White v. Commercial Bank and Trust Co. (In re White)

Citation:
Case Nos. 11-6032 & 11-6033 (B.A.P. 8th Cir. Nov. 16, 2011)
Tag(s):
Ruling:
REVERSING the bankruptcy court's order denying the debtors' motion to avoid Commercial Bank's judicial lien, the Eighth Circuit BAP held that because both debtors' property would be exempt under Arkansas law in the absence of Commercial Bank's judicial lien, the lien was avoidable, and the fact that at the time the judicial lien became fixed the debtors held title to the subject property by tenancy by the entirety, but subsequently created a tenancy in common, did not change the fact that the lien was avoidable. The BAP also held that the appeal of the bankruptcy court's order granting Commercial Bank relief from the automatic stay was moot.
Procedural context:
The debtors appealed from the bankruptcy court's orders denying the debtors' motions to avoid Commercial Bank's judicial lien and granting Commercial Bank relief from stay to foreclose. Before the bankruptcy court, Commercial Bank objected to the debtors' homestead exemption and moved for relief from the automatic stay. The debtors then moved to avoid Commercial Bank's judicial lien. The parties then filed cross-motions for summary judgment. The bankruptcy court: (1) overruled Commercial Bank's objection to the debtors' exemption; (2) denied the debtors' motions to avoid Commercial Bank's judicial liens; and (3) granted Commercial Bank relief from stay to allow it to foreclose.
Facts:
The debtors, while married, defaulted on loans from Commercial Bank unrelated to the subject property, resulting in a deficiency against the debtors in the amount of approximately $161,000. Under Arkansas law, the resulting judgment became a lien on the subject real property owned by the debtors. Commercial Bank started a foreclosure action, and the debtors subsequently divorced, agreeing to divide the subject property as part of the separation proceedings, executing reciprocal quit claim deeds dividing the properties and creating a tenancy in common. Prior to the foreclosure sale, both debtors filed bankruptcy. Each claimed a homestead exemption of 80 acres of their respective halves of the subject property. Commercial Bank moved for relief from the automatic stay and objected to the exemptions in both bankruptcies, and each debtor filed a motion to avoid Commercial Bank's judicial lien. The bankruptcy court held that the debtors could not avoid the lien since it "fixed" prior to the debtors acquiring their current interests in the subject property, i.e. when the debtors' exchanged quitclaim deeds creating a tenancy in common (when it was previously a tenancy by the entirety).
Judge(s):
Kressel, Schermer and Saladino, Bankruptcy Judges

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