In re Tapia

598 B.R. 1

IN RE: Teresa Christine TAPIA, Debtor.

18-11739-t13

United States Bankruptcy Court, D. New Mexico.

Signed February 11, 2019

Ronald E. Holmes, Davis Miles McGuire Gardner, PLLC, Albuquerque, NM, for Debtor.

MEMORANDUM OPINION

Hon. David T. Thuma, United States Bankruptcy Judge

Before the Court is Debtor's motion to avoid a judgment lien on her house to the extent it impairs her homestead exemption. Judgment creditor counters that his lien did not attach to the homestead exemption, does not impair it, and therefore cannot be avoided. Having reviewed the parties' briefs and applicable law, the Court concludes that judgment lien does impair Debtor's homestead exemption and is subject to avoidance, but that the extent of the avoidance cannot be determined without an evidentiary hearing on the value of the house.

I. FACTS ¹

Debtor filed this chapter 13 case on July 12, 2018. Pre-petition, Patrick McKnight obtained a $ 40,000 judgment against her in Nevada state court. McKnight domesticated the judgment and filed a transcript of judgment in Bernalillo County, New Mexico, thereby obtaining a judgment lien on Debtor's house at 8501 Northridge Ave. NE, Albuquerque, NM 87111 (the "House").²

Debtor values the house at $ 385,000, while Mr. McKnight asserts a value of $ 425,000. There is no agreement on value. The House is encumbered by the following liens:

Lien                     Value           Date Recorded           Priority
Deed of trust held by    $262,401.97     6/24/15                 First
Home Bridge
McKnight judgment        $40,000.00      2/27/17                 Second
lien
IRS tax liens            $71,000.00      9/12/17 and 11/7/17     Third
Total                    373,401.97

Debtor chose the New Mexico exemptions and claimed a $ 60,000 homestead exemption pursuant to N.M.S.A. § 42-10-9 and § 522(b)(2). The deadline to object to the exemption has passed, Fed. R. Bankr. Pro. 4003(b), so Debtor is entitled to it. $ 60,000 of the House's value that is unencumbered by nonavoidable liens will be referred to as the "Homestead."

Debtor filed a motion to avoid McKnight's judgment lien as impairing the Homestead, to which McKnight timely objected. The matter has been fully briefed and argued.

II. DISCUSSION

McKnight argues that Debtor cannot avoid his lien because it did not attach to the Homestead and therefore does not impair it. Because there is no impairment, McKnight argues, his lien cannot be avoided under § 522(f).

A. Relevant State Statutes.

1. Judgment liens. N.M.S.A. § 39-1-6 provides:

Any money judgment rendered in the supreme court, court of appeals, district court or metropolitan court shall be docketed by the clerk of the court and a transcript or abstract of judgment may be issued by the clerk upon request of the parties. The judgment shall be a lien on the real estate of the judgment debtor from the date of the filing of the transcript of the judgment in the office of the county clerk of the county in which the real estate is situate.

When McKnight filed his transcript of judgment in Bernalillo County, New Mexico, it became a lien on the House. Id. ; see also Scheer v. Stolz , 41 N.M. 585, 72 P.2d 606 (1937) (discussing judgment liens under prior New Mexico statute).

2. The Homestead Exemption. N.M.S.A. § 42-10-9 provides:

Each person shall have exempt a homestead in a dwelling house and land occupied by the person or in a dwelling house occupied by the person although the dwelling is on land owned by another, provided that the dwelling is owned, leased or being purchased by the person claiming the exemption. Such a person has a homestead of sixty thousand dollars ($ 60,000) exempt from attachment, execution or foreclosure by a judgment creditor and from any proceeding of receivers or trustees in insolvency proceedings and from executors or administrators in probate. If the homestead is owned jointly by two persons, each joint owner is entitled to an exemption of sixty thousand dollars ($ 60,000).

(italics added).

B. 11 U.S.C. § 522(f).

Debtor's motion is brought under § 522(f), which provides in part:

(f)(1) Notwithstanding any waiver of exemptions but subject to paragraph (3), 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 the debtor would have been entitled under subsection (b) of this section, if such lien is--

(A) a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5);

...

(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.

C. Did McKnight's Judgment Lien Attach to the Homestead?

McKnight argues that the "exempt from attachment, execution or foreclosure by a judgment creditor" language in N.M.S.A. § 42-10-9 means that his judgment lien, while attaching to the House, did not attach to the Homestead. Three cases citing N.M.S.A. § 42-10-9 lend support for McKnight's position. The first is Ranchers State Bank of Belen v. Vega , 99 N.M. 42, 653 P.2d 873 (N.M. 1982), which addressed whether a law increasing the homestead exemption applied to a judgment lien that had attached before the effective date of the law. In ruling that the increase did not apply to the judgment lien, the court stated:

The transcript of the United States' default judgment against Hector M. Vega was recorded in Socorro County on March 1, 1979. The resulting lien attached to the Vegas' entire interest in the real property except their homestead which remained free of the lien. At that point the United States became a secured rather than an unsecured creditor of Hector M. Vega and acquired a vested right in the statutory remedies then available for the enforcement of its money judgment.

99 N.M. at 44, 653 P.2d 873 (italics added).

Although the italicized Vega language is dicta, in Albuquerque Chem. Co. v. Arneson Prod., Inc. , 201 F.3d 447 (10th Cir. 1999) (unpublished), the Tenth Circuit relied on the language to hold that a judgment creditor's lien did not attach to a debtor's homestead. 201 F.3d 447, at *5. Because the lien did not attach, the Tenth Circuit reversed the lower courts and held that the bankruptcy court should not have avoided the lien under § 522(f), as there was no impairment.

Vega and Albuquerque Chemical were cited in In re Cisneros , 257 B.R. 332, 335 (Bankr. D.N.M. 2000), for the proposition that under New Mexico law, a judgment lien does not attach to a debtor's homestead.

Other Tenth Circuit cases, construing the exemption statutes of other states, have come to similar conclusions. For example, in David Dorsey Distributing, Inc., v. Sanders , 39 F.3d 258 (10th Cir. 1994), the Tenth Circuit ruled that § 522(f) could not be used to avoid a judgment lien on a Utah debtor's homestead because the judgment lien did not attach to the homestead. 39 F.3d at 262. See also Shafner v. Aurora National Bank South (In re Shafner) , 82 F.3d 426 (10th Cir. 1996) (construing Colorado law, the court stated that "[a]s in Sanders , resort to 522(f) to avoid the judgment liens at issue is unnecessary because Colorado law prevented their attachment"); see also In re Jordana , 232 B.R. 469, 474 (10th Cir. BAP 2003) (under prior version of Oklahoma law, judgment lien did not attach to homestead, so § 522(f) is superfluous and without application).

In contrast to these cases is the Tenth Circuit's decision in Burrus v. Oklahoma Tax Comm. , 59 F.3d 147 (10th Cir. 1995). In Burrus , the court had to construe Oklahoma's homestead exemption statute and its applicability to state and federal tax liens. The statute exempts homesteads "from attachment or execution and every other species of forced sale for the payment of debts." 31 Okla. St. Ann. § 1. The district court construed the provision to mean that "the Oklahoma liens were incapable of attaching to the homestead property." 59 F.3d at 149 (emphasis in original). The Tenth Circuit disagreed:

Concededly, a literal reading of the statute would seem to compel the district court's conclusion. However, read in context, we believe it is clear that the term "attachment" as used in the Oklahoma statute has a different meaning from the meaning of attachment for tax lien priority purposes.

The law dictionaries reveal that there are two distinct meanings for the term "attachment." For example, Ballentine's Law Dictionary (3d ed. 1969) provides two different definitions: first, "A provisional remedy for the collection of a debt, which is incidental to an action against the debtor ... for the purpose of having the property available in satisfaction under execution and sale upon a judgment obtained against the debtor in the action;" and, second, "The actual attaching, that is, the seizure and disposition of the debtor's property under a writ of attachment." Black's Law Dictionary (6th ed. 1990) illustrates the same dichotomy. One definition of attachment is: "A remedy ancillary to an action by which plaintiff is enabled to acquire a lien upon property or effects of defendant for satisfaction of judgment which plaintiff may obtain." another meaning offered in Black's is: "The act or process of taking, apprehending or seizing ... property...." Read in context, it seems clear that the Oklahoma statute uses the word "attachment" in this second sense of the word, while it is the primary meaning that is relevant in the tax lien context.

Id.

The Court is persuaded by the Tenth Circuit's reasoning in Burrus and concludes that the New Mexico statute should be read the same way. In N.M.S.A. § 42-10-9, the phrase "exempt from attachment, execution or foreclosure by a judgment creditor" refers to the creditor remedy of attachment,³ not to...