MEMORANDUM DECISION
Linda E. Sinnard, the debtor in this chapter 7 case, has brought a motion under section 522(f)(1) to avoid a lien on her homestead held by the Key City Bank & Trust Company (the “Bank”). After a hearing was held on the debtor’s motion on September 8, 1988, the matter was taken under advisement and the parties given leave to brief the issues.
The following facts are material and undisputed. On October 11, 1982, the debtor and John M. Walsh, then the debtor’s husband, granted a mortgage on the debtor’s homestead to the Bank as security for the repayment of a $138,293.65 loan. The debtor executed the relevant documents while intoxicated and as a result of Mr. Walsh’s less than forthcoming entreaties.
After a jury verdict in favor of the debt- or on hеr fraudulent misrepresentation claims, the trial court entered judgment against the defendants. Additionally, the trial court canceled the real estate mortgage and dismissed the Bank’s crossclaim. After an affirmance by the Iowa Court of Appeals, the Iowa Supreme Court reversed the judgment against the Bank and Mr. Roach, finding that “substantial evidence did not support plaintiff’s claim for fraudulent misrepresentation” against them. The Court did, however, affirm the judgment against Mr. Walsh. The Supreme Court, stating that “the mortgage and assignment of equity were procured for adequate consideration and without fraud,” then remanded the case to the trial court with the instructions that the Bank be granted foreclosure of its mortgage against the debtor and Mr. Walsh. On March 3, 1988, the trial court entered judgment on the debt owed to the Bank and entered a decree of foreclosure of the debtor’s and Mr. Walsh’s interest in the debtor’s homestead.
The debtor then filed a chapter 7 petition on April 18, 1988. She claimed her homestead — the property subject to the Bank’s foreclosed mortgage — as exempt to the extent of $200,000 in value under Iowa Stat. § 561.16. Although the homestead likely was not exempt under Iowa law since the debtor had voluntarily conveyed her interest in the homestead to the Bank, see Iowa Stat. § 561.13, § 561.21(2), the Bank failed to object to the claimed exemption. On July 19, 1988, the debtor filed the motion now before this court to avoid the Bank’s lien on her homestead under section 522(f)(1). The Bank has objected to the avoidance of its lien arguing that its mortgage lien, although judicially foreclosed prior to the bankruptcy filing, is not a “judicial lien” within the meaning of section 522(f)(1).
A. Validity of Mortgage and Foreclosure Judgment.
Although the debtor has styled her motion as one for the avoidance of liens, the debtor apparently wishes to dispute the validity of the Bank’s mortgage ab initio. Why the debtor waited until this point to contest the secured nature of the Bank’s claim is not clear to me. The debtor scheduled the Bаnk as a secured creditor with a claim in the approximate amount of $150,-000 and having a mortgage on the debtor’s homestead. Although the debtor’s scheduled indicates that either the claim or the security for the claim is disputed (the schedules do not indicate which), the schеdules suggest only that the debtor seeks to claim the homestead as exempt in spite of the Bank’s mortgage.
While the facts considered in toto seem to contradict the debtor’s contention that the Bank’s mortgage is invalid, the debtor still argues that her homestead is not subjeсt to the Bank’s claim because (1) the debtor’s former husband fraudulently induced the debtor to execute the mortgage instrument in favor of the Bank; and (2) even if the mortgage is valid, the debtor’s waiver of her homestead exemption rights is ineffective because of the conditions undеr which it was given. The Bank’s position is that the validity of the mortgage was upheld by the Iowa Supreme Court at the culmination of the debtor’s fraudulent misrepresentation suit. Specifically, the Bank points to the Supreme Court’s statement that
As already noted, the trial court sitting as a court of equity, simultaneously with the law action, entered an order cancel-ling the mortgage and assignment of equity on plaintiff’s home on the basis it had been obtained by the Bank through fraudulent misrepresentations. Because we have concluded there was no fraud established as against the Bank, that basis for cancellation of the mortgage and assignment of equity no longer exist [sic]. C.f. Kurth v. Van Horn, 380 N.W.2d 693 , 698 (Iowa 1986) (reversing fraud verdict eliminated ground for canceling mortgage).... Finding that the mortgage and assignment of equity were procured for adequate consideration and without fraud, we conclude that it was error to order those instruments can-celled. This action by the court in equity is reversed. The case is remanded for entry of appropriate judgment on the note with interest and foreclosure of the mortgage.
Sinnard v. Roach,
Following the directiоn of the Supreme Court, on March 29, 1988, the trial court entered judgment against the debtor and Mr. Walsh for $138,293.65 and foreclosed their respective interests in the debtor’s homestead. No appeal was taken from the entry of the personal judgment or the entry of the foreclosure judgment.
It seems clear to me that the Iowa Supreme Court’s judgment and the actions of the Iowa district court on remand are
res judicata
on the claims the debtor now raises. Judgments of state courts are entitled to preclusive effect in bankruptcy courts.
See
28 U.S.C. § 1738 (“The judicial proceedings of any court of any state ... shall have the same full faith and credit in every court within the United States and its territories and possessions as they have by law or usage in the courts of such state.”);
see also In re Oulman (Oulman v. Rolling Green, Inc.),
United States Supreme Court precedent directs that federal courts must determine the res judicata impact of a prior state court judgment by employing a two-step analysis. First, the federal court must determine the preclusive effect of the state court judgment under state law.
Migra v. Warren City School District Bd. of Ed.,
The Iowa Supreme Court has stated that: Res judicata as claim preclusiоn applies when a litigant has brought an action, an adjudication has occurred, and the litigant is thereafter foreclosed from further litigation on the claim. The doctrine is based on the principle that a party may not split or try a claim piecemeal, but must put in issue the entire claim or defense in the case on trial.
Selchert v. State,
The first two of these elements are clearly established. Thе only question is whether the claims or defenses the debtor now raises were or could have been raised in the state court proceeding.
In the state court action the debtor raised the fraudulent conduct of Mr. Walsh, the Bank, and its officer, Mr. Roach. The Supreme Court specifically held that fraudulent conduct on the part of either the Bank of Mr. Roach had not been established. The Supreme Court did affirm the finding of fraudulent conduct on the part of Mr. Walsh. Nevertheless, the Supreme Court reversed the trial court’s cancelation оf the real estate mortgage. Implicit in this ruling was a finding that Mr. Walsh’s conduct did not merit granting the debtor the remedy requested; i.e., cancelation of the mortgage.
The debtor could have asserted her incapacity at the time of the execution of the mortgage as a defense to the Bank’s cross-claim for fоreclosure.
See FirstCentral Bank v. White,
For the same reasons the debtor’s homestead claim is precluded by the state court’s judgment. Under Iowa law, a person effectively may waive her homestead exemption rights by voluntarily encumbering her interest in the homestead property.
See
Iowa Code § 516.13; § 516.21(2). Such a conveyance, however, is not valid unless the debtor had the capacity to convey her interest. Incаpacity by way of intoxication,
see State Exchange Bank v. Nolan,
Intoxication and/or fraud in the inducement are the defenses the debtor wishes to assert in this court. These defenses, however, should have been аsserted in the state court proceeding. A debtor’s homestead claim is a personal defense to a mortgage foreclosure action, and is waived by the putative claimant’s failure to urge it in a foreclosure action.
See Dodd v. Scott,
In the recent Iowa case of
Francksen v. Miller,
B. Avoidance of Foreclosure Mortgage Lien.
Before a lien may be avoided under section 522(f)(1), the debtor must prove three elements:
(1) that the lien is fixed on an interest of the debtor in property;
(2) thаt the lien impairs an exemption to which the debtor would otherwise be entitled; and
(3) that the lien is a judicial lien.
In re Hart,
I have found only one case that suggests, must less holds, that
Miller
is bad law.
See In re West,
The underpinnings of
Miller
have been upheld as well. As to Judge Thinnes’ statement that section 522(f)(1) was intended to “apply to judgments on debtors that would otherwise be unsecured” rather than to consensual liens pre-existing any judicial action,
Miller, supra,
[A] judicial lien is an interest which encumbers a specific piece of property granted to a judgment creditor who was previously free to attach аny property of the debtor’s to satisfy his interest but who did not have an interest in a specific piece of property before the occurrence of some judicial action.
Boyd v. Robinson (In re Boyd),
Judge Thinnes based his determination that the foreclosure did not convert the mortgage into a judicial lien on the principle that, under Iowa law, the foreclosure decree does not extinguish the mortgage lien. Therefore, the consensual lien was in no way “converted” into a judicial lien.
See Miller, supra,
For the reasons stated above the debtor’s motion to avoid the lien of the Key City Bank & Trust Company must be denied. This memorandum shall be my findings of fact and conclusions of law on the motion.