- CTA5 No. 15-40321
- Because Texas Property Code section 52.042 did not affect the lienholder's status until after the bankruptcy, and must be read in conjunction with section 52.043, which creates an exception for abandoned or exempted property from the effects of 52.042, the Trustee's lien-stripping theory was refused. Further, because Debtor had not yet established his new residence as a homestead at the time Schachar recorded the judgment, Debtor's claim of homestead failed.
- Procedural context:
- Debtor filed a Chapter 7 case in December, 2011, claiming a homestead exemption on property that he and his wife had purchased in Frisco, Texas. Debtor's judgment creditor, Schachar, filed a proof of claim asserting a lien on the putative homestead. After the Chapter 7 Trustee sold the property, he attacked Schachar's lien under section 52.042 of the Texas Property Code, arguing that the section effectively stripped Schachar's lien. Debtor, on the other hand, sought recognition of the homestead exemption. Had the Trustee prevailed, the estate would have the sale proceeds to distribute to creditors. Had the Debtor prevailed, he would have had the home free and clear of Schachar and the Trustee. The bankruptcy court entered an order in Schachar's favor on both counts, and the Trustee and Debtor appealed to the district court and then the Fifth Circuit.
- Debtor owed a substantial sum to his business partner, Schachar, as a result of their failed business venture. On November 11, 2009, Schachar recorded an abstract of his judgment in the land records for Collin County, Texas. The Texas Court of Appeals confirmed Schachar’s judgment on July 26, 2011. Shortly before that judgment was confirmed, Debtor and his wife contracted to purchase a new home in Frisco Texas. In June, 2011, the day after the Texas Court of Appeals affirmed Schachar’s judgment against Debtor, Debtor closed on the Frisco property through a special warranty deed which was recorded in the Collin Count records. Debtor and wife designated the Frisco residence as their homestead in July, 2011 and filed Chapter 7 in December of that year. Schachar filed a proof of claim for his outstanding balance, asserting a lien on the Frisco property.
- Before REAVLEY, ELROD and HAYNES, Circuit Judges.
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