Opinion
Case No. 96-10191-SSM
September 2, 1998
Joel Steinberg, Esquire, Joel Steinberg Associates, Fairfax, VA, of Counsel for debtor
John E. Carter, Esquire, Fairfax, VA, of Counsel for All-American and Southern
MEMORANDUM OPINION
A hearing was held in open court on August 24, 1998, on (a) the debtor's motion to reopen her case and (b) the debtor's motion to avoid a judgment lien now held by All-American Title Escrow Co., L.C. ("All-American") and Southern Title Insurance Corporation ("Southern"). The debtor was present in person and was represented by counsel. All-American and Southern were present by counsel. At the conclusion of the hearing, the court took the motions under advisement. After reviewing the evidence and the applicable law, the court will deny both motions.
Facts
The debtor, Mary Jo Fitzhenry, filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on January 17, 1996, and received a discharge of her dischargeable debts on May 5, 1996. The chapter 7 trustee had previously filed a report of no distribution, and the case was closed on May 7, 1996.
The events giving rise to the present motion occurred several months prior to the filing of the bankruptcy. The debtor and her husband had been divorced in December 1994. The divorce decree required that the jointly-owned home they owned at 6655 Rutledge Drive, Fairfax Station, Virginia ("the Rutledge Drive property"), which the divorce court had valued at $575,000.00, be sold. A contract of sale was eventually signed under which the property was to be sold to Timothy P. and Debra L. Bassett for $495,000.00, but that contract fell through when the Bassetts were unable to sell their own house. Subsequently, the Bassetts advised the debtor that they had sold their house, and they asserted a right to purchase the Rutledge Drive property at the original contract price. They did not tell the debtor that the contract purchaser of their house was the debtor's former husband. The debtor, however, testified that she did not want to sell to the Bassetts because she believed she could get a better price. Additionally, she believed she could clear more if the property were remarketed because the original listing had expired, and she herself was a licensed real estate agent and could avoid having to pay a commission on the sale. Nevertheless, because her former husband threatened contempt proceedings against her if she did not agree to the sale, she felt she had no choice but to go to closing with the Bassetts. About a week prior to the closing, she learned for the first time that the purchaser of the Bassetts' property was her former husband. Angered, she did not show up at the scheduled closing, which was then twice postponed.
Some nine months prior to the settlement, the debtor had had a judgment entered against her on January 4, 1995, by the Circuit Court of Fairfax County, Virginia, in favor of Fred T. Bishopp, Jr. and Margaret M. King in the amount of $25,790.00. That judgment was docketed on January 11, 1995. The debtor was aware of the judgment but testified that she was not aware that it constituted a lien against her interest in the property being sold. To further complicate matters, she had — after the judgment was entered but prior to the sale to the Bassetts — herself purchased a house at 5603 Kemp Lane, Springfield, Virginia ("the Kemp Lane property"), on August 1, 1995, for $269,900.
The settlement for the sale of the Rutledge Drive property to the Bassetts was conducted by All-American, which was an agent for Southern. All-American caused a title insurance policy to be issued insuring the conveyance to the Bassetts. The title search turned up the Bishopp/King judgment, but the abstract did not show the social security number or address of the judgment debtor. Leslie Overholt (now Leslie Carter), the underwriter and settlement supervisor for All-American, testified that she telephoned the debtor on September 11, 1995, and asked her if she was the Mary J. Fitzhenry against whom the judgment had been entered. The debtor told her she did not recognize the name either of the judgment creditors or of their attorney. Based on that oral assurance, according to Ms. Overholt, a title commitment was issued without an exception for the judgment. The debtor testified that no such discussion took place and further testified that the first time she heard that the judgment was a lien was approximately two months after the settlement.
Ms. Overholt testified that she advised the debtor that she would be asked to sign an affidavit at closing that there were no judgments affecting the property. After the debtor refused to appear at the closing, she dropped the necessary papers the debtor needed to sign (the deed, settlement statement, termite certification, and owner's affidavit) at the office of the debtor's real estate broker on September 29, 1995. When the papers were returned, the deed and several copies of the settlement statement were signed but the termite certification and owner's affidavit were not. The owner's affidavit — which had been delivered to the debtor completely blank and without a property description — would have assured the title insurance company that there were no unpaid contractors or materialmen who could claim a mechanic's lien; that there were no third parties in possession; that there were no competing contracts for the sale of the property; that there were no unpaid taxes; and, relevant to the present motion, "[t]hat there are no judgments affecting the premises." Notwithstanding the debtor's failure to sign the owner's affidavit, All-American recorded the deed into the Bassetts, disbursed the sales proceeds, and issued a title insurance policy.
As noted above, the debtor filed a chapter 7 petition in this court on January 17, 1996, apparently in response to garnishment proceedings brought by Bishopp and King. On her schedules, she listed the "market value" of the Kemp Lane property — which she had purchased only five months previously for $269,900 — as being $228,415. She testified that this value was arrived at by her lawyer — a different attorney than the one now representing her — based on tax assessments and deductions for assumed costs of sale. She also testified that she now believes — based on what other houses in that neighborhood were selling for — that she had paid approximately $10,000 over market when she purchased the property, but that she had been willing to pay the asking price because she believed the house would provide some stability for her daughter after the dislocation resulting from the bitter divorce.
The property was listed on the schedules as being subject to two deeds of trust in the aggregate amount of $242,597.00. For reasons that are totally unexplained, she claimed the equity in the property exempt in the amount of $7,500 under § 522(d)(1), Bankruptcy Code, even though she was a Virginia resident and Virginia has "opted out" of the Federal exemption scheme. Nevertheless, no objection was filed to her claimed exemptions, and the debtor did in fact file a timely homestead deed on January 24, 1996, listing many of the items she had claimed exempt on her schedules. The homestead deed did not, however, claim any interest in the Kemp Lane property as exempt. The debtor testified that she was aware of the judgment lien on the Kemp Lane property when she filed the bankruptcy, and that her attorney assured her that he would make sure the judgment lien was "dismissed." For whatever reason, no lien avoidance action was brought, and, as noted above, the case was closed on May 7, 1996, shortly after the debtor received her discharge.
A first deed of trust in favor of World Savings and Loan Company in the unpaid amount of $215,697.00 and a second deed of trust in favor of Nationwide Mortgage Group, Inc., in the unpaid amount of $26,900.00.
Some time after the Bassetts took possession of the Rutledge Drive property, they were apparently served with legal papers seeking to enforce the Bishopp/King judgment against the property. They then made demand on All-American to defend the claim. All-American and Southern eventually negotiated a settlement with Bishopp and King in August 1996, under which $24,000 was paid to Bishopp and King; they released their judgment lien against the Rutledge Drive property; and they assigned their judgment lien against the Kemp Lane property to All-American and Southern. Ms. Overholt testified that in connection with the negotiations, All-American had reviewed the records of the debtor's bankruptcy to determine whether the judgment against the Kemp Lane property had been avoided. In any event, All-American and Southern took no immediate steps to enforce the lien but eventually learned in May 1998 that the debtor had refinanced the second trust against the Kemp Lane property in November 1997. The debtor testified that, in connection with the refinance, she had asked the new lender to carefully check for any lien arising from the Bishopp/King judgment but was assured that it had all been "taken care of" and was "finished." It was apparently All-American's and Southern's notification to the new lender that their judgment lien was superior to the new lender's deed of trust that prompted the present motions, which were filed on July 20, 1998.
Conclusions of Law and Discussion I.
This court has subject matter jurisdiction under 28 U.S.C. § 1334 and 157(a) and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. Under 28 U.S.C. § 157(b)(2)(A) and (K), this is a core proceeding in which final judgments and orders may be entered by a bankruptcy judge. Venue is proper in this district under 28 U.S.C. § 1409(a). The respondents have been properly served and have appeared generally.
II.
As an initial matter, the court must determine whether the case should be reopened. Under § 350(b), Bankruptcy Code, a closed bankruptcy case may be reopened "to administer assets, to accord relief to the debtor, or for other cause." The decision whether to reopen a closed case is discretionary. Hawkins v. Landmark Finance Co., 727 F.2d 324 (4th Cir. 1984). In Hawkins, the Fourth Circuit held that a bankruptcy court did not abuse its discretion in denying leave to reopen, 8 months after the case closed, in order to file a motion to avoid a non-possessory non-purchase money security interest in furniture where the secured creditor had incurred expenses in reliance on the continued vitality of the lien.
The judgment lien holders here argue that their situation is essentially indistinguishable from that of the secured creditor in Hawkins. They argue, additionally, that the debtor comes to court with unclean hands in that she orally misrepresented that she was not the "Mary J. Fitzhenry" against whom the judgment had been entered, thereby inducing them to insure the title without exception for the judgment. The debtor denies any misrepresentation and asserts that All-American's hands are equally unclean because All-American was in league with her former husband and the Bassets to keep her in the dark concerning her former husband's role in the revived contract, which, as she sees it, cheated her of the potential equity in the Rutledge Drive property.
In the absence of a compelling reason to the contrary, leave to reopen a closed bankruptcy case to file a lien avoidance motion should ordinarily be freely granted because neither the Bankruptcy Code nor the Bankruptcy Rules sets a time limit for lien avoidance, and to not allow the matter to be heard would frustrate Congress's intent to protect a debtor's exemptions as part of the debtor's "fresh start." In re Beneficial Finance Co. of Va., 18 B.R. 174, 175-76 (Bankr. E.D. Va. 1982) (Bonney, J.). It may well be that a hearing on a motion to reopen will not always be the most appropriate context in which to consider equitable defenses such as laches, unclean hands or equitable estoppel. Frequently such defenses are better weighed in connection with the proceeding which the motion to reopen seeks to bring before the court. In the present case, however, a combined evidentiary hearing was held on both the motion to reopen and the avoidance motion, and the distinction is therefore of little significance.
The fact that All-American and Southern took an assignment of the judgment lien against the Kemp Lane property in reliance upon the fact that it had not been avoided during the debtor's bankruptcy does not weigh very heavily, since anyone acquiring such a lien should be aware of the substantial body of case law that places no time limit on a lien avoidance action. As a practical matter, having insured the title to the Rutledge Drive property without exception for the judgment lien, All-American and Southern had little choice except to settle with the judgment creditors. While taking an assignment of the lien against the Kemp Lane property may have offered some small hope of mitigating the loss, it could not have weighed heavily in the decision to settle, particularly as the lien was behind two deeds of trust and had no immediate practical worth. Furthermore, All-American's and Southern's dilemma was entirely of their own making. If, as Ms. Overholt testified, All-American had received only an oral assurance that the debtor was not the "Mary J. Fitzhenry" in question, but then the debtor failed to sign an affidavit to that effect, such failure should have set off alarm bells. Instead, and quite inexplicably, All-American simply recorded the deed and disbursed, having made no further investigation.
Ms. Overholt's testimony that All-American and Southern relied on the fact that the lien had not been avoided in the bankruptcy case was obviously coached, and the court gives it little credence. The court's conclusion that the judgment lien was of no immediate practical worth is underscored by the fact that All-American and Southern took no steps to enforce it for 17 months after acquiring it. In light of their own delay, the argument that the debtor is guilty of laches rings somewhat hollow.
At the same time, the court is unpersuaded by the debtor's argument that All-American's own conduct was not merely negligent but nefarious. All-American was simply the settlement agent. The fact that it did not volunteer to the seller in one transaction the details of a related settlement hardly constitutes fraud. The original sale did not go through because the contract was contingent upon the Bassetts' selling their own house. When they could not do so, the contract died. The debtor's former husband obviously concluded that he could do himself a favor — in terms of getting out from under the mortgage on the Rutledge Drive property while also putting a roof over his own head — by purchasing the Bassett's property, thereby solving both their problem and his. The revived contract was for the same price as the original contract. Unquestionably, the debtor hoped she could do better, and her former husband may well have pressured her into going to settlement with the Bassetts because he had negotiated a favorable price for the Bassetts' house. But the fact that he had something to gain and that his involvement was not disclosed did not, in itself, make the transaction fraudulent. All-American, since it was handling both settlements back to back, naturally knew of the former husband's dual role. But since there is nothing inherently improper in one party to a real estate transaction purchasing the other party's house, All-American — which, as noted, was simply the settlement agent — did not engage in improper conduct solely by not volunteering that information to the debtor.
The more substantial issue is whether, as Ms. Overholt testified, the debtor falsely denied that she was the "Mary J. Fitzhenry" against whom the Bishopp/King judgment had been entered. Although Ms. Overholt testified she made notes of her telephone discussion with the debtor on the margins of various documents in the closing file, she did not bring the file to court. Her explanation that she did not do so because the file was in storage is unconvincing in light of her admission that the notes she did bring to court had been prepared the previous day while reviewing that very same file. The debtor flatly denied having any conversation with Ms. Overholt concerning the judgment. She also denied knowing that the judgment constituted a lien against the Rutledge Drive property until the attorney for Bishopp and King told her that two months after the settlement. Considering that she was a licensed real estate agent and presumably had taken some rudimentary courses in real estate law, such ignorance on her part is somewhat difficult to accept.
Although the matter is not free from doubt, the court would be inclined to find that the circumstances weigh, however clearly, in favor of permitting the debtor to reopen her case. Nevertheless, a case should not be reopened if doing so would be futile and a waste of judicial resources because the court could not grant effective relief. In re Carberry, 186 B.R. 401, 402-03 (Bankr. E.D. Va. 1995). The court therefore turns to whether, as All-American and Southern assert, the judgment lien cannot be avoided in any event, because the debtor never properly exempted an interest in the Kemp Lane property.
III.
The general rule is that liens and other security interests survive bankruptcy and are not affected by the debtor's discharge. Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 2153, 115 L.Ed.2d 66 (1991). Furthermore, after discharge such liens may be enforced even against exempt property. § 522(c)(2), Bankruptcy Code. The Bankruptcy Code, however, does permit certain liens to be "avoided", or set aside. In particular, and relevant to the present motion, a debtor may avoid judicial liens and certain nonpossessory, nonpurchase-money security interests if the lien or security interest "impairs" an exemption to which the debtor is otherwise entitled. § 522(f), Bankruptcy Code. The initial inquiry, then, is whether the debtor is entitled, but for the lien, to an exemption of her interest in the Kemp Lane property. If so, the second is whether, and to what extent, the judgment lien impairs that exemption.
A.
The filing of a bankruptcy petition creates an "estate" composed of all legal and equitable interests of the debtor in property. § 541(a), Bankruptcy Code. Nevertheless, an individual debtor is permitted to exempt from property of the estate — and thus to keep, free from the claims of the trustee and most creditors — either the property listed in § 522(d), Bankruptcy Code ("the Federal exemptions") or, alternatively, the exemptions allowable under the law of the state where the debtor has resided for the greater portion of the 180-day period prior to the filing of the bankruptcy petition and under general (nonbankruptcy) Federal law. § 522(b), Bankruptcy Code. A state, however, is expressly permitted to "opt out" of allowing its residents to take advantage of the Federal exemptions. § 522(b)(1), Bankruptcy Code. Virginia has done precisely that. Va. Code Ann. § 34-3.1. Accordingly, residents of Virginia filing bankruptcy petitions may not elect the Federal exemptions under § 522(d) but may claim only those exemptions allowable under state law and general Federal law. In re Smith, 45 B.R. 100 (Bankr. E.D. Va. 1984).
The debtor in this case claimed $7,500 of the equity in the Kemp Lane property exempt under § 522(d)(1), Bankruptcy Code. Since she was a Virginia resident, and since Virginia has opted out of the Federal exemption scheme, she was not entitled to the exemption on the basis claimed. Her attorney seems to have belatedly recognized the problem, because, although he did not file an amended Schedule C ("Property Claimed Exempt"), he did timely record a homestead deed with respect to a number of the items the debtor had claimed exempt on her schedules, thereby perfecting the exemption available to residents of Virginia under Va. Code Ann. § 34-4. The Kemp Lane property, however, was not included on the homestead deed. Although a homestead deed may be freely amended to increase the value of a listed asset to take advantage of the full dollar amount of the homestead exemption, In re Sherman, 191 B.R. 654 (Bankr. E.D. Va. 1995), it may not (with certain limited exceptions not applicable here) be amended to add property not previously listed. Va. Code Ann. § 34-21; In re Emerson, 129 B.R. 82 (Bankr. W.D. Va. 1991), aff'd 962 F.2d 6 (4th Cir. 1992). Therefore, the debtor has no valid basis for claiming an exemption in the Kemp Lane property.
Under the Virginia homestead exemption, a "householder" — defined as any resident of Virginia — may exempt from creditor process up to $5,000.00 worth of real and personal property by filing for record an instrument known as a homestead deed listing such property. Va. Code Ann. §§ 34-4, 34-6, 34-13, 34-14, and 34-17. The exemption is increased by $500.00 for each dependent under 19 years of age. Va. Code Ann. § 34-4. A disabled veteran may claim an additional $2,000.00 exemption. Va. Code Ann. § 34-4.1. A debtor who has filed for bankruptcy must, in order to claim the exemption in the bankruptcy case, file the homestead deed not later than the fifth day after the meeting of creditors. Va. Code Ann. § 34-17.
The debtor, however, argues that under § 522( l), Bankruptcy Code and the Supreme Court's decision in Taylor v. Freeland Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), the failure of the judgment creditors or the trustee to object to her claimed exemption of the Kemp Lane property within the time specified by F.R.Bankr.P. 4003(b) results in the property being exempt "whether or not [the debtor] had a colorable statutory basis for claiming it." Id. at 643-44, 112 S.Ct. at 1648. There is little question that under Taylor the chapter 7 trustee could not now assert a claim to the property. However, there is a difference between using the rule in Taylor as a shield against the trustee and using it as a sword to defeat a valid lien that would otherwise survive bankruptcy. In re Maylin, 155 B.R. 605 (Bankr. D. Me. 1993); In re Liston, 206 B.R. 235 (Bankr. W.D. Okla. 1997); In re Canalos, 216 B.R. 159 (Bankr. D. Md. 1997).
The decision in Taylor expressly left open — as not properly presented for review — the issue of whether a bankruptcy court has the power under § 105, Bankruptcy Code, to disallow exemptions not claimed in good faith. Id. at 645-46, 112 S.Ct. at 1644. As there is no suggestion in the present case that the exemption was claimed in bad faith, the court need not reach that issue.
In Liston, for example, the debtor had claimed exempt her interest in a computer and treadmill, neither of which was actually exempt under Oklahoma law. No timely objection was made to the claim of exemption, however, and the debtor then brought a motion under § 522(f), Bankruptcy Code, to avoid a small loan company's nonpossessory, nonpurchase-money security interest in the items. The court held, "A literal reading of § 522(f)(1)(B) leads to the conclusion that in order to avoid a lien under this section, it is not enough that the property is deemed exempt by operation of Rule 4003(b) and Taylor," but rather the debtor "must be entitled to exempt the property." Liston, 206 B.R. at 237 (emphasis added). Accordingly, "Rule 4003(b) and Taylor do not prohibit a secured creditor from defending a lien avoidance action by contesting the exemption of the property under applicable law." Id. at 238, citing Maylin, 155 B.R. at 612-13.
The Fourth Circuit had held in Ragsdale v. Genesco, Inc., 674 F.2d 277, 278 (4th Cir. 1982) that a bankruptcy court had authority under § 105, Bankruptcy Code, to extend the time for filing an objection to claim of exemption after the debtors filed a complaint to avoid a judgment creditor's lien against their residence. Ragsdale, however, was decided prior to the adoption of F.R.Bankr.P. 4003, and the extent to which it remains good authority is doubtful.
In Canalos, a husband and wife had each claimed a $10,000 exemption under Maryland law in a parcel of real estate, even though the deed reflected that the property was owned solely by the husband. There was no timely objection to the claimed exemption. The debtors then brought a motion to avoid a judgment lien against the property. The court held first that the exemption claimed on the schedules was in excess of what could be claimed under Maryland law, since the wife could not exempt an interest in property owned solely by the husband. Canalos, 216 B.R. at 163. The court then reasoned, "[A] creditor may contest the amount of the exemption for the first time in defending against a motion to avoid lien, not to attack the exemption itself, which is inviolate, but to contest the amount of the exemption for the purpose of limiting the amount of the lien to be avoided[.]" Id. Accordingly, the court permitted the judgment lien to be avoided only in part, based on the actual exemption to which the husband would have been entitled under Maryland law. Id., 216 B.R. at 164-65.
Because liens and security interests normally pass through bankruptcy unaffected and may, unless avoided in the course of the bankruptcy, be enforced even against exempt property, § 522(c)(2), Bankruptcy Code, a secured creditor who does not seek distribution from the estate and is content to rely on the security of his lien would ordinarily have no reason to review the debtor's schedules to determine whether the debtor had claimed the property as exempt. See Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995) ("Because an unchallenged lien survives the bankruptcy discharge of a debtor, . . . a creditor with a loan secured by a lien on the property is free to ignore the bankruptcy proceeding and look solely to the lien for satisfaction of the debt."). Nothing in the Bankruptcy Code or Rules requires that creditors be served with a copy of the debtor's schedules. In the case of an individual debtor, the debtor is required to file with the court, and serve on secured creditors, a "statement of intention" with respect to consumer debts secured by the property of the estate stating whether the debtor intends to retain or surrender such property and "if applicable, specifying that the property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property." § 521(2)(A), Bankruptcy Code (emphasis added); F.R.Bankr.P. 1007(b)(2). Because Bishopp and King were not listed as secured creditors, they were never served with a statement of intention putting them on notice that the debtor claimed the property as exempt. In Cen-Pen, the Fourth Circuit held, essentially on due process grounds, that confirmation of a chapter 13 plan that failed to treat a creditor's claim as secured did not avoid creditor's lien when the creditor had been served with only a summary of the plan. See also Piedmont Trust Bank v. Linkous (In re Linkous), 990 F.2d 160 (4th Cir. 1993) (bifurcation of secured creditor's claim under § 506, Bankruptcy Code, requires more than disclosure in a chapter 13 plan; the creditor must be notified that a hearing is going to be held and that the interest of the creditor may be affected.) The same due process concerns that animate Cen-Pen and Linkous are equally relevant here: if the potentially dispositive issue — the debtor's right to exempt the property — has already been determined without adequate notice to the secured creditor that the property is being claimed exempt and that such exemption will be relied on by the debtor to avoid the creditor's lien, the creditor has effectively been denied a meaningful opportunity to protect his lien or security interest.
The statement of intention is required to be filed within 30 days of the bankruptcy petition, but in no event later than the meeting of creditors. § 521(2)(A), Bankruptcy Code. A copy is required to be served on "the creditors named in the statement" on or before the date it is filed with the court. F.R.Bankr.P. 1007(b)(2). Since the time for objecting to a debtor's claimed exemptions expires 30 days after the meeting of creditors, it could be argued that a secured creditor who is timely served with a statement of intent reflecting that the debtor intended to claim the property as exempt is thereby put on notice that the debtor may, if the exemption is unchallenged, subsequently bring a lien avoidance action. That, of course, is not the present case, and the court need not reach the issue. But given the relatively sketchy information provided by the statement of intent, the court would be disinclined to find that service of the statement of intent would be sufficient to satisfy the due process concerns articulated in Cen-Pen.
For the foregoing reasons, the court concludes that, notwithstanding the failure to object to a debtor's exemptions within the period specified in F.R.Bankr.P. 4003(b), a secured creditor whose security interest or lien the debtor subsequently seeks to avoid may challenge, in the context of the lien avoidance motion, the debtor's right to the exemption. In the present case, it is clear that the debtor was not entitled to claim the Federal exemptions and that she never perfected, and cannot now perfect, a claim of exemption under Virginia law. Accordingly, she has no exemption that can be "impaired" by the lien, and the lien avoidance motion must fail.
B.
Since the debtor is not in any event entitled to an exemption in the Kemp Lane property, there is no need to determine to what extent the lien would impair the exemption. Mindful, however, that an appellate court may disagree with this court's exemption analysis, and in order to avoid a wasteful remand for further findings, the court will address the issue of impairment.
Although a considerable number of reported decisions have wrestled with the question of when a lien "impairs" an exemption, Congress largely resolved the conflicting line of cases in 1994 with an amendment to § 522(f) that for the first time provided a straightforward mathematical test:
(A) For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of —
(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.
§ 522(f)(2)(A), Bankruptcy Code, added by the Bankruptcy Reform Act of 1994, Pub.L. No. 103-394 (Oct. 22, 1994). The starting point, then, is what the value of the debtor's interest in the property would have been in the absence of the lien. For lien avoidance purposes, property is valued as of the filing date. Fitzgerald v. Davis, 729 F.2d 306, 308 (4th Cir. 1984); In re Canalos, 212 B.R. 249 (Bankr. D. Md. 1997); In re Cooper, 197 B.R. 698, 701 (Bankr. M.D. Fla. 1996); In re Grube, 54 B.R. 655, 657 (Bankr. D. N.J. 1985). On her schedules, as noted above, the debtor listed the property as having a fair market value of $228,415 even though she had purchased it, in an arm's length transaction, five months before for $269,900. She testified that, in her opinion, she had paid approximately $10,000 over market based on what similar houses in the neighborhood were selling for. No other evidence was offered by either party as to the value of the property. I find, for the purpose of the present motion, that the price paid for the property only five months before is the most probative evidence of the value of the property. I give some, but relatively little, weight to the debtor's subjective and uncorroborated belief that she paid above market for the property. Accordingly, I find that the property had a fair market value, as of the filing date, of $265,000.00.
The "other" liens against the property — the first and second deeds of trust — totaled $242,597.00, according to the debtor's schedules. As no other evidence was offered, the court will accept those values. The amount of the Bishopp/King claim, as shown on the debtor's schedules, was $28,352.95 on the filing date. Again, in the absence of contrary evidence, the court will accept that value as accurate. If, therefore, the claimed $7,500 exemption were binding on All-American and Southern, application of the test in § 522(f)(2)(A) would give the following result:
Judgment lien $28,352.95
Other liens $242,597.00
Exemption 7.500.00
Total $278,449.95
Value of property $265.000.00
Excess $13,449.95
Thus, even if the debtor were entitled to the $7,500 exemption, only $13,449.95 of the judgment lien would be avoided, and the remaining $15,903.00, since it does not impair the claimed exemption, would survive as a lien against the residence. See Canalos, 216 B.R. at 165.
IV.
In summary, the court concludes that, because the debtor has not properly exempted any interest in the Kemp Lane property, she cannot avoid the judgment lien now held by All-American and Southern. Since there is no effective relief the court can grant, reopening the case would be a waste of judicial resources. Accordingly, a separate order will be entered denying both the motion to reopen and the motion to avoid lien.