United States Court of Appeals,
Fifth Circuit.
No. 93-8276.
In the Matter of E.C. HENDERSON and Phyllis Henderson, Debtors.
E.C. HENDERSON and Phyllis Henderson, Appellee,
v.
Lee BELKNAP, Appellant.
April 20, 1994.
Appeal from the United States District Court for the Western District of Texas.
Before POLITZ, Chief Judge, KING and DAVIS, Circuit Judges.
PER CURIAM:
E.C. and Phyllis Henderson (the Hendersons) filed a motion to
avoid Lee Belknap's (Belknap) judicial lien on their homestead
property pursuant to 11 U.S.C. § 522(f)(1). The bankruptcy court
denied the motion. The district court reversed the bankruptcy
court's decision. Belknap appeals. We affirm.
I. FACTS AND PROCEDURAL HISTORY
On October 26, 1990, Belknap obtained a Texas state court
judgment against the Hendersons in the amount of $197,667.21. On
November 29, 1990, Belknap filed an abstract of judgment in
Caldwell County, Texas, on all of the Hendersons' real property in
Caldwell County.
On June 19, 1991, the Hendersons filed for relief under
Chapter 7 of the Bankruptcy Code. At the time of the filing of the
bankruptcy petition, the Hendersons owned 131 acres of real
property in Caldwell County, Texas (Caldwell County property). The
1 bankruptcy court determined that the Caldwell County property
qualified as a rural homestead under Texas law.1
On June 17, 1992, the bankruptcy court denied the Hendersons
a discharge under § 727 of the Bankruptcy Code. After the
bankruptcy court denied the discharge, the Hendersons filed a
motion to avoid Belknap's judicial lien, pursuant to § 522(f)(1),
on their homestead property. The bankruptcy court denied the
Hendersons' motion, and the Hendersons timely appealed to the
district court, 155 B.R. 157.
On appeal to the district court, the district court concluded
that the bankruptcy court had erred in dismissing the Hendersons'
motion to avoid the judicial lien on their homestead. The district
court determined that the "mere existence of a judgment lien,
although not attaching to the exempt homestead, impairs the
debtor's constitutional homestead exemption and, consequently, is
avoidable under § 522(f)(1)." The district court reasoned that
courts which have determined that § 522(f)(1) does not allow a
debtor to avoid a judicial lien on homestead property because the
lien has not attached offer a restrictive and unrealistic line of
reasoning. According to the district court, the real and practical
ramifications of a recorded judicial lien on all of the debtor's
real property is that the lien places a "cloud" on the debtor's
1 Texas law defines a rural homestead as follows: "for a family, not more than 200 acres, which may be in one or more parcels, with improvements thereon; or for a single, adult person, not otherwise entitled to a homestead, not more than 100 acres, which may be in one or more parcels, with the improvements thereon." TEX.PROP.CODE ANN. § 41.002 (Vernon Supp.1994).
2 title to the homestead property and, therefore, "impairs" the
debtor's homestead exemption. Additionally, the district court
determined that allowing a debtor to avoid a judicial lien on his
homestead property furthers the Bankruptcy Code's important
objective of allowing the debtor to gain a fresh start in his
financial life. Finally, the district court reasoned that because
Texas courts have consistently acknowledged that the homestead law
is entitled to the most liberal construction, the Hendersons should
be allowed to avoid the lien.
II. STANDARD OF REVIEW
This court reviews findings of fact by the bankruptcy court
under the clearly erroneous standard and decides issues of law de
novo. Haber Oil Co. v. Swinehart (In re Haber Oil Co.), 12 F.3d
426, 434 (5th Cir.1994). "A finding of fact is clearly erroneous
"when although there is evidence to support it, the reviewing court
on the entire evidence is left with a firm and definite conviction
that a mistake has been committed.' " Wilson v. Huffman (In re
Missionary Baptist Found. of Am., Inc.), 712 F.2d 206, 209 (5th
Cir.1983) (quoting United States v. United States Gypsum Co., 333
U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)).
III. DISCUSSION
Section 522(f)(1) of the Bankruptcy Code provides:
Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—(1) a judicial lien[.]
In order for a debtor to avoid a lien on exempt property under §
3 522(f)(1), a debtor must show: (1) that the lien is a judicial
lien; (2) that the lien is fixed against an interest of the debtor
in property; and (3) that the lien impairs an exemption to which
the debtor would otherwise be entitled. Hart v. Hart (In re Hart),
50 B.R. 956, 960 (Bankr.D.Nev.1985). In this case, both parties
agree that Belknap has a judicial lien and that the Caldwell County
property is the Hendersons' homestead. The district court
determined that even if Belknap's judicial lien did not attach to
the Hendersons' homestead, the lien impairs an exemption of the
debtor, and is therefore voidable under § 522(f)(1). In support of
this position, the district court primarily relied on Robinson v.
Robinson (In re Robinson), 114 B.R. 716 (D.Colo.1990), and In re
Watson, 116 B.R. 837 (Bankr.M.D.Fla.1990).
In In re Robinson, the Robinsons had filed for relief under
Chapter 7 of the Bankruptcy Code and claimed their home as exempt
under the Colorado homestead exemption. In re Robinson, 114 B.R.
at 717. Charlotte Robinson had filed a judicial lien against the
Robinsons' homestead. Id. The Robinsons filed a motion to avoid
Charlotte Robinson's judicial lien pursuant to § 522(f)(1). The
bankruptcy court determined that the lien did not impair the
Robinsons' homestead exemption and thus the Robinsons could not
avoid the lien because "a judgment lien does not automatically
attach to real property in Colorado." Id. at 717-18. The district
court reversed the bankruptcy court's determination, reasoning that
[w]hile in the State of Colorado, exemptions to the bankruptcy [e]state are governed by state law, the availability of lien avoidance provisions is governed by federal law. In this case, it makes little sense to deny the debtors access to the
4 § 522(f)(1) lien avoidance provisions because of the vagaries of Colorado law under which a judicial lien does not attach to homestead property. To do so would deny the intent of the Bankruptcy Code in providing the debtors a fresh start and would leave debtors and creditors in limbo as to the status of judicial liens post-bankruptcy.
Id. at 720. Likewise, in In re Watson, the court held that the
mere existence of a judicial lien impaired the homestead exemption
and was therefore voidable under § 522(f)(1) because "any potential
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United States Court of Appeals,
Fifth Circuit.
No. 93-8276.
In the Matter of E.C. HENDERSON and Phyllis Henderson, Debtors.
E.C. HENDERSON and Phyllis Henderson, Appellee,
v.
Lee BELKNAP, Appellant.
April 20, 1994.
Appeal from the United States District Court for the Western District of Texas.
Before POLITZ, Chief Judge, KING and DAVIS, Circuit Judges.
PER CURIAM:
E.C. and Phyllis Henderson (the Hendersons) filed a motion to
avoid Lee Belknap's (Belknap) judicial lien on their homestead
property pursuant to 11 U.S.C. § 522(f)(1). The bankruptcy court
denied the motion. The district court reversed the bankruptcy
court's decision. Belknap appeals. We affirm.
I. FACTS AND PROCEDURAL HISTORY
On October 26, 1990, Belknap obtained a Texas state court
judgment against the Hendersons in the amount of $197,667.21. On
November 29, 1990, Belknap filed an abstract of judgment in
Caldwell County, Texas, on all of the Hendersons' real property in
Caldwell County.
On June 19, 1991, the Hendersons filed for relief under
Chapter 7 of the Bankruptcy Code. At the time of the filing of the
bankruptcy petition, the Hendersons owned 131 acres of real
property in Caldwell County, Texas (Caldwell County property). The
1 bankruptcy court determined that the Caldwell County property
qualified as a rural homestead under Texas law.1
On June 17, 1992, the bankruptcy court denied the Hendersons
a discharge under § 727 of the Bankruptcy Code. After the
bankruptcy court denied the discharge, the Hendersons filed a
motion to avoid Belknap's judicial lien, pursuant to § 522(f)(1),
on their homestead property. The bankruptcy court denied the
Hendersons' motion, and the Hendersons timely appealed to the
district court, 155 B.R. 157.
On appeal to the district court, the district court concluded
that the bankruptcy court had erred in dismissing the Hendersons'
motion to avoid the judicial lien on their homestead. The district
court determined that the "mere existence of a judgment lien,
although not attaching to the exempt homestead, impairs the
debtor's constitutional homestead exemption and, consequently, is
avoidable under § 522(f)(1)." The district court reasoned that
courts which have determined that § 522(f)(1) does not allow a
debtor to avoid a judicial lien on homestead property because the
lien has not attached offer a restrictive and unrealistic line of
reasoning. According to the district court, the real and practical
ramifications of a recorded judicial lien on all of the debtor's
real property is that the lien places a "cloud" on the debtor's
1 Texas law defines a rural homestead as follows: "for a family, not more than 200 acres, which may be in one or more parcels, with improvements thereon; or for a single, adult person, not otherwise entitled to a homestead, not more than 100 acres, which may be in one or more parcels, with the improvements thereon." TEX.PROP.CODE ANN. § 41.002 (Vernon Supp.1994).
2 title to the homestead property and, therefore, "impairs" the
debtor's homestead exemption. Additionally, the district court
determined that allowing a debtor to avoid a judicial lien on his
homestead property furthers the Bankruptcy Code's important
objective of allowing the debtor to gain a fresh start in his
financial life. Finally, the district court reasoned that because
Texas courts have consistently acknowledged that the homestead law
is entitled to the most liberal construction, the Hendersons should
be allowed to avoid the lien.
II. STANDARD OF REVIEW
This court reviews findings of fact by the bankruptcy court
under the clearly erroneous standard and decides issues of law de
novo. Haber Oil Co. v. Swinehart (In re Haber Oil Co.), 12 F.3d
426, 434 (5th Cir.1994). "A finding of fact is clearly erroneous
"when although there is evidence to support it, the reviewing court
on the entire evidence is left with a firm and definite conviction
that a mistake has been committed.' " Wilson v. Huffman (In re
Missionary Baptist Found. of Am., Inc.), 712 F.2d 206, 209 (5th
Cir.1983) (quoting United States v. United States Gypsum Co., 333
U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)).
III. DISCUSSION
Section 522(f)(1) of the Bankruptcy Code provides:
Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—(1) a judicial lien[.]
In order for a debtor to avoid a lien on exempt property under §
3 522(f)(1), a debtor must show: (1) that the lien is a judicial
lien; (2) that the lien is fixed against an interest of the debtor
in property; and (3) that the lien impairs an exemption to which
the debtor would otherwise be entitled. Hart v. Hart (In re Hart),
50 B.R. 956, 960 (Bankr.D.Nev.1985). In this case, both parties
agree that Belknap has a judicial lien and that the Caldwell County
property is the Hendersons' homestead. The district court
determined that even if Belknap's judicial lien did not attach to
the Hendersons' homestead, the lien impairs an exemption of the
debtor, and is therefore voidable under § 522(f)(1). In support of
this position, the district court primarily relied on Robinson v.
Robinson (In re Robinson), 114 B.R. 716 (D.Colo.1990), and In re
Watson, 116 B.R. 837 (Bankr.M.D.Fla.1990).
In In re Robinson, the Robinsons had filed for relief under
Chapter 7 of the Bankruptcy Code and claimed their home as exempt
under the Colorado homestead exemption. In re Robinson, 114 B.R.
at 717. Charlotte Robinson had filed a judicial lien against the
Robinsons' homestead. Id. The Robinsons filed a motion to avoid
Charlotte Robinson's judicial lien pursuant to § 522(f)(1). The
bankruptcy court determined that the lien did not impair the
Robinsons' homestead exemption and thus the Robinsons could not
avoid the lien because "a judgment lien does not automatically
attach to real property in Colorado." Id. at 717-18. The district
court reversed the bankruptcy court's determination, reasoning that
[w]hile in the State of Colorado, exemptions to the bankruptcy [e]state are governed by state law, the availability of lien avoidance provisions is governed by federal law. In this case, it makes little sense to deny the debtors access to the
4 § 522(f)(1) lien avoidance provisions because of the vagaries of Colorado law under which a judicial lien does not attach to homestead property. To do so would deny the intent of the Bankruptcy Code in providing the debtors a fresh start and would leave debtors and creditors in limbo as to the status of judicial liens post-bankruptcy.
Id. at 720. Likewise, in In re Watson, the court held that the
mere existence of a judicial lien impaired the homestead exemption
and was therefore voidable under § 522(f)(1) because "any potential
enforcement of a judgment lien in the future is a present
impairment of the exemption." 116 B.R. at 838-39. The courts in
In re Robinson, In re Watson, and the instant case determined that
whether the judicial lien "fixed" on the debtor's exempt property
was irrelevant to the inquiry of whether the debtor could utilize
§ 522(f)(1) to avoid a judicial lien. Rather, the courts
concentrated solely on whether the lien's mere existence "impaired"
the debtor's homestead exemption.
We do not agree that whether the judicial lien "fixed" is
irrelevant to whether a debtor can utilize § 522(f)(1). Section
522(f)(1) clearly provides that the debtor may "avoid the fixing of
a lien on an interest of the debtor" in exempt property "to the
extent that such lien impairs an exemption." See Farrey v.
Sanderfoot, 500 U.S. 291, ----, 111 S.Ct. 1825, 1828, 114 L.Ed.2d
337 (1991) (stating that § 522(f)(1) allows the debtor to avoid the
fixing of a lien, i.e., the fastening of a liability, to an
interest of the debtor in exempt property). We believe that the
plain language of § 522(f)(1) allows a debtor to avoid a lien only
when the judicial lien fastens a liability to and impairs the
debtor's exempt property.
5 Therefore, the initial question that we must answer in this
appeal is whether the Belknap's lien "fixes" against the
Hendersons' homestead. Numerous Texas cases have stated that a
properly abstracted judgment never attaches to a homestead so long
as it remains homestead property. E.g., Hoffman v. Love, 494
S.W.2d 591, 593-94 (Tex.Civ.App.—Dallas 1973) ("[A] judgment,
though duly abstracted, never fixes a lien on the homestead so long
as it remains homestead."), writ ref'd n.r.e. per curiam, 499
S.W.2d 295 (Tex.1973); Harms v. Ehlers, 179 S.W.2d 582, 583
(Tex.Civ.App.—Austin 1944, writ ref'd) (noting that "no abstract of
judgment lien could or did attach" to the parties' homestead).
Section 52.001 of the Texas Property Code provides:
Except as provided by Section 52.0011, a first or subsequent abstract of judgment, when it is recorded and indexed in accordance with this chapter, constitutes a lien on the real property of the defendant located in the county in which the abstract is recorded and indexed, including real property acquired after such recording and indexing.
TEX.PROP.CODE ANN. § 52.001 (Vernon Supp.1994).2 Section 41.001 of
the Texas Property Code provides that a homestead is "exempt from
seizure for the claims of creditors." TEX.PROP.CODE ANN. § 41.001
(Vernon Supp.1994). Reading these provisions without the benefit
2 Furthermore, article 16, section 50 of the Texas Constitution provides:
Sec. 50. The homestead of a family, or of a single adult person, shall be, and is hereby protected from forced sale, for the payment of all debts except for the purchase money thereof, or a part of such purchase money, the taxes due thereon, or for work and material used in constructing improvements thereon.... No mortgage, trust deed, or other lien on the homestead shall ever be valid, except for the purchase money therefor, or improvements made thereon....
6 of Texas case law would certainly lead one to conclude that a
judicial lien in Texas does fasten a liability on the homestead.
At the same time, however, homestead property is exempt from the
enforcement of a judicial lien. This reading of the relevant Texas
statutes is supported by Exocet, Inc. v. Cordes, 815 S.W.2d 350
(Tex.App.—Austin 1991, no writ). In Exocet, the court explained
that
[w]hen an abstract of judgment is recorded and indexed in accordance with chapter 52 of the Property Code, it "constitutes a lien on the real property of the defendant located in the county ..., including real property acquired after such recording and indexing." Homestead property is not excluded from the scope and effect of this statute prescribing the legal consequences of perfecting a judgment lien by recording and indexing an abstract of the judgment. Section 41.001 of the Property Code provides, however, that a "homestead" is "exempt from seizure for the claims of creditors except for encumbrances properly fixed on homestead property."
Under these statutory provisions, a judgment lien is "perfected" or brought into existence against a debtor's property, by recording and indexing an abstract of the judgment in the county where the property lies. The debtor's homestead is not exempt from the perfected lien; rather, the homestead is exempt from any seizure attempting to enforce the perfected lien.
Id. at 352 (citations omitted). While we recognize that the issue
may be open to debate, we conclude that under Texas law Belknap's
judicial lien did "fix," i.e., fasten a liability against the
Hendersons' homestead—albeit an unenforceable one.
Now that we have determined that a judicial lien does "fix"
on a Texas homestead, we must decide whether the lien "impairs" the
Hendersons' homestead exemption. Whether a judicial lien "impairs"
a debtor's exemption under § 522(f) is a question of federal law.
City Nat'l Bank v. Chabot (In re Chabot), 992 F.2d 891, 894 (9th
7 Cir.1993); Heape v. Citadel Bank of Independence (In re Heape),
886 F.2d 280, 282 (10th Cir.1989); In re Kelly, 133 B.R. 811, 813
(Bankr.W.D.Tex.1991). The district court determined that Belknap's
judicial lien did "impair" the Hendersons' homestead exemption
because the lien placed a "cloud" on the Hendersons' title. See
Packer v. General Motors Acceptance Corp., 101 B.R. 651, 653
(Bankr.D.Colo.1989) (holding that a judicial lien "impaired" the
debtor's homestead exemption even though it did not attach because
the lien "may leave debtor's title to real property clouded, lead
to future litigation, prevent a closing, preclude title insurance,
require posting of a bond, or otherwise impair or impede a debtor's
right to deal with his real property post-petition in a free and
unfettered manner"). Belknap counters by arguing that the
Hendersons' homestead exemption cannot be "impaired" by his
judicial lien because it cannot be enforced against the Hendersons'
homestead property for so long as the Caldwell County property
remains the Hendersons' homestead. In support of this argument,
Belknap cites the decisions of several courts that have concluded
that when a judicial lien does not attach to homestead property it
does not "impair" the debtor's exemption and thus cannot be avoided
because the lien cannot be enforced against a debtor's exempt
property. E.g., In re Cerniglia, 137 B.R. 722, 727
(Bankr.S.D.Ill.1992) (determining that because the judgment lien
did not attach to the debtor's homestead interest, there is no
impairment of the debtor's exemption and no encumbering lien to be
avoided); Del Vecchio v. Atico Sav. Bank (In re Del Vecchio), 101
8 B.R. 803, 805 (Bankr.S.D.Fla.1989) (noting that the "possibility
that a judgment, which is not a lien might in the future
"interfere' with a possible, but not presently contemplated, future
sale of the debtors' Homestead, does not now "impair' the exemption
already granted these debtors"); In re Fry, 83 B.R. 778, 779-80
(Bankr.D.Colo.1988) (holding that under Colorado law a judgment
lien can never impair the debtor's homestead exemption because the
judgment lien never attaches to the exempt property).
In determining that the Hendersons' homestead exemption was
impaired, the district court further relied on Tarrant Bank v.
Miller, 833 S.W.2d 666 (Tex.App.—Eastland 1992, writ denied). In
Tarrant Bank, the defendant was a successor in interest to a
judgment obtained against the plaintiffs for a delinquent car loan.
Id. at 667. The judgment had been abstracted and filed of record
in Brown County. Id. The plaintiffs then entered into a contract
to sell their homestead, which was located in Brown County. Id.
The plaintiffs had requested the defendant to grant them a partial
release of its lien on their homestead property. Id. Because the
defendant refused to release its lien on the plaintiffs' homestead,
the title company refused to issue an owner's title policy and the
plaintiffs were unable to complete the sale of their home. Id.
The plaintiffs then sued the defendant for slander of title. Id.
The defendant argued that there was no justiciable controversy
between the parties because its lien against the homestead was
unenforceable and could not create a cloud on the plaintiffs' title
to the property. Id. The court disagreed with the defendant and
9 concluded that even though the lien was unenforceable, the lien
could cast a cloud on the defendant's title. Id. at 667-68. The
court concluded, therefore, that there was a justiciable
controversy between the parties. Id. at 668.
We believe that Belknap's argument that the Hendersons'
homestead property is not impaired because he can never enforce his
judicial lien against the Hendersons' homestead as long as that
property remains homestead property is a strong argument. It is
clear to us that because the lien is unenforceable the Hendersons'
homestead exemption is not "legally impaired." However, the term
"impair" encompasses more than the idea of "legal" impairment. The
term impair means "to weaken, to make worse, to lessen in power,
diminish, or relax, or otherwise affect in an injurious manner."
BLACK'S LAW DICTIONARY 752 (6th ed. 1990). While we recognize that the
Hendersons' homestead is not "legally impaired," the Tarrant County
case has demonstrated to us that Belknap's judicial lien does
impair the Hendersons' homestead exemption in a very real and
practical sense. We acknowledge that the determination of whether
a debtor's exemption is "impaired" is a question of federal law,
but we do not believe that we must make this determination without
the benefit of cases such as Tarrant County, which demonstrate the
practical real life effects of an unenforceable judicial lien on a
Texas homestead. Because Belknap's "unenforceable" lien creates a
cloud on the Hendersons' title to their homestead, making it
difficult if not impossible to obtain title insurance, we believe
that Belknap's judicial lien "impairs," i.e., weakens, makes worse,
10 lessens in power, diminishes, and affects in an injurious manner,
their homestead exemption.3 See In re Robinson, 114 B.R. at 720
(holding that even though the creditor's judicial lien did not
attach, the debtor could utilize § 522(f)(1) to avoid a judicial
lien in order to provide the debtor with a fresh start and to fix
the status of judicial liens post-bankruptcy); In re Calandriello,
107 B.R. 374, 375 (Bankr.M.D.Fla.1989) (concluding that the fact
that the creditor's judicial lien is presently unenforceable
against the debtor's homestead exemption does not mean that the
debtor's homestead is not presently impaired because "[t]itle
companies generally treat such judgments as a cloud on title to the
homestead unless avoided in bankruptcy, satisfied, or otherwise
removed").
IV.
For the foregoing reasons, the judgment of the district court
is AFFIRMED.
3 Belknap also argues that the district court erred in allowing the Hendersons to avoid his judicial lien because the Hendersons presented little or no evidence that the lien actually "impaired" their homestead exemption. Specifically, Belknap argues that the Hendersons have presented no evidence that they are contemplating a sale of the homestead or any other evidence that their homestead exemption is actually impaired. The Hendersons counter by arguing that this point of error has been waived by Belknap because he did not raise it in the district court. Even if Belknap has not waived this issue, it is irrelevant whether the debtors are presently contemplating a sale of their homestead because Belknap's judicial lien presently places a cloud on the Hendersons' title to their homestead.