Court Opinion

ID: 9686578
Source: CourtListenerOpinion
Date Created: 2023-08-24 15:56:30.227435+00
Date Added: 2024-06-11T18:18:20.437282
License: Public Domain

OPINION
Before KATZ, HUGHES and VOLINN, Bankruptcy Judges.
HUGHES, Bankruptcy Judge:
The debtors have appealed an order holding that their home, although exempt from property of the estate, was subject to a continuing lien in favor of the trustee in bankruptcy.
The exemption claim was based on California Code of Civil Procedure § 690.31. The claim of lien was based on 11 U.S.C. § 544(a)(1). The order appealed provides that the trustee may enforce the lien if and when the debtors sell or refinance their exempt home.
Judge Volinn and I agree, but for different reasons, that the order should be reversed to the extent it recognizes a lien.
Accordingly, the order appealed is reversed.
My analysis, which considers only federal law, follows.
*50I
Unlike my brothers, I do not believe that 11 U.S.C. § 544(a)(1) gives the trustee a continuing lien on property of the estate. As discussed in Part II, I read the statute as giving the trustee only the rights and powers, i.e., the status, of a judicial lien creditor and then only “as of the commencement of the case...”
Furthermore, any lien created on exempt property by section 544(a)(1) would be nullified by 11 U.S.C. § 522(f)(1), which permits the debtor to avoid any judicial lien on property that impairs the debtors’ exemption. It is evident that the trustee seeks to impair Mr. and Mrs. Weiman’s exemption by means of a judicial lien.
Section 544 gives the trustee the “rights and powers” of a creditor holding a judicial lien on property of the debtor “as of the commencement” of the case. But any actual judicial lien held by the Weimans’ creditors on their otherwise exempt home could have been avoided under section 522(f)(1). In re Baxter, 19 B.R. 674 (9th Cir. Bkrtcy. App.1982); In re Dahdah, 20 B.R. 665 (9th Cir. Bkrtcy.App.1982). It would be anomalous if section 522(f)(1) could permit the debtor to avoid actual liens but not fictitious ones.
However, in my opinion, there is no need to invoke section 522(f)(1).
II
The trustee’s case rests upon the proposition that 11 U.S.C. § 544(a)(1) gives him a lien on property of the estate. (In the words of the dissent, the “trustee herein obtains a lien” and “his lien could be effective for more than 10 years”). Neither the statute nor the cases construing its predecessor under the former Bankruptcy Act justify that proposition, however. (This section and section 70(c) of the former Act read essentially the same; both are known as the strong arm clause).
In relevant part, 11 U.S.C. § 544(a)(1) provides that the trustee shall have “as of the commencement of the case .. . the rights and powers ... of a creditor . .. that obtains a judicial lien...” Thus, by its terms the statute does not give the trustee a lien. It does, of course, give the trustee rights and powers of one obtaining such a lien. The important question is how the trustee exercises such rights and powers.
The purpose and operation of the strong arm rights and powers is described in Sampsell v. Straub, 194 F.2d 228 (9th Cir. 1951):
Section 70c ... is employed primarily to protect general creditors of the bankrupt against secret liens. To this end the trustee is given all the rights which a creditor with a lien by legal or equitable proceedings would enjoy.
The court also noted that section 70c “arms the trustee” with these rights and powers “as to all property of the bankrupt on the date of bankruptcy...”
The date of bankruptcy is critical under the Code, as it was under the former Act. That date (sometimes called the date of cleavage) determines property of the estate and claims that may be asserted against the estate. See, e.g., 11 U.S.C. §§ 541(a)(1) and 502(b)(1).
Armed with the rights and powers of a judicial lien holder as of the commencement of the case, the trustee is enabled to free property of the estate of certain liens. It is not necessary for purposes of the strong arm powers that they exist at any time after commencement of the case, although the trustee necessarily will assert them at a later date.
Accordingly, the trustee has cited no cases under the Act in which the concept of a continuing lien has been recognized, and I am aware of none.
The strong arm clause was not restricted to avoiding secret liens under the Act. It also was used to restrict the debtor’s right to an exemption in those states, such as California, where a judgment lien is enforceable notwithstanding a subsequently recorded homestead. Sampsell v. Straub, supra.
*51Sampsell v. Straub held that because the California judgment lien overrides “a tardily recorded homestead exemption” and because “at the date of bankruptcy” the trustee had the powers of a judgment lien holder, the bankrupt’s exemption could not be honored if the “declaration of homestead had not been recorded as required to become effective under California law until after bankruptcy adjudication.” Thus, as to the trustee in bankruptcy, it was immaterial that the homestead be recorded at all; if it were not of record on the date of bankruptcy, the property was not exempt in bankruptcy.
Sampsell v. Straub does not, therefore, supply any authority for a continuing lien in favor of the trustee.
I would rest reversal on a reading of 11 U.S.C. § 544(a)(1) that restricts the trustee to the rights and powers of a judicial lien holder and then only as of the commencement of the case.