IN RE: IVIS LEE WRIGHT a/k/a I. Lee Wright DEBTOR CASE NO. 94-50971 UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
IVIS LEE WRIGHT
a/k/a I. Lee Wright
DEBTOR CASE NO. 94-50971
MEMORANDUM OPINION AND ORDER
This case is before the court on the motion of the debtor, by counsel, pursuant to 11 U.S.C. § 522(f)(1), to avoid the judicial lien of Phase IV Contractors, Inc. ("Phase IV") as a lien that impairs the debtor's homestead exemption in her residence located at 1612 Cantrill Drive, Lexington, Fayette County, Kentucky.
FINDINGS OF FACT:
The debtor and her husband acquired the property at 1612 Cantrill Drive by deed dated May 21, 1977 for a consideration of $72,500. They took title to the property "for and during their joint lives, with the remainder in fee simple to the survivor of them, his or her heirs forever, with covenant of GENERAL WARRANTY." The Fayette County Property Valuation Administrator has fixed the present value of the property for tax purposes as $117,400. This is the value the debtor placed on the property in the schedules to her petition for relief under the Bankruptcy Code.
The debtor initially filed a petition for relief under chapter 13 of the Bankruptcy Code on July 1, 1994. Prior to the hearing on confirmation of a plan the debtor converted her case to a case under chapter 7 of the Code. Under 11 U.S.C. § 348 the conversion relates back to the date of the commencement of the case.
At the commencement of this case the debtor and her husband, Brice Wright, each owned an undivided one-half interest in the residence. It appears from the record that Brice Wright died January 26, 1995, more than 180 days after the commencement of the debtor's bankruptcy case.
The encumbrances against the residence in the order of priority are: local property taxes, $7,933; first mortgage dated June 10, 1977, recorded June 14, 1977 in Mortgage Book 1055, page 532 in the Fayette County Clerk's Office, $41,128; second mortgage to Security Pacific Finance Corporation, dated March 30, 1984, recorded April 3, 1984 in Mortgage Book 1257, page 269 in the Fayette County Clerk's Office, $2815.98; the judicial lien of Phase IV Contractors, Inc. based on a judgment dated July 11, 1990, notice of which was filed August 13, 1990 in Encumbrance Book 118, page 599, $194,561.71.
The motion of the debtor alleges the encumbrances against the residence prior in time to the judicial lien of Phase IV aggregate $51,877, indicating an accumulated equity of $65,523 over and above the amount owed for taxes and on consensual liens. Counsel for the debtor takes the position that one half of the equity as calculated above, or $32,761.50, represents the debtor's interest and the estate's interest in the residence determined as of the date of bankruptcy.
The debtor has claimed and has been allowed a homestead exemption of $5,000 in the residence. KRS 427.060. The exemption was not contested and is final. Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644 (1992).
The motion of the debtor seeks to avoid the judicial lien of Phase IV to the extent it impairs the homestead exemption of the debtor and further to strip down the lien to the amount of the debtor's alleged equity interest in the property after allowance for her homestead exemption [$32,761.50 minus the $5,000 homestead exemption leaves $27,761.50]. Counsel for the debtor requests an order determining that the judicial lien of Phase IV shall be stripped down from $194,562.00 to $27,761.50 and shall survive bankruptcy as a lien on the debtor's property only in the latter amount.
CONCLUSIONS OF LAW:
Upon the commencement of this case the bankruptcy estate acquired an indivisible interest in the debtor's residence along with the non-debtor husband. Upon the death of the husband the bankruptcy estate became the sole owner of the residence, subject to liens. The fact the husband died more than 180 days after the commencement of the case is immaterial because his interest in the residence did not pass to the debtor and through her to the estate by bequest, devise or inheritance within the meaning of 11 U.S.C. § 541(a)(5)(A). Rather, the husband's interest in the residence merely terminated on his death, with the result that he and the bankruptcy estate no longer share ownership of the property. Hayes v. Shaefer, 399 F.2d 300 (6th Cir. 1968).
Apparently Phase IV Contractors, Inc. does not contest the right of the debtor to avoid the judicial lien to the extent the lien impairs the debtor's homestead exemption of $5,000. Phase IV does vigorously protest the right of the debtor to strip down the lien of Phase IV.
The trustee has not abandoned the estate's interest in the debtor's residence. In fact the trustee has filed a complaint to sell the residence free and clear of liens and encumbrances. See Adversary Proceeding 95-5028, James D. Lyon v. Ivis Lee Wright, et al. (Bankr. E.D. Ky.) By its answer to the complaint Phase IV Contractors, Inc. concurs in the request of the trustee to sell the property. In view of the fact the debtor's equitable interest in the property is limited to the amount of her homestead exemption therein, the debtor does not have standing to request a strip down of the judicial lien of Phase IV to the amount of the estate's interest in the property.
The motion of the debtor to avoid the lien of Phase IV Construction, Inc. to the extent the lien impairs the debtor's homestead exemption is sustained. The motion of the debtor to strip down said judicial lien is overruled.
By the court -
JOE LEE, CHIEF JUDGE
Ginger C. Knight, Esq.
John E. Hinkle Jr., Esq.
James D. Lyon, Esq.
U. S. trustee