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In re Barreto

June 25, 2007

IN RE: JUAREZ BARRETO, DEBTOR.


The opinion of the court was delivered by: Spatt, District Judge

MEMORANDUM OF DECISION AND ORDER

On October 14, 2005, Juarez Barreto (the "Debtor" or the "Appellee") filed a petition under Chapter 7 of the Bankruptcy Code. Presently before the Court is an appeal by International Trading Company (the "Appellant") from an Order of United States Bankruptcy Judge Stan Bernstein which expunged the Appellant's lien against the Debtor's real property.

I. BACKGROUND

On October 14, 2005, the Debtor filed a Chapter 7 bankruptcy petition (the "Petition"). In the Petition, the Debtor listed his assets, including real property owned as a tenancy in the entirety with his wife, located at 17 Flower Road, Valley Stream, New York (the "Property") and valued at $415,000. He also asserted a $50,000 homestead exemption pursuant to New York Civil Practice Law and Rule ("CPLR") Section 5206(a). On March 21, 2006, the Appellant filed a secured proof of claim for $690,918.97, based on a judgment which became a lien on the Debtor's Property on July 1, 2005.

On May 15, 2006, the Debtor moved to avoid judicial liens contending that the judicial liens impaired the homestead exemption to which he was entitled, pursuant to Section 522(f) of the Bankruptcy Code. According to the Debtor's motion, as of the bankruptcy filing date, the Debtor owned the Property as a tenancy in the entirety with his wife. In addition, prior to his bankruptcy filing, the following creditors obtained judgment liens docketed in the Nassau County Clerk's office: (1) Jose Arnold Pinheiro and Pinheiro Import/Export (collectively "Pinheiro") obtained a judgment in the amount of $45,680 docketed on November 14, 2000; (2) Ford Motor Credit ("Ford") obtained a judgment in the amount of $5,832.50 docketed on September 3, 2002; (3) Express Trans. Trade Co, Inc./Finest Doo ("Express") obtained a judgment in the amount of $300,843.43 docketed on March 4, 2003; and (4) the Appellant obtained a judgment in the amount of $690,918.97 docketed on July 1, 2005.

The Debtor further noted that there was a mortgage on the Property in the amount of $100,000, filed and recorded prior to the dates the judgment liens were docketed, as well as unpaid taxes in the amount of $20,000. In addition, the Debtor claimed that there were property disposition costs in the amount of $20,000.

In the motion, the Debtor provided the Bankruptcy Court with the following calculations: Fair Market Value of the Property $415,000 Mortgages and Taxes $120,000 Disposition Costs $20,000 Total Value of the Property $275,000 Debtor's Interest as a Tenant by the Entirety-25% $68,750 Exemption Claimed by Debtor $50,000 Remaining Equity for Judgment Creditors $18,750 The Debtor claimed that because the only remaining equity was equal to $18,750, the judicial liens should be avoided.

On June 5, 2006, the Appellant filed objections to the Debtor's motion to avoid judicial liens. The Appellant contended that the Debtor's interest in the property was 50%, not 25% as set forth in the Debtor's motion. The Appellant noted that, as a result, the Debtor's interest in the Property was equal to the sum of $147,000, and less the $50,000 homestead exemption, resulted in equity in the sum of $97,500. The Appellant further claimed that the Property was likely worth more than $415,000.

On June 28, 2006 a hearing was held on the Debtor's motion to avoid judicial liens. The parties agreed that the Debtor was entitled to a $50,000 homestead exemption. However, the Court did not determine the value of the Property or review the parties' calculations of equity. Judge Bernstein directed the Debtor to submit a proposed order granting the Debtor's motion for a homestead exemption and to avoid judicial liens.

Thereafter, the Debtor submitted a proposed order, reducing Pinheiro's judicial lien, pursuant to an agreement between the parties, and avoiding the liens of Express and the Appellant. In response, the Appellant filed a proposed order noting that it should be entitled to all equity over and above the homestead exemption.

In opposition to the Appellant's proposed order, the Debtor argued that the two judgment liens that held priority over the Appellant's lien equal $350,000. The Debtor contended that considering the $100,000 mortgage, as well as the $50,000 homestead exemption, even assuming the Property was valued at $500,000, there still remained no equity to support the Appellant's lien. The Debtor further noted that he reached an agreement with the creditors whose judgments were docketed prior to the Appellant's judgment, and that Express agreed to reduce its lien from $300,000 to $30,000. According to the Debtor, "[s]ince the judgment creditor who is ahead of [the Appellant] by several years is only receiving pennies on the dollar of their lien, it is patently clear that there is no equity whatsoever for the lien of International Trading Company to attach to."

Thereafter, the Appellant submitted additional papers, arguing that because the priority or senior liens had been settled, the Debtor had equity in the Property above and beyond the value for which the liens had been settled and beyond the $50,000 homestead exemption. As a result, the Appellant argued that its lien should not be completely avoided.

In an Order dated July 18, 2006, Judge Bernstein reduced Pinheiro's judicial lien to $18,750; reduced Express' judicial lien from $300,000 to $30,000; and expunged the Appellant's judicial lien. Judge Bernstein's Order did not address Ford's lien.

On July 25, 2006, the Appellant filed a notice of appeal. In its brief, the Appellant argues that any calculation of equity in the property must be based upon the Debtor's 50% interest in the Property. As a result, the Appellant contends that the Debtor's interest in the Property, following the deduction of the mortgage and taxes owed, is $137,500. After applying the $50,000 homestead exemption, the Appellant concludes that the Debtor has a net equity of ...


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