512 B.R. 814
Bankr. E.D. Va.2014Background
- Debtor Patricia L. Cruickshanks filed a Chapter 13 petition on December 12, 2012, with estate including 3061 Montfort Loop, Henrico, VA.
- Pemberton Oaks Townhouse Association (the Defendant) claims judgment liens and assessment liens against the Property.
- Property is encumbered by a First Deed of Trust (HSBC) dated November 29, 1998 and a Second Deed of Trust (Credit Union) dated April 1, 2003; balances approx. $76,882 and $76,843 respectively.
- Between 2009–2011, Defendant docketed five judgment liens totaling $14,401 plus interest; pre-petition assessments and fees claimed at $41,160.43; Defendant did not file a proof of claim by April 10, 2013.
- Court value is $139,300; total indebtedness secured by first and second deeds exceeds $153,724; Debtor contends Defendant’s liens are wholly unsecured and removable.
- Virginia Property Owners’ Association Act (POA Act) governs perfected assessment liens, which the Defendant apparently failed to perfect under § 55-516.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Defendant’s assessment liens validly perfected and enforceable against the Property? | Cruickshanks asserts no perfected assessment lien exists. | The Declaration creates valid liens subordinate to taxes and prior deeds of trust. | Lien not perfected; not enforceable. |
| What is the priority of Defendant’s liens relative to the First and Second Deeds of Trust? | Defendant’s liens would be third in priority and wholly unsecured. | Declaration precedes Second Deed; liens may have priority over Second Deed. | Liens are inferior; if perfected, would be subordinate to first and second deeds. |
| May completely unsecured liens be stripped off under 11 U.S.C. § 506(a) in Chapter 13? | Davis/Millard allow stripping wholly unsecured liens; the Defendant’s liens are valueless. | POA assessment liens are special security interests, not simple avoidable liens. | Because not properly perfected, liens are wholly unsecured and may be removed. |
| Did Defendant’s failure to timely file a proof of claim affect its rights in the Chapter 13 case? | No allowed claim; debt unsecured; no claim allowed. | Claims should be allowed despite filing issues. | Defendant has no allowed claim; its counterclaims are untimely. |
Key Cases Cited
- Barner v. Chappell, 266 Va. 277, 585 S.E.2d 590 (2003) (elements for covenants to run with land)
- Waynesboro Village, L.L.C. v. BMC Properties, 255 Va. 75, 496 S.E.2d 64 (1998) (touches on running with land and privity requirements)
- Sloan v. Johnson, 254 Va. 271, 491 S.E.2d 725 (1997) (covenants running to land; recording acts)
- In re Davis, 716 F.3d 331 (4th Cir. 2013) (strip off wholly unsecured liens in Chapter 13)
- Suntrust Bank v. Millard (In re Millard), 404 F. App’x 804 (4th Cir. 2010) (strip off wholly unsecured liens; framework for classification)
- Nobelman v. Am. Sav. Bank, 508 U.S. 324 (1993) (no strip down of partially secured principal residence under § 1322(b)(2))
- Richardson v. AMRESCO Residential Mortgage Corp., 267 Va. 43, 592 S.E.2d 65 (2004) (notice and execution of declarations in property interests)
- Duty v. Duty, 276 Va. 298, 661 S.E.2d 476 (2008) (priority of liens in Virginia race-notice system)
- Hart v. Pace, 48 Va. Cir. 434 (1999) (priority in real estate liens; circuit court decision)
- In re King, 208 B.R. 376 (Bankr. D. Md. 1997) (condominium lien characterization under bankruptcy avoidance)
- Mendenhall v. Douglas L. Cooper, Inc., 239 Va. 71, 387 S.E.2d 468 (1990) (timing and propriety of claims and defenses in Virginia)