In Re Levinson
MEMORANDUM DECISION AND ORDER
Before the Court is a motion by the Debtor seeking to avoid a certain judicial lien against the Debtor’s interest in real property located at 20 Meadow Drive, Woodmere, New York (the “Property”) pursuant to 11 U.S.C. § 522(f)(1) on the basis that the judicial lien impairs the Debtor’s homestead exemption (the “Motion”). At issue is the appropriate method to value the individual Debtor’s interest in the Property for purposes of 11 U.S.C. § 522(f) where the Property is held by the Debtor and his non-debtor spouse as tenants by the entirety.
FACTS
The Debtor is an optometrist at Levin-son & Klayman in which he owns a partnership interest. The Debtor filed his petition (the “Petition”) for Chapter 13 relief on December 20, 2006 (the “Petition Date”). The Debtor, along with his wife, owns the homestead Property as tenants by the entirety. Prior to the Debtor’s bankruptcy filing, the Debtor obtained an appraisal of the Property, dated October 31, 2006, which values the Property at $900,000. There is no proposal to sell the Property and no divorce action pending.
The Debtor has claimed his $50,000 homestead exemption in Schedule C to the Petition under 11 U.S.C. § 522 pursuant to N.Y. Debt. & Cred. Law § 282 and N.Y. C.P.L.R. § 5206(a) and there has been no objection to the Debtor’s homestead exemption. Therefore, the Debtor’s homestead exemption is allowed.
On the Petition Date, there were 2 mortgages and 1 judgment lien recorded against the Property. The Debtor has a $50,000 home equity credit line with Bank
Other than the secured creditors discussed above, the Debtor listed only 2 other creditors in his Schedules to the Petition (the “Schedules”) — BONY and Verizon Wireless with general unsecured claims of $7,500 and $345.11 respectively. According to the Debtor’s statements of current income and expenses under Amended Schedules I and J to the Petition, the Debtor has a monthly net income of $2,795.71. Based upon the foregoing, it would appear that the Debtor’s only major creditor is R & E.
In support of his Motion, the Debtor obtained an actuarial report dated December 2, 2006 which states that based upon (i) the fact that the Debtor is 3 years older than his wife, (ii) the rate of return on long term investments being at 6.5% as of November 2006 and (iii) the fact that neither the Debtor nor his spouse is receiving any disability payments, the present value of the Debtor’s interest in the Property, using a valuation date of November 1, 2006, is $103,706.10. Accordingly, based solely on this actuarial report, the Debtor asserts that he only has an 11.52% interest in the Property rather than a 50% interest. Using a value of $103,706.20, the Debtor submits in his Motion that total equity in the Property available to lien creditors after accounting for the 2 mortgages and his homestead exemption is $36,655.62. Therefore, R & E’s judgment lien should be avoided to the extent the amount of the lien exceeds $36,655.62.
R
&
E objected to the Debtor’s Motion on the basis that,
inter alia,
the Debtor’s use of actuarial values to determine the interest of a tenant by the entirety in property was improper and grossly undervalues the Debtor’s interest in the Property. R & E argues that the Debtor’s interest in the Property is 50% or $450,000 because the interests of tenants by the entireties are equal as set forth in
Popky v. United States,
In his Reply, the Debtor noted that the
Popky
decision dealt with the determination of a debtor’s interest in property under Pennsylvania law and not New York real property law nor did the case arise in New York. Moreover, the Debtor argues that courts in the Second Circuit have rejected the principle that a tenancy by the entirety interest should be valued at 50% and have used actuarial analysis to
A hearing on the Motion was held on June 26, 2007 at which counsel for the Debtor and R & E appeared. There was no evidence presented as to the facts in the event a § 363(h) hearing would apply. This memorandum decision memorializes and modifies the Court’s decision on the Motion delivered at the hearing.
DISCUSSION
I. Jurisdiction
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(a) and (b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (K), and (0).
II. Avoidance of Lien
Under 11 U.S.C. § 522(f), a debt- or may avoid the fixing of a judicial lien on an interest of the debtor in property to the extent such lien impairs the debtor’s homestead exemption. Section 522(f)(2)(A) provides that a lien shall be considered to impair an exemption to the extent that the sum of:
(i) the lien;
(ii) all other liens on the property; and
(iii) the amount of the exemption that the debtor could claim if there were no hens on the property;
exceeds the value that the debtor’s interest in the property would have in the absence of any liens.
The purpose of § 522(f) is to protect a debtor’s exemption, his discharge and his fresh start by permitting him to avoid a judicial lien on any property to the extent that the property could have been exempt in the absence of the lien. S.Rep. No. 95-989, at 76 (1978),
as reprinted in
1978 U.S.C.C.A.N. 5787, 5862; H.R.Rep. No. 95-595, at 126-127 (1977),
as reprinted in
1978 U.S.C.C.A.N. 5963, 6087-6088. However, lien avoidance is not an “all or nothing matter.”
In re Barrett,
While § 522(f) does not specify the operative date for purposes of applying the formula to determine whether a lien impairs an exemption, 11 U.S.C. § 522(a) defines “value” for purposes of § 522 as “fair market value as of the date of the filing of the petition.... ” Accordingly, the petition date has been held to be the operative date for all § 522(f) determinations, including
The determination of the value of the Debtor’s interest in the Property, however, is a function of New York law as the Property is located in this state.
Butner v. United States,
In New York, “each tenant may sell, mortgage or otherwise encumber his or her right in the property, subject to the continuing rights of the other.”
V.R.W., Inc. v. Klein,
Because a tenant by the entirety is “seized” of the whole estate as of the time of the conveyance and tenancy by the entirety survives the filing of a petition in bankruptcy under New York law, this Court has previously found that a debtor that holds real property by tenancy of the entirety holds an interest in the entire property on the petition date.
In
re
Rerisi,
This result is consistent not only with New York law, but also with the decisions of other courts which have analyzed this issue in the context of § 522(f) where the relevant states have similar laws concerning tenancy by the entirety. In
Brinley v. LPP Mortgage, Ltd. (In re Brinley),
Similarly, in
Snyder v. Rockland Trust Company (In re Snyder),
[a] tenancy by the entirety is a form of concurrent ownership that can exist only between co-owners who are husband and wife. In such a tenancy, husband and wife ‘are seised of the estate so granted as one person, and not as ordinary joint tenants or tenants in common.’ Therefore, husband and wife hold the property not as ‘two tenants by the entirety,’ but as one person, in one tenancy. The point is more than semantic; it underscores that a tenancy by the entirety is a ‘unitary title’: a title in which the interests of both husband and wife extend tothe whole of the property, not merely to some fractional interest that the other does not also hold.
Each spouse’s interest in and rights as to the whole are well-protected from compromise by the other. For as long as the marriage continues, the estate cannot be severed, terminated, or partitioned by either spouse without the assent of the other. Either spouse may convey or encumber his or her own interest, but the interest so conveyed would be subject to the continuing rights of the other in the property such that the interest conveyed would, among other things, be wholly defeasible upon the death of the conveying spouse and sur-vivorship of the other.... A tenancy by the entirety ‘continues during the existence of the marital relationship and cannot be changed except by death, divorce, a deed of both parties of a deed of one spouse to the other.’... [T]he extent of one spouse’s interest in property held in a tenancy by the entirety is not fixed but contingent on (among other things) future events that determine how the tenancy is terminated and when it is liquidated.
The Panel found “that a hearing on a motion to avoid a lien pursuant to section 522(f), much like a hearing on a motion for relief from the automatic stay, should be a summary proceeding susceptible to a quick and binding resolution. To adopt a procedure for actuarially analyzing the [debt- or’s] interest in the tenancy by the entirety does not fit into this mold, and the Panel rejects it. Indeed, such a procedure would require in each instance a determination of the [debtor’s] interest based on age, sex, health and all other factors that go into making that type of actuarial determination of value.”
Id.,
Although the Panel also considered the possibility of treating a tenancy by the entirety as if it were a tenancy in common in which the debtor and non-debtor spouse each has a 50% interest in the property, the Panel rejected the 50% valuation because it did not comport with Massachusetts law which holds that a tenancy by the entirety guarantees that each spouse has an equal right to the whole.
Id.
(citing,
Coraccio v. Lowell Five Cents Sav. Bank,
In
Popky,
the United States Internal Revenue Service had assessed taxes against Sheila Popky for unpaid employment taxes attributable to her business and filed a notice of tax lien. Shortly thereafter, Ms. Popky sold her property which she held with her husband as tenants by the entirety. The Popkys argued that Ms. Popky’s interest in the proceeds of sale should not be valued at 50% but at a percentage based upon some variation of their life expectancies. Rejecting the use of actuarial values, the Third Circuit valued the interests of tenants by the entire-ties equally under Pennsylvania common law and held that Ms. Popky’s interest in the proceeds of sale was 50%. This result is consistent with general New York ten
In the case before this Court, the Debt- or filed for bankruptcy relief under Chapter 13 which allows him to pay down his prepetition arrears through a Chapter 13 plan while retaining possession and use of the Property. Because a sale of the Property has not occurred and the tenancy by the entirety remains intact, the valuation under Popky is not applicable. As in Snyder, the Court finds a 50% valuation of the Debtor’s interest in the Property to be contrary to New York law which provides that an individual holding property by tenancy by the entirety is “seized” of the entire property at the time of conveyance.
Therefore, this Court adopts the reasoning in Snyder and finds the use of present value determination of the Debtor’s interest in the Property in the context. of § 522(f) to be improper as it not only fails to comport with New York law but it is also flawed and inappropriate for the additional reasons discussed below.
While the Debtor argues that he only has a contingent survivorship interest in the Property because the non-debtor spouse would presumably survive him, the Court does not have any information regarding the health of the Debtor and the non-debtor spouse to determine whether the actuarial values accounted for any known, pre-existing medical condition which would warrant a discount of the Debtor’s interest in the Property. The Debtor’s use of actuarial tables only attempts to estimate as to the present value of what the judgment lien creditor might recover at future date should the Debtor survive the non-debtor spouse. However, the means by which the Debtor’s interest as a tenant by the entirety may terminate, whether by death, divorce, or sale, have not been determined as of the Petition Date. Any valuation based upon contingent future events is merely speculation that has no place in the context of § 522(f) because § 522(f) is not a prospective provision that takes into consideration future contingencies that may occur after the petition date.
Similarly, the Debtor’s reliance on § 363(h) factors while seeking relief pursuant to § 522(f) of the Bankruptcy Code is misdirected and inapplicable given the differences in the purpose and framework between these two provisions of the Bankruptcy Code. Using an actuarial report for the purpose of § 522(f) is like using a crystal ball to prognosticate the future for the Debtor and his spouse; and therefore, it is inapplicable to § 522(f). In addition, while some courts in this district have permitted the use of actuarial values under § 363(h), such values were considered in determining the detriment to the non-debtor spouse as a result of a sale of tenancy by the entirety property free and clear of such spouse’s interest.
In re Waxman,
Under the calculations of § 522(f), the aggregate amount of R & E’s lien and the mortgages ($445,627.27) plus the Debtor’s $50,000 homestead exemption total $495,627.27. Because this amount does not exceed $900,000, the fair market value of the Debtor’s interest in the Property on the Petition Date, R & E’s judgment hen does not impair the Debtor’s homestead exemption.
Accordingly, the Court need not consider R & E’s alternative argument that its judgment lien should not be avoided on the basis that the Debtor has other personal property to which the lien could attach even though no lien appears to have been perfected against such property before the Petition Date.
CONCLUSION
For the reasons set forth above, the Debtor’s Motion to avoid R & E’s judgment lien under 11 U.S.C. § 522(f) is denied.
So ordered.