Court Opinion

ID: 4448640
Source: CourtListenerOpinion
Date Created: 2019-10-22 00:00:19.251183+00
Date Added: 2024-06-11T14:45:07.627651
License: Public Domain

Case: 19-20419      Document: 00515166751         Page: 1    Date Filed: 10/21/2019

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                         United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                FILED
                                    No. 19-20419                         October 21, 2019
                                  Summary Calendar
                                                                           Lyle W. Cayce
                                                                                Clerk
IN THE MATTER OF: MINH VAN TRUONG; LE THI LE,

              Debtors

TAN PHAN,

              Appellant

v.

MINH VAN TRUONG; LE THI LE,

              Appellees

                   Appeal from the United States District Court
                        for the Southern District of Texas
                             USDC No. 4:17-CV-3318

Before DAVIS, SMITH, and HIGGINSON, Circuit Judges.
PER CURIAM:*
       Tan Phan appeals the district court’s order affirming the bankruptcy
court’s judgment overruling Phan’s objection to the Debtors’ claim of exemption

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
      Case: 19-20419      Document: 00515166751     Page: 2   Date Filed: 10/21/2019

                                     No. 19-20419
in real property. Concluding that the district court did not err in affirming the
bankruptcy court’s judgment, we AFFIRM.
                                   I. Background
           On June 9, 2017, Debtors, Minh Van Truong and Le Thi Le, filed a
voluntary petition for relief under Chapter 7 of the Bankruptcy Code. In their
petition, the Debtors indicated that their only creditor was Phan; that his claim
was unsecured; and that Phan had obtained a judgment against them in state
court in the amount of $148,142. In the Schedule C form attached to their
petition, the Debtors asserted that their homestead was an exempt asset under
Texas law and should not be included in the bankruptcy estate.                  The
bankruptcy court agreed that the Debtors’ homestead was an exempt asset and
discharged the bankruptcy case as a no-asset estate.
           Phan thereafter filed an objection in the bankruptcy court arguing that
the Debtors’ homestead was not exempt from his claim because under Texas
law, there are certain exceptions to the homestead exemption. Specifically,
Phan relied on Section 41.001 of the Texas Property Code which provides that
homesteads “are exempt from seizure for the claims of creditors except for
encumbrances properly fixed on homestead property.” That section further
provides that “encumbrances may be properly fixed on homestead property for
(1) purchase money; . . .[or] . . . (5) the refinance of a lien against a homestead
. . . .”
           Phan asserted that because he loaned the Debtors the funds to pay off
their mortgage and/or refinance the mortgage on their homestead in 2009, the
homestead is a nonexempt asset which must be liquidated under Chapter 7.
Phan attached a copy of a final judgment rendered by a state district court on
April 25, 2017, in his favor and against the Debtors “on his claim for breach of
contract.” The judgment awarded Phan $127,294 in damages, $20,122 in
attorney’s fees, and $726 in costs.
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                                        No. 19-20419
      In response to Phan’s objection, the Debtors admitted that a judgment
was rendered in Phan’s favor and against them for breach of contract by a
Texas district court. They denied the existence of any loan documents, either
for purchase money or refinancing funds, executed by them and Phan. They
further denied that they created any security interest, or extended any security
interest to Phan, in their homestead.
      The bankruptcy court noted that the state court judgment did not award
Phan an interest in the homestead and that Phan presented no evidence of a
deed conveying the property to him. The bankruptcy court further noted that
Phan provided no abstract of judgment filed in the real property records of
Harris County, Texas.             Because Phan’s interest was unrecorded, the
bankruptcy court determined that Phan’s claim was “wholly unsecured” and
that the Debtors were able to “avoid Phan’s unrecorded interest.”                      The
bankruptcy court, therefore, overruled Phan’s objection. The district court
affirmed.
      On appeal, Phan asserts that under Texas Property Code § 41.001, he
was not required to produce a written agreement or contract in order for his
claim to be enforceable against the Debtors’ homestead. He asserts that the
district court’s judgment should be reversed because the Debtors’ homestead
is a nonexempt asset which must be liquidated under Chapter 7 of the
Bankruptcy Code to pay for the judgment he obtained against the Debtors.
                                      II. Discussion
      This court reviews “the decision of a district court sitting as an appellate
court in a bankruptcy case by applying the same standards of review to the
bankruptcy court’s findings of fact and conclusions of law as applied by the
district court.” 1     “Acting as a second review court,” this court reviews a

      1   Viegelahn v. Lopez (In re Lopez), 897 F.3d 663, 668 (5th Cir. 2018).
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                                      No. 19-20419
bankruptcy court’s legal conclusions de novo and its findings of fact for clear
error. 2
       Upon filing a petition for bankruptcy, a debtor may remove certain
property from the bankruptcy estate under federal or state law, thereby
shielding the property from creditors. 3 A debtor must file a list of this “exempt”
property and “[u]nless a party in interest objects, the property claimed as
exempt on such list is exempt.” 4 Under Texas law, homesteads are eligible for
exemption from the bankruptcy estate. The Texas Property Code allows a
home to be “exempt from seizure for the claims of creditors except for
encumbrances properly fixed on homestead property.” 5                  The Code further
provides that “[e]ncumbrances may be properly fixed on homestead property
for (1) purchase money; . . . [or] . . . (5) the refinance of a lien against a
homestead, . . . .” Texas law caps the homestead exemption in size, but not in
value. 6
       Phan reasserts his argument that the Debtors’ homestead is not exempt
from his claim because the debt owed to him falls within an exception to
Texas’s homestead exemption law. Specifically, he asserts that the debt owed
to him represents funds used in 2009 to pay off the mortgage on the Debtors’
house. He contends that Texas law does not allow the Debtors’ homestead to
be shielded from his claim because the debt owed to him is a “judgment debt
from the refinance of a lien against debtors’ homestead.” He further maintains
the exceptions to the homestead exemption relating to purchase money and
refinancing of a lien do not require a written agreement.

       2Id. (citations omitted).
       311 U.S.C. § 522(b).
      4 Id. § 522(l).
      5 TEX. PROP. CODE § 41.001(a) (emphasis added).-
      6 See id. § 41.002 (limiting “urban” homestead to “not more than 10 acres of land which

may be in one or more contiguous lots”).
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                                     No. 19-20419
      Phan is correct that Texas law provides for exceptions to the homestead
exemption, but he is mistaken that the money judgment he obtained against
the Debtors in state court falls within one of those exceptions. In asserting his
argument, Phan fails to recognize that to constitute an exception to Texas’s
homestead exemption, his claim must involve an encumbrance properly fixed
on the Debtors’ homestead property. 7 Black’s Law Dictionary defines the word
“encumbrance” as: “A claim or liability that is attached to property or some
other right and that may lessen its value, such as a lien or mortgage; any
property right that is not an ownership interest.” 8
      Although Phan used his funds to pay off the mortgage on the Debtors’
property (which would have been an “encumbrance properly fixed on
homestead property” under § 41.001), he did not obtain an encumbrance on the
property in the form of another mortgage or lien at that time. Phan also did
not obtain a transfer of any mortgage or lien he alleges he helped the Debtors
“refinance” at that time.       The money judgment awarding Phan damages,
attorneys’ fees, and costs for the Debtors’ breach of contract is not an
“encumbrance properly fixed on homestead property.”
      Based on the foregoing, the bankruptcy court properly overruled Phan’s
objection to the Debtors’ claim of homestead exemption.              Accordingly, the
district court’s judgment affirming the bankruptcy court’s judgment is
AFFIRMED.

      7   TEX. PROP. CODE § 41.001(a)
      8   Encumbrance, BLACK’S LAW DICTIONARY (11th ed. 2019).
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