In re Freeman

520 B.R. 341

In re Edward FREEMAN, Jr., Debtor.

No. 12–10050–JNF.

United States Bankruptcy Court, D. Massachusetts.

Signed Oct. 27, 2014.

Michael K. Lane, John M. McAuliffe, McAuliffe & Associates, Newton, MA, for Debtor.

Paula R.C. Bachtell, U.S. Department of Justice, Office of the United States Trustee, Boston, MA, for Assistant U.S. Trustee.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

The matter before the Court is the Motion to Avoid Judicial Lien (the “Motion”) pursuant to which Edward Freeman, Jr. (the “Debtor”) seeks to avoid judicial liens obtained by Douglas Grasso (“Grasso”). Through his Motion, the Debtor seeks to avoid Grasso's judicial liens as impairing his homestead exemption in property located at 34 Arbor Street, Wenham, Massachusetts (the “property”). Grasso filed an Opposition to the Motion, asserting that the Debtor's homestead exemption is invalid, and thus his judicial liens do not impair an exemption to which the Debtor is entitled and cannot be avoided under 11 U.S.C. § 522(f)(1)(A). Grasso maintains that the Debtor's interest in the property is a remainder interest because the deed by which the Debtor acquired his interest gives his sister, Valerie Daniels (“Valerie”), a life estate in the property, and that, under Massachusetts law, the holder of a remainder interest is not an owner entitled to claim a homestead. See Mass. Gen. Laws ch. 188, §§ 1 and 3.

The issue presented is whether the Debtor has a valid homestead exemption. The validity of the exemption depends upon the interpretation of the Quitclaim Deed, dated May 13, 2004, pursuant to which the Debtor acquired his interest in the property from his parents. If the Debtor's interest does not fall within the pertinent definitions of an “owner” under Mass. Gen. Laws ch. 188, § 1, then his homestead is invalid under ch. 188, § 3 because only an “owner” or “owners” may acquire estates of homestead. If the Debtor is ineligible for homestead protection, the judicial liens held by Grasso cannot be avoided because they do not impair a valid homestead for purposes of 11 U.S.C. § 522(f)(1), (2).

II. PROCEDURAL BACKGROUND

Grasso holds two judicial liens on the property, one in the face amount of $96,969.59 and the other in the amount of $82,802.25. Grasso obtained the judicial liens as a result of a prejudgment attachment and successful litigation against the Debtor involving the Debtor's purchase of Grasso's business. According to Grasso, the Essex Superior Court issued executions in the amounts of $98,395.55 and $83,650.82, upon which the Essex County Deputy Sheriff levied on August 4, 2011. The executions were recorded and, pursuant to Mass. Gen. Laws ch. 236, § 4, the judicial liens were perfected against the Debtor's property. There is also a tax lien on the property in the sum of $50,282.32.

The Debtor scheduled an interest in the property on Schedule A–Real Property without describing the precise nature of his interest. On Schedule A, the Debtor indicated that the property was subject to a “[r]eserved life estate for Valerie Daniels,” and that “[i]f sold during the lifetime of Valerie Daniels, 50 % proceeds to Valerie Daniels.” He added that the current value of his interest was $153,300 and that the property was subject to a secured claim in the amount of $358,236. The Debtor later obtained a broker's price opinion for the property in the sum of $149,000. On Schedule C–Property Claimed as Exempt, the Debtor claimed the property as exempt. He elected the Massachusetts exemptions, listing the current value of the property as $306,000 and claiming $490,000 as the value of his exemption under Mass. Gen. Laws. ch. 188, § 1. It is undisputed that the Debtor prepared a Declaration of Homestead which was recorded in the Southern Essex Registry of Deeds on December 1, 2011.

The Court heard the Motion and Grasso's Opposition on June 26, 2013. At the conclusion of the hearing, the Court directed Grasso to file a Motion for Summary Judgment. Grasso complied with the Court's order and filed a Motion for Summary Judgment, together with a Corrected Concise Statement of Undisputed Material Facts. The Debtor filed an Opposition and a Cross–Motion for Summary Judgment, which the Court heard on September 11, 2013. On September 17, 2013, this Court entered the following order, denying the cross-motions for summary judgment:

Upon consideration of: (1) the Debtor's Motion to Avoid Judicial Lien; (2) the Opposition to the Motion to Avoid Lien filed by Douglas Grasso (“Grasso”); (3) the Motion of Grasso for Summary Judgment with respect to his Opposition to the Motion to Avoid Judicial Lien and the Memorandum, Affidavits and Statement of Undisputed Facts filed in support thereof through which he asserts that the Debtor's parents, as grantors (the “Grantors”), conveyed a life estate to the Debtor's sister and a remainder interest to the Debtor in the real property located at 34 Arbor Street, Wenham, MA (the “property”) pursuant to a deed dated May 19, 2004 (the “Deed”); (4) the Debtor's Consolidated Opposition to Grasso's Motion for Summary Judgment and Cross Motion for Summary Judgment, the Statement of Undisputed Facts, the Affidavit and other documents filed in support thereof; (5) the hearing held on September 11, 2013 with respect to the Summary Judgment Motions and the arguments advanced by counsel; and (6) the decision of the Supreme Judicial Court of Massachusetts in Hershman–Tcherepnin v. Tcherepnin, 452 Mass. 77 [891 N.E.2d 194] (2008), the Court finds that the language of the Deed presents both legal and factual issues which preclude the entry of summary judgment for either party.

The legal issues include, without limitation, whether the Grantors conveyed a valid life estate in the property to the Debtor's sister and a valid remainder interest to the Debtor or whether each owns the property as tenants in common. The factual issues include, without limitation, the intent of the Grantors in conveying the property to their children and whether they intended them to each own a proportionate share of the property.

Following the denial of summary judgment, the Court issued a pretrial order. Pursuant to that order, the parties filed a Joint Pretrial Memorandum and the Court conducted an evidentiary hearing on August 19, 2014.

III. FACTS

The parties agreed to eight pertinent facts, which the Court now paraphrases:

1. On December 1, 2011, Edward Freeman, Jr. caused a Declaration of Homestead to be recorded for the real property located at 34 Arbor Street, Wenham, Massachusetts ... at the Essex South Registry of Deeds, Book 30884, Page 385.

2. Edward Freeman, Jr., filed his voluntary petition for relief under Chapter 13 of the United States Bankruptcy Code on January 4, 2012 (“Petition Date”).

3. Edward Freeman, Jr. converted his case to one under Chapter 11 of the United States Bankruptcy Code on May 2, 2012, and converted his case to Chapter 7 on February 20, 2013.

4. Edward Freeman, Jr. lived and occupied the Premises at the time of recording the homestead declaration and at the time of his bankruptcy petition.¹

5. On May 15, 2007, Grasso obtained a pre-judgment attachment against the Debtor from the Essex Superior Court, in the amount of $140,000.00, which was recorded on July 27, 2007 with the Essex South District Registry of Deeds in Book 27058, Page 83.

6. On April 14, 2011, the Essex County Superior Court issued executions against the Debtor in the amounts of $98,395.55 and $83,650.82, respectively.

7. On April 14, 2011, the Essex County Deputy Sheriff levied on the Debtor's real interest in the Premises by recording same in the Essex South District Registry of Deeds. The Executions are recorded in Book 30572, Page 305 and Book 30572, Page 309, respectively.

8. The recorded Executions constitute a judicial lien against Edward Freeman, Jr.'s interest in the Premises relating back to the date of the pre-judgment attachment.

The Quitclaim Deed by which the Debtor obtained his interest in the property provides in pertinent part the following:

We, Edward Freeman a/k/a Edward Freeman, Sr. and Doris G. Freeman, of 34 Arbor Street, Wenham, Massachusetts, with Edward Freemen [sic] a/k/a Edward Freeman, Sr., acting as Attorney in Fact for Doris G. Freeman, under a Durable Power of Attorney ... being married, for nominal consideration paid, and in full consideration of, grant to Edward Freeman, Jr. of 36 Arbor Street, Wenham, Massachusetts, of said Wenham, 34 Arbor Street, Wenham, Massachusetts, with quitclaim covenants the land with buildings thereon situated on Arbor Street in said Wenham, subject to a reserved life estate for the benefit of our daughter, Valerie Daniels of 59 Poplar Street, Danvers, Massachusetts. If the said Edward Freeman, Jr. should sell the premises during my daughter's lifetime, my daughter shall receive on-half (½) of the proceeds of the sale ...

(emphasis added).

At the trial five witnesses testified. The first witness was Attorney Ann Francis (“Attorney Francis”), who drafted the Quitclaim Deed. She testified that Edward Freeman, Sr. (“Mr. Freeman”) met with her on February 11, 2004 concerning his estate planning for the benefit of his family. She stated:

Mr. Freeman was very concerned for his daughter, Valerie. At the time she was living in a different place. He wanted to make sure that if she ever needed a place to live during her lifetime that she would have Arbor Street to go back to. He was also—wanted to make sure that his son, Edward, Jr.—... could continue to live in the home and run the family business, which is located right next door.

Attorney Francis indicated that Mr. Freeman did not seek to impose any obligations on Valerie, stating “he never intended for her to pay any expenses for the house, taxes, maintenance.” According to Attorney Francis, Mr. Freeman knew that the Debtor was going to reside in the property and he wished for “just a safety net for Valerie in case she needed somewhere to go.” Attorney Francis testified...