Shaw v. Sheila M. Kirkwood, Suntrust Mortg., Inc. (In re Shaw)

622 B.R. 569

IN RE: Wendy L. SHAW, Debtor

Wendy L. Shaw, Movant

v.Sheila M. Kirkwood, SunTrust Mortgage, Inc., Linda Trudel, Laura Rosenblatt, Mark A. Campochiaro, and United States of America, Respondents

Sheila M. Kirkwood, Objecting Party

v.Wendy L. Shaw, Respondent

Kara S. Rescia, Chapter 7 Trustee

Case No.: 18-20096 (AMN)

United States Bankruptcy Court, D. Connecticut, New Haven Division.

Signed November 12, 2020

Wendy L. Shaw, Movant/Respondent, Represented by Robert A. Cushman, Esq., Law Offices of Robert A. Cushman LLC, 21 New Britain Avenue, Suite 218, Rocky Hill, CT 06067.

Sheila M. Kirkwood, Objecting Party/Respondent, Represented by George Purtill, Esq., George M. Purtill, Purtill & Pfeffer, P.C., 19 Water Street, P.O. Box 50, South Glastonbury, CT 06073.

SunTrust Mortgage, Inc., Linda Trudel, Laura Rosenblatt, Mark A. Campochiaro, United Stated of America, Non-Appearing Respondents.

Re: ECF No. 44

Re: ECF Nos. 129, 131

MEMORANDUM OF DECISION AND ORDER OVERRULING OBJECTION TO EXEMPTION AND GRANTING MOTION TO AVOID JUDICIAL LIEN

Ann M. Nevins, United States Bankruptcy Judge

This case presents a contest over a debtor's assertion of a state homestead exemption and the meaning of 11 U.S.C. § 522(o).¹ The Chapter 7 debtor Wendy L. Shaw ("Debtor") seeks to avoid a judicial lien she claims impairs her state law-based homestead exemption pursuant to 11 U.S.C. § 522(f). The creditor Sheila M. Kirkwood ("Creditor") seeks to defeat the homestead exemption, alleging the Debtor engaged in improper bankruptcy planning and pre-petition transfers of real property that should reduce or eliminate the debtor's exemption allowance, pursuant to Bankruptcy Code § 522(o).

I. JURISDICTION AND VENUE

The United States District Court for the District of Connecticut has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b). This court derives its authority to hear and determine this matter on reference from the District Court pursuant to 28 U.S.C. §§ 157(a), (b)(1), and the District Court's General Order of Reference dated September 21, 1984. Pursuant to 28 U.S.C. § 157(b)(2)(B), this is a core proceeding. This memorandum constitutes the court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, applicable here pursuant to Rules 7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure.

II. RELEVANT PROCEDURAL HISTORY

On January 24, 2018 ("Petition Date"), the Debtor commenced this case by filing a voluntary Chapter 13 bankruptcy petition. ECF No. 1. In June 2018, the Debtor elected to convert the Chapter 13 case to a case under Chapter 7, and, on September 5, 2018, the Debtor received a Chapter 7 bankruptcy discharge. See , ECF Nos. 73, 98.

Shortly after filing the petition, the Debtor filed three bankruptcy schedules relevant to the present dispute, including Schedules A/B, Schedule C and Schedule D, reflecting certain assets and liabilities as of the Petition Date. On bankruptcy Schedule A/B (Property), the Debtor disclosed an undivided one-half interest in 36 Shuttlemeadow Road, Plainville, Connecticut 06062 (the "Property") having a fair market value of $337,500.00, owned jointly by the Debtor and the Debtor's mother Janice Shaw ("Debtor's Mother"). ECF No. 14, P. 1. The Debtor later amended Schedule A/B and disclosed the Property was worth $240,000.00, rather than $337,500.00. ECF No. 68, p.1. On bankruptcy Schedule C (The Property You Claim as Exempt), the Debtor claimed a Seventy-Five Thousand Dollar ($75,000.00) exemption in her interest in the Property pursuant to Conn. Gen. Stat. § 52-352b(t). ECF No. 14, P. 10. On bankruptcy Schedule D (Creditors Who Have Claims Secured by Property), the Debtor disclosed the Creditor held a disputed claim against the Property based on a judgment lien related to a debt incurred in or about 2008. ECF No. 14, p. 14.

On March 20, 2018, the Creditor timely objected to the Debtor's homestead exemption (the "Objection to Exemption") arguing the exemption should be disallowed because the Debtor made a pre-Petition Date transfer of the Property with the intent to convert a non-exempt asset to an exempt asset to hinder, delay or defraud her creditors. ECF No. 23; see , Fed.R.Bankr.P. 4003(b)(1), 11 U.S.C. § 522(o). The Debtor defended the homestead exemption arguing the Creditor failed to meet her burden to show the exemption was not properly claimed and asserting the Property was, and had been, her primary residence since March 2014. ECF No. 29.

The Creditor also filed a proof of claim asserting a secured claim of $134,800.48 premised on a judgment lien recorded in the Plainville, Connecticut land records against the Debtor's interest in the Property recorded on August 29, 2016, in Volume 592, Page 410 (the "Lien"). Proof of Claim 8-1 ("POC 8"). Attached to POC 8 was a copy of the Lien.² POC 8, Part 2. While the Debtor did not object to POC 8, she did file a motion to avoid the Creditor's Lien because it impaired her homestead exemption, pursuant to 11 U.S.C. § 522(f) (the "522 Motion").³ ECF No. 44. In her 522 Motion, the Debtor asserted that on the Petition Date the Property had a fair market value of $240,000.00, and, was subject to a mortgage with a balance of $245,242.97. ECF No. 44. The Creditor objected, initially contesting the fair market value of the Property and incorporating the arguments set forth in her Objection to Exemption. ECF No. 64. Eventually, the Creditor abandoned her dispute of the fair market value of the Property and for purposes of this Memorandum of Decision that issue as well as the outstanding balance on the mortgage on the Petition Date (approximately $245,000.00) is uncontested. See , ECF No. 139, 00:02:36 - 00:04:50,⁴ ECF No. 110, 00:11:44-00:12:24.

On May 25, 2018, the court issued a Scheduling Order directing the filing of a joint stipulation of undisputed facts, and statements of material facts as contemplated by D.Conn.L.Civ.R. 56(a)(1) and 56(a)(2). ECF No. 60.

Thereafter, on June 6, 2018, the Debtor moved to convert her case from Chapter 13 to Chapter 7, and the case was converted. ECF No. 67. Kara S. Rescia was appointed as the Chapter 7 Trustee. The Chapter 7 Trustee has not taken a position as to either the 522 Motion or the Objection to Exemption, but filed a Report of No Distribution, indicating she has administered all assets of the bankruptcy estate. ECF No. 106.

In June 2018, the Debtor and the Creditor filed their respective Local Rule 56(a) statements. ECF Nos. 79, 82. A joint stipulation of undisputed facts was not filed. On July 17, 2018, the Creditor filed a copy of the transcript of Debtor's testimony during the § 341 meeting of creditors in further support of her Objection. ECF No. 85.

While the parties did not file a joint stipulation of undisputed facts, along the way they agreed to certain portions of the record. Following a further status conference on July 18, 2018, the parties submitted five documents recorded on the land records of Plainville, Connecticut that the parties agreed the Court could deem admissible in considering the 522 Motion and the Objection to Exemption. ECF No. 94.

Prior to the Creditor's commencement of litigation against the Debtor, the following documents were recorded on the local land records regarding the Property:

1) A Warranty Deed from an unrelated third party to Debtor's Mother dated March 28, 2014 and recorded in Volume 567 at Page 786;

2) An Open-End Mortgage Deed from Debtor's Mother to Mortgage Electronic Registration Systems, Inc. dated March 28, 2014 and recorded in Volume 567 at Page 789; and,

3) A "Statutory Quit-Claim Deed Survivorship Special" from Debtor's Mother to the Debtor and Debtor's Mother dated April 7, 2015 and recorded April 9, 2015 in Volume 577 at Page 607.

After the Creditor commenced litigation against the Debtor in late 2015, the following additional documents were recorded on the local land records regarding the Property:

1) A Quit Claim Deed from the Debtor to Debtor's Mother dated February 25, 2016 and recorded February 29, 2016 in Volume 586 at Page 1119;

2) A judgment lien against the Debtor's interest in the Property in favor of the Creditor recorded on August 29, 2016 in Volume 592, Page 410 (the "Lien"); and,

3) A "Correcting Quit Claim Deed" from Debtor's Mother to the Debtor and Debtor's Mother, jointly, dated September 13, 2016 and recorded September 28, 2016 in Volume 593 at Page 406.

Sixteen (16) months after the title to the Property was restored to the Debtor through the "Correcting Quit Claim Deed," the Debtor filed the bankruptcy case. Nothing in the record suggests the Creditor had undertaken any enforcement of the Lien prior to the Petition Date.

The parties filed additional memoranda of law in support of their respective positions. See ECF Nos. 100, 102, and 104. Review of additional matters of record led to a muddled procedural posture that included written and oral argument, a transcript of the Debtor's testimony at a § 341 Meeting of Creditors filed by the Creditor, other documents filed by the Creditor submitted with ECF No. 100, the parties' assertion they were prepared to rely on the evidentiary record as one ready for summary judgment, and the Creditor's subsequent statement that she required further discovery. In response, the court established a schedule which culminated in an evidentiary hearing.

Relatedly, the Debtor filed a motion in limine seeking an order excluding evidence, including testimony, relating to the motivation of transfers of the Property, and, prohibiting the Creditor from calling the Debtor's counsel as a witness. The parties eventually agreed the testimony of the Debtor during the creditors' meeting would be part of the record here, no other testimony was offered, and, the Debtor's counsel was not called as a witness. Therefore, the motion is now moot and ECF No. 129 will be denied.

III. UNDISPUTED FACTS

Based on the largely undisputed record here, I make the following findings...