Darrell M Clark

1 Creditor appeared pro se.
SUMMARY ORDER - 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
______________________________________________________
In Re:
Bankruptcy Case
DARRELL M. CLARK, 	No. 05-42110
Debtor.
______________________________________________________
SUMMARY ORDER
______________________________________________________
Debtor Darrell Clark filed a motion on November 7, 2005, seeking
to avoid a judgment lien held by Creditor Susan Weaver. Docket No. 10. On
January 11, 2006, the Court conducted an evidentiary hearing at which the parties
appeared and presented evidence and testimony.1 After careful consideration, the
Court concludes that Debtor’s motion should be granted, and that Creditor’s lien
may be avoided under 11 U.S.C. § 522(f)(1)(A) because it is a judicial lien that
impairs Debtor’s homestead exemption. The Court’s findings, conclusions and
analysis, and disposition follow. Fed. R. Bankr. P. 7052; 9014.
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2 The parties did not introduce a copy of the agreement into evidence, but the
Court presumes that its terms guaranteed Creditor payment upon a commission basis.
3 The amount of the amended judgment is equivalent to 3% of the sales price of
the home.
4 No evidence was submitted to show that Creditor ever recorded the amended
judgment.
SUMMARY ORDER - 2
Debtor hired Creditor, a licensed real estate salesperson, to find him
a home. Debtor signed a “buyer’s representation agreement” whereby he agreed
to pay Creditor a commission if she found a home for him that he later purchased.2
On September 1, 2004, Debtor purchased a new home that Creditor located in
Idaho Falls for $129,000. Debtor obtained financing for $112,800. Creditor’s
commission was not paid, however, out of the funds at closing.
Creditor sued Debtor in state court seeking a judgment based upon
the parties’ agreement. Creditor received a judgment for $3,330 in damages that
was later amended to $3,870. Exs. 3, B, and C. 3 Creditor recorded the original
judgment on August 30, 2005. Ex. 2. Her judgment lien in the amount of $3,330
is junior in priority to a deed of trust held by First Horizon Home Loans. Ex. 2. 4
Debtor filed for bankruptcy under Chapter 7 of the Bankruptcy Code
on September 13, 2005. Docket No. 1. He claimed the maximum statutory
exemption of $50,000 in his house under Idaho Code § 55-1003. Schedule C,
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5 Although not material to this decision, the Court points out that real estate
brokers licensed under Chapter 20, Title 54, Idaho Code are permitted to render a
“broker’s price opinion,” while real estate appraisers prepare an “appraisal” pursuant to
the authority granted them by Chapter 41, Title 54, Idaho Code. While both an appraisal
and a broker’s opinion give an opinion concerning the value of real estate, the purpose
for each is different. See Idaho Code § 54-4104(1), (5).
SUMMARY ORDER - 3
Docket No. 1. As of the petition date, Debtor still owed approximately $112,000
on the First Horizon deed of trust.
Debtor claims in his schedules that the value of his home is
$129,000. Therefore, Debtor asserts, Creditor’s lien impairs the exemption. See
Schedule C, Docket No. 1. Debtor also presented a copy of his December 2005
tax assessment notice indicating an assessed value of $123,710, Ex. 4, and an
appraisal report prepared by a licensed residential real estate appraiser dated
September 30, 2004, valuing the residence at $144,000, Ex. 1.
Creditor, however, contends that Debtor’s residence has appreciated
substantially. She prepared a “Comparative Market Analysis” as of November 28,
2005, indicating that the home’s value is $164,000. Ex. A. 5
Section 522(f)(1)(A) provides that the debtor may avoid a “judicial
lien” to the extent that the lien impairs an exemption. A judicial lien is defined as
a “lien obtained by judgment, levy, sequestration, or other legal or equitable
process or proceeding.” 11 U.S.C. § 101(36). Creditor’s lien is a judicial lien,
since she obtained it by filing a lawsuit and recording the resulting judgment in the
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SUMMARY ORDER - 4
real property records of Bonneville County. See In re Webb, 03.1 I.B.C.R. 25, 25
(Bankr. D. Idaho 2003) (explaining the concept of a judicial lien).
A prerequisite to avoiding a lien under § 522(f)(1)(A) is a valid
exemption. See In re Field, 05.1 I.B.C.R. 11, 13 (Bankr. D. Idaho 2005). Because
Debtor’s claim of exemption in his homestead was never challenged, it is therefore
deemed allowed. 11 U.S.C. § 522(l). The statutory maximum for an Idaho
homestead exemption is $50,000. Idaho Code § 55-1003.
To determine if a lien impairs an exemption, § 522(f)(2) employs a
mathematical formula. 	See Milgard Tempering, Inc. v. Darosa (In re Darosa),
318 B.R. 871, 876 (9th Cir. BAP 2004) (explaining application of the formula). A
judicial lien impairs 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 . . . 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)(A). 	In this case, application of this formula requires
the Court to determine the home’s value. “[F]or purposes of § 522(f) lien
avoidance, the relevant valuation date is the date the petitioner filed for
bankruptcy relief. Section 522(a) provides: ‘In this section [§ 522,] ‘value’ means
fair market value as of the date of the filing of the petition.’” In re Webb, 03.1
I.B.C.R. at 26 (quoting 11 U.S.C. § 522(a)).
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6 As can be seen, even if the Court were to accept Creditor’s opinion of value of
Debtor’s house, her lien would still impair Debtor’s exemption. The sum of the totals
due on the deed of trust, judgment lien and homestead exemption ($112,000 + $3,330 +
$50,000 = $165,330) is $996 greater than Creditor’s highest valuation of $164,344.
While Creditor may feel the result here is unfair, it flows from Creditor’s decision to
extend Debtor credit on an unsecured basis. As the Court has observed, “[t]he ability to
fully protect against future bankruptcy and the possibility of judicial lien avoidance under
§ 522(f) lies in the hands of the creditor.” In re Webb, 03.1 I.B.C.R. at 26.
SUMMARY ORDER - 5
Absent a sale, determining the value of real estate is, at best, an
imprecise exercise. But in this case, the appraisal report prepared just over two
weeks after Debtor filed his bankruptcy petition is persuasive evidence of the
value of Debtor’s residence at the time he filed for bankruptcy relief. In contrast,
Creditor’s valuation analysis is not only quite optimistic in the Court’s view, it
was prepared over one year post-petition, and even if accurate, is of little utility to
the Court in fixing a value for purposes of § 522(f).
Applying the statutory formula, it is clear that Creditor’s lien impairs
Debtor’s exemption claim in his homestead and is avoidable. The sum of the
bank’s lien ($112,000), the judgment lien ($3,330), and the homestead exemption
($50,000) exceeds the value of the residence as determined by the appraiser
($144,000) by over $20,000. See Darosa, 318 B.R. at 876, 881 (applying the
formula, and observing that even though a literal application of § 522(f) may
result in a windfall to the debtor, the court is not free to deviate from the statutory
formula).6 Debtor’s motion should therefore be granted.
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SUMMARY ORDER - 6
ORDER
For the foregoing reasons, and for other good cause, IT IS
HEREBY ORDERED THAT Debtor’s Motion to Avoid Lien, Docket No. 10, be
and is hereby GRANTED and Creditor’s judgment lien on Debtor’s homestead
real property is hereby deemed AVOIDED.
Dated: February 28, 2006
Honorable Jim D. Pappas
United States Bankruptcy Judge
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