517 B.R. 5
Bankr. D. Mass.2014Background
- Debtor Laurie Dickey conveyed her Chatham, MA home (110 Sea Shells Dr.) to a nominee trust (Lanac Shores Realty Trust) in 2006; she was the trust’s sole beneficiary. Creditors obtained attachments, executions, and later judgments against the Trustee and/or Debtor (notably Ridgewood and NEPCO).
- Plymouth Superior Court (Ridgewood action) found the 2006 deed a fraudulent transfer, declared the deed to trustee "null and void," and ordered revival of the prior 2005 title (the Ridgewood Judgment). The Debtor then petitioned the Land Court, which issued a Revived Certificate and she recorded a 2012 homestead.
- Debtor filed Chapter 7 (Jan 23, 2013) and claimed a $500,000 Massachusetts homestead exemption (Schedule C). NEPCO and Ridgewood objected and sought to preserve their judicial liens; NEPCO also argued fraud exceptions and that 11 U.S.C. §522(p) caps the exemption.
- Key encumbrances at petition date included two HSBC mortgages, Ridgewood attachment/judgment, NEPCO execution, various execution/judgment liens, and tax liens; total recorded encumbrances (per debtor’s filings) exceeded $2.4M.
- The bankruptcy court (Hillman, J.) considered (1) whether the Ridgewood Judgment/revived Land Court title meant Debtor always held title, (2) whether judicial liens fixed on a debtor’s interest (Farrey), (3) applicability of state fraud exception to the homestead, (4) whether §522(p) and §522(o) limit the exemption, and (5) proper order of lien avoidance and valuation.
Issues
| Issue | Debtor's Argument | Lienholders' Argument | Held |
|---|---|---|---|
| Effect of Ridgewood Judgment on title (did Debtor hold uninterrupted title since 2005?) | Ridgewood Judgment declared the trustee’s deed "null and void," so Debtor always held title since 2005. | Judgment merely "avoided" the transfer (reconveyed), and Debtor did not have uninterrupted record title; creditors’ rights preserved. | Court: Judgment reconveyed the property (avoided the transfer) — not a declaration that title never changed; Debtor did not have uninterrupted record title since 2005. |
| Validity of Land Court Revived Certificate (and whether recording violated injunction) | Revived Certificate conformed Land Court records to Ridgewood Judgment and was valid; homestead was properly recorded. | Recording violated Plymouth Court injunction; revived certificate void and trust may still own title. | Court: Revived Certificate valid; recording implemented the Ridgewood Judgment and did not unlawfully transfer property in a way that voided the certificate. |
| State homestead fraud exception (Mass. Gen. Laws ch. 188 §3(b)(6)) — is it a bar to exemption for fraud-based judgments? | Debtor: state fraud exception is preempted by Bankruptcy Code and cannot defeat §522 exemptions. | Lienholders: their fraud-based judgments are excepted from homestead protection under state law. | Court: State fraud exception conflicts with §522(c)/(e) and is preempted; fraud-based state exception cannot by itself defeat the bankruptcy homestead exemption. |
| Applicability of 11 U.S.C. § 522(p) (1215-day cap on homestead acquired within that period) | Debtor: she did not "acquire" the interest within 1215 days — Land Court action merely conformed title; acquisition was passive. | Lienholders: Debtor acquired title when Land Court revived the title (or when she recorded certificate) within 1215 days, so exemption capped at $155,675. | Court: Debtor’s acquisition was "active" in context (reconveyance flowed from her prior fraudulent transfer and later judgment); Ridgewood Judgment effected reconveyance within 1215 days — exemption capped at $155,675. |
| Whether liens fixed on an interest of the debtor (Farrey) — could debtor avoid Ridgewood/NEPCO liens under §522(f)? | Debtor: as a trust beneficiary she had an equitable ownership interest when liens recorded; liens fixed on her interest and are avoidable. | Lienholders: their liens attached before Debtor held record title, so Farrey bars avoidance. | Court: Beneficial interest in nominee trust constituted an interest to which the judicial liens fixed; Farrey does not bar avoidance here. |
| Order of lien avoidance (must junior judicial liens be avoided first?) | Debtor: priority order irrelevant; may seek avoidance of any judicial lien. | Lienholders: Debtor must avoid liens in reverse priority (most junior first) so secured creditors’ relative rights respected. | Court: Where nonexempt equity exists, Debtor must avoid junior judicial liens first; court conditionally required Debtor to move to avoid remaining junior judicial liens before resolving NEPCO/Ridgewood motions. |
Key Cases Cited
- Farrey v. Sanderfoot, 500 U.S. 291 (Sup. Ct.) (§522(f) requires lien attached to debtor’s interest after debtor obtained that interest)
- Owen v. Owen, 500 U.S. 305 (Sup. Ct.) (state-created exemptions may be preempted by Bankruptcy Code when in conflict)
- Law v. Siegel, 571 U.S. 415 (Sup. Ct.) (scope of exemptions determined by state law but subject to Bankruptcy Code limits; Court may enforce code provisions limiting exemptions)
- Patriot Portfolio, LLC v. Weinstein (In re Weinstein), 164 F.3d 677 (1st Cir.) (Massachusetts homestead statutory exceptions conflict with federal bankruptcy exemptions)
- In re Eastmare Dev. Corp., 150 B.R. 495 (Bankr. D. Mass.) (beneficial interest in nominee trust can confer equitable ownership for bankruptcy purposes)