In re Pace

Case Type:
Case Status:
16-8036 (6th Circuit, Jun 20,2017) Published
Judgment Lien based on deficiency judgment after foreclosure sale can be avoided under Section 522 to the extent lien impairs exemptions. Judgment lien is not exempt from avoidance as judgment arising out of foreclosure within scope of Section 522(f)(2)(C).
Procedural context:
Bankruptcy Court held that judgment lien based on post-foreclosure deficiency was not subject to avoidance as impairing exemption because judgment "arose out of foreclosure". On appeal, Sixth Circuit BAP reversed, concluding that judgment lien did not arise out of foreclosure and was subject to avoidance under Section 522.
Prior to filing bankruptcy, a secured creditor foreclosed on debtor's commercial property. After the property was sold, the creditor returned to State Court and obtained a judgment against debtor for the deficiency balance. Creditor then recorded the judgment giving rise to judgment lien on all of debtor's real property including her principal residence. Debtor filed for Chapter 7 and sought to avoid judgment lien as impairing exemptions. The value of the property was less than the mortgage on the property, an unavoidable property tax lien, and debtor's exemptions. The Bankruptcy Court held that the lien was not subject to avoidance because Section 522(f) prevents avoidance of liens that arise out of foreclosure. On appeal, the BAP held that the exception to avoidance under Section 522(f) was limited to foreclosure judgment itself, not to any subsequent deficiency judgment, and was intended only to prevent allowing debtor to avoid foreclosure itself. Case remanded to Bankruptcy Court for entry of an Order avoiding the lien.
Delk, Preston and Wise

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