CRP Holdings A-1, LLC v. O'Sullivan (In Re O'Sullivan)CRP Holdings A-1, LLC v. O'Sullivan (In Re O'Sullivan)
CRP Holdings, A-1, LLC (CRP) appeals the Bankruptcy Appellate Panel‘s (BAP) decision affirming the bankruptcy court‘s order holding that CRP has an unenforceable judicial lien against the real property of the debtor, Casey Drew O‘Sullivan, and avoiding that lien pursuant to
I. Background
O‘Sullivan and his wife acquired a residence as tenants by the entirety in November 1995. The residence is located in Barton County, Missouri (“property“). On January 5, 2015, CRP obtained a $765,151.18 default judgment in the Circuit Court of Platte County, Missouri, against O‘Sullivan. The judgment did not include Sullivan‘s wife. CRP then filed a notice of foreign judgment, registering the judgment on January 26, 2015, in the Circuit Court of Barton County, Missouri, in an attempt to obtain a judicial lien on the property owned by the O‘Sullivans as tenants
On April 3, 2015, O‘Sullivan filed a voluntary Chapter 7 bankruptcy petition, which his wife did not join. O‘Sullivan listed the property in his schedules and claimed a $15,000 homestead exemption under both
The bankruptcy court granted O‘Sullivan‘s motion to avoid CRP‘s lien on the property. It concluded that “CRP‘s judgment lien—although perhaps not enforceable—certainly affixed upon [O‘Sullivan‘s] home upon CRP‘s recording of its judgment in Barton County” and therefore impaired O‘Sullivan‘s claimed exemption. CRP Holdings, A–1, LLC v. O‘Sullivan (In re O‘Sullivan), 841 F.3d 786, 788 (8th Cir. 2016) (alteration in original).
CRP appealed to the BAP, which affirmed the bankruptcy court‘s order. The BAP likewise concluded that “an unenforceable judgment lien arose” on the property held by the entireties. CRP Holdings, A–1, LLC v. O‘Sullivan (In re O‘Sullivan), 544 B.R. 407, 413 (B.A.P. 8th Cir.), vacated, 841 F.3d 786 (8th Cir. 2016). Therefore, the BAP reasoned, it was “possible for [O‘Sullivan] to avoid it under
On appeal to this court, “CRP challenge[d] the BAP‘s conclusion that O‘Sullivan could avoid its purported judicial lien on the property.” In re O‘Sullivan, 841 F.3d at 788. “The only contested issues on appeal [were] whether a judicial lien existed and, if so, whether that lien affixed on O‘Sullivan‘s interest in the property.” Id.
We identified a threshold question that neither party had addressed—“whether CRP had a judicial lien properly subject to avoidance under
On remand, the bankruptcy court held that CRP possessed an unenforceable judicial lien against O‘Sullivan‘s property and granted O‘Sullivan‘s motion to avoid the lien. In reaching its conclusion, the bankruptcy court noted that this court “direct[ed] the parties to only one of two possible results on remand.” In re O‘Sullivan, 569 B.R. 163, 165 (Bankr. W.D. Mo. 2017), aff‘d, No. 17-6012, 2017 WL 4844244 (B.A.P. 8th Cir. Sept. 22, 2017). The bankruptcy court could find (1) the debt was dischargeable through the bankruptcy proceedings because CRP‘s notice of foreign judgment failed to give rise to a lien on O‘Sullivan‘s exempt homestead property, or (2) the lien is avoidable under
Third, the court concluded that CRP had no “judgment lien against the Debtor under Missouri law when the Debtor filed his Chapter 7 bankruptcy case.” Id. Significantly, the court also noted that the case required further analysis. This was because ”
The BAP affirmed. The BAP, like the bankruptcy court, determined that CRP did not have a lien under Missouri law because O‘Sullivan‘s property was owned jointly with his spouse as tenants by the entirety. The BAP also concluded that the existence of a lien for purposes of
II. Discussion
On appeal, CRP argues that the bankruptcy court erred in granting O‘Sullivan‘s
“When reviewing a decision of the BAP, we act as a second reviewing court of the bankruptcy court decision, independently applying the same standard of review as the BAP. This appeal turns on the bankruptcy court‘s interpretation of law which we review de novo.” In re O‘Sullivan, 841 F.3d at 788 (cleaned up).
“To shield exempt property from ... post bankruptcy collection efforts,
As in the prior appeal, the only contested issues “are whether a judicial lien existed and, if so, whether that lien affixed on O‘Sullivan‘s interest in the property.” Id.
The bankruptcy code defines “judicial liens” as liens “obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.”
Given the broad definition of “judicial liens,” “unenforceable liens may be avoided under
As we recognized in the prior appeal, our sister circuits have distinguished between “existent but presently unenforceable liens and nonexistent liens.” Id. at 789–90. Persuaded by our sister circuits’ distinctions, we “conclude[d] that where a judgment gives rise to an unenforceable lien, a debtor may move to avoid that lien under
As we previously framed the issue, the question presented is whether, under Missouri law, CRP‘s notice of foreign judgment gave rise to a lien on O‘Sullivan‘s exempt homestead property. If it did give rise to a lien, then O‘Sullivan appropriately moved under
Entireties property “is owned by a single entity, the marital community.” Fed. Nat‘l Mortg. Ass‘n v. Pace, 415 S.W.3d 697, 703 (Mo. Ct. App. 2013). Missouri state court judgments, such as the default judgment CRP obtained against O‘Sullivan, are “lien[s] upon the real estate of the person against whom such judgment ... is entered” located within the same county as the judgment.
Mo. Rev. Stat. § 511.440 (emphasis added); see alsoMo. Rev. Stat. § 511.350 . Thus, when CRP filed its notice of foreign judgment, it created a judicial lien on any “real estate” owned by O‘Sullivan in Barton County. “Real estate” itself is narrowly defined as an interest in property ”liable to be sold upon execution.”Mo. Rev. Stat. § 511.010 (emphasis added). Here, because the real estate was held as entireties property, neither spouse arguably had “a separate interest [in that property] subject to execution,” and a judgment filed against only one spouse could not “constitute a lien on the [entireties] property.” Baker v. Lamar, 140 S.W.2d 31, 35 (Mo. 1940) (emphasis added).
Id. at 789 (alterations and ellipsis in original).
In the prior appeal, we expressed our “serious doubts as to whether CRP has a lien that affixed onto O‘Sullivan‘s interest in the property.” Id. In fact, based on the aforementioned Missouri case law, we found “a strong argument that CRP did not obtain any lien on the property.” Id. Crucially, however, we declined to “definitively rule on the avoidance motion in the absence of such a finding.” Id.
Now, after remand and return to our court, the decision to decline to determine the avoidance motion in the first appeal has proven prudent. With respect to tenancy by the entirety, Missouri law recognizes that “[a] judgment against one [spouse] would not constitute a lien on the property since neither [spouse] has a separate interest subject to execution.” Baker, 140 S.W.2d at 35. Despite the absence of a lien, Missouri law nonetheless recognizes that courts must act in equity to clear a cloud upon a title to real estate that is not apparent on the face of the document. See Mahen, 240 S.W. at 164. In Mahen, a complex set of transactions occurred resulting in conveyance instruments that the court declared void because the property was held as tenants by the entirety. These conveyance documents included a sheriff‘s deed reciting a judgment and execution, where the execution was against only the husband‘s interest that was not subject to levy and was based on a nonexistent judgment against him. Id. at 166 (“[T]he levy and sale under execution was void because the interest of [the husband] was not subject to levy.“). After acknowledging the conveyance instruments were “void,” the court considered “whether all these void instruments are a cloud upon the title which would warrant the interposition of a court of equity.” Id. The court recognized the rule that “where the record does not
Here the title was held by the entireties. To the ordinary abstracter, or to the lay mind, a distinction might not be discovered between a deed by the entireties and a joint tenancy or a tenancy in common. Certain words might change the entire effect of the instrument. Here was a conveyance, regular on its face, made by Mahen, and purporting to convey his interest. Here was a deed, regular on its face, which purported to convey the interest of Josephine Mahen. Here was a sheriff‘s deed reciting a judgment and execution in due form. So far as the record shows, the casual observer would not penetrate the difference and ascertain that all these conveyances were void from the inability of the owners to convey.... We think the record sufficiently shows a cloud upon the title to warrant the interposition by a court of equity.
Id.
In the present case, as in Mahen, there is no “lien” as Missouri law defines it because CRP‘s notice of foreign judgment was against O‘Sullivan, not O‘Sullivan and his wife, who hold the property as tenants by the entirety. Nevertheless, there is a “lien” as federal law defines it because a “cloud upon the title” to the property exists under Missouri law, just as it did in Mahen, by virtue of CRP‘s filing of the notice of foreign judgment. That cloud on title constitutes a “charge against or interest in the property.”
The recording of CRP‘s foreign judgment in Barton County created a cloud on the Debtor‘s title on his exempt homestead, which constituted a “charge against or interest in property” under Missouri law and qualified as a “judicial lien” under the Bankruptcy Code.
11 U.S.C. § 101(36) . Where the record does not show on its face that recorded documents (such as a judgment) are void, a cloud on title may be created warranting the imposition of a court of equity to remove it.
In re O‘Sullivan, 2017 WL 4844244, at *3.
Consistent with Mahen, the BAP cited the “practical difficulties [that] may exist for an ordinary searcher of the records or even a title company trying to determine whether the judgment [against O‘Sullivan] created a lien and the Property is liable for execution.” Id. at *4. The result is that the property‘s value and marketability of title would be affected. We agree with the BAP that CRP‘s recording of the foreign judgment created a cloud on title under Missouri law sufficient to constitute a “charge against or interest in” O‘Sullivan‘s property under the Bankruptcy Code.
Therefore, we conclude that the cloud on title created by “CRP‘s recording of its judgment ‘fastened an existing, but presently unenforceable lien’ on the Property.” In re O‘Sullivan, 2017 WL 4844244, at *4 (quoting In re O‘Sullivan, 569 B.R. at 168). As a result, we hold that application of
III. Conclusion
Accordingly, we affirm the judgment of the BAP.