569 B.R. 163
Bankr. W.D. Mo.2017Background
- Debtor Casey O’Sullivan filed Chapter 7 and claimed his Barton County home (held as tenancy by the entirety with his nonfiling spouse) as a Missouri homestead exemption.
- CRP Holdings A-1, LLC obtained a default judgment in Platte County and recorded the judgment in Barton County three weeks later.
- Debtor moved to avoid CRP’s judgment lien under 11 U.S.C. § 522(f)(1); CRP objected, arguing no impairment of the exemption and alternatively asserting future enforceability against the survivor.
- The bankruptcy court originally granted avoidance; the BAP affirmed but doubted whether CRP had any lien; the Eighth Circuit reversed and remanded, directing the bankruptcy court to determine whether CRP had a judicial lien (enforceable or unenforceable).
- On remand the bankruptcy court found (1) under Missouri law the judgment did not create an enforceable lien on entirely exempt TBE property at the time of filing, but (2) the recorded judgment created a cloud or present "interest in property" (an existent but presently unenforceable judicial lien) that could become enforceable later and therefore could be avoided under § 522(f)(1).
Issues
| Issue | Plaintiff's Argument (O'Sullivan) | Defendant's Argument (CRP) | Held |
|---|---|---|---|
| Did CRP have a judicial lien on the Debtor's TBE homestead when bankruptcy filed? | Judgment was not a lien against an entirely exempt homestead under Missouri law. | CRP treated and recorded the judgment as a lien and may assert future rights against survivor. | Judgment did not create an enforceable lien at filing under Missouri law. |
| If not enforceable, is the recorded judgment nevertheless an "interest in property" or "judicial lien" under the Bankruptcy Code subject to § 522(f)(1) avoidance? | Recorded judgment created a cloud/interest that could become a lien and thus is avoidable as an existent but unenforceable judicial lien. | CRP argued avoidance improper and urged a future-only survivorship lien that survives discharge (Arango-style argument). | Recorded judgment constituted an existent but presently unenforceable judicial lien or at least an "interest in property," and could be avoided under § 522(f)(1). |
| Does Missouri recognize a separate "right of survivorship" title different from the original TBE interest for purposes of lien attachment? | Missouri treats survivorship as continuation of original title, not a new separate title. | CRP contended it holds a lien on a future survivorship interest distinct from present TBE rights. | Court rejected CRP’s survivorship-distinct-title argument; survivorship does not create a new title under Missouri law. |
| Is the remand scope limited to whether a lien existed (enforceable or unenforceable) at filing? | Yes; remand did not permit new "Door No. 3" survivorship theory. | CRP advanced a new post-remand survivorship-triggered lien theory. | Court held CRP’s new theory outside remand and without merit under Missouri law. |
Key Cases Cited
- Mahen v. Ruhr, 293 Mo. 500, 240 S.W. 164 (Mo. 1922) (void instruments that create a title cloud can justify equitable relief to clear title)
- Smith v. Thompson, 169 Mo. 553, 69 S.W. 1040 (Mo. 1902) (judgment lien does not attach to entirely exempt homestead)
- Macke v. Byrd, 131 Mo. 682, 33 S.W. 448 (Mo. 1895) (historical recognition that exempt homestead is not "liable to be sold upon execution")
- Baker v. Lamar, 140 S.W.2d 31 (Mo. 1940) (Missouri precedent on homestead and lien attachment)
- Farrey v. Sanderfoot, 500 U.S. 291 (1991) (discussion of liens and bankruptcy policy favoring fresh start)
- In re O'Sullivan, 841 F.3d 786 (8th Cir. 2016) (remanded to determine whether recording produced an enforceable or unenforceable judicial lien)