Court Opinion

ID: 3006337
Source: CourtListenerOpinion
Date Created: 2015-10-01 00:00:57.366567+00
Date Added: 2024-06-11T18:03:09.347244
License: Public Domain

Case: 15-40321      Document: 00513213830          Page: 1   Date Filed: 09/30/2015

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT

                                      No. 15-40321                       United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                FILED
In the Matter of: Stanley Thaw                                          September 30, 2015
                                                                           Lyle W. Cayce
                        Debtor                                                  Clerk
-----------------------------------------------------
CHRISTOPHER MOSER; KERNELL THAW,

              Appellants,

v.

MD LESLIE SCHACHAR,

              Appellee.

                  Appeals from the United States District Court
                        for the Eastern District of Texas
                             USDC No. 4:14-CV-185

Before REAVLEY, ELROD and HAYNES, Circuit Judges.
PER CURIAM:*
       Christopher Moser, bankruptcy trustee for Stanley Thaw, and Kernell
Thaw, Stanley’s spouse, both appeal two decisions of the district court ruling
that § 52.042 of the Texas Property Code did not cancel and release the

       * 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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.
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                                 No. 15-40321
judgment lien that Leslie Schachar held on Thaw’s property and that the
Thaws had not established a homestead exemption in their Brandywine
property. Because the district court correctly interpreted § 52.042 as governing
the enforcement of an abstract of judgment after the conclusion of a bankruptcy
proceeding and because the appellants did not demonstrate the requisite intent
to transfer their homestead to the Brandywine property, we AFFIRM.
                                       I.
      Stanley and Kernell Thaw were married in 2001. In 2002, Stanley went
into business with Leslie Schachar. The business founded by the two,
Thermamedics, was unsuccessful and fell into debt in 2004 and 2006. On both
occasions, Schachar paid the obligations. Schachar sued in state court to collect
Stanley’s share of the payments. Schachar obtained a judgment on November
5, 2009 for $349,535.82 plus attorneys’ fees of $12,500 with an annual interest
charge of 5% added in addition. On November 11, 2009, Schachar recorded an
abstract of judgment in the land records for Collin County, Texas. The Texas
Court of Appeals confirmed Schachar’s judgment on July 26, 2011. Thaw v.
Schachar, No. 07-10-0027-cv, 2011 WL 3112064 (Tex. App—Amarillo July 26,
2011, no pet.) (mem. op.).
      On October 28, 2009, the Thaws entered into a contract for deed on a
property at 5197 Brandywine Lane, Frisco, Texas 75034 from Axxium Custom
Homes of Dallas. On November 1, 2009, the Thaws and Axxium executed a
new contract increasing the sale price from $1,750,000 to $2,150,000. The
contract was not recorded. The Thaws moved into the Brandywine property in
early January 2010. According to Kernell Thaw, they did not enter the
Brandywine property earlier than January 2010 in order to complete
renovations. Prior to that time, they lived in a property located at 2532 Pelican
Bay Drive in Plano, Texas. The Thaws had designated the Pelican Bay

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property as their homestead in a voluntary filing with the Collin County
Clerk’s office in 2004.
      In 2009 and 2010, the Thaws received a homestead tax credit for their
Pelican Bay home (they purchased the Brandywine property in November
2009). On November 12, 2010, the Thaws submitted a mortgage application to
Southwest Bank for the purchase of a home at 6122 Linden Lane, Dallas,
Texas. The loan application indicated that the Linden Lane property would be
the Thaws’ primary residence and listed their present address as the Pelican
Bay property. They did not disclose any interest in the Brandywine property.
      In June 2011, the day after the Texas Court of Appeals affirmed
Schachar’s judgment against Stanley Thaw, Axxium conveyed title to the
Brandywine property to the Thaws through a special warranty deed which was
recorded in the Collin Count records. The transaction valued the property at
$2,150,000—$400,000 more than it had been assessed for in May 2011—and
was covered through a $1,000,000 mortgage with a third party lender and a
credit of $1,133,195.70 applied to the Thaws by Axxium. The bankruptcy court
determined that the high credit resulted from the Thaws having significantly
overpaid Axxium on their contract for deed. The Thaws made those
overpayments using funds diverted from a group of businesses ostensibly
owned by Kernell Thaw and managed by Stanley Thaw. The Thaws designated
the Brandywine property as their homestead in a voluntary filing in July 2011.
      Stanley Thaw filed a voluntary chapter 7 bankruptcy petition in
December 2011. Schachar filed a proof of claim in the bankruptcy case
asserting a secured interest of $400,566.17 (the amount of the judgment lien
and applicable interest outstanding at the time Stanley Thaw filed for
bankruptcy) in the Brandywine property. The bankruptcy court entered an
order declaring Schachar a secured creditor. It is from this order that the
Trustee and Kernell Thaw appealed to the district court, and now to this court.
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      The bankruptcy court also determined that the Brandywine property
was not exempt from creditors as the Thaws’ homestead because they had not
satisfied Texas’s requirement for establishing a homestead. The court also
disallowed the attempt to establish a homestead because it determined Stanley
Thaw had “concocted an elaborate scheme to funnel non-exempt assets into his
exempt homestead in a way that would be difficult for creditors such as
Schachar to detect or trace.” In re Thaw, 496 B.R. at 851. The bankruptcy court
further concluded that Kernell Thaw had no separate exemption in the
Brandywine property, a decision later upheld on appeal by the Fifth Circuit.
In re Thaw, 769 F.3d at 372.
      Christopher Moser, the bankruptcy trustee for Stanley Thaw’s
bankruptcy estate, sold the Brandywine property in August 2013. The net
proceeds from the sale are being held by the trustee pending resolution of the
current proceedings.
      Moser and the Thaws appealed the decision of the bankruptcy court
denying the homestead exemption and acknowledging Schachar’s secured
interest in the Brandywine property. The district court, reviewing the issues
de novo, agreed with the bankruptcy court on both arguments. Moser v.
Schachar, 2015 WL 679689. At the district court, Moser also argued that
Schachar’s abstract of judgment was defective because it did not list Stanley
Thaw’s date of birth or the last three digits of his license identification number.
Id. at *2. The district court, reviewing the bankruptcy court’s factual
determination of sufficiency for clear error, determined that Schachar’s
abstract was not defective. Id. at *8. Moser does not appeal this ruling.
                                        II.
      This court reviews the decisions of the district court using the same
standards applied by the district court in its appellate review of bankruptcy
court decisions. In Re Gerhardt, 348 F.3d 89, 91 (5th Cir. 2003). The Fifth
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Circuit reviews findings of fact for clear error and conclusions of law de novo.
In re Williams, 337 F.3d 504, 408 (5th Cir. 2003). Mixed questions of law and
fact are reviewed de novo although the underlying factual findings should be
reviewed for clear error. In re Green Hills Development Co., 741 F.3d 651 (5th
Cir. 2014).
                                         A.
      Moser argues that the bankruptcy and district courts erred by
recognizing Schachar as a secured creditor in the bankruptcy proceeding with
a secured interest in the Brandywine property. Moser contends that Texas law
canceled Schachar’s lien when the personal debt of Stanley Thaw was
discharged during the bankruptcy. This is question of law and is reviewed de
novo. In re Williams, 337 F.3d at 408.
      Texas law provides that:
      (a) A judgment is discharged and any abstract of judgment or
      judgment lien is canceled and released without further action in
      any court and may not be enforced if: (1) the lien is against real
      property owned by the debtor before a petition for relief was filed
      under federal bankruptcy law; and (2) the debt or obligation
      evidenced by the judgment is discharged in the bankruptcy.

Tex. Prop. Code § 52.042 (West). The following section adds that:
      A judgment lien is not affected by this subchapter and may be
      enforced if the lien is against real property owned by the debtor
      before a petition for debtor relief was filed under federal
      bankruptcy law and: (1) the debt or obligation evidenced by the
      judgment is not discharged in bankruptcy; or (2) the property is
      not exempted in the bankruptcy and is abandoned during the
      bankruptcy.

Tex. Prop. Code § 52.043 (West.) Moser argues that the effect of § 52.042 is to
reach into the bankruptcy proceeding and transform Schachar’s secured debt
into an unsecured debt. Schachar responds that its effect is to terminate liens

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after the bankruptcy process is concluded because those liens would otherwise
survive the bankruptcy, citing Long v. Bullard, 117 U.S. 617 (1886), and argues
that Moser has no support for his contention that § 52.042 alters Schachar’s
rights in the bankruptcy.
      Discharge of a debt in bankruptcy is “the release of a debtor from all of
his debts which are provable in bankruptcy … [it] is the step which regularly
follows the filing of a petition in bankruptcy and the administration of his
estate. By it the debtor is released from the obligation of all his debts … so that
they are no longer a charge upon him.” Black’s Law Dictionary 463 (6th ed.
1991). Discharge does not extinguish the debt, rather it removes any in
personam remedy that the creditor had against the debtor prior to the
bankruptcy while leaving in place the remedies the debtor has against the
property in rem. See Long v. Bullard, 117 U.S. at 621; 11 U.S.C. § 524(a)(1) (“a
discharge … voids any judgment at any time obtained, to the extent that such
judgment is a determination of the personal liability of the debtor”); Johnson
v. Home State Bank, 501 U.S. 78, 84 (1991) (“a bankruptcy discharge
extinguishes only one mode of enforcing a claim—namely, an action against
the debtor in personam—while leaving intact another—namely, an action
against the debtor in rem.”); Stanley v. Trinchard, 500 F.3d 411, 419–20 (5th
Cir. 2007) (“[A] bankruptcy discharge eliminates only the debtor’s personal
liability and not the debt itself.”).
      What then, is the effect of § 52.042? Moser suggests that it eradicates the
in rem remedy during the bankruptcy and leaves Schachar as an unsecured
creditor when the trustee is responsible for distributing the assets of the
bankruptcy estate to the creditors. This reading is unpersuasive. With no
indication from any Texas court that § 52.042 achieves such a sweeping effect,
we are loath to read this into Texas’s law.

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      Rather, we are persuaded that § 52.042 acts on the status of any liens
against the land or assets held by the debtor after the bankruptcy process has
come to a close. The statute reads that a lien is discharged “without further
action in any court” after the debt is discharged in bankruptcy. Tex. Prop. Code
§ 52.042(a). This language is a reference to the process that existed before §
52.042’s enactment. Texas law allowed that “a judgment and judgment lien
may be discharged and canceled if the person against whom the judgment was
rendered is discharged from his debts under federal bankruptcy law,” Tex.
Prop. Code § 52.021 (West), but required the debtor to “apply, on proof of the
discharge, to the court in which the judgment was rendered for an order
discharging and canceling the judgment and judgment lien,” Tex. Prop. Code
§ 52.022(a). The debtor could not make his application “before a year has
elapsed since the bankruptcy discharge.” Tex. Prop. Code § 52.022(b).
      Read in that context, it is apparent that § 52.042 does not affect the
lienholder’s status during the bankruptcy but rather only after the bankruptcy.
The new provision merely removes the one-year waiting period and eliminates
the requirement that the debtor return to state court for a court order voiding
the lien. Section 52.042 continues to tack onto the conclusion of the federal
bankruptcy process, as § 52.021 does.
      Section 52.042 ought also to be read in parallel with § 52.043, with which
it was enacted. Section 52.043 creates an exception for abandoned or exempt
property from the effects of § 52.042. Section 52.043 is nonsensical if read to
apply within the bankruptcy, as Moser would have the court read its
companion, § 52.042. Because the two sections work in concert (the first
creating the rule, the second outline exceptions from that rule), it is logical to
read them together and give effect to both after the bankruptcy process is
concluded. Therefore, § 52.042 does not affect the relationship between
Schachar and Moser in the bankruptcy proceeding. It merely alters the process
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that Moser or Stanley Thaw must pursue to eliminate the possibility of an in
rem proceeding “after the bankruptcy proceeding.” Moser v. Schachar, 2015 WL
679689 at *6.
       This is the reading adopted by the bankruptcy and district courts. It is
also the reading adopted by other courts addressing the same question. In Chae
v. Schneider, 244 S.W.3d 425 (Tex. App.—Eastland 2007), the Eastland Court
of Appeals read § 52.042 to prohibit enforcement of a judgment because the
debtor entered bankruptcy during the litigation proceedings and the creditor
did not seek restitution through the bankruptcy proceeding. The court noted
(but did not rest its holding on the conclusion) that § 52.042 entitled the debtor
to discharge since the proceeding in which it arose, unlike the current appeal,
was distinct from the bankruptcy proceeding and the judgment would be
rendered after the bankruptcy proceeding had concluded. Similarly, the Dallas
Court of Appeals explained that §§ 52.042–3 “address the automatic
cancellation and release of judgment liens and abstracts of judgment when the
subject property was part of the bankruptcy estate” and enforcement is sought
in a separate, subsequent proceeding. Deco–Dence, L.L.C. v. Robertson, 2011
WL 2937439 (Tex. App.—Dallas 2011). In Studensky v. Buttery Company (In
re Argubright), the Bankruptcy Court for the Western District of Texas was
confronted with a situation analogous to our own: Whether a creditor holding
an abstract of judgment was still secured in the bankruptcy proceeding after
the debtor filed for bankruptcy. 532 B.R. 888 (Bankr. W.D. Tx 2015). The court
concluded that §§ 52.042–3 “do not alter the rights of a judgment lienholder in
a bankruptcy case.” Studensky, 532 B.R. at 893. 1

       1The court went on to discuss whether the reading of § 52.042 suggested here by
Moser would be pre-empted by federal bankruptcy law, ultimately concluding that it would.
Studensky, 532 B.R. at 895. Schachar also raises this argument in his reply. Because § 52.042
does not invalidate Schachar’s claim, it is not necessary to speculate as to whether such a
construction would be pre-empted by federal law.
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                                            B.
      In a bankruptcy filing, a debtor may use the federal homestead
exemption or elect to use the homestead exemption of his state of domicile. 11
U.S.C. § 522(b). Stanley Thaw elected to have his homestead exemption
determined by state law. If the Brandywine property is exempt, as Moser and
Kernell Thaw claim, it will be protected from Schachar’s judgment lien. Tex.
Prop. Code § 41.001(a) (“a homestead … [is] exempt from seizure for the claims
of creditors except for encumbrances properly fixed on homestead property.”) 2
       Under Texas law, “to establish homestead rights, the claimant must
show a combination of both overt acts of homestead usage and the intention on
the part of the owner to claim the land as a homestead.” Sanchez v. Telles, 960
S.W.2d 762, 770 (Tex. App.—El Paso 1997, pet. denied). “The party claiming
the homestead exemption has the burden of establishing the homestead
character of the property.” NCNB Tex. Nat’l Bank v. Carpenter, 849 S.W.2d
875. 879 (Tex. App.—Fort Worth 1993, no writ). “A claimant may only have
one homestead at any given time,” even if the claimant owns multiple
residences. In re Cate, 170 B.R. 582, 584 (Bankr. N.D. Tex. 1994); Achilles v.
Willis, 16 S.W. 746 (Tex. 1891). A claimant cannot establish a homestead
through mere ownership, Sanchez, 960 S.W.2d at 770, rather, a court must
conduct a fact intensive inquiry focused on the owner’s “concurrent usage and
intent to claim the property as a homestead.” Florey v. Estate of McConnell,
212 S.W.3d 439, 445 (Tex. App.—Austin 2006, pet. denied).
      Once a claimant has established homestead rights in one residence, they
are not easy to transfer. A homestead loses its character through “the
claimant’s death, abandonment, or alienation.” Duran v. Henderson, 71 S.W.3d
2 The code goes on to list purchase money mortgages, property tax liens, loans for
improvements to the property and several other debts as “encumbrances properly fixed.” Tex.
Prop. Code § 41.001 (b). None apply to the present case.
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833, 842 (Tex. App.—Texarkana 2002, pet. denied). A homestead is abandoned
if the owner voluntarily leaves the residence “with a then present intent to
occupy it no more as a home.” Pierce v. Wash. Mut. Bank, 226 S.W.3d 771, 715
(Tex. App.—Tyler 2007, pet. denied). An owner may establish a homestead
before he takes up occupancy “if the owner intends to occupy and use the
premises within a reasonable and definite time in the future, and has made
such preparations toward actual occupancy that ‘are of such a character and
have proceeded to such an extent as to manifest beyond a doubt the intention
to complete the improvements and reside upon the place as a home.’” Pierce,
226 S.W.3d at 715 (quoting Farrington v. First Nat’l Bank of Bellville, 753
S.W.2d 248, 250 (Tex. App.—Houston [1st. Dist.] 1988, writ denied)).
      Kernell Thaw argues that the district and bankruptcy courts erred, as a
matter of law, by assuming Texas law prevented the Thaws from establishing
a homestead at the Brandywine property before they took residence in it. She
further contends that the bankruptcy and district courts failed to conduct the
necessary fact specific inquiry to determine whether the Thaws had
established the Brandywine property as a homestead before Schachar filed his
judgement lien. Contrary to Kernell Thaw’s assertions, neither the bankruptcy
court nor the district court simply concluded that the Brandywine property
was not a homestead because the Thaws had not inhabited it. The bankruptcy
court explained that the Brandywine property was not a homestead before
Schachar filed his lien because:
      The Thaws were still living in their Pelican Bay home at that time.
      They had not sold the Pelican Bay home. And they continued to
      hold title to the Pelican Bay home, even after moving into the
      Brandywine house. And they continued to assert that the Pelican
      Bay home was their homestead.

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Moser v. Schachar, 2015 WL 679689 at *8. The district court determined that
the bankruptcy court had conducted the necessary fact finding inquiry and
further added that: “The Thaws did not record the contract for deed on the
Brandywine Property; they claimed a tax homestead exemption on the Pelican
Bay Property in 2010; and they represented to another bank on November 12,
2010, that their present address was the Pelican Bay Property.” Id. at *10.
      To bolster her argument that the Brandywine property became the
Thaws’ homestead on November 1, 2009, Kernell Thaw relies on Kendall
Builders, Inc. v. Chesson, 149 S.W.3d 796 (Tex. App.—Austin 2004), in which
the Texas Court of Appeals recognized a newly purchased home became a
family’s homestead while it was undergoing renovations prior to the family
taking occupancy. In Kendall Builders, however, the Chesson family intended
to and actually did vacate their previous residence in California, transferring
checking accounts, changing their voter registration, and obtaining new
drivers licenses. Id. at 809. The Thaws, by contrast, retained their ownership
in the Pelican Bay property, which they had previously established as their
homestead. They continued to claim the Pelican Bay property as their
homestead for property tax purposes for both 2009 and 2010 and listed the
Pelican Bay property as their address on a loan application completed in
November 2010 (a year after Kernell claims they made the Brandywine
property their homestead). In Kendall Builders, the Texas Court of Appeals
stressed that merely acquiring a new residence or moving out of a previous
residence is not sufficient to abandon a homestead. 149 S.W.3d at 808. Rather,
“‘in order to constitute an abandonment … it must also be shown that …
discontinuance [of use of the property as a residence] was accompanied by an
intention never to resume its use as a homestead.’” Id. (quoting Robinson v.
McGuire, 203 S.W. 415, 417 (Tex. App.—Austin 1918, no writ)).

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      The other cases to which Kernell Thaw points are no more helpful to her
argument. In Caulley v. Caulley, the Supreme Court of Texas concluded a
divorced man had not established a homestead in a farm acquired with his
second wife because, although they intended to make it their home in the
future, they continued to occupy their current homestead. 806 S.W.2d 795, 797
(Tex. 1991). Similarly, in In re Hunt, the bankruptcy court concluded that the
claimants had not established a new homestead between closing on and
occupying a new home because “good faith intention to occupy the premises as
a homestead alone is not enough to create a homestead” absent overt acts to
abandon the previously established homestead. 61 B.R. 224, 228 (Bankr. S.D.
Tx. (Houston) 1986) (quoting Clark v. Salinas, 626 S.W.2d 118, 120 (Tex.
App.—Corpus Christi, writ re’f n.r.e.)).
      The bankruptcy and district courts correctly applied Texas’s homestead
exemption law to the Thaws and determined, after a factual analysis, that the
Thaws had not satisfied Texas’s requirements to transfer their homestead from
the Pelican Bay property to the Brandywine property. We agree.
                                      III.
      Because § 52.042 does not release Schachar’s lien on the Brandywine
property and because the Thaws have not established the property as their
homestead under Texas law, that property is not immune from sale in the
bankruptcy proceeding and Schachar is entitled to the portion of the proceeds
equaling the value of his lien. Therefore, the district court’s judgment is
AFFIRMED.

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