John A. Pacheco and Cindy S. Pacheco

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
PACER Cover Sheet
for Electronically Filed Documents
Any data shown here are current as of 	. Any element of information on this form,
except the received date, is subject to change as changes may be made to the Court's official docket.
Case Title:
Case Number:
Document Information
Description:
Date Filed:
Date Entered On
Docket:
Filer Information
Submitted By:
If this form is attached to the document identified above, it serves as an endorsed copy of the
document as it existed on the above date. To confirm that nothing has changed since then,
review the docket.
06/10/06
John A. Pacheco and Cindy S. Pacheco
05-16147
Brief/Memorandum By [8-1] Motion To Avoid Lien with H. Davidson & Associates,
Inc. by Cindy S. Pacheco, John A. Pacheco .
Received on: 2006-05-23 14:53:36.000
2006-05-23 00:00:00.000
2006-05-23 00:00:00.000
Patti Hennessy
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 1 of 12

1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	JOHN A. PACHECO and 	No. 7-05-16147 MA
CINDY S. PACHECO,
Debtors.
MEMORANDUM
THIS MATTER is before the Court on the Debtors’ Motion to Avoid Lien. The Motion
to Avoid Lien seeks to avoid a transcript of judgment recorded by H. Davidson & Associates,
Inc. (“Davidson”) as a judicial lien that impairs the Debtors’ homestead exemption in accordance
with 11 U.S.C. § 522(f). Davidson responded to the Motion to Avoid Lien, and the Court held a
final hearing on the Motion to Avoid Lien on May 3, 2006, after which the Court took the matter
under advisement.
At issue is whether 11 U.S.C. § 522(f) permits a debtor to avoid a judicial lien recorded
prior to the time the debtor acquires an interest in the real property in which the debtor seeks to
claim a homestead exemption. 	Davidson urges the Court to follow the Supreme Court’s
reasoning in Farrey v. Sanderfoot, 500 U.S. 291, 111 S.Ct. 1825, 114 L.Ed.2d 337 (1991), which
focused on the meaning of “the fixing of a lien” in 11 U.S.C. § 522(f) and found that whether a
debtor can avoid a judicial lien depends upon whether the debtor possesses an interest in the
property before the lien attached such that if attachment of the lien occurs simultaneously with
the debtor’s acquisition of the property, 11 U.S.C. § 522(f) does not allow the debtor to avoid the
lien. After careful review of the applicable case law, the Court finds that Farrey v. Sanderfoot is
distinguishable on its facts, and declines to follow Marine Midland Bank v. Scarpino (In re
Scarpino), 113 F.3d 338 (2nd Cir. 1997) and In re Pederson, 230 B.R. 158 (9th Cir. BAP 1999),
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 2 of 12

1That section provides:
The following property may be exempted under subsection (b)(1) of this section:
(1) The debtor’s aggregate interest, not to exceed $18,450 in value, in real
property or personal property that the debtor or a dependent of the debtor uses as a residence, in
a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence,
or in a burial plot for the debtor or a dependent of the debtor.
11 U.S.C. § 522(d)(1).
2
two cases which applied the reasoning in Farrey to facts identical to the facts in this case. 	The
Court, therefore, finds that Debtors can avoid Davidson’s transcript of judgment under 11 U.S.C.
§ 522(f). 	For purposes of determining the issue before the Court, the parties have stipulated to
the following:
1. Davidson obtained a judgment against the Debtors and recorded a transcript of
judgment in Bernalillo County on November 8, 1993.
2. The transcript of judgment constitutes a judicial lien.
3. At the time Davidson recorded its transcript of judgment the Debtors did not own the
real property located at 2424 Morris NE (“Property”).
4. Debtors acquired the Property in 1999.
5. The Property is the Debtors’ residence.
6. Debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code on July 30,
2005.
7. Debtors claim an exemption in the Property under 11 U.S.C. § 522(d)(1)1 in the
amount of $16,050.00.
8. As of the petition date, the Property was worth $123,000.00.
9. Two mortgages encumber the Property.
10. The mortgages are consensual liens.
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 3 of 12

3
11. The total indebtedness represented by the two consensual liens is $104,950.00
11. The amount of Davidson’s judicial lien is approximately $45,153.00.
DISCUSSION
Avoidance of judicial liens is governed by 11 U.S.C. § 522(f) which provides, in relevant
part, that:
the debtor may avoid the fixing of a lien on an interest of the debtor in property to
the extent that such lien impairs an exemption to which the debtor would have
been entitled under subsection (b) of this section, if such lien is ---
(A) a judicial lien . . .
11 U.S.C. § 522(f)(1).
In Farrey v. Sanderfoot, the Supreme Court considered whether 11 U.S.C. § 522(f) permitted a
debtor to avoid the fixing of a lien on the debtor’s homestead property, where the lien and the
debtor’s homestead interest were created pursuant to a divorce decree. In concluding that 11
U.S.C. § 522(f) could not be used to avoid the lien, the Supreme Court focused on the temporal
nature of the language “fixing of a lien.” It reasoned:
The statute does not say that the debtor may undo a lien on an interest in property.
Rather, the statute expressly states that the debtor may avoid “the fixing” of a lien on the
debtor’s interest in property. The gerund “fixing” refers to a temporal event. That
event– the fastening of a liability – presupposes an object onto which the liability can
fasten. The statute defines this pre-existing object as “an interest of the debtor in
property.” Therefore, unless the debtor had the property interest to which the lien
attached at some point before the lien attached to that interest, he or she cannot avoid the
fixing of the lien under the terms of § 522(f)(1).
Farrey v. Sanderfoot, 500 U.S. at 296, 111 S.Ct. at 1829.
The Supreme Court then applied state law to determine when the lien attached, and concluded
that because the lien attached simultaneously with the debtor’s acquisition of the property, the
debtor did not possess an interest before the lien “fixed” so that 11 U.S.C. § 522(f) could not be
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 4 of 12

4
used to avoid the lien. 500 U.S. at 299-300.
Since Farrey was decided, at least one court has applied its reasoning to cases involving
facts similar to the facts presented here. See Marine Midland Bank v. Scarpino (In re Scarpino),
113 F.3d 338 (2nd Cir. 1997). In Scarpino, the creditor obtained a judgment against the debtor
and “docketed” it in the county clerk’s office. Four years later the debtor acquired a parcel of
real property; and one year thereafter, the debtor filed a petition under Chapter 7 of the
bankruptcy code, claimed a homestead exemption in the property, and filed a motion to avoid the
creditor’s judicial lien under 11 U.S.C. § 522(f). The Bankruptcy Court avoided the lien, and the
District Court affirmed the decision of the Bankruptcy Court. The Second Circuit reversed,
applying the reasoning of Farrey and holding that under applicable New York law, a judgment
lien attaches to a debtor’s after acquired property at the moment the debtor acquires an interest in
the property. Scarpino, 113 F.3d at 341. Because the lien attached simultaneously with the
debtor’s acquisition of the property, the lien could not be avoided under 11 U.S.C. § 522(f). Id.
at 342.
Similarly, in In re Pederson, 230 B.R. 158, 163 (9th Cir BAP 1999), the Ninth Circuit
Bankruptcy Appellate Panel rejected the Bankruptcy Court’s attempt to distinguish Farrey and
construe applicable California law to mean that a previously recorded judgment lien attaches to
subsequently acquired real property not at the precise moment the property is acquired, but at the
very next moment, such that “‘the sequence of events is so rapid that no other event may
intervene.’” Pederson, 230 B.R. at 163 (quoting In re Pederson, 215 B.R. 768, 771
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 5 of 12

2It appears that the Ninth Circuit Bankruptcy Appellate Panel felt constrained to follow
Farrey, given the Supreme Court’s directive in Owen v. Owen, 500 U.S. 305, 314, 111 S.Ct.
1833, 114 L.Ed.2d 350 (1991). Pederson, 230 B.R. at 163 (noting that “[t]he bankruptcy court’s
reading of Owen . . . disregards the scope of the Supreme Court’s remand.”).
In Owen v. Owen, the debtor’s former spouse obtained a judgment against the debtor and
recorded it in Sarasota County, Florida at a time when the debtor did not own any real property
in Sarasota County. 	The debtor later acquired a condominium in Sarasota County, Florida at a
time when applicable Florida law did not provide a homestead exemption in such property.
Florida later amended its homestead exemption statute to provide that condominiums qualify as
homesteads. The debtor then filed for bankruptcy and claimed a homestead exemption under
Florida law in the condominium property. 	Because Florida law provided that the homestead
exemption does not apply to pre-existing liens that attach before the property acquires its
homestead status, the Bankruptcy Court and the Eleventh Circuit held that 11 U.S.C. § 522(f)
could not be used to avoid the lien “finding that the lien attached before the property qualified
for the exemption.” Owen v. Owen, 500 U.S. at 307-308, 111 S.Ct. at 1835.
In reversing the Eleventh Circuit, the Supreme Court found that the language in 11
U.S.C. § 522(f) directing that impairment is to be measured against the exemption that the debtor
“would have been entitled” should be applied with regard to both federal and state exemptions,
such that “Florida’s exclusion of certain liens from the scope of its homestead protection does
not achieve a similar exclusion from the Bankruptcy Code’s lien avoidance provision.” 500 U.S.
at 313-314, 111 S.Ct. at 1838. 	However, the Supreme Court remanded the case for a
consideration of whether there was, in fact, a “fixing of a lien on the interest of the debtor,”
given that “[u]nder Florida law, the lien may have attached simultaneously with the acquisition
of the property interest . . . . so [that] it could be argued that the lien did not fix ‘on an interest of
the debtor.’” Id. at 314, 111 S.Ct. at 1838. 	On remand, the Eleventh Circuit, in a per curiam
opinion affirmed the judgment of the District Court and held that the debtor could not avoid the
lien under 11 U.S.C. § 522(f) because under Florida law, the lien fixed simultaneously with the
debtor’s acquisition of the property such that there was no “fixing of a lien” as interpreted by the
Supreme Court in Farrey. Owen v. Owen (In re Owen), 961 F.2d 170, 172 (11 th Cir. 1992)(per
curiam).
Like Farrey, Owen involved former spouses, and while the Eleventh Circuit found on
remand that because the prior lien attached simultaneously to the debtors’ after acquired property
the debtor could not use 11 U.S.C. § 522(f) to avoid the lien, the Eleventh Circuit construed
applicable Florida law, and this Court is not bound by the decisions of the Eleventh Circuit. Cf.
In re Hoover, 301 B.R. 38, 51 (Bankr.S.D.Iowa 2003) (Iowa bankruptcy court within the Eighth
Circuit not bound by decisions of the Fourth Circuit). See also, In re Cooper, 202 B.R. 319, 325
(Bankr.M.D.Fla. 1995), aff’d, 197 B.R. 698 (M.D.Fla. 1996) (Noting that the opinions of the
Supreme Court and the Eleventh Circuit in Owen “must be read together, each for the specific
issues resolved” and stating that the Supreme Court in Owen specifically assumed that the lien
fixed on the debtor’s interest, while the Eleventh Circuit on remand determined that the lien
never fixed.) 	Therefore, the Court respectfully declines to follow the Eleventh Circuit’s
5
(Bankr.N.D.Cal. 1997), rev’d, 230 B.R. 158 (9th Cir. BAP 1999)).2 The Ninth Circuit thus
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 6 of 12

decision in Owen in this case.
6
applied the reasoning in Farrey to a case involving a judicial lien that was recorded prior to the
time the debtor acquired property, and found that under California law, the lien attached
simultaneously with the debtor’s acquisition of the property so that 11 U.S.C. § 522(f) could not
be used to avoid the prior-recorded judicial lien. Pederson, 230 B.R. at 163.
Farrey and cases following the reasoning of Farrey construe applicable state law to
determine whether prior recorded judgment liens attach simultaneously with the judgment
debtor’s acquisition of the property. New Mexico law regarding transcripts of judgments
provides that “[t]he judgment shall be a lien on the real estate of the judgment debtor from the
date of the filing of the transcript of judgment in the office of the county clerk of the county in
which the real estate is situate.” N.M.S.A. 1978 § 39-1-6 (Repl. Pamp. 1991). 	The language of
the statute does not explicitly state that a transcript of judgment recorded prior to the time that
the debtor acquires an interest in real property attaches simultaneously with the debtor’s
acquisition of the property. Nor has the Court located any New Mexico cases interpreting this
statute in this manner. To the contrary, when the property is a homestead, New Mexico
exemption law provides that a judicial lien never attaches to the debtor’s homestead interest.
N.M.S.A. 1978 § 42-10-9 (Cum. Supp. 2005) (“Such person has a homestead . . . exempt from
attachment . . .”); Ranchers State Bank of Belen v. Vega, 99 N.M. 42, 44, 653 P.2d 873, 875
(1982) (“[L]ien attached to the [debtors’] entire interest in the real property except their
homestead which remained free of the lien.”). 	But the Court need not construe New Mexico law
regarding transcripts of judgments to determine whether prior recorded judgment liens attach
simultaneously with the debtor’s subsequent acquisition of property because the Court finds that
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 7 of 12

7
Farrey is distinguishable on its facts.
Farrey concerned a property interest and a lien to a former spouse which were created
simultaneously by the divorce decree. In other words, the debtor’s interest in the property was
created subject to the lien. Pederson, 230 B.R. at 162 (9th Cir. BAP 1999) (quoting 2 Epstein,
Nickles, White, Bankruptcy, § 8-27 (1992)). 	Therefore, it is appropriate to construe the
Supreme Court’s holding in Farrey to mean that “§ 522(f)(1) may not be used to avoid a
judgment lien that is created as part and parcel of the creation of the interest that it encumbers.”
In re Pederson, 215 B.R. 768, 771 (Bankr.N.D.Cal. 1997), rev’d, 230 B.R. 158 (9th Cir. BAP
1999). 	As noted in Collier on Bankruptcy,
[t]he more appropriate analysis is that the time of the fixing of the lien on the debtor’s
interest in the property is not relevant. The reference to fixing simply refers to the fact
that the lien must attach to the debtor’s interest in the property rather than to the interest
of the third party. If a debtor purchases property from a third party and that property was
encumbered by a judicial lien in favor of a creditor of the vendor . . . the debtor could not
avoid that judicial lien under section 522(f)(1) because that judicial lien did not affix to
the debtor’s interest in the property . . . . the debtor purchased the property subject to that
lien.
4 Collier on Bankruptcy ¶ 522.11[4], 522-89 (Alan N. Resnick and Henry J. Sommer,
eds., 15 th ed. rev. 2006).
The Court declines to follow cases which apply the reasoning in Farrey beyond the
parameters of a lien which is created in conjunction with, or as a direct result of the debtor’s
acquisition of the property. The simultaneous nature of the fixing of the lien in Farrey was the
direct result of the divorce decree which created both the lien and the debtor’s property interest.
It is therefore, appropriate, within the context of divorce proceedings which attempt to divide
property equally between the spouses and grant one spouse a lien against property the other
spouse receives or retains in order to achieve that balance, to prevent a debtor from using 11
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 8 of 12

3See, e.g., Cowan v. Cowan (In re Scott), 12 B.R. 613, 615-616 (Bankr.W.D.Okla. 1981)
(holding that were spouse’s lien was created by the same document that conveyed homestead
interest to debtor, lien did not fix on debtor’s interest, and debtor could not use § 522(f) to avoid
the lien). See also, Finch v. Finch (In re Finch), 130 B.R. 753, 757 (S.D.Tex. 1991)(finding that
because the former spouse’s equitable lien was imposed on the debtor-spouse’s
contemporaneously acquired fee simple interest, the lien could not be avoided under § 522(f);
Catli v. Catli (In re Catli), 999 F.2d 1405, 1408 (9th Cir.1993)(finding that the interest the
debtor acquired in the home subject to a lien granted in favor of former spouse as a result of the
divorce decree “was not an interest that existed prior to the decree” so that § 522(f) did not
apply). But Cf. McVay v. Parrish (In re Parrish), 7 F.3d 76 (5th Cir. 1993)(per
curiam)(concluding that because the equitable lien granted as part of the divorce proceedings
was imposed on property which was at all times the debtor’s separate property, the lien was
subject to avoidance under § 522(f)); In re Stoneking, 225 B.R. 690, 694-695 (9th Cir. BAP 1998)
(distinguishing Farrey, and concluding that debtor could avoid former spouse’s judicial lien
because the lien attached to debtor’s community property interests which debtor held before the
lien affixed).
8
U.S.C. § 522(f)(1) to avoid such a lien. 3 See In re Kestella, 269 B.R. 188, 192 (Bankr.S.D.Ohio
2001) (citing Farrey, and noting that Congress amended the lien avoidance provisions in 1994
by adding 11 U.S.C. § 522(f)(1)(A)(i) “to specifically address liens that arise as [a] part of
divorce and dissolution proceedings.”); 11 U.S.C. § 522(f)(1)(A)(i) (excepting the operation of §
522(f)(1) from liens which secure a debt “to a spouse, former spouse . . . of the debtor . . . in
connection with a separation agreement, divorce decree . . . “). But where, as here, the
simultaneous nature of the fixing of the lien is simply the result of the fact that the debtor owned
no property at the time the creditor recorded its judgment lien, the Court finds that the debtor
should be allowed to claim a homestead exemption in such property and employ 11 U.S.C. §
522(f) to avoid the judicial lien.
Having found that the prior recording of the transcript of judgment and the subsequent
acquisition of the property by the debtor does not render 11 U.S.C. § 522(f) inapplicable, the
Court must next determine the extent to which the judgment lien impairs the Debtor’s
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 9 of 12

4Debtors claimed an exemption under 11 U.S.C. § 522(d)(1) in the amount of $16,050.00,
which was the total amount of the Debtors’ equity in excess of the consensual liens based on the
Debtors’ estimated value of $121,000.00 for the Property as of the petition date as listed in
Debtors’ Schedule A. (See Schedule C). Debtors and Davidson have stipulated for purposes of
determining the Motion to Avoid Lien that the value of the Property is $123,000.00. Because
the exemption amount available under 11 U.S.C. § 522(d)(1) is up to $18,450.00 for each of the
Debtors, and because 11 U.S.C. § 522(f) requires the Court to consider hypothetically the
exemption “to which the debtor would have been entitled” the Court finds that the Debtors
would have been entitled to exempt all of the equity in their Property, but for the lien. See Owen
v. Owen, 500 U.S. at 310-311, 111 S.Ct. at 1836-1837 (“To determine the application of § 522(f)
9
exemption. Impairment is defined in 11 U.S.C. § 522(f)(2), which provides:
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.
11 U.S.C. § 522(f)(2).
“[T]he petition date is the operative date to make all § 522(f) determinations,” so that the value
of the liens, the value of the property and the amount of the exemption are all measured as of the
date of the filing of the petition. In re Salanoa, 263 B.R. 120, 123 (Bankr.S.D.Ca. 2001). See
also, In re Hall, 327 B.R. 424, 427 (Bankr.W.D.Mo. 2005) (“[T]he appropriate time for
determining the value of the property subject to a lien which the Debtors seek to avoid under §
522(f) is the date on which the petition was filed.”) (citations omitted). 	Application of the
formula contained in 11 U.S.C. § 522(f)(2) using the stipulated values yields the following:
$ 45,153.00 	Davidson lien
$104,950.00 	total consensual liens
$ 18,050.00 4 federal exemption available under 11 U.S.C. § 522(d)(1)
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 10 of 12

they [bankruptcy courts] ask not whether the lien impairs an exemption to which the debtor is in
fact entitled, but whether it impairs an exemption to which he would have been entitled but for
the lien itself.”) (emphasis in original); In re Truan, 121 B.R. 9, 10 (Bankr.S.D.Tex. 1990)
(finding that the federal homestead exemption provided in 11 U.S.C. § 522(d)(1) can be claimed
by each debtor in a joint proceeding, provided they each hold an interest in the property, for a
combined amount of up to twice the amount provided by the statute).
The Court also notes that Debtors’ Schedule C allocates a portion of the remainder of the
exemption available under 11 U.S.C. § 522(d)(1) to the “wild card” exemption available under
11 U.S.C. § 522(d)(5), which provides for an exemption in the amount of $975.00 plus up to
$9,250.00 of any unused portion of the exemption provided under 11 U.S.C. § 522(d)(1), in
order to claim exemptions in property other than the Debtors’ homestead. The entirety of the
exemptions claimed on Schedule C by the Debtors under 11 U.S.C. § 522(d)(5) (using a portion
of the remainder from 11 U.S.C. § 521(d)(1)) is less than the amounts available to them. In other
words, based on Debtors’ schedules there is an excess of exemption amounts available to them
by statute that Debtors have not claimed. Therefore, by increasing the Debtors’ homestead
exemption for purposes of determining the exemption to which they “would have been entitled”
does not adversely affect the Debtors’ other claimed exemptions.
10
total: 	$168,153.00 which is greater than the stipulated value of $123,000.00 by
45,153.00, the total amount of the Davidson lien
The Court, therefore, finds that Davidson’s judicial lien impairs the Debtors’ exemption and can
be avoided in its entirety. 	This Memorandum constitutes the Court’s findings of fact and
conclusions of law issued in accordance with Rule 7052, Fed.R.Bankr.P. 	An order will be
entered in accordance with this Memorandum.
__________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 11 of 12

11
I certify that on the date shown on the attached document verification, a true and correct copy of
the foregoing was either electronically transmitted, faxed, delivered or mailed to the listed
counsel and/or parties.
Arun Melwani 	Walter R. Reardon
Attorney for Debtor 	Attorney for Davidson & Associates, Inc.
10749 Prospect Ave NE Ste E 	3733 Eubank Blvd. NE
Albuquerque, NM 87112 -3281 	Albuquerque, NM 87111-3536
___________________________
Patti G. Hennessy
Law Clerk
(505) 348-2545
Case 05-16147-m7 Doc 16 Filed 05/23/06 Entered 05/23/06 17:01:00 Page 12 of 12