Opinion
Case # 12-10562
12-06-2012
In re: Michael A. Rutherford, Debtor.
Formatted for Electronic Distribution
Not for Publication
Chapter 7
ORDER
GRANTING MOTION TO AVOID THE LIEN OF JAY FELIX
ON DEBTOR'S HOMESTEAD PREMISES
On October 5, 2012, Michael A. Rutherfod (the "Debtor") filed a motion to avoid lien pursuant to 11 U.S.C. § 522(f)(2) (doc. # 12) (the "Motion"). The Motion sought to avoid "the mechanics lien" held by Mr. Jay Felix. Attached to the Motion as an exhibit was a document entitled "Mechanics Lien" showing a claim of $7,111.77 due and owing from the Debtor, @ 5% from April 1, 2011. The mechanics lien document was stamped with a notation that it was recorded in the City of Winooski on April 18, 2011.
On November 26, 2012, the Debtor filed an amended Motion (doc. # 35) to correct errors in the date and amount of other liens against the Debtor's property.
On October 23, 2012, Mr. Jay Felix filed an objection to the Motion, stating that the basis for the mechanics lien was work he did and improvements he made on the Debtor's home and asserting that his lien was perfected by "case docket number s1333-11Cnsc. Dated March 23, 2012." (doc. # 18). On November 27, 2012, the Court held a hearing on the Motion, attended by both the Debtor and Mr. Felix.
At the November 27th hearing, the testimony of Mr. Felix, argument by the Debtor's counsel, and exhibits filed with the Court clarified the factual background and the type of lien held by Mr. Felix. Mr. Felix filed a mechanics lien on April 18, 2011, evincing the work he did on the Debtor's home (Felix Ex. 1). Thereafter, he chose to pursue his claim against the Debtor through a small claims complaint, filed on December 12, 2011, in the Chittenden Superior Court (Felix Ex. 2). In the small claims action, Mr. Felix obtained a judgment in the amount of $5,078.75 on March 23, 2012 (Id.). Though not raised in the testimony, the Court takes judicial notice that the small claims judgment was recorded in Winooski on October 23, 2012, the same day Mr. Felix filed his objection to the Motion. (Id.)
The Motion and objection present two legal issues: First, is Mr. Felix's lien statutory or judicial? Second, is his lien avoidable under 11 U.S.C. § 522(f)?
The Debtor acknowledges that a statutory lien, such as a mechanics or contractor's lien, may not be avoided under § 522(f), but argues that while Mr. Felix began the process to obtain a mechanics lien under the Vermont state statute, he abandoned that process and pursued his claim against the Debtor via a suit in small claims court. Therefore, his lien is a judicial lien, and within the universe of liens that may be avoided under § 522(f). The testimony of Mr. Felix, and the exhibits Mr. Felix presented to the Court, supported the Debtor's rendition of the facts and procedural history of Mr. Felix's claim and lien.
These two terms are used interchangeably in the papers and arguments, and also herein. The pertinent Vermont statute denominates the lien a contractor's lien but it is colloquially known as a mechanics lien.
In order to obtain a contractor's lien in Vermont, the legislature has set forth a very strict set of requirements. See 9 V.S.A. § 1921-24. This Court has stated before that "[a] party seeking enforcement of a contractor's lien must be scrupulous in adhering to the procedures set forth in the statute." In re Ducharme and In re Cusson, Nos. 06-10154 and 06-10195, jointly administered, 2008 WL 2857163, at *4, 2008 Bankr. LEXIS 2552, at *16-17 (Bankr. D. Vt. July 21, 2008), aff'd 412 B.R. 646 (D. Vt. 2009) (both decisions appended hereto). Here, as Mr. Felix conceded in his testimony, he failed to file suit in the Superior Court and therefore failed to obtain a writ of attachment, within 180 days of filing the notice of the lien dated April 18, 2011, as required by 9 V.S.A. § 1924. Instead, he filed a small claims suit in December 2011 in the Superior Court. In failing to meet the requirements of 9 V.S.A. § 1924, Mr. Felix failed to obtain a statutory lien. However, in obtaining a judgment in small claims court, he did obtain a valid judicial lien. Thus, the answer to the first question presented is that Mr. Felix's lien is a judicial lien. The Court turns not to the question of whether it may be avoided. Avoidance of Mr. Felix's Judicial Lien Under 11 U.S.C. § 522(f)
The Bankruptcy Code (Title 11 United States Code) authorizes debtors to avoid certain judicial liens, if the lien impairs the debtor's homestead exemption. The test for determining whether a particular lien may be avoided is set out in 11 U.S.C. § 522(f), which provides, in relevant part, as follows:
(1) Notwithstanding any waiver of exemptions but subject to paragraph (3), 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—
(A) a judicial lien . . . ; or—
(B) a nonpossessory, nonpurchase-money security interest in any—
(2) (A) For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of—(i) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
(ii) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or
(iii) professionally prescribed health aids for the debtor or a dependent of the debtor.
11 U.S.C. § 522(f)(1) and (2) (emphasis added). The § 522(f) calculation as it applies to the avoidance of Mr. Felix's judicial lien is as follows:(i) the lien;
(ii) all other liens on the property; and
(iii) the amount of the exemption that the debtor could claim if there were no liens on the property;
exceeds the value that the debtor's interest in the property would have in the absence of any liens.
(i) The Debtor seeks to avoid the judicial lien of approximately $5,078.75.
(ii) All other liens on the property include three other judicial liens of approximately $10,438.00 (Cavalry SPV I, LLC), $3,467.39 (Capital One), $5,143.74 (Worldwide Asset Purchasing), and a mortgage lien of $151,200.00 (Chase Mortgage), for a total of $170,249.13. These must be added to the Felix judgment amount.
(iii) The amount of the Debtor's claimed homestead exemption is $125,000.00.
The Debtor supplied the figures for these three judicial liens in his original motion to avoid lien which is based upon the Debtor's estimated interest due on the judgments and the Court relies upon these figures for the purposes of this motion.
The sum of these liens and the maximum homestead exemption is $300,327.88. From this total, the Court subtracts the value of the property absent any liens, $243,400.00, to determine that the extent of the impairment of exemption. It is $56,927.88. Since the extent of the impairment, $56,927.88, exceeds the value of Mr. Felix's lien, approximately $5,078.75, the entire lien may be avoided. Hence the answer to the second question is that Mr. Felix's lien is avoided.
At the hearing, the parties disagreed over the exact current value of the home, though neither party offered any admissible evidence of a current value different than the value stated by the Debtor on his schedules under penalty of perjury. Thus, for purposes of this motion, the Court relies upon $243,400.00, the value set out in Schedule A as the value of the home.
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Accordingly, IT IS HEREBY ORDERED that the Debtor's motion to avoid Mr. Felix's lien is GRANTED.
SO ORDERED. December 6, 2012
Burlington, Vermont
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Colleen A. Brown
U.S. Bankruptcy Judge