Katherine Ruth Hamilton

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: Katherine Ruth Hamilton, 	No. 7-09-12647 JR
Debtor.
MEMORANDUM OPINION
This matter is before the Court on Debtor’s Amended Motion to Avoid Judicial Lien of
Roy McKinney (“Motion to Avoid Lien”)(Docket No. 43), Debtor’s Motions to Extend Time to
File Amendments to Claim of Exemption (“Motion to Extend”)(Docket Nos. 51 and 52), and
Creditor Roy McKinney’s Objection to Debtor’s Claim of Amended Exemptions (Docket No.
57).
The Court held an evidentiary hearing on November 16, 2010. The Debtor, Katherine,
Hamilton, appeared through counsel, R. Trey Arvizu. Roy McKinney appeared through counsel
Tim J. O’Quinn. At the conclusion of the hearing, the Court granted the Motion to Extend,
allowing Ms. Hamilton to amend her claim of exemptions. The Court took the remaining
matters under advisement.
Ms. Hamilton asserts that the judicial lien held by Mr. McKinney and recorded on
December 4, 2008 impairs her homestead exemption and seeks to avoid the lien pursuant to 11
U.S.C. §522(f)(1)(A). Mr. McKinney contends that the Ms. Hamilton’s claim of homestead
should be disallowed and the Motion to Avoid Lien denied.
The Court having considered the evidence, argument of counsel, and applicable statutory
and case law, will overrule the objection to the amended claims of exemption, and will allow the
homestead exemption. The Court will grant the Motion to Avoid Lien on the ground that the
judicial lien impairs the Debtor’s homestead exemption.
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 1 of 20

-2-
PROCEDURAL HISTORY AND FACTS
In 2001 Ms. Hamilton acquired certain real property located at 5309 N. Prince, Clovis,
New Mexico (the “Prince Property” or “Property”). Her father, James Cage Allen, loaned her
$67,000 to purchase the Property. The loan was unsecured. There is a metal building on the
Property built for use as commercial warehouse. The exterior dimensions of the building are 60'
x 60'. There is no evidence before the Court that Ms. Hamilton used the Property prior to 2006.
Since 2006 or 2007, Ms. Hamilton has used the Property for the sale of fireworks for an
approximate 2-week period each year during the Fourth of July holiday season.
On November 20, 2008, Mr. McKinney obtained a judgment against Ms. Hamilton in the
amount of $52,518.44 entered in Cause #D-0905-CV-02007-00133, Ninth Judicial District
Court, Curry County, New Mexico entitled Roy A. McKinney and Brenda J. McKinney v.
Katherine R. Hamilton. Shortly thereafter, on November 20, 2008, Ms. Hamilton executed a
Quitclaim Deed transferring the Prince Property to her father. On December 4, 2008 Mr.
McKinney recorded a Transcript of Judgment against Ms. Hamilton in Curry County, New
Mexico in the amount of $52,518.44, which created a judicial lien against the Prince Property.
The Quitclaim Deed transferring the Prince Property to Mr. Allen was recorded on December 16,
2008.
Ms. Hamilton filed her voluntary petition under Chapter 7 of the Bankruptcy Code on
June 18, 2009 (the “Petition Date”), thereby commencing this bankruptcy case. On the Petition
Date, Ms. Hamilton filed her schedules of assets and liabilities (“Schedules”) and her Statement
of Financial Affairs. Schedule A listed the Prince Property. Ms. Hamilton valued the Prince
Property at $100,000. Schedule C included a claim of exemption for the Prince Property in the
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 2 of 20

-3-
amount of $60,000.00 under N.M.S.A. 1978, §42-10-9. Schedule D reflected Mr. McKinney’s
judgment lien against the Prince Property in the amount of the recorded transcript of judgment.
On June 19, 2009, Ms. Hamilton filed a Motion to Avoid Lien in which she sought to
avoid Mr. McKinney’s judicial lien against the Prince Property on the ground that the lien
impaired her homestead exemption. Mr. McKinney objected to the claim of homestead
exemption on the ground that the Prince Property is a commercial warehouse, not a dwelling
house. An appraisal Ms. Hamilton procured after the filing of the bankruptcy case reflected an
estimated market value of the Prince Property of $55,000.00 as of September 15, 2009.
On April 19, 2010, Ms. Hamilton retained new counsel in her chapter 7 case in her
original counsel. On July 9, 2010 her new counsel amended her schedules to reflect a value for
the Prince Property of $55,000.00 based on a post-petition appraisal, to elect the exemption
scheme set forth in 11 U.S.C. § 522(d), and to claim an exemption against the Prince Property
under 11 U.S.C. § 522(d)(5) in the amount of $2,481.561 . On July 9, 2009, Ms. Hamilton also
filed an amended motion under 11 U.S.C. § 522(f) to avoid the judicial lien held by Mr.
McKinney on the ground that it impaired her exemption against the Prince Property claimed
under 11 U.S.C. § 522(d)(5). Mr. McKinney objected.
At a status conference held on September 20, 2010 on the amended motion to avoid
judicial lien Ms. Hamilton’s new counsel stated in support of his theory of lien avoidance that he
understood there was an unscheduled first priority consensual lien against the Prince Property
but needed a title report to confirm it before correcting the Schedules. He further stated that the
existence of the consensual lien made litigation over allowance of a homestead exemption
unnecessary. Counsel for Mr. McKinney countered that he had a title report on the Property
1 Section 522(d)(5), 11 U.S.C. § 522(d)(5), permits a debtor to an interest in any property up to a specified dollar
limit.
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 3 of 20

-4-
showing no such lien. The order resulting from the status conference entered September 23,
2010 provided that Mr. McKinney would furnish a copy of the title report on the Property to the
Ms. Hamilton’s counsel, and fixed a deadline for Ms. Hamilton to file a further amendment to
her claim of exemptions subject to the right of Mr. McKinney to object. On October 8, 2010,
Ms. Hamilton filed a second amended Schedule C by which she elected the exemption scheme
under New Mexico law and claimed the $60,000 New Mexico homestead exemption. Mr.
McKinney objected to the second amendment of her claim of exemptions.
After the status conference, on September 30, 2010 and October 4, 2010, Ms. Hamilton
filed Motions to Extend Time to File Amendments to Claim of Exemptions. On October 8, 2010
she filed an Amended Schedule C claiming exemptions under New Mexico law, including an
exemption in the Prince Property under the New Mexico homestead exemption statute set forth
in N.M.S.A. 1978, §42-10-9. On November 8, 2011 Mr. McKinney filed his objection to
Debtor’s second amended claim of exemptions.
The Court makes the following additional findings of fact:
1. 	Ms. Hamilton did not act in bad faith by amending Schedule C on October 8,
2010, and there is no evidence of legal prejudice to Mr. McKinney in connection with the
amendment.
2. 	Ms. Hamilton has resided at the Prince Property from the third week of May 2009
until at least the November 16, 2010 evidentiary hearing before this Court with the intent of
establishing the Prince Property as her principal residence for the foreseeable future.
3. 	Ms. Hamilton uses the Prince Property primarily as her residence. The
commercial use of the Prince Property is incidental to the residential use.
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 4 of 20

-5-
4. 	Ms. Hamilton did not intend to hinder, delay, or defraud creditors by her pre-
petition conveyance of the Prince Property to her father, by her obtaining a pre-petition
reconveyance of the Prince Property to her in contemplation of bankruptcy, or by her
establishing the Prince Property as her principal residence in contemplation of bankruptcy and
with the intention of claiming a homestead exemption against the property.
DISCUSSION
A. 	Claim of Homestead Exemption Pursuant to N.M.S.A. 1978, § 42-10-9.
The first issue before the Court is whether Ms. Hamilton’s claim of homestead exemption
should be allowed. A debtor’s claim of exemptions in a bankruptcy case is governed by 11
U.S.C. § 522. Sections 522(b)(1), (2) and (3) permit individual debtors to elect either the
exemptions available to them under applicable non-bankruptcy state or federal law, or the
exemptions available under 11 U.S.C. § 522(d), unless applicable state law does not permit a
debtor to claim exemptions under 11 U.S.C. § 522(d). New Mexico law does not preclude
claims of exemptions under 11 U.S.C. § 522(d). 2 Ms. Hamilton elected to claim exemptions
under New Mexico law. The party objecting to the claim of exemption bears the burden of
proving the exemption should be disallowed. See Rule 4003(c), Fed.R.Bankr.P.
Mr. McKinney asserts four grounds for disallowing Ms. Hamilton’s claim of homestead
exemption: (1) Ms. Hamilton acted in bad faith in connection with amending her claim of
exemptions and therefore the amendment should not be permitted; (2) Ms. Hamilton had not
actually established the Prince Property as her residence on the Petition Date; (3) the structure
situated on the Prince Property is a commercial warehouse, not a “dwelling house” as required
by the New Mexico homestead exemption statute; and (4) Ms. Hamilton acted in fraud of
2 See 11 U.S.C. § 522(b)(1) and (2); 4 Collier on Bankruptcy ¶ 522.01, n.2 (Alan N. Resnick and Henry J. Sommer,
eds. 15 th ed. rev. 2005) (listing those states that have opted out of the exemptions contained in § 522(d) and ¶
522.02[1]).
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 5 of 20

-6-
creditors by transferring the Prince Property to her father shortly after Mr. McKinney obtained a
judgment against her, and by obtaining a reconveyance of the Property and purporting to occupy
it on the eve of bankruptcy for the purpose of claiming the homestead exemption. The Court will
address each of these grounds separately.
Pursuant to 11 U.S.C. §521(a)(1)(B) and Rule 7001(b)(c), FedR.Bankr.P., debtors have a
duty to file a complete and accurate schedule of their assets and liabilities.3 Bankruptcy Rule
1009 provides that debtors may amend their schedules “as a matter of course at any time before
the case is closed.”4 An amendment to a claim of exemption, however, may be denied if the
amendment is made in bad faith or there is legal prejudice to creditors.5 Mr. McKinney has not
legal alleged prejudice. The Bankruptcy Code does not define bad faith.6 Courts have, for
example, found bad faith and denied amendments to claims of exemptions in cases where
debtors intentionally concealed assets and attempted to claim the assets exempt after the
concealment was discovered.7
The Court finds that Ms. Hamilton did not act in bad faith by amending her exemptions
to claim a homestead exemption under New Mexico law, and therefore will permit her to amend.
3 11 U.S.C. §521(a)(1)(B) and Fed.R.Bankr.P. 7001(b)(c); In re Ruiz, 406 B.R. 897, 900-901(Bankr.E.D.Cal 2009).
4 Ruiz, 406 B.R. at 901.
5 See Calder v. Job (In re Calder), 973 F.2d 862, 867 (10th Cir.1992) (“An amendment may be denied if there is bad
faith by the debtor or prejudice to creditors”). See also, In re Arnold, 252 B.R. 778(9th Cir. BAP
2000)(Amendments to the exemption schedule may be disallowed if the debtor has acted in bad faith or if prejudice
would result); In re Shethi, 389 B.R. 588, 597 (Bankr. N.D.Ill.2008)(citing Doan v. Hudgins (In re Doan), 672 F.2d
831 (11 th Cir.1982)); In re Grogan, 300 B.R. 804, 807(Bankr.D.Utah 2003)(where Court denied amendment to
exempt proceeds in an asset debtors knowingly concealed and failed to disclose on initial schedules).
6 In re Ford, 192 F.3d 1148,1156 (10th Cir. 2007)(citing In re Vincent J. Fasano, Inc., 55 B.R. 409
(Bankr.N.D.N.Y.1985).
7 Grogan, 300 B.R. at 807 (citing Matter of Yonikus, 996 F.2d 866, 868(7th Cir. 1993)(“fraudulent concealment of
an asset works as a forfeiture of exemption rights”); Doan, 672 F.2d at 833.(“concealment of an asset will bar
exemption of that asset”); In re Miller, 255 B.R. 221, 222 (Bankr.D.Neb.2000) (“concluding ‘a debtor may not
claim as exempt property intentionally omitted from schedules’”); In re Park, 246 B.R. 837, 840
(Bankr.E.D.Tex.2000) (“A debtor may not claim as exempt property which he knowingly concealed and failed to
disclose to trustee which normally would be exempt had it been properly scheduled and claimed.”); In re St. Angelo,
189 B.R. 24, 26(Bankr.D.R.I.1995)(“Intentional concealment of estate property will bar the debtor from claiming
such property as exempt, after it surfaces as an asset.”)).
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 6 of 20

-7-
Ms. Hamilton obtained a new appraisal of the Prince Property about three months after she
commenced her bankruptcy case, and amended her schedules about nine months later to reduce
the scheduled value of the Prince Property from $100,000 to the $55,000 appraised value. There
is no evidence that Ms. Hamilton knowingly or intentionally overvalued the Property in her
schedules. Any economic incentive to misstate the value would be to undervalue the Property to
facilitate exemption of the entire Property. Further, there is no evidence of bad faith on the part
of Ms. Hamilton in delaying her filing of an amended schedule to reflect the lower value or in
amending Schedule C twice. Her new bankruptcy counsel amended her schedules within three
months of his retention to reflect the lower value of the Prince Property and to amend her claim
of exemptions. He amended the claim of exemptions further after learning he was mistaken
about the existence of a consensual lien against the Prince Property and that an exemption under
11 U.S.C. § 522(d)(5) would not protect Ms. Hamilton’s interest in the Property.
2. 	The Prince Property is the Debtor’s Residence
Mr. McKinney asserts that Ms. Hamilton did not actually reside at the Prince Property on
the Petition Date and had not established it as her residence. He maintains that the Prince
Property is uninhabitable and that Ms. Hamilton staged the Property to make it appear as her
residence.
In In re Robinson, 295 B.R. 147 (10th Cir. BAP 2003) the Tenth Circuit Bankruptcy
Appellate Panel affirmed a bankruptcy court’s denial of a homestead exemption under Oklahoma
law. Id. at 149. The bankruptcy court concluded that the property in question was not the
debtor’s principal residence as of the commencement of the bankruptcy case. Id. The debtor
spent her first night at the property two days before filing her bankruptcy case. Id. at 153. The
bankruptcy court found the debtor’s testimony regarding repairs she made to the property before
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 7 of 20

-8-
moving in not to be credible. Id. at 152. The bankruptcy court found further the debtor’s
testimony that she had lived at the property for several months before filing bankruptcy was
refuted by surveillance videos and other evidence. Id. at 151. The Bankruptcy Appellate Panel
determined that the “bankruptcy court correctly concluded that the determination of a debtor's
intent to designate a homestead under Oklahoma law requires more than a ‘snapshot’ taken at the
date of filing,” and that under Oklahoma law a court may examine “a party's acts and conduct
prior to actual occupancy to ascertain whether an intention to make the property one's principal
residence is present” Id. at 154.
This Court agrees that it may consider a debtor’s acts and conduct prior to and after
actual occupancy to ascertain whether the debtor had established a property as her principal
residence before commencing a bankruptcy case. The Court is convinced that Ms. Hamilton
occupied the Prince Property approximately three weeks prior to the Petition Date with the intent
to establish it as her principal residence for the foreseeable future, and since the third week of
May 2009 has continued to reside at the Prince Property.
The evidence established that there is a 60' x 60' metal building on the Prince Property
built as warehouse space. Ms. Hamilton acquired the Property in 2001 with funds borrowed
from her father. Since 2006 or 2007, she has used the Property for an approximate 2-week
period each year during the Fourth of July holiday season to sell fireworks. At least until May
2009, this was the sole use of the Property while Ms. Hamilton owned it except for her storing
some personal items at the Property. There is no water service or gas service to the Property.
The building on the Property has no heating or cooling system and little or no insulation. The
bathrooms, which are closed off, are very dirty and are unusable. A camping trailer is located on
the Property. Aaron McKinney, Mr. McKinney’s son, testified that when he inspected the metal
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 8 of 20

-9-
building on the Prince Property after Ms. Hamilton commenced her chapter 7 case it was
apparent that Ms. Hamilton had staged the Property to make it appear she lived there.
Ms. Hamilton testified that she and her boyfriend, Lance Cooms, moved into the Prince
Property during the last week of May 2009, or about three weeks before she commenced her
chapter 7 case, that they have resided there since that time, and that she intended at the time she
moved in to establish the Prince Property as her residence and still intends to reside at the Prince
Property for the indefinite future. The Court finds this testimony credible.
Prior to moving to the Prince Property, Ms. Hamilton did not have a place where she
could regularly reside. She stayed with her mother and with her son-in-law, off and on. Ms.
Hamilton, Mr. Cooms, and Ms. Hamilton’s son-in-law, Paul Sanchez, all testified that Ms.
Hamilton moved into the building on the Prince Property in May 2009 and has resided there
since. Mr. Cooms testified that he and Ms. Hamilton reside at the Prince Property. Donna
Bitner, the owner and operator of a campground six miles from the Property, testified that Ms.
Hamilton and Mr. Cooms regularly purchase containers of water from her and use the
campground facilities to takes showers. In May 2009, Ms. Hamilton’s uncle, Claude Walters,
lent Ms. Hamilton money to activate electric service at the Prince Property, and loaned her a
portable generator. He also loaned her use of a camping trailer to place on the Property so she
would have an operable bathroom facility. The camping trailer is located on the Property. The
upstairs loft in the building on the Property has been converted to a bedroom. It has subflooring
and carpet padding partially covered by Indian rugs, a bed with bedding, a night table with a
small portable stereo, and a 55 gallon barrel used for heating by burning scrap wood. Downstairs
there is a microwave oven, a small refrigerator and a toaster. Although improvements at the
Prince Property are minimal, it provides Ms. Hamilton with a home.
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 9 of 20

-10-
3. 	The Structure on the Prince Property is a “Dwelling House” Within the Meaning
of the New Mexico Homestead Exemption Statute.
Mr. McKinney also asserts that the metal building on the Prince Property is not a
“dwelling house” within the meaning of the New Mexico homestead exemption statute because
it is a commercial warehouse.
The New Mexico’s homestead exemption, N.M.S.A. 1978, §42-10-9. That Section provides,
Each person shall have exempt a homestead in a dwelling house and land
occupied by the person or in a dwelling house occupied by the person although
the dwelling is on land owned by another, provided that the dwelling is owned,
leased or being purchased by the person claiming the exemption. Such a person
has a homestead of sixty thousand dollars ($60,000) exempt from attachment,
execution or foreclosure by a judgment creditor and from any proceeding of
receivers or trustees in insolvency proceedings and from executors or
administrators in probate.
The New Mexico statutes do not define “dwelling house” as used in the exemption
statute. In State v. Ervin, 96 N.M. 366, 367, 630 P.2d 765, 766 (Ct. App. 1981), the New
Mexico Court of Appeals observed:
The common law definition of dwelling house holds that a building is not a
dwelling before the first occupant has moved in; nor does it continue to be a
dwelling after the last occupant has moved out with no intention of returning.
New Mexico case law interpreting “dwelling house” in the context of burglary cases cite to
Uniform Criminal Jury Instruction 16.21, which defines, “a dwelling house as ‘any structure, any
part of which is customarily used as living quarters.’” 8 Black’s Law Dictionary defines
“dwelling house” as “[t]he house or other structure in which a person lives; a residence or
abode.”9
Ms. Hamilton’s use of the Prince Property is mixed commercial and residential. The
building was built as a commercial warehouse. Ms. Hamilton uses the Property both as her
8 State v. Lara, 92 N.M. 274, 275, 587 P.2d 52, 53 (Ct. App. 1978). See also State v. Ross, 100 N.M. 48, 50, 665
P.2d 310, 314(Ct. App. 1983)
9 Black’s Law Dictionary 524 (7 th ed. 1999)
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 10 of 20

-11-
residence and for the sale of fireworks. Where there is mixed commercial and residential use of
a property, courts generally allow the homestead exemption where residential use is primary and
business use is incidental, and disallow the exemption where business use is primary and
residential use is incidental.10 However, courts applying these criteria have reached varying
results.11 If the applicable homestead exemption law is limited by use and the quantity of land
but not by dollar amount, courts tend to be more restrictive in allowing the homestead exemption
where there is mixed residential and commercial use. In re Springmann, 328 B.R. at 258-29.12
New Mexico’s homestead exemption is limited by the use of the property and dollar amount but
not by the quantity of land. N.M.S.A. 1978, §42-10-9.
10 In re Springmann, 328 B.R. 251, 256 (Bankr.D.Dist.Col. 2005)(“where the place is primarily the home of the
family, and some business is engaged in on the premises in an incidental way, the conduct of such a business does
not deprive the owner of the right to his homestead claim”); In re MacLeod, 295 B.R. 1 (Bankr.D.Me.2003) (when
there is mixed use, and the primary use is commercial, the exemption will not attach to the business property); In re
Jefferson, 163 B.R. 204, 205-06 (Bankr.D.NM 1993 (“incidental quasi-commercial use of property… does not
defeat the claim of exemption”).
11 Compare In re Majewski, 362 B.R. 67, 70 (Bankr. D. Conn. 2007 (the Court allowed a homestead exemption in
the Debtor’s half interest in a 3-unit residential property under Connecticut law); In re Springmann, 328 B.R. at 256
( the debtor who used part of his basement as an office for business purposes was allowed a District of Columbia
homestead exemption); In re Shell, 295 B.R. 129, 134 (Bankr. D. Alaska 2003) (the debtor who resided in one unit
and rented the other 5 units was allowed a homestead exemption under Alaska law against the six-unit residential
Property); In re Carey, 282 B.R. 118,120 (Bankr.D.Mass. 2002) (the debtor who resided in one unit and rented the
other 2 units was allowed a homestead exemption under Massachusetts law against the three-unit residential
Property); In re Jefferson, 163 B.R. 204, 205 (Bankr. D. NM. 1993)(the court overruled a creditor’s objection to a
homestead exemption where the debtor sought to exempt multiple contiguous lots); and Wholesale Grocery Co. v.
Johnson, 114 Kan. 89, 216 P. 828, 829 (1923)(the homestead exemption allowed on two buildings located on
adjoining city lots that shared common plumbing and electric wiring; one building was used as a residence and the
other to operate a grocery store and to store person items in the basement) with In re Klein, 272 B.R. 807,
809(Bankr. M.D.Fla. 2002) (the Florida homestead exemption does not cover a detached guesthouse that is rented
seasonally); In re Shillingglaw, 81 B.R. 910, 912 (Bankr. D.N.H. 1994) (the New Hampshire homestead exemption
only applied to hotel rooms occupied by debtor); In re Aliotta, 68 B.R. 281, 282 (Bankr. M.D. Fla. 1986) (the
debtors who resided in one unit and rented the other 3 units was allowed a homestead exemption under Florida law
only for the unit they used as a residence); and Anderson v. Shannon, 146 Kan. 704, 73 P.2d 5, 6 (1937) (after
considering whether the building was chiefly valuable for business purposes, mostly used for business purposes,
and/or constructed for business or commercial purposes, the Court denied the Kansas homestead exemption to a
widow who moved into and occupied 738 square feet of a 12,800 square foot commercial theater where her
deceased husband formerly had his medical offices).
12 Subject in some cases to certain limitations or qualifications, jurisdictions that do not limit the homestead
exemption by dollar amount include District of Columbia, District of Columbia Code § 15- 501; Florida, Florida
Constitution, Article 10 § 4; Iowa, Iowa Code Annot. §§ 561.2 and 561.16; Kansas, Kansas Constitution, Article 15
§ 9 and Kansas Statutes, Annotated, § 60-2301, Iowa Code Annotated, §§ 561.2 and 561.16, Oklahoma, Oklahoma
Statutes, Annot., §§1 and 2; and Texas, Texas Property Code, Annot., §§ 41.001 and 41.002 and Texas Constitution,
Article 16 § 51. If a homestead exemption is claimed in a bankruptcy case, the Bankruptcy Code imposes a dollar
limit on the homestead exemption in specified circumstances. 11 U.S.C. § 522(q).
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 11 of 20

-12-
This Court finds that Mr. McKinney has not satisfied his burden of showing that Ms.
Hamilton’s use of the Prince Property was not primarily residential and that the business use of
the Property was not incidental to the residential use. The 3,600 square foot metal building
situated on the Prince Property was designed and built for commercial warehouse use. However,
there is no evidence before the Court that Ms. Hamilton used the Property between the time she
acquired it in 2001 and when she moved into the Property in May of 2009 for any purpose other
than the sale of fireworks for a 2-week period during Fourth of July holiday seasons and to store
personal items. The Property is located in an unzoned area in the county where both residential
and commercial properties are located. Since Ms. Hamilton moved into the Prince Property, she
has used an upstairs loft in the building as a bedroom and a portion of the ground level as a
kitchen and to store personal items, and has used part of the ground level to sell fireworks during
the Fourth of July holiday season. The remainder of the ground level of the building has
remained vacant. There is no evidence before the Court to support a finding that Ms. Hamilton
intends to use the Prince Property as her residence only on a temporary basis or to put the
Property to substantial commercial use in the foreseeable future.
Under these circumstances, and because New Mexico courts liberally construe exemption
statutes to promote the purpose of the statutes, 13 the Court finds that Ms. Hamilton occupies a
“dwelling house” on the Prince Property within the meaning of New Mexico’s homestead
exemption statute.
4. 	Establishing a Homestead in Contemplation of Bankruptcy
Mr. McKinney further argues that Ms. Hamilton acted in bad faith and in fraud of
creditors with respect to her claim of a homestead exemption against the Prince Property, and
13 In re Portal 132 NM 171, 172, 45 P.3d 891, 892 (2002); Ruybalid v. Segura, 107 N.M. 660, 666, 763 P.2d 369,
375 (Ct.App.1988); Coppler & Mannick, P.C. v. Wakeland, 138 N.M. 108,111, 117 P.3d 914, 917 (2005).
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 12 of 20

-13-
therefore her exemption should be denied. He asserts that after he obtained a judgment against
Ms. Hamilton, she transferred the Prince Property to her father without consideration to shield
the Property from his collection efforts.14 He further asserts that in contemplation of bankruptcy
and for the purpose of claiming a homestead exemption against the Prince Property, she
purported to move into the Property only about three weeks prior to filing her chapter 7 case,15
and that she obtained and recorded a reconveyance of the Property from her father only two days
before commencing her bankruptcy case.
A claim of exemption under New Mexico law may be disallowed if transmutation of non-
exempt property to exempt form would constitute a fraud on creditors. Dona Ana Savings and
Loan Ass’n v. Dofflemeyer, 115 N.M. 590, 593, 855 P.2d 1054, 1057 (1993). After analyzing
applicable law, this Court held in In re Channon, 424 B.R. 895, 900 (Bankr. D.N.M. 2010) that
to determine whether an exemption available under New Mexico law should be denied on the
basis of a debtor’s conversion of non-exempt assets into exempt form the court must determine
in each case whether a debtor has crossed the line of taking legitimate advantage of exemptions
afforded by the state and is defrauding creditors under the actual fraud provisions of the Uniform
Fraudulent Transfer Act (“UFTA”) as adopted in New Mexico. In Dofflemeyer, the New Mexico
Supreme Court held that the “Uniform Fraudulent Transfer Act and the exemption statutes
should be construed together to obtain the purposes of both . . . .” 855 P.2d at 1057. The
Dofflemeyer Court further held that to reconcile the two statutes requires an analysis of whether a
14 Mr. McKinney has not relied upon 11 U.S.C. § 522(o). The Court therefore will not consider its applicability.
Section 522(o) provides in part: For purposes of subsection (b)(3)(A) . . . (4) real or personal property that the
debtor or a dependent of the debtor claims as a homestead; shall be reduced to the extent that such value is
attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the
filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or
that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property
so disposed of.”
15 Mr. McKinney asserts Ms. Hamilton did not actually move into the Prince Property, and in the alternative asserts
that if she did the homestead exemption should be denied because Ms. Hamilton acted in bad faith and to defraud
creditors.
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 13 of 20

-14-
transmutation of non-exempt property into exempt form serves the underlying purpose of the
exemption statutes and was not in furtherance of an intent to defraud creditors. Id. at 1058.
In determining whether a debtor took legitimate advantage of statutory exemptions by
converting a non-exempt asset to exempt form or acted with intent to defraud creditors, a court
should consider the purpose of the homestead exemption and the badges of fraud. “Badges of
fraud represent . . . a list of circumstantial factors that a court may use to infer fraudulent intent.”
In re Sholdan, 217 F.3d 1006, 1009 (8th Cir. 2000). The UFTA sets forth a nonexclusive list of
the badges of fraud. N.M.S.A. 1978, § 56-10-18. Factors relevant to whether a debtor took
legitimate advantage of statutory exemptions by converting non-exempt assets to exempt form or
acted with intent to defraud creditors include:
1) 	Whether the transmutation of non-exempt assets into exempt form was disclosed
or concealed, and whether the debtor removed or concealed assets;
2) 	Whether the transmutation occurred shortly before or after a substantial debt was
incurred or when the debtor was being sued or threatened with suit;
3) 	Whether the debtor already owned the exempt asset and used non-exempt assets
to increase its value;
4) 	Whether the debtor borrowed funds to acquire or enhance the value of the exempt
asset;
5) 	Whether and to what extent the debtor’s acquisition of the exempt asset or
enhancement of its value deviated from the debtor’s historical conduct;
6) 	The value of the asset claimed as exempt, and whether and to what extent non-
exempt assets remain available for distribution to creditors in the bankruptcy case;
7) 	Whether the debtor was insolvent or became insolvent shortly after the
transmutation;
8) 	Whether the exemption is limited or unlimited;
9) 	Whether the bankruptcy case is a voluntary or involuntary case;
10) 	The proximity of the transmutation to the bankruptcy filing, and whether the
transmutation was made in contemplation of a bankruptcy filing;
11) 	Whether the debtor acted in bad faith, such as by absconding or misrepresenting
any aspect of the transactions resulting in the transmutation; and
12) 	Whether the debtor intended to use the exempt asset for the legislative purpose for
the claimed exemption, and the extent to which allowance of the exemption will
serve that legislative purpose.16
16 See In re Channon, 424 B.R. at 902 (setting forth equivalent factors).
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 14 of 20

-15-
A court need not give equal weight to all of the factors; the relative weight given to individual
factors depends upon the facts and circumstances of each case.17
This Court finds, after carefully considering all of the pertinent facts and weighting the
relevant factors, that Ms. Hamilton by claiming the New Mexico homestead exemption is taking
legitimate advantage of the statutory exemption available to her and has not acted with intent to
defraud creditors.18
Although Ms. Hamilton conveyed the Prince Property to her father in response to Mr.
McKinney obtaining a judgment against her, the Court is persuaded that Ms. Hamilton
transferred the Property to her father in an effort to pay Mr. McKinney and not to shield the
Property from his collection efforts. Mr. McKinney obtained a state court judgment against Ms.
Hamilton on November 20, 2008 in the amount of $52,518.44. On December 4, 2008, he
recorded a transcript of the judgment in Curry County, New Mexico, thereby obtaining a judicial
lien against the Prince Property. On November 21, 2008, Ms. Hamilton executed a Quitclaim
Deed transferring the Price Property to her father. The Quitclaim Deed was recorded on
December 16, 2008. On June 16, 2009, a second Quitclaim Deed was recorded reconveying the
Prince Property from Ms. Hamilton’s father to Ms. Hamilton. Two days later, on June 18, 2009,
Ms. Hamilton commenced her chapter 7 case.
Ms. Hamilton testified that after learning of the State Court’s ruling that a judgment in
favor of Mr. McKinney would be entered against her, she attempted to obtain a loan from Wells
Fargo Bank secured by the Prince Property to pay off the debt but the loan was declined because
of her credit. She testified that after talking to a banker she transferred to Prince Property to her
17 In re Soza, 542 F.3d at 1066-67; Clark v. Wilmoth(In re Wilmoth), 397 B.R. 915, 920(8th Cir. BAP 2008); In re
Moore, 177 B.R. 437, 442-43(Bankr.N.D.NY 1994); see also, In re Sholdan, 217 F.3d at 1009-10)(a court is not
limited to statutory factors but free to consider other factors bearing on the issue of fraudulent intent).
18 Factors 1, 9, 10 and 12 support allowance of the exemption. Factors 2, 6, 7, 8, 11 support disallowance of the
exemption.
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 15 of 20

-16-
father to facilitate his using his better credit to obtain a loan secured by the Property to pay off
the debt to Mr. McKinney, but his attempt to obtain the loan from Wells Fargo Bank likewise
was unsuccessful. Ms. Hamilton delayed recording the quitclaim deed to her father for almost a
month after it was executed, which permitted Mr. McKinney to obtain a judicial lien against the
Property by recording a transcript of his judgment prior to recordation of the deed. As a result,
Ms. Hamilton’s father acquired title to the Property subject to the judicial lien. There was no
legal impediment to Mr. McKinney seeking to foreclose the judicial lien against the Prince
Property between the date of the transfer and Ms. Hamilton’s commencement of her chapter 7
case.
Ms. Hamilton further testified that it did not occur to her at the time that she should ask
her father to reconvey the Property to her. She considered herself the owner of the Property even
after the transfer to her father. Ms. Hamilton testified that she had decided in June 2008 to move
into the Prince Property, a year prior to commencement of her bankruptcy case. Ms. Hamilton
was not questioned about what motivated her to move into the Prince Property in May 2009 or
whether she moved in after consulting bankruptcy counsel. She testified that she obtained a
reconveyance of the Property from her father before commencing her bankruptcy case on the
advice of her bankruptcy attorney.
The Court finds credible Ms. Hamilton’s testimony that she had intended for some time
before moving into the Prince Property to make it her residence despite the proximity of her
moving into the Prince Property and the commencement of her chapter 7 case. However, in the
absence of any other credible explanation for her decision in May 2009 to actually move into the
Property, the Court finds that Ms. Hamilton acted on her prior intention to establish residence at
the Prince Property in order to protect the Property in her bankruptcy case by claiming a
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 16 of 20

-17-
homestead exemption. This finding is not by itself sufficient to require disallowance of the
homestead exemption. A finding that a debtor was motivated in part in transmuting a non-
exempt asset into exempt form by an intent to protect an asset from creditors does not by itself
establish intent to defraud creditors; otherwise, the exemption always would be disallowed
whenever the debtor converted a non-exempt asset into exempt form for the purpose of taking
advantage of an exemption statute.
The evidence does not support a finding of bad faith on the part of Ms. Hamilton in
connection with the reconveyance of the Prince Property to her on the eve of bankruptcy even
though allowance of the homestead exemption against the Prince Property will leave no assets in
the bankruptcy estate for creditors and will mean no recovery by Mr. McKinney on his judicial
lien. So that she could claim a homestead exemption in her bankruptcy case, on the eve of
bankruptcy and on advice of counsel, Ms. Hamilton obtained from her father and recorded a
quitclaim deed so that title to the Prince Property would be in her name on the Petition Date. Mr.
McKinney has not proven that Ms. Hamilton’s failure to obtain a reconveyance of the Property
from her father sooner was motivated by an intent to hinder his collection efforts. Ms. Hamilton
testified that she considered the Prince Property to be hers. There is no evidence that she gained
any advantage by keeping title to the Property in her father’s name subject to Mr. McKinney’s
judicial lien, that she did so for strategic reasons, or that any creditors were prejudiced thereby.
There is no evidence that Ms. Hamilton’s father made any use of the Prince Property while he
was vested with record title to the Property, or exercised any of the incidents of ownership in
relation to the Property. The reconveyance of the Prince Property to Ms. Hamilton by her father
restored the status quo that existed before the transfer of the Property to him.
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 17 of 20

-18-
The purpose of the homestead exemption is to protect a debtor’s home or preserve funds
to provide shelter for a debtor and the debtor’s dependents, despite insolvency, financial distress
or calamitous circumstances.19 Allowance of Ms. Hamilton’s claim of homestead exemption
serves this purpose. Ms. Hamilton did not have a home and did not rent a place to live prior to
her moving into the Prince Property, having stayed with various family members. She moved
into the Prince Property so she would have a her own place to live. Although living conditions at
the Prince Property may be harsh, and its accoutrements austere, it is a refuge that provides Ms.
Hamilton with basic shelter, privacy and a sense of security. The Court finds that protection of
Ms. Hamilton’s home from claims of creditors serves the purpose of New Mexico’s homestead
exemption statutes without contravening the purposes of the Uniform Fraudulent Transfer Act.
B. Lien Avoidance Under 11 U.S.C. §522(f)
The second issue before the Court is whether Mr. McKinney’s judicial lien impairs Ms.
Hamilton’s homestead exemption. Ms. Hamilton seeks to avoid the lien under 11 USC§522(f) as
an impairment to her homestead exemption.20 In accordance with 11 U.S.C. § 522(f), a debtor is
19 Cf. Matter of Lombard, 739 F.2d 499, 503 (10th Cir 1984)(“The purpose of the Colorado homestead exemption is
to secure to the householder a home for himself and his family, regardless of his financial condition”); In re
Polimino, 345 B.R. 708, 711-712 (10 th Cir. BAP 2006)(construing the Colorado homestead exemption statute,
acknowledging that “it is also well-established that the purpose of the homestead exemption is to provide protection
for a debtor’s home for himself and his dependents and assure that a debtor and his family have a residence despite
insolvency.”)(citations omitted); In re White, 389 B.R. 693, 703 (9th Cir.BAP 2008)(“the purpose of the [Arizona]
homestead exemption is to preserve funds to provide shelter for the family.”); In re Wood, 8 B.R. 882, 886
(D.S.D.1981)(The purpose of the homestead exemption is to “provid[e] the family a home in which it may have
shelter from and a protection against the claims of creditors or its own improvidence and where it may live and be
protected.”); Mannick v. Wakeland, 138 N.M. 113, 122, 117 P.3d 919, 928 (Ct.App. 2004) (“The purpose of the
homestead exemption is to prevent debtors from becoming destitute.”); Jackman v. Nance, 109 Nev. 716, 718, 857
P.2d 7 (1993)( “the purpose of the [Nevada] homestead exemption is to preserve the family home despite financial
distress, insolvency or calamitous circumstances, and to strengthen family security and stability for the benefit of the
family, its individual members, and the community and state in which the family resides.”).
20 Ms. Hamilton filed two motions to avoid Mr. McKinney’s judicial lien, the first one after she initially claimed the
New Mexico homestead exemption and an amended motion after she amended her exemptions to claim the Prince
Property exempt under 11 U.S.C. § 522(d)(5). See Docket Nos. 1, 8, 42, and 43. The amended motion seeks
avoidance of the judicial lien on the ground that it impairs an exemption under 11 U.S.C. § 522(d)(5). Ms. Hamilton
did not amend the motion further after amending her exemptions a second time to again claim the New Mexico
homestead exemption. The parties have not noted this oversight. The Court will treat the pending motion to avoid
lien as seeking to avoid the judicial lien on the ground that it impairs the New Mexico homestead exemption.
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 18 of 20

-19-
entitled to avoid the fixing of a judicial lien to the extent it impairs an exemption that the debtor
is otherwise entitled. 11 U.S.C. § 522(f). 	Mr. McKinney’s transcript of judgment constitutes a
judicial lien subject to avoidance under 11 U.S.C. § 522(f).21
Whether a judicial lien impairs a debtor’s exemption is determined in accordance with
the formula found in 11 U.S.C. § 522(f)(2)(A). That section provides:
[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)(A).
While the debtor initially listed the Prince Property on her Schedule A and provided a value of
$100,000, she subsequently amended her Schedule A to reflect a Property value of $55,000
based on an appraisal dated September 15, 2009. The parties stipulated at the commencement of
trial to the $55,000 appraised value. Mr. McKinney’s transcript of judgment was recorded in the
amount of $52,518.44. Ms. Hamilton’s homestead exemption is $60,000.00. N.M.S.A. 1978, §
42-10-9. The formula found in 11 U.S.C. § 522(f)(2)(A) applied in this case yields the
following:
McKinney Judicial Lien: 	$52,518.44
Homestead Exemption 	$60,000.00
(as if there were no liens)
TOTAL: 	$112,518.44
Because the sum of the judicial lien on the Prince Property and the amount of the exemption that
the Debtor could claim if there were no liens on the Property ($112,518.44) exceeds the value
21 See 11 U.S.C. § 101(36) (“The term ‘judicial lien’ means lien obtained by judgment, levy, sequestration, or other
legal or equitable process or proceeding.”); In re Gregory Rockhouse Ranch, 380 B.R. 258, 262 (Bankr.D.N.M.
2007)(stating that “[t]ranscripts of judgment are the type of judicial lien that is avoidable under 11 U.S.C. §
522(f).”)(citation omitted).
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 19 of 20

-20-
that Ms Hamilton’s interest in the Property would have in the absence of any liens ($55,000),
Mr. McKinney’s transcript of judgment impairs Ms. Hamilton’s homestead exemption and the
judicial is to be avoided in its entirety. The Court therefore finds in accordance with 11 U.S.C. §
522(f) that the Motion to Avoid Lien of Roy McKinney should be granted.
This Memorandum Opinion shall constitute the Court=s findings of fact and conclusions
of law under Rule 7052, Fed.R.Bankr.P. An appropriate order will be entered.
___________________________
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Entered on Docket Date: March 18, 2011
Copies to:
R Trey Arvizu, III
PO Box 1479
Las Cruces, NM 88004-1479
Attorney for Debtor
Tim J. O’Quinn
Tim J. O’Quinn, P.C.
PO Box 927
Tucumcari, NM 88401
Attorney for Roy McKinney
Case 09-12647-j7 Doc 63 Filed 03/18/11 Entered 03/18/11 12:06:56 Page 20 of 20