Opinion
Case No.: 01-31025-B-7, Docket Control No.: WSS-4.
October 23, 2006
LARRY J. COX, CSBN 124399 Attorney at Law Rocklin, California Attorney for Secured Creditor Debra Rector
FINDINGS OF FACT AND CONCLUSIONS OF LAW
A. Procedural Background
The Debtor herein filed a chapter 7 bankruptcy case in the above-captioned Court on September 19, 2001. The Debtor received a discharge in the above-captioned bankruptcy case on December 20, 2001. The Debtor's chapter 7 bankruptcy case was a "no asset case." At the time he filed his bankruptcy case, the Debtor held a one-third interest in residential real property in the County of El Dorado commonly described as 5192 Holly Drive, Shingle Springs, California (the "Holly Drive Property").
Secured Creditor, Debra Rector ("Debra"), was not listed as a creditor in the Debtor's chapter 7 bankruptcy case.
Debra obtained a judgment against the debtor on September 16, 1997 for dissolution of marriage and for an equalizing payment in connection with the division of the community property against Debtor herein, Rodney Rector, in a family law action embodied in Debra Lynn Rector v. Rodney Michael Rector, El Dorado County Superior Court Case No. PD-2194.
Judgment for Dissolution of the marriage was entered on September 16, 1997 ("Family Law Judgment"). Under the terms of the Family Law Judgment, a money judgment was entered in favor of Debra Rector ("Debra") in the amount of $18,235.00 and a further a judgment for attorneys fees in the amount of $900.00.
Debra recorded an Abstract of Judgment on October 3, 1997 in the Official Records of the County of El Dorado at Book 5007 Page 327 Series Number 49926, thereby creating a judicial lien on all real property owned by the Debtor ("Abstract of Judgment"). On October 3, 1997, the debtor owned a one-third interest in the Holly Drive Property.
The Debtor transferred his interest in the Holly Drive Property by Grant Deed executed on September 23, 2005, which document was recorded in the official records of County Recorder for El Dorado County on September 29, 2005 at DOC-20050081636-00.
On October 6, 2005, the Debtor reopened his bankruptcy case to avoid the lien of a secured creditor, The Golden 1 Credit Union. The Debtor and The Golden 1 Credit Union subsequently entered into a stipulation to resolve the Debtor's motion to avoid the Credit Union's judicial lien.
On January 24, 2006 Debtor filed a Motion to Avoid Lien of Debra Rector (WSS-4) and filed Amended Schedules A, B, C, and D. The Debtor's Motion to Avoid Lien of Debra Rector was scheduled to be heard on March 7, 2006.
Debra filed an objection to the Debtor's Motion to Avoid Lien of Debra Rector on February 16, 2006.
On March 7, 2006, the Honorable Thomas Holman continued the hearing on the Debtor' Motion to Avoid Lien of Debra Rector (WSS-4) to June 4, 2006. In the Court's Civil Minutes, Judge Holman determined that Debra's opposition was to be treated as both an objection to the Debtor's Motion to Avoid Lien of Debra Rector and an objection to the Debtor's January 24, 2006 amended schedules.
On June 4, 2006, the Honorable Thomas Holman ordered that the hearing on the Debtor's Motion to Avoid Lien of Debra Rector and the objections to the Debtor's January 24, 2006 Amendments to Schedules A, B, C, and D was continued to June 21, 2006 for evidentiary hearing before the Honorable David E. Russell, which hearing was to include a determination of the fair market value of the Holly Drive Property on September 19, 2001.
The evidentiary hearing on the Debtor's Motion to Avoid Lien of Debra Rector (WSS-4) came on regularly on June 21, 2006. Debra and the Debtor presented evidence on the matters referred to Judge Russell. The Debtor and Debra presented witnesses on all issues. Both Debra and the Debtor testified at the June 21, 2006 hearing. In addition to the other witnesses appearing, David Winn, a certified real estate appraiser testified as to the fair market value of the Holly Drive Property as of September 19, 2001. Witnesses were examined at the June 21, 2006 evidentiary hearing. Evidence was received. At the conclusion of the June 21, 2006 evidentiary hearing, the Court requested briefing on four questions:
(1) Whether a person who transfers real property to another thereafter has standing to bring a motion to avoid a lien on the transferred property?
(2) What was the value of the Holly Drive Property as of the date of the Debtor's filing of the above-captioned chapter 7 bankruptcy September 19, 2001?
3) What exemptions could the Debtor claim on September 19, 2001?
(4) What is the effect of the Debtor's failure to give notice to Debra upon the reopening of the 2001 bankruptcy case?
B. Findings of Fact and Conclusions of Law
1. Debtor's Standing.
As to the first issue, the Debtor's standing to bring a motion to avoid a creditor's judicial lien, the Court determined case law established the Debtor had standing to bring a motion to avoid a lien under Section 522(f) of the Bankruptcy Code notwithstanding the fact that the debtor had transferred the real property to another in a post-petition transaction. See Culver v. Chiu (In re Chiu), 266 B.R. 743, 751 (9th Cir. BAP 2001),aff'd, 304 F.3d 905 (9th Cir. 2002); In re Herman, 120 B.R. 127, 130 (9th Cir BAP 1990).
2. Value of the Holly Drive Property.
As to the second issue, the value of the Debtor's residential real property as of September 19, 2001, the Court received and considered the testimony of the Debtor as to the condition of the Holly Drive Property, the testimony of Mr. David Winn as to the value of the Holly Drive Property as of September 19, 2001, and the testimony of Debra regarding the condition of the Holly Drive Property as of September 19, 2001. The Court received into Evidence as Exhibit "C" the written appraisal by David Winn as to the fair market value of the Holly Drive Property.
Debra testified that she was in the Holly Drive Property on several occasions and was familiar with the condition of the Holly Drive Property. She visited her son and his girlfriend who lived in the Holly Drive Property. She testified while some maintenance needed to be performed and the carpet needed to be replaced, the roof did not leak and the house was in "decent" condition. Mr. Winn testified he only saw the exterior of the house. He testified that in establishing the fair market value of the Holly Drive property, he employed a sales comparison of the Holly Drive Property.
The Debtor, when asked whether in 2001 anyone else was living in the house on the Holly Drive Property, he replied "Sir, that's five years ago. I don't remember." TR:31 9-10. In fact, the Debtor's son's and then pregnant girlfriend lived in the house at that time. When asked how he established the value of the Holly Drive Property, the Debtor responded "I cannot remember. That's quite some time ago." TR 21:7. When asked when he purchased the Holly Drive Property, the Debtor stated "I don't remember." TR 21:7-12. Debtor can't remember how he arrived at the $100,000 reduction in value for the Holly Drive Property in 2001. Debtor stated that to correct the deficiencies in the house he is now renovating it and in 2005 and 2006, he has spent $38,000 on the renovation to date. TR 26:10-14. Further, the Debtor testified that he only discovered the negative condition of the house "sometime in 2005" TR 31:12-22.
There is credible testimony from Debra Rector that the house on the Holly Drive Property, that while some repair work was necessary, the house at the Holly Drive Property was in "decent" condition. Further, the inference is drawn by the Court that if $38,000 of repairs to the house in 2005 and 2006 would repair it, it was not devalued by $100,000 in 2001.
The Court is persuaded based upon the appraisal by and testimony of David Winn and the testimony of Debra as to the condition of the Holly Drive Property in 2001, that the Holly Drive Property was in average condition and that the fair market value of the Holly Drive Property on September 19, 2001 was $245,000.00.
3. Amount of the Debtor's Permitted Exemptions.
As to the third issue, what exemptions could the Debtor claim on September 19, 2001 reference to the then applicable statutory exemptions. The Debtor's exemption rights are determined as of the date of the filing of the petition without regard to subsequent changes in the character or value of the property.White v. Stump, 266 U.S. 310, 313 (1924); In re Herman, 120 B.R. 127, 130 (9th Cir. BAP 1990); Culver v. Chiu (In re Chiu), 266 B.R. 743, 751 (9th Cir. BAP 2001), aff'd, 304 F.3d 905 (9th Cir. 2002). The Debtor elected to claim exemptions under section 703.140 of the California Code of Civil Procedure. The question becomes what were the provisions of section 703.140 of the California Code of Civil Procedure on September 19, 2001?
WESTLAW lists the various legislative actions which amended section 703.140 of the California Code of Civil Procedure ("Section 703.140") and the effective dates of those amendments.
According to WESTLAW, the following version of the Section 703.140 was in effect at the time this debtor's Petition was filed:
California Code of Civil Procedure § 703.140
Effective January 01, 2001, to December 31, 2001
§ 703. 140. Federal bankruptcy; applicable exemptions
Legislative Action Stats. 2000, c. 135 (A.B. 2539), § 15.
Accessing "Legislative Action Stats. 2000, c. 135 (AB 2539), § 15" on WESTLAW reveals the text of that particular amended statute. In relevant part it says:
"SEC. 15. Section 703.140 of the Code of Civil Procedure is amended to read:
. . . . .
(b) The following exemptions may be elected as provided in subdivision (a):
(1) The debtor's aggregate interest, not to exceed fifteen thousand dollars ($15,000) in value, in real property
. . . . .
(2) The debtor's interest, not to exceed two thousand four hundred dollars ($2,400) in value, in one motor vehicle.
. . . . .
(5) The debtor's aggregate interest, not to exceed in value eight hundred dollars ($800) plus any unused amount of the exemption provided under paragraph (1), in any property.
. . . . .
Based on the foregoing provisions of Section 703.140, three of the debtor's amended exemptions could not have been claimed at the time he filed bankruptcy:
Property Debtor's exemption Correct exemption
1/3 interest in residence $13,100 $7,650
'89 Chevy Pick-up $2,975 [(b)(2)] $2,400 [(b)(2)]
$2,025 [(b)(5)] $2,600 [(b)(5)]
The foregoing calculations are based on the assumption that the debtor continues to exempt all of the other personal property to which he applied the Section 703.140(b)(5) exemption (the "Wild Card"). It appears that the debtor is entitled to fully exempt the scheduled assets, including the two assets which he did not exempt in this amended schedule (the '76 Toyota and the handgun). Regarding the debtor's Chevy Pick-up, he is only allowed to claim a $2,400 exemption under Section 703.140(b)(2). In order to protect the full $5,000 value of the vehicle, he therefore must exempt the remaining $2,600 of value under Section 703.140(b)(5).
4. Impairment of the Debtor' Claim of Exemption in the Holly Drive Property.
The Debtor's lien avoidance rights are determined as of the date of the petition. Culver v. Chiu (In re Chiu), 266 B.R. 743, 751 (9th Cir. BAP 2001), aff'd, 304 F.3d 905 (9th Cir. 2002).
As of the date of the Debtor's petition, after all of the other Section 703.140 (b)(5) exemptions, which the debtor claimed were left unchanged, the Debtor has remaining only $7,650 of the Section 703.140(b)(1) homestead exemption to apply to the residence:
$15,800 (b)(I) + (b)(5) -8,150 minus the Wild Card used on personal, not real, property ____________ $ 7,650 remaining exemption to claim on the Debtor's equity in the Holly Drive Property It having been stipulated by the parties that the debtor has a 1/3 interest in the residence, the remaining unused exemptions are $7,650, which sum is sufficient to protect the debtor's scheduled and 1/3 interest in the residence as valued on September 19, 2001.The fair market value of the Holly Drive Property as of September 19, 2001 is $245,000.00 with the result that the following calculations apply to the Debtor's claim of exemption for his one-third interest in the Holly Drive Property:
$245,000.00 fair market value of residence -127,270.79 minus Wells Fargo's secured claim (As of July 24, 2006 amendments) ___________ $117,729.21 gross equity in the Holly Drive Property ÷ 3 divided by one third _____ $39,243.07 debtor's equity in the Holly Drive Property as of September 19, 2001. The Debtor has substantially more equity in the Holly Drive Property to exempt and more is available for unsecured creditors.The following calculations reflect the Debtor's exempt equity in the Holly Drive Property as of September 19, 2001:
$39,243.07 debtor's equity in the Holly Drive Property -7,650.00 remaining exemption to claim __________ $31,593.07 of nonexempt equity in the Debtor's interest in the Holly Drive Property. It is not disputed that Debra obtained a judgment in the Family Law Action on September 16, 1997. See Debra's Exhibits A1 and A2 entered into evidence. It is not disputed that Debra recorded an Abstract of Judgment on October 3, 1997 in the Official Records of the County of El Dorado at Book 5007 Page 327 Series Number 49926, creating a judicial lien on all real property owned by the Debtor ("Abstract of Judgment"). It is not disputed that as a consequence of recording the Abstract of Judgment on October 3, 1997, Debra has a judicial lien on the Holly Drive Property. California Code of Civil Procedure § 697.310(a). It is not disputed that Debra's lien has not been satisfied.Interest accrues on a judgment at the rate of 10 percent per annum on the principal amount of a money judgment remaining unsatisfied. California Code of Civil Procedure § 685.010. Debra's Family Law Judgment is entitled to yield interest at the rate of 10 percent per annum, simple interest.
The Family Law Judgment was entered on September 16, 1997. The full principal amount of the Family Law Judgment was $19,135.00 ($18,235.00 plus $900.00 in attorney fees and costs). See Exhibit A-1.
The Debtor is entitled to credits for monies paid or collected by levy. On March 19, 1998 a payment in the amount of $76.15 was received from the Sheriff for the Debtor following a levy. The Debtor made payments of $200.00 on the Family Judgment on the following dates: 5/1/98, 6/1/98, 7/1/98, 8/1/98, 9/1/98, 10/1/98, and 12/1/98.
The interest accrued on the Family Law Judgment from September 17, 1997 at the rate of 10 per cent per annum. California Code of Civil Procedure § 685.010. From September 17, 1997 through September 19, 2001 is 1,466 days. The result is that after deductions for payments and credits noted above, the unpaid principal amount of Debra's Family Law Judgment together with interest thereon was $25,328.00 as of September 19, 2001.
Section 522(f) of the Bankruptcy Code controls the avoidance of a lien. 11 U.S.C. § 522(f).
There are four basic elements of an avoidable lien under § 522(f)(1)(A): First, there must be an exemption to which the debtor "would have been entitled under [*391] subsection (b) of this section." 11 U.S.C. § 522(f). Second, the property must be listed on the debtor's schedules and claimed as exempt. Third, the lien must impair that exemption. Fourth, the lien must be . . . a judicial lien. (Emphasis added.) 11 U.S.C. § 522(f)(1). In re Goswami, 304 B.R. 386, 390-391 (9th Cir. BAP 2003).
The question is therefore, whether the lien impairs the Debtor's claimed exemption.
Section 522(f) of the Bankruptcy Code provides in relevant part as follows:
(2)(A) For the purposes of this subsection, 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. 11 U.S.C. 522(f)(2). See also Owen v. Owen, 500 U.S. 305, 351 (1991).
As the foregoing calculations regarding the Debtor's interest in the Holly Drive Property and the remaining amount of Debtor's exemption, after deducting the Debtor's remaining exempt equity the Debtor has remaining nonexempt equity of $31,593.07. The amount of the Debra's judicial lien as of September 19, 2001 is $25,328.00. The following further calculation is necessary under provisions of Section 522(f) as amended on September 19, 2001 to determine whether the Debtor's claim of exemption was impaired:
$31,593.07 of nonexempt equity in the Debtor's interest in the Holly Drive Property. -25,328.00 amount of Debra's judicial lien as of 9/19/01 as to the Holly Drive Property. __________ $ 6,265.07 remaining nonexempt equity in the Holly Drive Property as of 9/19/01. It follows that Debra's judicial does not impair the Debtor's equity in the Holly Drive Property as of September 19, 2001. The calculation establishes that the Debtor's claim of exemption is not impaired and Debtor's Motion to Avoid Lien of Debra Rector (WSS-4) is denied.The remaining issue as to the effect of the Debtor's failure to give notice to Debra upon the reopening of the 2001 bankruptcy case is not necessary to determine whether Debra's lien is avoided and is therefore not addressed herein.
The secured creditor Debra Rector shall lodge a conforming judgment.