Robert A. Lavine

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re: ) Case No. 11-20850
)
ROBERT A. LAVINE, ) Chapter 7
))
Debtor. ) Chief Judge Pat E. Morgenstern-Clarren
)
) MEMORANDUM OF OPINION
) AND ORDER
Debtor Robert Lavine moves to avoid the judgment lien of City National Bank (the bank)
to the extent that the lien impairs his exemptions on his homestead. He holds the property jointly
in a survivorship tenancy with his non-debtor spouse. The only issue is whether the full value of
the property should be used in determining the extent of the impairment–as argued by the
bank–or one-half the value–as argued by the debtor. For the reasons stated below, the debtor’s
amended motion is granted and the bank’s lien is avoided to the extent of $724,358.00.1
I. JURISDICTION
Jurisdiction exists under 28 U.S.C. § 1334 and General Order No. 2012-7 entered by the
United States District Court for the Northern District of Ohio on April 4, 2012. This is a core
proceeding under 28 U.S.C. § 157(b)(2)(B) and (K), and it is within the court’s constitutional
authority as analyzed by the United States Supreme Court in Stern v. Marshall, 131 S.Ct. 2594
(2011).
See docket 49, 53, 54, 55, 65, 66, 68.1
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II. DISCUSSION
A. The Facts
The parties submitted their dispute for decision on these stipulated facts:2
The debtor filed this chapter 7 case on December 30, 2011. The debtor and his non-
debtor spouse own real estate located at 32575 Wintergreen Drive, Solon, Ohio (the property),
which is their residence. The deed evidencing their ownership is titled as a “Survivorship Deed
Warranty” and it grants them title “for their joint lives, remainder to the survivor of them . . . .”
The deed was recorded with the Cuyahoga County Recorder on August 26, 2008. The market
value of the property is $355,000.00.
This court entered an order on July 26, 2012 which avoided the judgment liens of
American Express FSB and Park View Federal Savings Bank as to the property. As a result, the
existing encumbrances in order of priority are:
1. The mortgage lien of Flagstar Bank in the amount of $298.000.00;
and
2. The bank’s judgment lien in the amount of $730,083.00, plus
interest, fees and costs filed on or about June 7, 2011 in the
Cuyahoga County Court of Common Pleas, which the bank holds
by assignment from Imperial Capital Bank. Although not
addressed by the stipulations, the bank acknowledges that the
debtor’s spouse has no liability to it, see Brief at 5, docket 66.
The debtor claimed exemptions in the amount of $22,775.00 with respect to the property under
the Ohio exemption provisions. See OHIO REV. CODE § 2329.66(A)(1) and (A)(18).3
Docket 61, 64.2
The parties stipulated to the homestead exemption of $21,625.00 under3
§ 2329.66(A)(1), and the debtor filed an amended schedule C (docket 67) to claim an additional
exemption in the amount of $1,150.00 under § 2329.66(A)(18).
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B. 11 U.S.C. § 522(f)(1)(A)
The debtor seeks to avoid the bank’s lien under § 522(f), which provides in relevant part:
. . . [T]he 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 . . . [with an exception not relevant here].
11 U.S.C. § 522(f)(1)(A). The term “judicial lien” includes a lien obtained by judgment such as
the bank’s lien. 11 U.S.C. § 101(36).
A judicial lien impairs an exemption to the extent that the sum of all liens on the property
and the amount of the exemption the debtor could claim if there were no liens exceed the value
of the debtor’s interest in the property if there were no liens. 11 U.S.C. § 522(f)(2)(A). Stated
another way, the calculation is made by adding together the value of all liens and the exemption
and then subtracting the value of the property. Brinley v. LPP Mortgage Ltd. (In re Brinley), 403
F.3d 415, 420-21 (6th Cir. 2005). The challenged lien is avoided to the extent, if any, that the
sum of the liens and the exemption exceed the property’s value. Id. at 421.
C. The Issue and the Positions of the Parties
The parties agree that the bank’s lien impairs the debtor’s exemption, with the disputed
issue being the amount of the impairment. Their dispute focuses on the value of the debtor’s
interest in the property. The debtor argues that because he owns the property jointly with his
non-debtor spouse that only one-half the value of the property should be used to determine the
amount of the impairment. The bank, on the other hand, argues that the debtor should be charged
with the full value of the property.
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D. The Debtor’s Interest in the Property
The deed transferring the property to the debtor and his spouse created a joint tenancy
with a right of survivorship under current Ohio law, which provides that a “deed conveying any
interest in real property to two or more persons, and in substance following the form set forth in
this section . . . creates a survivorship tenancy in the grantees, and upon the death of any of the
grantees, vests the interest of the decedent in the survivor, survivors, or the survivor’s or
survivors’ separate heirs and assigns.” OHIO REV. CODE § 5302.17. The debtor and his spouse4
each hold “an equal share of the title during their joint lives unless otherwise provided” in the
deed which created their survivorship tenancy. OHIO REV. CODE § 5302.20(B).
The characteristics and ramifications of the debtor’s survivorship tenancy are set out in
Ohio Revised Code § 5302.20(C). Under that section, the debtor and his spouse each have “an
equal right to share in the use, occupancy, and profits” and each is “subject to a proportionate
share of the costs related to the ownership and use” of the property. OHIO REV. CODE
§ 5302.20(C)(1). Each is able to convey his or her interest in the property individually, without
altering the interest of the other in the title. OHIO REV. CODE § 5302.20(C)(2). A creditor of the
debtor is permitted to enforce a lien against the debtor’s interest in the property in an action to
marshall liens. OHIO REV. CODE § 5302.20(C)(4). In such an action, a court may order the entire
property sold and divide the proceeds to account for the tenants’ fractional interests. See White v.
Parks, No. 24391, 2009WL388218 (Ohio Ct. App. Feb. 18, 2009). And, in the event the debtor
This version of § 5302.17 replaced the tenancy by the entireties, which was first4
recognized in Ohio when a prior version of § 5302.17 was enacted on February 9, 1972, with a
survivorship tenancy. See generally Cent. Benefits Mut. Ins. Co. v. RIS Admins. Agency, Inc.,
637 N.E.2d 291, 292 (Ohio 1994).
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and his spouse terminate their marriage, their tenancy will cease to be a survivorship tenancy and
will become a tenancy in common, unless expressly stated otherwise. OHIO REV. CODE
§ 5302.20(C)(5). All of this leads to the conclusion that the debtor owns an undivided one-half
interest in the entire property, and that one-half of the property’s value should be used in the
calculation.
In support of a different result, the bank argues that this debtor’s interest in the property is
equivalent to the debtor’s interest in property discussed in the Brinley decision, and that the
debtor must be charged with the full value of the property. However, the property in Brinley5
was held in a tenancy by the entirety as defined under Kentucky law. That ownership interest is
quite different from the debtor’s joint survivorship tenancy, as detailed by the Sixth Circuit in
this discussion–
Under Kentucky law, a joint tenancy, by definition, “is an estate
held by two or more people who . . . are not husband and wife.”
Sanderson v. Saxon, 834 S.W.2d 676, 678 (Ky.1992) (emphasis
added). A tenancy by the entirety, on the other hand, “is an estate
in land shared by husband and wife, whereby at the death of either
the survivor is entitled to full fee simple ownership.” Id. “[T]he
survivor takes the entire estate at the death of the deceased
co-tenant not by virtue of that death, but because, in law, each was
viewed to own the entire estate from the time of its creation.” Id.
(emphasis in original). Because Brinley and his wife shared the
property in question as spouses, their interests in the realty were as
tenants by the entirety. Consequently, Brinley and his wife each
owned the entire estate . . . .
In re Brinley, 403 F.3d at 420.
In addition, the bank cites In re Kruse, No. 04-2134 (Bankr. S.D. Ohio Aug. 16, 2005).5
That case is on point, but it does not include sufficient discussion to be persuasive. The other
cases cited by the bank have little relevance to the issue at hand.
5
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The bank’s attempt to equate the entireties tenancy discussed in Brinley with the debtor’s
joint survivorship tenancy interest fails to acknowledge that “[i]n the context of property law, an
estate by the entireties has a particular and unique definition which sets it apart from other
recognized forms of joint tenancies.” Cent. Nat’l Bank of Cleveland v. Fitzwilliam, 465 N.E.2d
408, 410 (Ohio 1984). The distinguishing characteristic of an entireties tenancy is that neither
spouse has an individual interest in the entire estate, rather each spouse has an undivided interest
in the whole estate. Id. As noted above, under Ohio law the debtor and his spouse do not own an
interest in the entire property; each owns a present undivided one-half interest in the property.
Therefore, as the property’s value is $355,000.00, the debtor’s interest in the property has a value
of $177,500.00.
E. Calculating the Extent of Impairment
Having determined the value of the debtor’s property, the next step is to calculate the
extent of impairment. Applying the calculation set forth in § 522(f)(2)(A) strictly would result in
the total avoidance of the bank’s lien:
$298,000.00 (Flagstar Bank mortgage)
$730,083.00 (Bank’s lien)
%$ 22,775.00 (Exemptions)
$1,050,858.00
&$ 177,500.00 (Debtor’s property interest)
$ 873,358.00 (Extent to which the bank’s lien
impairs the debtor’s exemptions
exceeding $730,083.00)
Courts, however, are divided as to whether the § 522(f)(2)(A) formula should be strictly
applied in cases such as this where the debtor has only a fractional interest in the property. This
division in opinion arises because a strict application does not take into account the fact that there
6
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is often a mortgage which encumbers both joint tenants’ interests in the property. As one court
noted, in a case such as this where the “ debtor has only a fifty percent interest in exempt
property . . . but one or more outstanding liens apply to the entire property, the statutory formula
produces an unreasonably high impairment that has the effect of creating additional equity for
the debtor at the expense of the lienholder whose lien is thereby avoided.” Kolich v. Antioch
Laurel Veterinary Hosp. (In re Kolich), 328 F.3d 406, 409 (8th Cir. 2003) (emphasis in original).
The Circuit courts that have addressed this issue have concluded that a mechanical
application of the statutory formula produces a result which conflicts with the statutory purpose
of § 522(f). See Miller v. Sul (In re Miller), 299 F.3d 183, 186-87 (3rd Cir. 2002); Lehman v.
VisionSpan, Inc. (In re Lehman), 205 F.3d 1255, 1256-57 (11th Cir. 2000); Nelson v. Scala, 192
F.3d 32, 34-35 (1st Cir. 1999); but see Zeigler Eng’g Sales, Inc. v. Cozad (In re Cozad), 208 B.R.
495, 498 (B.A.P. 10th Cir. 1997) (holding that § 522(f)(2)(A) is not ambiguous and requiring that
all liens must be added in determining impairment). To avoid that result, “[t]hese courts either
net the total outstanding secured debt balance owed by both co-owners against the entire fee
before calculating the value of the debtor’s fractional interest in the property or achieve a result
that assures that the debtor does not enjoy more than the amount of the available exemption.” All
Points Capital Corp. v. Meyer (In re Meyer), 373 B.R. 84, 90 (B.A.P. 9th Cir. 2007).
This court agrees that in this case a literal application of § 522(f)(2)(A) would produce an
illogical result contrary to Congressional intent and will, therefore, adopt a modified computation
for impairment. The court adopts the modified calculation set out in In re Morrow, 2009
WL1607582 at *6 (Bankr. N.D. Ohio Feb 12, 2009) because it provides a “more realistic
computation of the impairment and does not appear to be at odds with Brinley [.]” Under the
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calculation, the debtor’s 50% interest in the property is valued at $177,500.00 and 50% of the
mortgage debt, or $149,000.00, is used in calculating the total lien amount. That calculation is:
$149,000.00 (Flagstar mortgage)
$730,083.00 (Bank’s lien)
%$ 22,775.00 (Exemptions)
$901,858.00
&$177,500.00 (Debtor’s property interest)
$724,358.00 (Extent to which the bank’s lien
impairs the debtor’s exemptions)
Under this calculation, the bank’s judgment lien in the amount of $730,083.00 is avoided to the
extent of $724,358.00, leaving the bank with an unavoided lien in the amount of $5,725.00.
III. CONCLUSION
The debtor’s amended motion is granted and the bank’s judgment lien as to the property
located at 32575 Wintergreen Drive, Solon, Ohio is avoided in part, with the bank retaining a
lien in the amount of $5,725.00.
IT IS SO ORDERED.
_________________________________
Pat E. Morgenstern-Clarren
Chief Bankruptcy Judge
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