3) is to make it possible for the debtor to obtain a discharge early in the case but, to protect the estate and creditors, make it revocable if the debtor later refuses to obey an order or answer a question.” Under §727(a)(6)(A), refusal to obey a turnover order issued by the court may be a basis to deny discharge if the order is lawful. However, denial of discharge has been denied when the “failure to comply with an order was due to inability to comply, inadvertence or mistake, as opposed to willful, intentional disobedience or dereliction.”
The Court found the order of turnover directed to Debtors was lawful. However, under the facts of this case, this Court did not revoke Brandi’s discharge.
The Court noted that in this case, an intervening event occurred which caused Brandi to neither receive the refund nor benefit from the refund. Further, Brandi does not have the ability to recover the refund. The Court noted that Brandi’s action’s were not willful or intentional disobedience of the turnover order, and ruled that Brandi’s discharge shall not be revoked. The Court denied the Trustee’s complaint.
Lorrie Lee Beck, Case No. 06-40774-13 (Karlin) (February 21, 2007)
Christopher Scott Torrez, Melinda Elizabeth Torrez, Case No. 06-40791 (Karlin)
(February 21, 2007)
Kristin Kay Rhinehart, Case No. 06-40792 (Karlin) (February 21, 2007)
David Madison Shannon and Phyllis Jean Shannon, Case No. 06-40824-13 (Karlin)
(February 21, 2007)
Gregory George McGovern, Jr., Case No. 06-40825 (Karlin) (February 21, 2007)
Jessica Lynn Smith, Case No. 06-40829 (Karlin) (February 21, 2007)
Jena Lyn Johnson, Case No. 06-40830 (Karlin) (February 21, 2007)
Janice Kay Harper, Case No. 06-40831 (Karlin) (February 21, 2007)
Angel Rachelle Jones, Case No. 06-40840 (Karlin) (February 21, 2007)
Beulah Mae McMaster, Case No. 06-40841 (Karlin) (February 21, 2007)
MEMORANDUM AND ORDER ON OBJECTIONS BY CHAPTER 13 TRUSTEE TO ATTORNEY FEES
• 11 U.S.C. §330(a)(4)(B)
Facts:
Objections to confirmation were filed by the Chapter 13 Trustee in each of
these ten cases. The objections were essentially identical; the Trustee claimed
that the fees requested in each case exceeded the fees this Court had previously
approved for similar work. In each case, the Court confirmed the plan subject
only to the final resolution of the attorney fee issue.
Prior to the enactment of the BAPCPA of 2005, an unofficial “presumptive” fee for the filing of Chapter 13 case in this division had been set by custom between $1,500.00 to $2,000.00. That fee, which was presumed to be reasonable absent any objections and presentation of evidence to the contrary, typically covered all legal services incurred in representing the debtor through dismissal or discharge, as long as the debtor made timely plan payments, and did not need an attorney, post-confirmation, to file motions, or respond to motions, or appear at hearings.
After enactment of BAPCPA, however, many debtor’s attorneys believed that the presumptive fee should be increased in light of significantly increased burdens placed on them. When fees requested reached $3,450.00 in what appeared to be routine cases, the Chapter 13 Trustee objected to confirmation in each of those cases.
Holding:
The Court noted that it is imperative that competent counsel be motivated to seek, accept and ably handle Chapter 13 cases. 11 U.S.C. §330(a)(4)(B) authorizes the Court to allow reasonable compensation to an attorney who represents an individual debtor in a Chapter 13 case. The Court held that the fee for filing an average Chapter 13 case in this division would be set at $2,800.00 unless the debtor is an “above-median debtor,” or counsel is required to file, for a repeat filer, a motion to extend the automatic stay, or to have the stay put into effect, under §§362(c)(3) or (4).
In the above-median case, the Court will allow an additional $500.00, or a presumptive fee of $3,300.00, based on the consistent evidence received that it takes on average at least two additional hours of attorney time to collect and complete the form for above median debtors, and deal with the work that oftentimes follow above-median debtors. If counsel must file a motion to extend or create a stay, the Court will also allow an additional $400.00 to be added and counted as part of the “presumptive fee.”
The Court held that this fee is meant to cover all services provided by the attorney and/or his firm to obtain a Chapter 13 discharge (or completion of the case in those cases where the debtor cannot receive a discharge), from initial consultation through the dismissal or closing of the case. The Court included approximately $450.00 in these presumptive amounts for post-confirmation time not directly related to responding to motions, filing motions, or appearing in court. These cases, if consummated, may well last at least 36 months, and maybe up to 60 months, and the Court found that debtors’ counsel should not have to separately seek fees for these routine, predictable post-confirmation services.
The Court also noted that if this estimate proves too conservative, and counsel is required to intervene in some or all of these matters, or is required to file additional pleadings or appear in Court on behalf of the debtor, additional fees may always be sought. Counsel would, however, be required to demonstrate the reasonableness of the entire amount of the fee to the trustee, creditors, and the Court, with time records maintained or re-created from the outset of the representation.
The Court declined to set the “presumptively reasonable” fee at a flat $3,600.00.
Michael Walter Lewis and Lori Melissa Lewis; Case No. 03-15320 (Somers) (February 22, 2007)
MEMORANDUM AND ORDER GRANTING DECKER & MATTISON CO., INC.’S MOTION
FOR SUMMARY JUDGMENT AND DENYING COUNTRYWIDE’S MOTION FOR SUMMARY JUDGMENT
PURSUANT TO 11 U.S.C. §522(f)(1) ON DEBTORS’ MOTION PURSUANT TO
11 U.S.C. §522(f)(1) TO AVOID JUDICIAL LIEN OF DECKER & MATTISON CO.,
INC.
• 11 U.S.C. §522(f)
• Fed. R. Civ. P. 56(c)
Debtors sought to avoid the fixing of a judgment lien on residential property. On May 23, 2003, after Debtors purchased the property but before they had resided there, a default judgment was entered in State Court case in favor of Decker & Mattison Co., Inc. (“D&M”) against Debtor Mike Lewis and Eales Plumbing Heating & Air, Inc. At the time of the judgment, the Debtors were contract sellers of the property. Debtors filed for Chapter 7 relief on September 26, 2003 and claimed the subject property as their exempt homestead.
Debtors filed this lien avoidance action in December 2005, contending Debtors may avoid the fixing of the lien arising from the D&M judgment because it impairs their homestead exemption, within the meaning of §522(f)(1).
Countrywide, an interest holder in the property, argued that the Debtors’ exemption rights should be determined as of the date of filing, and that D&M is estopped from objecting to the Debtors’ exemption of the property as their homestead because of failure to timely object to their homestead election in accord with Rule 4003(b). Countrywide also argued that it had standing to assert the Debtors’ homestead right.
D&M asserted that because the judgment lien attached to the property before it qualified as the Debtors’ homestead, the lien could not be avoided, that §522(f)(1) does not preclude a lien creditor from asserting its equitable rights when it did not object to a debtors’ homestead exemption using the procedure of Rule 4003(b), and that §105 allows the court to prevent the unjust result of lien avoidance.
Holdings:
Section 522(f)(1) provides “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 debtor would have been entitled,” if such lien is a judicial lien, except for judicial liens which secure debts for alimony, support, or maintenance. The purpose of judicial lien avoidance is to protect the debtor’s exemptions and thereby, the fresh start. In order for a debtor to avoid the lien under §522(f)(1) the debtor must show: (1) that the lien is a judicial lien; (2) that the lien is fixed against an interest of the debtor in property; and, (3) that the lien impairs an exemption to which the debtor would otherwise be entitled.
The Court found that the judgment lien did not attach to the property as a matter of Kansas law, because the Debtors were contract sellers of the property at the time of judgment; such that the there was no “fixing” of a lien to avoid under the Code. The Court found this case could be decided without deciding the issue of D&M’s ability to challenge the homestead exemption. The Court denied the summary judgment motion of Countrywide and granted D&M’s motion for summary judgment based on its contention that Debtors had not established the elements for lien avoidance. The Court found that under Kansas law, D&M did not have a judgment lien in the Debtors’ property, as there was no “fixing” of a lien on a interest of the Debtors in property, and this is a necessary element to a claim under §522(f)(1). There were no material facts in controversy, and the lien avoidance motion was denied as a matter of law. The Court declined to rule on whether the determination that the property is Debtors’ exempt homestead for purposes of the bankruptcy estate is binding on D&M in this action.
Telechia Marie White v. Centax Home Equity Company, L.L.C. n/k/a Nationstar Mortgage, L.L.C. v. Netco, Inc. (In re: Telechia Marie White) Adv. Case No. 02-6021; Case No. 01-23966 (Berger) ( February 21, 2007)
SUPPLEMENTAL ORDER CLARIFYING JUDGMENT ON COMPLAINT TO ENFORCE THE TRUTH-IN-LENDING ACT
Facts:
On February 9, 2007, the Court entered its Judgment on Complaint to Enforce the Truth-in-Lending Act. The Court stated the Judgment would be supplemented by a final award of attorney’s fees.
Holding:
After reviewing Debtor’s counsel’s fee application, receiving no objection from either defendant, and determining the fee application was reasonable in light of the services performed, the Court ordered defendant Centex Home Equity Company, L.L.C. N/K/A Nationstar Mortgage, L.L.C., to pay Debtor’s attorney’s fees in the amount of $10,465.00.
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