REAVLEY, Circuit Judge.
The question in this bankruptcy appeal is whether, under 11 U.S.C. § 522, a Chapter 7 debtor may assert a homestead exemption for his residence acquired after a debt and attachment of a lien, despite the Massachusetts statute excepting the preexisting lien and debt from homestead protection. The bankruptcy and district courts allowed the homestead protection because Bankruptcy Code § 522 preempted the state exceptions. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
The dispute centers on a debt and judicial lien, currently held by Patriot Portfolio, LLC ("Patriot"), and recorded against Harry W. Weinstein's residence in Massachusetts. The judgment lien was recorded on August 4, 1992, at which time Weinstein had owned the property for more than two decades. On April 2, 1996, Weinstein acquired an estate of homestead under Massachusetts law by recording a Declaration of Homestead pursuant to the Massachusetts Homestead Act, Mass. Gen. Laws ch. 188.
On August 26, 1996, Weinstein filed a voluntary bankruptcy petition under Chapter 7 of the Bankruptcy Code. In his petition, Weinstein claimed a $55,000 homestead exemption in his residence under the Massachusetts homestead statute. Patriot filed an objection, arguing that because both its lien and the underlying debt from which it derived predated Weinstein's acquisition of the estate of homestead, according to section 1(2) of the homestead statute, the exemption does not apply. The bankruptcy court and district court allowed Weinstein to avoid Patriot's assertion, concluding that the Massachusetts provisions excepting prior contracted debts and preexisting liens from homestead protection were preempted by § 522 of the Code. Because the state exceptions did not apply in bankruptcy, the court avoided Patriot's lien under § 522(f) because, absent the lien, Weinstein would have been entitled to the Massachusetts homestead exemption. The district court affirmed.
A. Lien Avoidance Under § 522(f)
Bankruptcy Code § 522 allows a debtor to exempt certain property from the bankruptcy estate that the trustee distributes to creditors. See 11 U.S.C. § 522. If the state has not opted out of the federal exemption scheme, § 522(b) allows the debtor to choose between the federal bankruptcy exemptions listed in § 522(d), other nonbankruptcy federal law, and exemptions under state or local law.
Once the debtor has claimed property as exempt, § 522(c) provides that such exempt property is not liable for any pre-petition debt except the specific types enumerated in § 522(c)(1)-(3). These types of debt include debts for certain taxes and customs duties; debt for alimony, maintenance, or support; liens that cannot be avoided; liens that are not void; tax liens; and certain nondischargeable debts owed to federal depository institutions.
Weinstein chose the state exemption scheme and claimed a $55,000 homestead exemption under the Massachusetts Homestead Act, which provides:
Mass. Gen. Laws ch. 188, § 1 (emphasis added). Additionally, section 5 of the homestead statute withholds homestead protection from any preexisting lien. Specifically, the statute states: "No estate of homestead shall affect a mortgage, lien or other encumbrance previously existing." Id. § 5.
Bankruptcy Code § 522(f) governs lien avoidance. This provision allows avoidance of a judicial lien to the extent the lien impairs an exemption to which the debtor would otherwise be entitled. Section 522(f) provides:
11 U.S.C. § 522(f)(1) (emphasis added). The United States Supreme Court interpreted the requirements of § 522(f) in two 1991 decisions. In Farrey v. Sanderfoot, the Court held that in order to "avoid the fixing of a lien on an interest of the debtor in property" under § 522(f), the debtor must have "possessed the interest to which the lien fixed, before it fixed." 500 U.S. 291, 299, 111 S.Ct. 1825, 1830, 114 L.Ed.2d 337 (1991). In Owen v. Owen, the Court held that to determine whether a lien "impairs an exemption to which the debtor would have been entitled" under § 522(f), the proper question to ask is not whether the lien impairs an exemption to which the debtor is in fact entitled, but rather whether the lien impairs a state or federal exemption to which the debtor would have been entitled but for the lien itself. See 500 U.S. 305, 310-13, 111 S.Ct. 1833, 1836-38, 114 L.Ed.2d 350 (1991). In short, two requirements must be met before a debtor can avoid a lien under § 522(f): (1) the debtor must have had an ownership interest in the property before the lien attached; and (2) avoidance of the lien must entitle the debtor to a state or federal exemption.
We begin our analysis with the Supreme Court's decision in Owen and assume for the moment that the prior contracted debt exception is preempted by the Bankruptcy Code. In Owen, the Supreme Court considered whether a Chapter 7 debtor can avoid a judicial lien encumbering exempt property, even though the State has defined the exempt property to specifically exclude property encumbered by preexisting liens, i.e., liens that attached before the property acquired its homestead status. See 500 U.S. at 306-07, 111 S.Ct. at 1834-35. At the same time the debtor purchased a condominium in Sarasota County, Florida, a judgment lien previously recorded by the debtor's former wife immediately attached to the property. See id. The debtor did not qualify for the homestead exemption until a year after he purchased the property, when Florida broadened its homestead exemption. See id. at 307, 111 S.Ct. at 1835. When the debtor later filed for bankruptcy under Chapter 7, he claimed a homestead exemption in the condominium. Following discharge, the bankruptcy court denied the debtor's motion to avoid the lien under § 522(f). The district court and the Eleventh Circuit both affirmed. See id. at 307-08, 111 S.Ct. at 1835.
Id. at 313-14, 111 S.Ct. at 1838. The Supreme Court then remanded the case to the Eleventh Circuit to determine if the requirements of Farrey had been met, i.e., whether the debtor acquired the property interest before the lien attached.
Owen governs the disposition of this issue. As in Owen, Patriot's lien predated Weinstein's acquisition of the estate of homestead. Both Florida and Massachusetts law except preexisting liens from homestead protection. Following the clear command of Owen, the Massachusetts exception for preexisting liens is inoperative in bankruptcy and must yield to the Code's lien avoidance provision. See id. Thus, we hold that Bankruptcy Code § 522(f) preempts Mass. Gen. Laws ch. 188, § 5.
We are unimpressed by Patriot's attempt to distinguish this case from Owen. Patriot asserts that the Massachusetts homestead exemption is unique because, contrary to the homestead exemption provided under Florida law, other state statutes, and federal law, in Massachusetts the underlying real estate is not exempt. Rather, the Massachusetts statute creates a separate asset—the "estate of homestead"—that is distinct from the debtor's interest in the underlying real property. Relying on this premise, Patriot argues that Massachusetts law must be applied in its entirety to determine the nature and value of the estate of homestead. We view this characteristic as a distinction without a difference, which does not warrant different treatment under the Code. Moreover, we note that the 19th century cases Patriot relies on for support neither address nor control bankruptcy issues. See, e.g., Pratt v. Pratt, 161 Mass. 276, 37 N.E. 435 (1894); Weller v. Weller, 131 Mass. 446, 447 (1881).
B. Preemption of the Prior Contracted Debt Exception
We now turn to the question of whether the Bankruptcy Code preempts
We begin by comparing § 522(c) with Mass. Gen. Laws ch. 188, § 1(2), to determine if there is a conflict. Section 522(c) provides that during or after bankruptcy, exempt property is not liable for any prepetition debts except those debts specified in subparagraphs (1)-(3). See 11 U.S.C. § 522(c)(1)-(3). This list includes: (1) debts for certain taxes and customs duties; (2) debts for alimony, maintenance, or support; (3) liens that cannot be avoided; (4) liens that are not void; (5) tax liens; and (6) certain nondischargeable debts owed to federal depository institutions. See id. The exceptions in the Massachusetts homestead statute serve a similar function by withholding homestead protection under state law from certain types of debt. Section 1 provides in relevant part:
Mass. Gen. Laws ch. 188, § 1(1)-(6). The heart of Patriot's argument is that there is no conflict between section 522(c) and the Massachusetts homestead statute.
Congress has plenary power to enact uniform federal bankruptcy laws. See U.S. Const. art. 1, § 8, cl. 4; International Shoe Co. v. Pinkus, 278 U.S. 261, 265, 49 S.Ct. 108, 110, 73 L.Ed. 318 (1929). Consequently, "[s]tates may not pass or enforce laws to interfere with or complement the Bankruptcy Act or to provide additional or
Like the bankruptcy court and the district court below, we are persuaded by Judge Feeney's analysis of the conflict in In re Whalen-Griffin. As Judge Feeney recognized, the Massachusetts exceptions overlap and conflict with § 522(c). See 206 B.R. at 290. While both statutes limit the debts for which exempt property remains liable, the Massachusetts exceptions protect debts left unprotected by § 522(c). We agree with Judge Feeney's conclusion that:
206 B.R. at 291-92. On this basis, we conclude that section 1(2) of the homestead statute is preempted by § 522(c) of the Code. See Rini v. United Van Lines, Inc., 104 F.3d 502, 504 (1st Cir.1997) ("[A] state statute is void to the extent it is in conflict with a federal statute." (citing Maryland v. Louisiana, 451 U.S. 725, 747, 101 S.Ct. 2114, 2129, 68 L.Ed.2d 576 (1981))), cert. denied, ___ U.S. ___, 118 S.Ct. 51, 139 L.Ed.2d 16 (1997). Our conclusion is consistent with numerous decisions in other jurisdictions holding that a state's exceptions to its homestead exemption are preempted by the Bankruptcy Code. See, e.g., In re Maddox, 15 F.3d 1347, 1351 (5th Cir.1994) (holding that lien avoidance under § 522(f) is not limited by state exceptions); In re Opperman, 943 F.2d 441, 443 (4th Cir.1991) (holding that limitation in North Carolina homestead statute was invalid to the extent it conflicted with operation of § 522(f)); In re Scott, 199 B.R. 586, 591-93 (Bankr.E.D.Va.1996) (holding that intentional tort exclusion in Virginia exemption statute conflicts with and is preempted by § 522(c)); In re Conyers, 129 B.R. 470, 472 (Bankr.E.D.Ky.1991) (concluding that "the determination of the types of debts that remain collectible after bankruptcy from exempt property is controlled by federal rather than state law").
In so holding, we again reject Patriot's insistence that the courts below and the cited Massachusetts bankruptcy courts have all misconstrued the unique character of the Massachusetts homestead exemption. We do not view the Massachusetts statute's creation of an "estate of homestead" to be so markedly different from the homestead exemptions available under federal or other state's laws that it need not yield to the overriding policies of § 522(c). See In re Leicht, 222 B.R. at 680 ("[W]e decline [the creditor's] invitation to recognize the Massachusetts homestead as so different in character from other exemptions that § 522(c)'s fresh start mechanism cannot operate to enlarge its protections.").
C. Application of § 522(f)
The judgment here meets the requirements of Farrey and Owen because Patriot's lien "fixed" upon Weinstein's interest in the property, and the lien impaired an exemption to which Weinstein was entitled.
There is no dispute that Weinstein owned the residence several years before Patriot's lien attached to the property. Consequently, Weinstein "possessed the interest to which the lien fixed, before it fixed." Farrey, 500 U.S. at 299, 111 S.Ct. at 1830. Applying the clear command of Owen, but for Patriot's lien, Weinstein would be entitled to the $55,000 homestead exemption claimed in his petition. See Owen, 500 U.S. at 310-13, 111 S.Ct. at 1836-38. The state's prior contracted debt exception no longer enters into the mix. On these facts, we conclude that the bankruptcy court properly avoided Patriot's lien under § 522(f).
D. Fifth Amendment Takings Claim
Patriot claims avoidance of its lien under § 522(f) violates the Fifth Amendment Takings Clause. Even if Patriot did not seasonably raise the argument below,
In this circuit, the general rule is that issues raised for the first time on appeal are waived. See In re Rauh, 119 F.3d 46, 51 (1st Cir.1997). However, appellate courts have discretion to address issues not seasonably raised below, depending upon the individual facts of the case. See Singleton v. Wulff, 428 U.S. 106, 121, 96 S.Ct. 2868, 2877, 49 L.Ed.2d 826 (1976). Exercise of our discretion is appropriate where, as here: the new issue is purely a question of law; addressing the merits would promote judicial economy as the same issue will likely be raised in other cases; and the claim raises an issue of constitutional magnitude, which if meritorious, could substantially affect the rights of creditors and debtors in this and future bankruptcy proceedings. See, e.g., In re 604 Columbus Ave. Realty Trust, 968 F.2d 1332, 1343-44 (1st Cir.1992); United States v. La Guardia, 902 F.2d 1010, 1013 (1st Cir.1990); cf. Petitioning Creditors of Melon Produce, Inc. v. Braunstein, 112 F.3d 1232, 1236-37 (1st Cir.1997).
Although Congress has broad constitutional authority to enact bankruptcy laws, see U.S. Const. art. I, § 8, "[t]he bankruptcy power is subject to the Fifth Amendment's prohibition against taking private property without compensation." United States v. Security Indus. Bank, 459 U.S. 70, 75, 103 S.Ct. 407, 410, 74 L.Ed.2d 235 (1982). The debtor does not dispute that Patriot's judicial lien constitutes "property" within the meaning of the Fifth Amendment Takings Clause. See Brief for the Appellee, at 22; see also Security Indus. Bank, 459 U.S. at 75-78, 103 S.Ct. at 410-12; Armstrong v. United States, 364 U.S. 40, 44-46, 80 S.Ct. 1563, 1566-67, 4 L.Ed.2d 1554 (1960). Nor is there any dispute that § 522(f) applies prospectively in this case, as Patriot's lien was recorded against the residence in 1992, more than a decade after section 522(f) became effective on October 1, 1979. See Bankruptcy Reform Act, Pub.L. No. 95-598, § 402, 92 Stat. 2589 (1978).
The Supreme Court has not specifically addressed the constitutionality of prospective application of § 522(f). In United States v. Security Industrial Bank, the Court discussed the constitutionality of retroactive application of § 522(f) to liens created before its enactment, but ultimately declined to reach the issue. See 459 U.S. at 74-82, 103 S.Ct. at 410-14. Concluding that "there is substantial doubt whether the retroactive destruction of the appellees' liens in this case comports with the Fifth Amendment," id. at 78, 103 S.Ct. at 412, the Court construed the statute to have only prospective and not retrospective effect. Id. at 78-82, 103 S.Ct. at 412-14. Some courts have concluded that Security Industrial Bank strongly suggests if not implicitly holds that prospective application of § 522(f) would not impermissibly tread on the Takings Clause. See, e.g., In re Thompson, 867 F.2d 416, 422 (7th Cir.1989); In re Leicht, 222 B.R. 670, 682-83 (1st Cir. BAP 1998). While we agree that the Supreme Court's analysis in Security Industrial Bank supports our holding, we acknowledge that it is not dispositive.
Penn Central Transportation v. City of New York, 438 U.S. 104, 124, 98 S.Ct. 2646, 2659, 57 L.Ed.2d 631 (1978), sets forth the analytical framework for resolving Patriot's takings challenge. See Security Indus. Bank, 459 U.S. at 75, 103 S.Ct. at 411 (stating that lien avoidance under § 522(f) "fits but awkwardly into the analytic framework employed in Penn Central Transp. Co."). Courts addressing regulatory taking claims consider three factors: (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation interferes with the claimant's reasonable investment-backed expectations; and (3) the character of the governmental action. See Penn Cent. Transp. Co., 438 U.S. at 124, 98 S.Ct. at 2659.
Regarding the first factor, Patriot complains that avoidance of its lien completely destroyed its property interest in the debtor's residence. As to the second factor, Patriot further insists that lien avoidance was not within its reasonable investment-backed expectations, i.e., "that the lien will continue to exist until such time as the underlying debt is satisfied or the debtor's interest in the property subject to the lien is extinguished."
Applying the sound reasoning of In re Leicht, we reject Patriot's argument that avoidance of its judicial lien completely destroyed its property interest. Patriot's judicial lien was perfected in 1992, thirteen years after § 522(f) became effective in 1979. Because Patriot's property rights in the lien are circumscribed by the debtor's ability under the Code to avoid the lien, prospective application of § 522(f) does not constitute a "taking" of Patriot's property interest within the meaning of the Fifth Amendment Takings Clause. As no taking occurred, we need not discuss the other Penn Central factors.
E. Sua Sponte Reconsideration and Reversal
Finally, Patriot complains that the bankruptcy court abused its discretion by reopening the case on its own motion, reversing its original decision, and avoiding Patriot's lien without notice or further hearing.
For the reasons stated above, we hold that Bankruptcy Code §§ 522(f) and 522(c) preempt the Massachusetts provisions excepting preexisting liens and prior contracted debts from homestead protection. The bankruptcy court properly avoided Patriot's lien under § 522(f).
11 U.S.C. § 522(c).