1 United States Court of Appeals,

Fifth Circuit.

No. 93-8276.

In the Matter of E.C. HENDERSON and Phyllis Henderson, Debtors.

E.C. HENDERSON and Phyllis Henderson, Appellee,

v.

Lee BELKNAP, Appellant.

April 20, 1994.

Appeal from the United States District Court for the Western

District of Texas.

Before POLITZ, Chief Judge, KING and DAVIS, Circuit Judges.

PER CURIAM:

E.C. and Phyllis Henderson (the Hendersons) filed a motion to

avoid Lee Belknap's (Be lknap) judicial lien on their homestead

property pursuant to 11 U.S.C. § 522(f)(1). The bankruptcy court

denied the motion. The district court reversed the bankruptcy

court's decision. Belknap appeals. We affirm.

I. FACTS AND PROCEDURAL HISTORY

On October 26, 1990, Belknap obtained a Texas state court

judgment against the Hendersons in the amount of $197,667.21. On

November 29, 1990, Belknap filed an abstract of judgment in

Caldwell County, Texas, on all of the Hendersons' real property in

Caldwell County.

On June 19, 1991, the H endersons filed for relief under

Chapter 7 of the Bankruptcy Code. At the time of the filing of the

bankruptcy peti tion, the Hendersons owned 131 acres of real

property in Caldwell County, Texas (Caldwell County property). The1 Texas law defines a rural homestead as follows: "for a

family, not more than 200 acres, which may be in one or more

parcels, with improvements thereon; or for a single, adult

person, not otherwise entitled to a homestead, not more than 100

acres, which may be in one or more parcels, with the improvements

thereon." T EX .P ROP .C ODE A NN . § 41.002 (Vernon Supp.1994).

2 bankruptcy court determ i ned that the Caldwell County property

qualified as a rural homestead under Texas law. 1

On June 17, 1992, the bankruptcy court denied the Hendersons

a dis c harge under § 727 of the Bankruptcy Code. After the

bankruptcy court denied the discharge, the Hendersons filed a

motion to avoid Belknap's judicial lien, pursuant to § 522(f)(1),

on their home stead property. The bankruptcy court denied the

Hendersons' motion, and the Hendersons timely appealed to the

district court, 155 B.R. 157.

On appeal to the district court, the district court concluded

that the bankruptcy court had erred in dismissing the Hendersons'

motion to avoid the judicial lien on their homestead. The district

cou rt determined that the "mere existence of a judgment lien,

although not attaching to the exempt homestea d, impairs the

debtor's constitutional homestead exemption and, consequently, is

avoidable under § 522(f)(1)." The district court reasoned that

courts which have determined that § 522(f)(1) does not allow a

debtor to avoid a judicial lien on homestead property because the

lien has not attached offer a restrictive and unrealistic line of

reasoning. According to the district court, the real and practical

ramifications of a recorded judicial lien on all of the debtor's

real property is that th e lien places a "cloud" on the debtor's3

title to the homestead property and, therefore, "impairs" the

debtor's homestead exemption. Additionally, the district court

determined that allowing a debtor to avoid a judicial lien on his

homestead property furthers the Bankruptcy Code's important

objective of allowing the debtor to gain a fresh start in his

financial life. Finally, the district court reasoned that because

Texas courts have consistently acknowledged that the homestead law

is entitled to the most liberal construction, the Hendersons should

be allowed to avoid the lien.

II. STANDARD OF REVIEW

This court reviews findings of fact by t he bankruptcy court

under the clearly erroneous standard and decides issues of law de

novo. H aber Oil Co. v. Swinehart (In re Haber Oil Co.), 12 F.3d

426, 434 (5th Cir.1994). "A finding of fact is clearly erroneous

"when although there is evidence to support it, the reviewing court

on the entire evidence is left with a firm and definite conviction

that a mistake has been committed.' " W ilson v. Huffman (In re

Missionary Baptist Found. of Am., Inc.), 712 F.2d 206, 209 (5th

Cir.1983) (quoting United States v. United States Gypsum Co., 333

U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)).

III. DISCUSSION

Section 522(f)(1) of the Bankruptcy Code provides:

Notwithstanding any waiver of exemptions, 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—(1) a judicial lien[.]

In order for a debtor to avoid a lien on exempt property under §4

522(f)(1), a debtor must show: (1) that the lien is a judicial

lien; (2) that the lien is fixed against an interest of the debtor

in property; and (3) that the lien impairs an exemption to which

the debtor would otherwise be entitled. H art v. Hart (In re Hart),

50 B.R. 956, 960 (Bankr.D.Nev.1985). In this case, both parties

agree that Belknap has a judicial lien and that the Caldwell County

property is the Hendersons' homestead. The district court

determined that even if Belknap's judicial lien did not attach to

the Hendersons' homestead, the lien impairs an exemption of the

debtor, and is therefore voidable under § 522(f)(1). In support of

this position, the district court primarily relied on Robinson v.

Robinson (In re Robinson), 114 B.R. 716 (D.Colo.1990), and In re

Watson, 116 B.R. 837 (Bankr.M.D.Fla.1990).

In In re Robinson, the Robinsons had filed for relief under

Chapter 7 of the Bankruptcy Code and claimed their home as exempt

under the Colorado homestead exemption. In re Robinson, 114 B.R.

at 717. Charlotte Robinson had filed a judicial lien against the

Robinsons' homestead. Id. The Robinsons filed a motion to avoid

C harlotte Robinson's judicial lien pursuant to § 522(f)(1). The

bankruptcy co urt determined that the lien did not impair the

Robinsons' homestead exemption and thus the Robins ons could not

avoid the lien because "a judgment lien does not automatically

attach to real property in Colorado." I d. at 717-18. The district

court reversed the bankruptcy court's determination, reasoning that

[w]hile in the State of Colorado, exemptions to the bankruptcy

[e]state are governed by state law, the availability of lien

avoidance provisions is governed by federal law. In this

case, it makes little sense to deny the debtors access to the5

§ 522(f)(1) lien avoidance provisions because of the vagaries

of Colorado law under which a judicial lien does not attach to

homestead pro perty. To do so would deny the intent of the

Bankr uptcy Code in providing the debtors a fresh start and

would leave debtors and creditors in limbo as to the status of

judicial liens post-bankruptcy.

Id. at 720. Likewise, in I n re Watson

, the court held that the

mere existence of a judicial lien impaired the homestead exemption

and was therefore voidable under § 522(f)(1) because "any potential

enforcement of a judgment lien in the future is a present

impairment of the exemption." 116 B.R. at 838-39. The courts in

In re Robinson, In re Watson, and the instant case determined that

whether the judicial lien "fixed" on the debtor's exempt property

was irrelevant to the inquiry of whether the debtor could utilize

§ 522(f)(1) to avoid a judicial lien. Rather, the courts

concentrated solely on whether the lien's mere existence "impaired"

the debtor's homestead exemption.

We do not agree that whether the judicial lien "fixe d" is

irrelevant to whether a debtor can utilize § 522(f)(1). Section

522(f)(1) clearly provides that the debtor may "avoid the fixing of

a lien on an interest of the debtor" in exempt property "to the

extent that such lien impairs an exemption." S ee Farrey v.

Sanderfoot, 500 U.S. 291, ----, 111 S.Ct. 1825, 1828, 114 L.Ed.2d

337 (1991) (stating that § 522(f)(1) allows the debtor to avoid the

fixing of a lien, i.e., the fastening of a liability, to an

int erest of the debtor in exempt property). We believe that the

plain language of § 522(f)(1) allows a debtor to avoid a lien only

when the judicial lien fastens a liability to and impairs the

debtor's exempt property.2 Furthermore, article 16, section 50 of the Texas

Constitution provides:

Sec. 50. The homestead of a family, or of a single

adult person, shall be, and is hereby protected from

forced sale, for the payment of all debts except for

the purchase money thereof, or a part of such purchase

money, the taxes due thereon, or for work and material

used in constructing improvements thereon.... No

mortgage, trust deed, or other lien on the homestead

shall ever be valid, except for the purchase money

therefor, or improvements made thereon....

6 Therefore, the initial question that we must answer in this

appea l is whether the Belknap's lien "fixes" against the

Hendersons' ho mestead. Numerous Texas cases have stated that a

properly abstracted judgment never attaches to a homestead so long

as it remains homestead property. E .g., Hoffman v. Love, 494

S.W.2d 591, 593-94 (Tex.Civ.App.—Dallas 1973) ("[A] judgment,

though duly abstracted, never fixes a lien on the homestead so long

as it remains homestead."), writ ref'd n.r.e. per cu riam, 499

S.W.2d 295 (Tex.1973); H arms v. Ehlers, 179 S.W.2d 582, 583

(Tex.Civ.App.—Austin 1944, writ ref'd) (noting that "no abstract of

judgment lien could or did attach" to the parties' homestead).

Section 52.001 of the Texas Property Code provides:

Except as provided by Section 52.0011, a first or subsequent

abstract of judgm ent, when it is recorded and indexed in

accordance with this chapter, constitutes a lien on the real

property of the defendant located in the county in which the

abstract is recor ded and indexed, including real property

acquired after such recording and indexing.

T EX .P ROP .C ODE A NN

. § 52.001 (Vernon Supp.1994). 2 Section 41.001 of

the Texas Property Code provides that a homestead is "exempt from

seizure for the claims of creditors." T E X .P ROP .C ODE A NN

. § 41.001

(Vernon Supp.1994). Reading these provisions without the benefit7

of Texas case law would certainly lead one to conclude that a

judicial lien in Texas does fasten a liability on the homestead.

At the same time, however, homestead property is exempt from the

enforcement of a judicial lien. This reading of the relevant Texas

statutes is supported by Exocet, Inc. v. Cordes, 815 S.W.2d 350

(Tex.App.—Austin 1991, no writ). In E xocet, the court explained

that

[w]hen an abstract of judgment is recorded and indexed in

acc ordance with chapter 52 of the Property Code, it

"constitutes a lien on the real property of the defendant

located in the county

..., including rea l property acquired

after such recording and indexing." Homestead property is not

excluded from the scope and effect of this statute prescribing

the legal consequences of perfecting a judgment lien by

recording and indexing an abstract of the judgment. Section

41.001 of the Property Code provides, however, that a

"homestead" is "exempt fr om seizure for the claims of

creditors except for encumbrances properly fixed on homestead

property."

Under t hese statutory provisions, a judgment lien is

"perfected" or brought into existence against a debtor' s

property, by record ing and indexing an abstract of the

judgment in the county where the property lies. The debtor's

homestead is not exempt from the perfected lien; rather, the

homestead is exempt from any seizure attempting to enforce the

perfected lien.

Id. at 352 (citations omitted). While we recognize that the issue

may be open to debate, we conclude that under Texas law Belknap's

judicial lien did "fi x," i.e., fasten a liability against the

Hendersons' homestead—albeit an unenforceable one.

Now that we have determined that a judicial lien does "fix"

on a Texas homestead, we must decide whether the lien "impairs" the

Hendersons' homestead exemption. Whether a judicial lien "impairs"

a debtor's exemption under § 522(f) is a question of federal law.

City Nat'l Bank v. Chabot (In re Chabot), 992 F .2d 891, 894 (9th8

Cir.1993); H

eape v. Citadel Bank of Independence (In re Heape),

886 F.2d 280, 282 (10th Cir.1989); I n re Kelly, 133 B.R. 811, 813

(Bankr.W.D.Tex.1991). The district court determined that Belknap's

jud icial lien did "impair" the Hendersons' homestead exemption

because t he lien placed a "cloud" on the Hendersons' title. S ee

Packer v. General Motors Acceptance Corp., 101 B.R. 6 51, 653

(Bankr.D.Colo.198 9) (holding that a judicial lien "impaired" the

debtor's homestead exemption even though it did not attach because

the lien "may leave debtor's title to real property clouded, lead

to future litigation, prevent a closing, preclude title insurance,

require posting of a bond, or otherwise impair or impede a debtor's

right to deal with his real property post-petition in a free and

unfettered manner"). Belknap counters by arguing that the

Hendersons' homestead exemption cannot be "im paired" by his

judicial lien because it cannot be enforced against the Hendersons'

homestead property for so long as the Caldwell County property

remains the Hendersons' homestead. In support of this argument,

Belknap cites the decisions of several courts that have concluded

that when a judicial lien does not attach to homestead property it

does not "impair" the debtor's exemption and thus cannot be avoided

because th e lien cannot be enforced against a debtor's exempt

property. E .g., In re Cernigl ia, 137 B.R. 722, 727

(Bankr.S.D.Ill.1992) (determining that because the judgment lien

did not attach to the debtor's homestead interest, there is no

impairment of the debtor's exemption and no encumbering lien to be

avoided); D el Vecchio v. Atico Sav. Bank (In re Del Vecchio), 1019

B.R. 803, 805 (Bankr.S.D.Fla.1989) (noting that the "poss ibility

that a judgment, which is n ot a lien might in the future

"interfere' with a possible, but not presently contemplated, future

sale of the debtors' Homestead, does not now "impair' the exemption

already g ranted these debtors"); I n re Fry, 83 B.R. 778, 779-80

(Bankr.D.Colo.1988) (holding that under Colorado law a judgment

lien can never impair the debtor's homestead exemption because the

judgment lien never attaches to the exempt property).

In determining th at the Hendersons' homestead exemption was

impaired, the district court further relied on Tarrant Bank v.

Miller, 833 S.W.2d 666 (Tex.App.—Eastland 1992, writ denied). In

Tarrant Bank, the defendant was a successor in interest to a

judgment obtained against the plaintiffs for a delinquent car loan.

Id. at 667. The judgment had been abstracted and filed of record

in Brown County. I d. The plaintiffs then entered into a contract

to sell their homeste ad, which was located in Brown County. I d.

The plaintiffs had requested the defendant to grant them a partial

release of its lien on their homestead property. I d. Because the

defendant refused to release its lien on the plaintiffs' homestead,

the title company refused to issue an owner's title policy and the

plaintiffs were unable to complete the sale of the ir home. I d.

The plaintiffs then sued the defendant for slander of title. Id.

The defendant argued that there was no just iciable controversy

between the parties because its lien against the homestead was

unenforceable and could not create a cloud on the plaintiffs' title

to the property. Id. The court disagreed with the defendant and10

con cluded that even though the lien was unenforceable, the lien

could cast a cloud on the defendant's title. Id. at 667-68. The

court concluded, therefore, that there was a just iciable

controversy between the parties. Id. at 668.

We believe that Belknap's argument that the Hendersons'

homestead property is not impaired because he can never enforce his

judicial lien against the Hendersons ' homestead as long as that

property remains homestead property is a strong argument. It is

clear to us that because the lien is unenforceable the Hendersons'

homestead exemption is not "legally impaired." However, the term

"impair" encompasses more than the idea of "legal" impairment. The

termimpair means "to weaken, to make worse, to lessen in power,

diminish, or relax, or otherwise affect i n an injurious manner."

B LACK ' S L AW D ICTIONARY 752 (6th ed. 1990). While we recognize that the

Hendersons' homestead is not "legally impaired," the Tarrant County

case has demonstrated to us that Belknap's judicial lien does

impair the Hendersons' homestead exem ption in a very real and

practical sense. We acknowledge that the determination of whether

a debtor's exemption is "impaired" is a question of federal law,

but we do not believe that we must make this determination without

the benefit of cases such as Tarrant County, which demonstrate the

practical real life effects of an unenforceable judicial lien on a

Texas homestead. Because Belknap's "unenforceable" lien creates a

cloud on the Hendersons' title to their homestead, ma king it

difficult if not impossible to obtain title insurance, we believe

that Belknap's judicial lien "impairs," i.e., weakens, makes worse,3 Belknap also argues that the district court erred in

allowing the Hendersons to avoid his judicial lien because the

Hendersons presented little or no evidence that the lien actually

"impaired" their homestead exemption. Specifically, Belknap

argues that the Hendersons have presented no evidence that they

are contemplating a sale of the homestead or any other evidence

that their homestead exemption is actually impaired. The

Hendersons counter by arguing that this point of error has been

waived by Belknap because he did not raise it in the district

court. Even if Belknap has not waived this issue, it is

irrelevant whether the debtors are presently contemplating a sale

of their homestead because Belknap's judicial lien presently

places a cloud on the Hendersons' title to their homestead.

11 lessens in power, diminishes, and affects in an injurious manner,

their homestead exemption. 3 See In re Robinson, 114 B.R. at 720

(holding that even though the creditor's judicial lien did not

attach, the debtor could utilize § 522(f)(1) to avoid a judicial

lien in order to provide the debtor with a fresh start and to fix

the status of judicial liens post-bankruptcy); I n re Calandriello,

107 B.R. 374, 375 (Bankr.M.D.Fla.1989) (concluding that the fact

that the cred itor's judicial lien is presently unenforceable

against the debtor's homestead exemption does n ot mean that the

debtor's homestead is not presently impaired because "[t]itle

companies generally treat such judgments as a cloud on title to the

homestead unless avoided in bank ruptcy, satisfied, or otherwise

removed").

IV.

For the foregoing reasons, the judgment of the district court

is AFFIRMED.