In the case of Thomas C. Heaney which was filed in the Eastern District Of New York on November 15, 2010, Debtor tried to avoid several judgments against his home.
However, one of the first issues the Court had to deal with was what was the value of Debtor’s interest in his home. Debtor listed that value of his home as being $500,000.00. In this case, Debtor held title to the property as a tenant by entirety and claimed that the Court should base it analysis on the Debtor having an interest in the property valued at $250,000.00.
In addition, Bank of America held a first mortgage against the property in the amount of $314,857.48, and a second mortgage was held by TD Bank having a mortgage of $95,001.37, for a total of $409,858.84 in consensual mortgages. There were several judgments against Debtor’s property.
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In order for the Court to determine that the judicial liens impaired Debtor’s interest in the property, it had to make a determination of what Debtor’s interest in the property was. The court pointed out that in New York the law recognized that a tenancy in common is a [tenancy] by two or more persons, in equal or unequal undivided shares, each person having an equal right to possess the whole property but no right to survivorship.
Tenancy by the entirety, however, has been is where each tenant owns the entire fee, but each tenant in common can not. Moreover, upon the death of a tenant by entirety, the surviving spouse is entitled to the full fee simple ownership because the death results in the defeasance of the spouse’s interest. In sum, the surviving spouse is considered to have owned the full estate from the time of the creation of the entirety estate.
Therefore , the Court determined that for purposes of valuing Debtor’s interest in the home a value of $500,000.00 had to be used. 11 U.S.C. 522(f) is the Bankruptcy Code section which allows for judicial liens to be avoided. In relevant part it states as follows:
- 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.
- (A) 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; (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 such liens.
In a nutshell, when a judicial lien, when added to non-avoidable liens, plus the exemption amount, exceeds the value of debtor’s general interest in the property, such lien is said to have impaired the exemption and thus may be avoided.
This particular case involved more than one lien and in that case each lien is assessed in reverse order of that lien’s priority under state law. Applying the law to this case, the value of the Debtor’s house was $500,000. The mortgages held by Bank of America and TD Bank totaled $409,858.84. In New York the Debtor’s homestead exemption is $50,000.00. After subtracting the mortgages and the exemption from the value of the property left a difference of $40,141.16. Therefore, the Court avoided all judicial liens beyond the $40,141.16.
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