In Re Northern
MEMORANDUM ON MOTION TO AVOID LIEN
This contested matter is before the court on the Motion to Avoid Alleged Lien (Motion to Avoid) filed on March 4, 2003, by the Debtors, seeking the avoidance of a judicial lien of Colonial Loan Association, Inc. (Colonial) under
Facts and documents essential to the resolution of the Debtors’ Motion to Avoid are before the court on the Stipulations Regarding Motion to Avoid Alleged Lien filed by the parties on April 28, 2003, on the Amended Stipulations Regarding Motion to Avoid Alleged Lien filed on May 12, 2003, and on the Second Amended Stipulations Regarding Motion to Avoid Alleged Lien filed on May 23, 2003. Both parties filed briefs in support оf their respective positions on May 12, 2003.
This is a core proceeding.
I
On March 8, 1999, Colonial obtained a Judgment by Default (Default Judgment) in the amount of $28,289.35
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against the Debtors in the Chancery Court for Knox County, Tennessee. The Default
On July 12, 1999, the Debtors purchased unimproved real property located at 8321 Chauvin Lane, Corryton, Tennessee (the Real Property) by Warranty Deed from Mary L. Bond (the Bond Warranty Deed). The Bond Warranty Deed was duly recorded with the Knox County Register of Deeds on July 20, 1999. In connection with this purchase, on July 7, 1999, the Debtors executed a Deеd of Trust conveying the Real Property to Title Insurance Company of Knoxville, LLC, as Trustee for the benefit of Mary L. Bond (the Bond Deed of Trust), to secure the indebtedness owed in the amount of $16,000.00. The Bond Deed of Trust was recorded with the Knox County Register of Deeds on July 20,1999.
On July 24,1999, the Debtors executed a Retail Installment Contract and Security Agreement (the Contract) with CMH Homes, Inc., d/b/a Luv Homes Lot # 50 (Luv Homes), for the purchase of a 1999 Franklin mobile home, with accessories, in the amount of $80,987.00. As additional security, the Debtors also executed a Deed of Trust conveying the Real Property to James L. Clayton as Trustee for the benefit of Luv Homes (the Luv Homes Deed of Trust). The Luv Homes Deed of Trust was recorded with the Knox County Register of Deeds on August 12, 1999. The Contract and the . Luv Homes Deed of Trust were subsequently assigned to Vanderbilt Mortgage and Finance, Inc. (Vanderbilt Mortgage). On August 9, 1999, Mary L. Bond executed a Full Release of Deed of Trust Lien, releasing the Bond Deеd of Trust, which was recorded with the Knox County Register of Deeds on August 12,1999.
The Debtors filed the voluntary petition initiating their Chapter 7 bankruptcy case, along with their statements and schedules, on October 14, 2002. The Debtors listed the Real Property on their Schedule A, claiming a current market value of $66,300.00, subject to a secured claim of $77,000.00. The Debtors based this amount on the value assessed the Real Property by the Knox County Property Assessor according to a 2001 tax apprаisal of $18,200.00 for the land and $48,100.00 for the mobile home. The Debtors also listed the Real Property on their Schedule C,_ claiming a $7,500.00 homestead exemption pursuant to Tennessee Code Annotated section 26-2-301 (2001) (Tennessee’s Homestead Statute).
Vanderbilt Mortgage filed a secured proof of claim with attachments on October 31, 2002,
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in the amount of $76,556.32.
4
Colonial filed its proof of claim on October
On February 18, 2003, Colonial filed a Motion for Abandonment of Property requesting that the Real Property be abandoned. On February 27, 2003, the Debtors filed an Objection and Response to Colonial Loan Association, Inc.’s Motion for Abandonment of Property, asserting that Colonial’s judgment hen had expired pursuant to Tennessee Code Annotated section 25-5-105 (2001). In the alternative, the Debtors asserted that the judgment lien was avoidable, and in accordance with that argument, the Debtors filed their presént Motion to Avoid. 7
In connection with the Motion to Avoid, an appraisal of the Real Property was performed on April 23, 2003, by Michael F. Jordan, Sr., a certified appraiser, who appraised the Real Property at $97,500.00, assigning values of $20,000.00 as to the land and $77,500.00 as to the mobile home. Colonial asserts that this amount better represents the current market value of the Real Property as oppоsed to the $66,300.00 amount listed in the Debtors’ bankruptcy schedules, that was taken from a 2001 tax appraisal. The Debtors urge the court to utilize an amount representing the difference between the two appraisals based upon the Debtors’ filing in October 2002. Accordingly, the Debtors ask the court to value the Real Property at $81,900.00, representing $19,100.00 for the land and $62,800.00 for the mobile home.
II
A bankruptcy estate is formed upon the filing of a petition under any chapter оf the Bankruptcy Code, and property owned by a debtor becomes property of that bankruptcy estate.
See
(b) Notwithstandingsection 541 of this title, an individual debtor may exempt from property of the estate the property listed in either paragraph (1) or, in the alternative, paragraph (2) of this subsection .... Such property is—
(2)(A) any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor’s domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place; and
(B) any interest in property in which the debtor had, immediately before the commencement of the case, an interest аs a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.
(f)(1) ... [T]he debtor may avoid the fixing of a hen on an interest of the debtor in property to the extent that such hen impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such hen is—
(A) a judicial lien[.]
(2)(A) For the purposes of this subsection, a hen shah be considered to impair an exemption to the extent that the sum of—
(i) the hen;
(ii) all other hens on the property; and
(hi) 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 hens.
(B) In the case of a property subject to more than 1 hеn, a hen that has been avoided shah not be considered in making the calculation under subparagraph (A) with respect to other hens.
In this action, the Debtors urge the court to strictly follow the statutory language of
Ill
The first issue before the court is the value of the Real Property for the purposes of the
The filing date of the Debtors’ bankruptcy petition was October 14, 2002. The two values provided are a 2001 tax appraisal in the amount of $66,300.00 and a 2003 appraisal in the amount of $97,500.00. However, the only appraisal report produced is the 2003 appraisal report, conducted by a certified appraiser six months after the filing date. See Exhibit 8. This appraisal report compares three similаr properties and includes photographs of the Real Property and the comparable properties. On the other hand, the value assigned the Real Property by the Debtors is the value assessed for tax purposes. Because the court attaches little weight to values assigned real property for tax purposes 9 and because the assessment is not current, the court finds that the 2003 valuation more accurately establishes the fair market value of the Real Property as of the date that the Debtors filed their bankruptcy petition.
Additionally, the court must determine whether the mobile home has become affixed to the Real Property such that its value should be included in the analysis. Pursuant to Tennessee Code Annotated
Under Tennessee law, “whether a mobile home is considered a motor vehicle and therefore personal property or a fixture attached to real property depends upоn how the mobile home is actually used.”
In re Owens,
[i]n Tennessee, only those chattels are fixtures which are so attached to the freehold that, from the intention of the parties and the uses to which they are put, they are presumed to be permanently annexed, or a removal thereof would cause serious injury to the freehold. The usual test is said to be the intention with which a chattel is connected with realty. If it is intеnded to be removable at the pleasure of the owner, it is not a fixture.
Hickman v. Booth,
In this case, the parties stipulated that the mobile home was delivered to the Debtors’ current address after it was purchased in July 1999, and that within several days thereafter, the mobile home was situated on concrete block piers with concrete footings, and the wheels were removed. The mobile home was not attached to the concrete block piers or the concrete footings; however, it was connected to electricity, to a water line, and to a septic tank by a single drain pipe. In early 2000, the Debtors placed a wood frame and plywood skirting around the crawl space that do not provide structural support to the mobile home. As ascertained from the photographs of the mobile home attached to Mr. Jordan’s 2003 appraisal report, further additions to the mobile home included a front deck with steps leading up to the front door, a back dеck with steps added to one back door leading to the Debtors’ above-ground swimming pool, and concrete steps attached to the other back door. The Debtors have landscaped a walkway in front of the mobile home, and a concrete driveway has been constructed to the side of the mobile home.
It appears to the court that the mobile home has become affixed to the Real Property under Tennessee lаw, and therefore, its value should be included in the
Additionally, even though the Debtors could possibly move the mobile home to a new location, doing so would damage the Real Property, as well as the mobile home and additional added features. The mobile home itself may not be attached to the concrete footings; however, they are imbedded into the ground, much like the foundation on -a house. The Debtors have constructed a concrete driveway, which would also be difficult and damaging to remove from the land. Finally, the additional structures, such as the steps and decks, would most likely not survive being moved, and clearly, the wood frame and plywood skirting would be destroyed.
Because the Debtors purchased the mobile home and placed it on their Real
IV
Having determined the proper value for the Real Property, the impairment analysis dictated by
(i) the lien sought to be avoided: $ 26,972.59
(ii) all other liens on the property:
(1) real estate taxes owing $ 1,732.57
(2) Vanderbilt Mortgage $ 76,556.32
Total other liens 78,288.89
(iii) homestead exemption $ 7,500.00
Total Liens and Exemption $112,761.48
Value of Real Property $ 97,500.00
Extent of Impairment $ 15,261.48
Under this formula, the Debtors may avoid any judicial lien to the extent that it impairs their homestead exemption or up to $15,261.48. Since Colonial’s hen is a greater amount, $26,972.59, the Debtors may only avoid Colonial’s • lien by $15,261.48, leaving Colonial with a judicial hen encumbering the Real Property in the amount of $11,711.11.
Colonial urges the court to go beyond the statute and to respect Tennessee’s priority laws by incorporating them into the
The Sixth Circuit has not ruled on a case directly on point with this matter; however, the Eighth Circuit recently examined a case with similar fаcts to the case presently before the court, and held that even though a deed of trust may be inferior in a state’s priority scheme, it must nevertheless be included in the impairment analysis of
[t]o be sure, the Bankruptcy Code usually looks to state law to define the property rights and priorities of creditors, including secured creditors. But§ 522(f) is an exception to that policy. It was enacted to permit the avoidance of judicial liens- that can interfere -with the debtor’s post-petition fresh start. This selective avoidance gives an advantage under federal law to sеcured creditors holding consensual liens, typically, residential mortgage lenders. But Congress intended to treat consensual hen-holders more favorably, because their contractual relationships with the bankruptcy debtor typically allow the debtor to acquire equity in the exempt property by making post-petition mortgage payments. The 1994 amendment creating the statutory formula here at issue was expressly aimed at overruling prior judicial decisions compromising that intent.
Kolich,
The court agrees that the plain language of the statute provides for inclusion of ah hens, defined by the Bankruptcy Code as “charge[s] against or interests] in property to secure payment of a debt or performance of an obligation^]”
Finally, as to Colonial’s argument that avoidance of its hen will result in a windfall for the Debtors, resulting in an absurdity, the court again relies upon and adopts the following reasoning of the Eighth Circuit Bankruptcy Appellate Panel in Kolich:
Permitting Debtors to avoid [Colonial’s] hen in its entirety will not result in the kind of windfall the Nelson [v. Scala,192 F.3d 32 (1st Cir.1999)] and Lehman decisions sought to avoid. Rather, it furthers the еxpressed legislative purpose of bringing clarity to the process of calculating the debtor’s preserved exemption and protecting a debtor’s exemption rights against judicial liens.... Section 522(f)(2)(A) is a congressionally mandated bright line formula for determining how to calculate the extent to which a judicial lien impairs an exemption. As with all bright line tests, at times it may seem a formulaic application brings unfair results. Yet, under the facts of this case, the perceivеd unfairness of allowing a Debtor to avoid a judicial lien which is prior to a junior consensual lien was anticipated by Congress. Congress chose clarity over possible unfair results.
Kolich,
y
In summary, under the express language of
Notes
. This amount consisted of $25,789.35 plus $2,500.00 attorneys’ fees. The Default Judgment also awarded contractual interest.
. The recorded Default Judgment also satisfies the Bankruptcy Code's definition of "judicial lien,” meaning a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.”
. The Stipulations erroneously state that the proof of claim was filed on October 23, 2002.
. The court takes judicial notice that the Debtors entered into a Reaffirmation Agreеment with Vanderbilt Mortgage on November 19, 2002, which was filed with the court
on
December 20, 2002.
See
. The Stipulations erroneously state that the proof of claim was filed on October 25, 2002.
. Colonial’s proof of claim did not specify whether it was filed as a secured or an unsecured claim.
. The court entered an Agreed Order on April 17, 2003, granting the parties’ Motion to Hold Matter in Abeyance as to Colonial’s Motion for Abandonment of Property, pending the outcome of the Debtors’ Motion tо Avoid.
.
. Tennessee courts do not consider tax appraisals credible evidence of the market value of real property.
See, e.g., Knoxville Housing Auth., Inc. v. Bower,
. A lien, in its broadest sense, is a legal claim or charge on real or personal property used as security for the payment of some debt or obligation. Persons who obtain a judgment become judgment creditors and may obtain two significantly different liens against the judgment debtor’s property. The first is the judgment lien authorized by Tenn.Code Ann. § § 26-5-101(b) (Supp.1994) that attaches to a judgment debtоr's real property. The second is the execution lien authorized by Tenn.Code Ann. § § 25-5-103 (1980) that attaches to the judgment debtor’s personal property. This lien requires the registration of the judgment within sixty days after it is rendered and issuance and levy of a writ of execution.
Keep Fresh Filters, Inc. v. Reguli,
.
See Lehman v. VisionSpan, Inc. (In re Lehman),