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In re Pace

United States Bankruptcy Appellate Panel of the Sixth Circuit

June 20, 2017

In re: Antoinette Colleen Pace, Debtor.

         Appeal from the United States Bankruptcy Court for the Northern District of Ohio at Youngstown. No. 15-42267-Kay Woods, Judge.

          Before: DELK, PRESTON, and WISE, Bankruptcy Appellate Panel Judges.

         ON BRIEF:

          T. Robert Bricker, T. ROBERT BRICKER, LLC, Canfield, Ohio, for Debtor.

          OPINION

          TRACEY N. WISE, Bankruptcy Appellate Panel Judge.

         Appellant/Debtor Antoinette Pace ("Debtor") owned nonresidential real estate that foreclosure creditor The Farmers National Bank of Canfield ("FNB") sold in a prepetition foreclosure sale. After the sale but still prepetition, FNB obtained a deficiency judgment against Debtor and filed two judicial liens. During her chapter 7 case, Debtor filed a motion pursuant to § 522(f)(1)(A)[1] to avoid the FNB judgment liens (and two other unrelated judgment liens) on the grounds that they impaired Debtor's Ohio homestead exemption in her residence. The bankruptcy court denied Debtor's motion as to one of FNB's judicial liens, ruling that § 522(f)(2)(C) specifically prohibits the avoidance of a deficiency judgment lien because it is a lien based on a judgment arising out of a mortgage foreclosure. The court denied Debtor's motion seeking avoidance of FNB's other judicial lien, without prejudice, to the extent that it alleged that the lien was duplicative of FNB's first judicial lien. The bankruptcy court granted the motion to avoid the other two unrelated judicial liens.

         For the reasons stated below, the Panel REVERSES the bankruptcy court's ruling that § 522(f)(2)(C) precludes avoidance of a mortgage deficiency judgment lien and REMANDS this case to the bankruptcy court for entry of an order consistent with this Opinion.

         ISSUES ON APPEAL

         Debtor raises two issues on appeal:

         1. Did the bankruptcy court err in denying Debtor's motion to avoid the FNB judicial lien pursuant to § 522(f)(2)(C) because the motion was unopposed?

         2. Did the bankruptcy court err in determining that a judicial lien securing a mortgage deficiency judgment is prohibited from avoidance pursuant to § 522(f)(2)(C) because it is a judgment arising out of a mortgage foreclosure?

         JURISDICTION AND STANDARD OF REVIEW

         The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. Pursuant to 28 U.S.C. § 158(a)(1), this Panel has jurisdiction to hear appeals "from final judgments, orders, and decrees" issued by the bankruptcy court. For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. U.S., 489 U.S. 794, 798, 109 S.Ct. 1494, 1497 (1989) (citation and quotation marks omitted); see also Riley v. Kennedy, 553 U.S. 406, 419, 128 S.Ct. 1970, 1981 (2008). A "bankruptcy court's order denying [a] [d]ebtor's motion to avoid a lien pursuant to section 522(f) is a final appealable order." Snyder v. Rockland Trust Co. (In re Snyder), 279 B.R. 1, 2 (B.A.P. 1st Cir. 2002) (citations omitted); accord, Davis v. Davis (In re Davis), Nos. 04-029, 03-06524-M, 314 B.R. 904, at *2 (B.A.P. 10th Cir. 2004) (unpublished table decision) (citation omitted).

         A bankruptcy court's legal conclusions are reviewed de novo. Mediofactoring v. McDermott (In re Connolly N. Am., LLC), 802 F.3d 810, 814 (6th Cir. 2015) (citation omitted). "Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination." Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (B.A.P. 6th Cir. 2007) (citation omitted).

         FACTS AND PROCEDURAL HISTORY

         The relevant facts are undisputed. Debtor filed a chapter 13 bankruptcy petition on December 21, 2015 ("Petition Date"). She scheduled her residence located at 3481 Forty Second Street, Canfield, Ohio ("Residence") at a value of $147, 630. Debtor claimed the Ohio homestead exemption in her Residence in the amount of $132, 900 pursuant to Ohio Revised Code § 2329.66(A)(1).[2]

         Debtor's Schedule D listed judicial liens encumbering the Residence filed by FNB and Midland Funding. Schedule D also listed a secured claim against the Residence in favor of the Mahoning County Auditor/Treasurer. Schedule D did not list a mortgage against the Residence, but in her answer to Part Four of the Statement of Financial Affairs regarding prepetition lawsuits, Debtor listed a concluded foreclosure case styled Farmers vs. Antoinette C. Pace, 2011 CV 00032, in the Mahoning County, Ohio Court of Common Pleas.

         Debtor converted her chapter 13 case to a chapter 7 case on March 1, 2016. On June 22, 2016, Debtor filed her Motion to Avoid Liens (Bankr. No. 15-42267, ECF No. 32 ("Motion")) pursuant to § 522(f), seeking to avoid judicial liens on her Residence that impaired her homestead exemption. The Motion identified the subject liens as follows (collectively, the "Judicial Liens"):

• The Farmers National Bank of Canfield, filed May 20, 2014, [3] in the amount of $141, 013.65 with $15.39 interest ("FNB Lien No. 1")
• The Farmers National Bank of Canfield, filed May 20, 2014, [4] in the amount of $141, 013.65 with $15.39 interest ("FNB Lien No. 2")
• Midland Credit Management, Inc., filed October 21, 2011, in the amount of $1, 889.72 with 4% interest ("MCM Lien")
• Matthew C. Giannini, filed February 24, 2015, in the amount of $2, 975.00 with 3% interest ("Giannini Lien")

         The Motion also asserted that the Mahoning County Treasurer held a lien against the Residence for unpaid real estate taxes totaling $15, 435.78.

         On February 2, 2016, FNB filed a proof of claim in the amount of $151, 869.39, which was denominated Claim No. 5-1. Attached to the proof of claim is a Certificate of Judgment Lien for Lien Upon Lands and Tenements filed July 3, 2014, in the amount of $141, 013.65 with interest at the rate of $15.39 per diem and $1, 914.15 in costs. The bankruptcy court determined that the Certificate appeared to evidence FNB Lien No. 1.

         The bankruptcy court held a hearing on the Motion on August 3, 2016. Although no party opposed the relief requested, during the hearing, the court expressed concern that Debtor willfully allowed real estate taxes on her Residence to remain unpaid to create an impairment to her ...


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