MEMORANDUM OF DECISION
HENRY J. BOROFF, Bankruptcy Judge.
I. BACKGROUND
The matter before the Court is a "Motion To Avoid Real Estate Attachments Under Section 522(f)" (the "Motion") filed by the Debtor, William J. Witkowski (the "Debtor"). The Motion seeks to avoid judicial liens held by Shawmut Bank, N.A. ("Shawmut"), Sylvan Nursery, Inc. ("Sylvan") and Edwin's Gifts Too ("Edwin")
The Motion was initially heard by the Court on August 11, 1994. Objections were filed by each of the alleged lienholders. However, Shawmut failed to appear at the hearing and was, therefore, defaulted. With respect to Sylvan and Edwin, a dispute arose at the hearing by and between those alleged lienholders and the Debtor as to (1) the valuation of the Property and (2) the legal effect of avoidance under 11 U.S.C. § 522(f)(1).
At the hearing on August 25, 1994, the alleged lienholders produced no admissable evidence with respect to the value of the Property. Therefore, the Court accepted the Debtor's valuation of $150,000.00. The parties have also agreed (or failed to contest) the following liens or encumbrances on the Property:
Property value $150,000.00 First mortgage (American Residential Mortgage Corp.) — ($122,500.00) Second Mortgage (Fleet National Bank) — (20,000.00) ______________ Gross equity before judicial liens 6,800.00 Shawmut attachment (4,919.47) Sylvan attachment (6,126.03) (47,222.93)3 ______________ Net equity after judicial liens (51,468.03)
None of the lienholders have challenged the Debtor's assertion that the Debtor's interest in the Property is fifty (50%) percent of the total ownership interest. Therefore, based on the foregoing valuation and the balance of the outstanding first and second mortgages, the Debtor would enjoy equity of $3,400.00 (the "Gross Equity"), prior to the impact of the judicial liens. Giving effect to the judicial liens, the Debtor would enjoy no equity whatsoever. However, the Debtor has, pursuant to 11 U.S.C. § 522(d)(1),
Sylvan also argues that its lien against the Debtor's interest should not be avoided, but should instead be subordinated to the amount of the Debtor's exemption (the "Subordination Approach"). Sylvan maintains that any other result would be "unconscionable" inasmuch as property values "wax and wane". Through subordination, Sylvan could enjoy the benefits of any future appreciation of the Property. Shawmut and Edwin also argue for the Subordination Approach for similar reasons. However, Edwin also argues an alternative approach. Edwin maintains that if § 522(f)(1) requires avoidance of liens, the statute has been read to require nullification of only those liens or portions of liens which impair the value being exempted (the "Partial Avoidance Approach"). The liens which remain, in whole or in part, would be spared.
Were this Court to employ a Subordination Approach, each of the Liens would remain on the property as valid encumbrances, but junior to the Debtor's Gross Equity of $3,400. Were this Court to employ a Partial Avoidance Approach, the same result would ensue, except that the lien of Shawmut (but for the default herein) would be reduced by the amount of the Debtor's Gross Equity of $3,400.00. The Debtor argues that § 522(f)(1) requires that each of the liens be fully avoided (the "Full Avoidance Approach").
Unfortunately, each of the foregoing approaches can find support in bankruptcy court case law in this District.
Judge Gabriel began the string with his decision of In re Carney, 47 B.R. 296 (Bankr. D.Mass.1985). Judge Gabriel employed the Full Avoidance Approach, setting forth the following step-by-step guideline:
47 B.R. at 299. The Carney case appears to have been cited with approval by the Supreme Court in the case of Owen v. Owen, 500 U.S. 305, 313 n. 5, 111 S.Ct. 1833, 1838 n. 5, 114 L.Ed.2d 350 (1991).
Judge Lavien appeared to join in the Full Avoidance approach in the case of In re Princiotta, 49 B.R. 447 (Bankr.D.Mass.1985).
Judge Hillman reached the issue in his decision of In re D'Amelio, 142 B.R. 8 (Bankr.D.Mass.1992). Judge Hillman acknowledged the existence of those cases which followed the Full Avoidance Approach as well those that adhered to the Partial Avoidance Approach. Judge Hillman was, however, troubled by what might follow avoidance, that is, the possible appreciation of the property. Id. at 10. Judge Hillman found it inequitable that the Debtor, rather than the creditor with the avoided lien, would enjoy the benefits of appreciation. Id. Furthermore, the Court found instruction from the decision of Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), pursuant to which the Supreme Court restricted the avoidability of liens in Chapter 7 cases. Id. Therefore, the Court took the further step of employing the "Subordination Approach", pursuant to which interests in the property were reordered in priority. Id. Those judicial liens that impaired the exemption were subordinated to the debtor's exemptable interest. "Under this analysis, no judicial liens need be declared completely or partially void; to avoid can be to go around as well as declare a nullity." Id.
Next at bat was Judge Queenan in his decision of In re Gonzalez, 149 B.R. 9 (Bankr.D.Mass.1993). Judge Queenan rejected the Full Avoidance Approach, relying heavily on the teachings of Dewsnup. Id. at 11. He also rejected the Subordination Approach on the grounds that § 522(f) explicitly uses the term "avoidance" and not "subordination". Id. Judge Queenan, therefore, adopted the Partial Avoidance Approach. Id. at 10.
Finally, Judge Hillman returned to the issue in his decision of In re Garro, 161 B.R. 869 (Bankr.D.Mass.1993). In that case, Judge Hillman found himself persuaded by the Gonzalez opinion, and determined to thereafter follow the Partial Avoidance approach. Id. at 870.
Having reviewed the foregoing line of cases, this Court is comforted by two immediately identifiable thoughts. Firstly, no matter how this Court decides, it will be following someone. Secondly, with the benefit of contrary interpretations of the relevant statute by five eminent bankruptcy judges in this District, no interpretation by this Court of § 522(f) can be accused of departing from its "plain meaning".
This Court believes that the Full Avoidance approach is the correct interpretation of Section 522(f) for a variety of reasons.
With respect to the Partial Avoidance Approach, it seems to this Court contrary to basic tenets of commercial practice and fairness to avoid liens, in whole or in part, and yet leave subsequently perfected liens unaffected. Priority of liens is a matter of state law, and, although § 522(f)(1) provides the authority to void the liens, an elevation of subsequently perfected liens over validly perfected senior liens appears beyond the authority provided in § 522(f)(1). Furthermore, the Partial Avoidance Approach leaves debtors without the benefit of the asset which § 522(f)(1) appears to promise. If the Debtor here avoids some or all of the Shawmut lien, but the Sylvan and Edwin liens remain, what will be the value of § 522(f)(1)? The Property cannot be refinanced and, absent the unlikely consent of Sylvan and Edwin, cannot be sold. And the risk of Sheriff's sale remains. This Court does not believe that the benefits of § 522(f)(1) were intended to be illusory. The legislative history, while meager, is sufficient to demonstrate Congress' belief that § 522 was related to the fresh start which the Bankruptcy Code promises to the honest debtor:
LaPointe v. Snelling & Snelling, Inc. (In re LaPointe), 150 B.R. 92, 94 (Bankr.D.Conn. 1993), quoting, H.R.Rep. No. 95-595, 95th Cong., 1st Sess., 362 (1977); S.Rep. No. 95-989, 95th Cong., 2d Sess. 76 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5862, 6318.
For the foregoing reasons, the Debtor's Motion is allowed. To the extent of the Debtor's interest in the Property, the judicial liens of Shawmut, Sylvan and Edwin are avoided and deemed null and void.
FootNotes
11 U.S.C. § 522(f)(1).
11 U.S.C. § 522(d)(1).
Comment
User Comments