This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2004).

 

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-1228

 

Raymond W. Hall,
Respondent,

vs.

Aida Weber,
f/k/a Aida Grouchevski,
Appellant.

 

Filed April 25, 2006

Affirmed

Wright, Judge

 

Dakota County District Court

File No. C1-04-9523

 

 

Daniel W. Stauner, Hanlon & Stauner, P.L.L.P, P.O. Box 41907, Plymouth, MN  55441 (for respondent)

 

Lawrence H. Crosby, Crosby & Associates, 234E Roseville West, 2277 Highway 36 West, St. Paul, MN  55113 (for appellant)

 

 

            Considered and decided by Wright, Presiding Judge; Dietzen, Judge; and Worke, Judge.

 

U N P U B L I S H E D  O P I N I O N

 

WRIGHT, Judge

In this appeal from a judgment on the pleadings, appellant challenges respondent’s right to enforce a lien on her homestead property after she had filed for bankruptcy.  Appellant argues that (1) her ex-husband’s sale of the lien to a third party resulted in the loss of the lien’s protection against discharge in bankruptcy; (2) respondent’s power to foreclose the lien did not survive his failure to object to appellant’s claim of a homestead exemption during her bankruptcy proceedings; and (3) her ex-husband failed to satisfy a condition precedent to enforcement of the lien, thus preventing foreclosure by respondent.  We affirm. 

FACTS

 

On July 29, 2002, the Dakota County District Court entered a judgment dissolving the marriage of appellant Aida Weber and Nikolai Grouchevski.  In doing so, the district court awarded Weber “all right, title and interest in the homestead, subject to a lien interest in [Grouchevski].”  The value of Grouchevski’s lien against the homestead was $29,475, which represented half the equity in the homestead reduced by real-estate taxes, half the proceeds from the sale of restaurant equipment and unpaid child support and spousal maintenance.  The lien was due and payable when their son graduated from high school or when Weber sold the property, whichever occurred first.  Pursuant to the dissolution decree, Grouchevski executed and delivered a quitclaim deed to Weber. 

On October 9, 2002, Grouchevski assigned his lien on the Weber homestead to respondent Raymond Hall.  Hall recorded the lien transfer on April 11, 2003.  In August 2004, Hall sued to foreclose on the lien against the homestead because Weber’s son had completed high school.  Weber filed a counterclaim, alleging that Hall could not enforce the lien because her debts had been discharged on November 13, 2003, by a bankruptcy proceeding.  Hall moved the district court for judgment on the pleadings, arguing that (1) the lien survived Weber’s bankruptcy proceeding; (2) Weber’s claim of the property under the bankruptcy homestead exemption did not prevent enforcement of the lien; and (3) no conditions precedent to enforcement of the lien remained unfulfilled.

The district court found that the lien remained intact after Weber’s bankruptcy proceeding and that the lien had fully matured and was enforceable against the property.  Accordingly, the district court concluded that Hall could proceed to foreclose on the lien.  This appeal followed.

D E C I S I O N

 

Weber contends that the district court erred when it granted Hall judgment on the pleadings.  We review de novo a dismissal for failure to state a claim on which relief can be granted to determine whether the complaint sets forth a legally sufficient claim for relief.  Barton v. Moore, 558 N.W.2d 746, 749 (Minn. 1997).  We accept the facts alleged in the complaint as true and construe all reasonable inferences in favor of the nonmoving party.  Bodah v. Lakeville Motor Express, Inc., 663 N.W.2d 550, 553 (Minn. 2003).  Because the parties in this case do not dispute the material facts, we consider whether Weber has alleged a legally sufficient claim for relief.

I.

Relying on section 522(f)(1) of the federal bankruptcy code, Weber first argues that the lien did not survive her bankruptcy proceeding.  Section 522(f)(1) of the bankruptcy code states:

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—

            (A) a judicial lien, other than a judicial lien that secures a debt—

                        (i) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement; and

                        (ii) to the extent that such debt—

                                    (I) is not assigned to another entity, voluntarily, by operation of law, or otherwise; and

                                    (II) includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support.

 

11 U.S.C. § 522(f)(1) (2000).

 

We begin our analysis by establishing the character of the lien in this case so as to determine whether section 522(f)(1)(A) applies.  The bankruptcy code defines a “judicial lien” as a “lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.”  11 U.S.C. § 101(36) (2000).  The district court created the lien as part of the property settlement in the Grouchevski-Weber marriage-dissolution proceeding.  Given its origin, we conclude that the lien is a judicial lien to which section 522(f)(1)(A) may apply.  But this conclusion does not end our analysis.

We next consider whether section 522(f)(1)(A) permits Weber to avoid the fixing of the lien on the homestead in light of the bankruptcy proceeding.  The United States Supreme Court analyzed section 522(f)(1) and its effect on judicial liens in Farrey v. Sanderfoot, 500 U.S. 291, 111 S. Ct. 1825 (1991).  As here, Farrey involved the division of a marital estate.  Id.at 293, 111 S. Ct. at 1827.  The family home was awarded to the husband (Sanderfoot), and the wife’s (Farrey’s) portion of the marital assets was secured with a lien on the “real estate property.”  Id.  Shortly after the divorce decree, Sanderfoot declared bankruptcy, listing the homestead as exempt property on his bankruptcy schedule under Wisconsin’s homestead exemption.  Id. at 293-94, 111 S. Ct. at 1827.  Sanderfoot filed a motion in the bankruptcy court to avoid Farrey’s lien because it impaired his homestead exemption.  Id. at 294, 111 S. Ct. at 1827-28. 

In its analysis, the Supreme Court focused on “whether § 522(f)(1) permits Sanderfoot to avoid the fixing of Farrey’s lien on the property interest that he obtained in the divorce decree.”  Id. at 295-96, 111 S. Ct. at 1828.  The Farrey Court determined that the history and purpose of section 522(f)(1) establish that the provision is not concerned with liens that attach to property before the debtor acquired an interest in the property.  Id. at 298, 111 S. Ct. at 1830.  Rather, the primary purpose of section 522(f)(1) is to “thwart creditors who, sensing an impending bankruptcy, rush to court to obtain a judgment to defeat the debtor’s exemptions.”  Id. at 300, 111 S. Ct. at 1831.  The Farrey Court reasoned that, in order to “avoid” the “fixing” of the lien as described in section 522(f)(1), the debtor must have the property interest “before the lien attached to that interest.”  Id.at 296, 111 S. Ct. at 1829.  The Court held that section 522(f)(1) cannot be used to avoid a lien on an interest acquired simultaneously with or after the lien attached.  Id. at 299-300, 111 S. Ct. at 1830-31.

In applying section 522(f)(1) to the lien, the Farrey Court reasoned that the same divorce decree that granted Sanderfoot the fee simple interest in the homestead simultaneously granted the lien to Farrey.  Id. at 299, 111 S. Ct. at 1830.  “Sanderfoot took the interest and the lien together, as if he had purchased an already encumbered estate from a third party.”  Id. at 300, 111 S. Ct. at 1830.  The Farrey Court recognized that “[t]he divorce court awarded the lien to secure an obligation the court imposed on the husband in exchange for the court’s simultaneous award of the wife’s homestead interest to the husband.”  Id. at 301, 111 S. Ct. at 1831.

The facts and analysis of Farrey are on all fours with the circumstances of this case.  As in Farrey, the same divorce decree that established the lien interest also granted Weber “all right, title and interest in the homestead, subject to a lien interest” in Grouchevski.  The divorce decree in Farrey granting the property to the husband stated that he acquired the property “free and clear” of any encumbrance except the wife’s lien.  Id. at 299, 111 S. Ct. at 1830.  Similarly, the lien awarded to Grouchevski arose from the dissolution decree simultaneously with Weber’s interest in the homestead, and the lien served to secure an obligation imposed on Weber by the district court in the dissolution proceeding.  Because Farrey governs the fixing of marital liens that arise from a marital- dissolution decree simultaneously with the creation of a property interest, we conclude that Weber’s contention that section 522(f)(1) defeats Hall’s lien interest in this case is unavailing. 

Weber argues that, because Farrey applied Wisconsin property law, it is inapplicable to a case applying Minnesota law.  Weber is correct that we must look to Minnesota law to determine if Hall “possessed an interest to which the lien fixed, before it fixed.”  Id.at 299, 111 S. Ct. at 1830.  But cases applying Minnesota law have consistently resulted in dispositions identical to that in Farrey.  For example, in Boyd v. Robinson, the Eighth Circuit applied Minnesota law and concluded that a similar lien was not avoidable under section 522(f)(1).  741 F.2d 1112, 1114-15 (8th Cir. 1984).  The Boyd court concluded that the “lien created by the family court to protect [the lienholder’s] interest in the homestead did not attach to an interest of [the debtor].  It simply recognized, and provided a remedy to enforce, a pre-existing property right in the marital home.”  Id.  This reasoning was approved by the Farrey Court when it concluded that, in a case in which a lien attaches to a preexisting interest, the debtor would be unable to avoid the lien because the debtor “would never have possessed [the property interest] without the lien already having fixed.”  Farrey, 500 U.S. at 300, 111 S. Ct. at 1831; see also In re Dale, 152 B.R. 573, 577-79 (Bankr. D. Minn. 1993) (acknowledging that Boyd remains in effect after Farrey and finding such liens unavoidable).    

Weber also attempts to distinguish the holding in Farrey by claiming that Grouchevski retained a tenancy in common in the homestead under the dissolution decree.  But the retention of such an interest in the homestead by Grouchevski is contrary to the plain language of the dissolution decree.  The divorce decree that gives Weber “all right, title and interest in the homestead, subject to a lien interest in [Grouchevski]” contains no reference to any additional or continuing interest in the homestead possessed by Grouchevski.  Such language functions as a transfer of Grouchevski’s preexisting interest in the homestead to Weber while simultaneously giving Weber a fee simple interest in the property.  Were we to interpret the dissolution decree to give Grouchevski a tenancy in common, we would give Grouchevski an interest in excess of that which the plain language of the dissolution decree establishes. 

Furthermore, as Weber herself argues, a lien is not an estate or interest in land.  Gau v. Hyland, 230 Minn. 235, 240, 41 N.W.2d 444, 448 (1950).  “Liens arising out of Minnesota marriage dissolution decrees . . . [do] not represent a continuation of the debtor’s prior common ownership of the marital estate, but rather [are] ‘simply collateral for a debt.’”  Keller v. Johnson (In re Johnson), 375 F.3d 668, 670 (8th Cir. 2004) (quoting State Bank of Pennock v. Schwenk, 395 N.W.2d 371, 375 (Minn. App. 1986), review denied (Minn. Nov. 26, 1986)).  Such collateral is characterized as “personal property rather than an interest in real property.”  Granse & Assocs., Inc. v. Kimm, 529 N.W.2d 6, 8 (Minn. App. 1995), review denied (Minn. Apr. 27, 1995).  The plain language of the dissolution decree created a personal-property interest in Grouchevski, not a real-property interest.  Thus, Grouchevski did not hold a tenancy in common following the marital dissolution.

Weber points to Grouchevski’s quitclaim deed as evidence of an interest in the property that would permit Weber to avoid the lien.  This argument is without merit for two reasons.  First, the requirement that Grouchevski execute and deliver a quitclaim deed is contained in the same dissolution decree that gave Weber all right and title to the homestead and created the lien interest in Grouchevski.  In the context of the dissolution decree, the quitclaim deed represents a necessary administrative step to enforce Weber’s clear title in the homestead.  Moreover, without a quitclaim of Grouchevski’s preexisting interest, Weber would be unable to convey the property without Grouchevski’s consent.  See Minn. Stat. § 507.02 (2004) (requiring consent of both spouses for property conveyances).      

Second, the quitclaim deed does not allow Weber to infer anything about the nature of the interest conveyed.  A quitclaim deed transfers only such interest as the grantor holds.  Weber v. Eisentrager, 498 N.W.2d 460, 463 (Minn. 1993).  By definition, a quitclaim deed presents no certainty about what, if any, interest was conveyed.  Accordingly, the record does not reasonably support Weber’s inference that Grouchevski retained a tenancy in common in the homestead merely because he was required to execute a quitclaim deed in order to comply with the dissolution decree.

Finally, although Weber did not raise the argument below, we address Weber’s assertion that the character of the lien has changed because of its assignment by Grouchevski to Hall.  First, we note that the bankruptcy code allows a debtor to avoid fixing a spousal-maintenance lien that has been assigned on an interest of the debtor, to the extent that such a lien impairs an exemption.  11 U.S.C. § 522(f)(1)(A)(ii)(I).  But the district court did not create this lien for alimony, spousal maintenance, or child-support purposes.  Instead, the lien represents Grouchevski’s portion of the equity in the marital homestead reduced by arrearages incurred during the dissolution process.   Because this lien is not a spousal-maintenance lien, it is not subject to the assignment provision of section 522(f)(1)(A)(ii)(I).  Without the benefit of that provision, Weber cannot avoid the fixing of the lien or its subsequent assignment.

Grouchevski, as the holder of a valid lien, therefore, has the right to assign that lien.  “A ‘valid assignment generally operates to vest in the assignee the same right, title, or interest that the assignor had in the thing assigned.’”  Geldert v. Am. Nat’l Bank, 506 N.W.2d 22, 28-29 (Minn. App. 1993) (quoting Wisconsin ex rel. Southwell v. Chamberland, 361 N.W.2d 814, 818 (Minn. 1985)), review denied (Minn. Nov. 16, 1993); cf. Schaefer v. Weber, 567 N.W.2d 29, 32 (Minn. 1997) (acknowledging that rules of assignment operate in identical manner in family-law contexts such as child support).  Thus, the assignee stands in the shoes of the assignor.  Geldert, 506 N.W.2d at 29.  After the assignment of the lien, therefore, Hall stood in the shoes of Grouchevski; and he was entitled to foreclose on the lien on the occurrence of one of the two stated conditions.  Because Weber’s son had graduated from high school, one of the conditions precedent had been satisfied, and the lien had matured.  Accordingly, we conclude that, as rightful holder of a valid lien against Weber’s homestead, Hall was entitled to foreclose on the lien. 

II.

Weber next contends that the lien should not survive her claim of the homestead exemption.  The crux of her argument is that the lien and the homestead exemption are inconsistent with one another.  We conclude that they are not.       

Except under circumstances that are not relevant to this case, exempted property “is not liable during or after the case for any debt of the debtor that arose . . . before the commencement of the case.”  11 U.S.C. § 522(c) (2000).  Weber elected to take her homestead exemption under Minnesota law, which provides:

The house owned and occupied by a debtor as the debtor’s dwelling place, together with the land upon which it is situated to the amount of area and value hereinafter limited and defined, shall constitute the homestead of such debtor and the debtor’s family, and be exempt from seizure or sale under legal process on account of any debt not lawfully charged thereon in writing . . . .

Minn. Stat. § 510.01 (2002).

Weber listed the homestead as exempt property on her bankruptcy petition, which formed the basis of the subsequent discharge of her debts.  Weber contends, therefore, that if Hall wanted to challenge her claim of the homestead as exempt property, bankruptcy procedure required him to do so within 30 days after the first meeting of Weber’s creditors.  Fed. R. Bankr. P. 4003(b).  Failure to object to a claimed homestead exemption within the 30-day period waives the right to contest the legitimacy of the claimed homestead exemption.  Hentges v. P.H. Feely & Son, Inc., 436 N.W.2d 488, 493 (Minn. App. 1989), review denied (Minn. Apr. 26, 1989). 

But Weber’s assertion regarding the abrogation of a lien by the homestead exemption is contrary to the nature of the interests protected by a lien and a bankruptcy proceeding.  One court summarized the distinction between these interests by stating:

Over a century ago, the United States Supreme Court announced a fundamental principle of bankruptcy law. A discharge in bankruptcy does not divest a lien holder of its lien upon the debtor’s property.  A discharge in bankruptcy relieves the debtor from his personal obligation to pay an indebtedness, however, any liens which were perfected as of the time the petition in bankruptcy is filed, remain attached to property.  To state the proposition differently, a discharge in bankruptcy voids the in personam liability of the debtor but does not affect the creditor’s in rem rights with respect to property.

In re Holloway, 254 B.R. 289, 292 (Bankr. M.D. Ala. 2000) (citing Dewsnup v. Timm, 502 U.S. 410, 419, 112 S. Ct. 773, 779 (1992); Long v. Bullard, 117 U.S. 617, 6 S. Ct. 917 (1886)) (other citations omitted).  Minnesota makes the same distinction between actions in personam and actions in rem that affect only the land.  Lane v. Innes, 43 Minn. 137, 141, 45 N.W. 4, 5 (1890).  As many courts have noted, the consequence of this distinction is that a lien generally passes through the bankruptcy process unaffected.  In re Deutchman, 192 F.3d 457, 460 (4th Cir. 1999); see also In re Work, 58 B.R. 868, 869 (Bankr. D. Or. 1986) (“It has long been held that secured creditors with valid pre-petition liens on the debtor’s property may ignore the bankruptcy proceedings and look to the lien for satisfaction of the debt.”); In re Pierce, 29 B.R. 612, 613 (Bankr. E.D.N.C. 1983) (“The legislative history to the Bankruptcy Reform Act of 1978 clearly indicates that valid liens pass through bankruptcy intact and that the holder of a secured claim may stand back and take no part in the bankruptcy case.”); Reichert v. Koch, 655 P.2d 993, 995 (Mont. 1983) (“Only personal liability is discharged; liens not avoided by the bankruptcy code may be enforced notwithstanding discharge of the debtor.”).

A lienholder’s inaction during the debtor’s bankruptcy proceeding does not void the lien because the debtor must take appropriate affirmative action to avoid the lien.  See Triangle Refineries, Inc. v. Brua, 364 N.W.2d 863, 865 (Minn. App. 1985) (including lienholder on bankruptcy petition’s list of unsecured creditors does not affect enforceability of lien obtained before bankruptcy petition); see also In re Deutchman, 192 F.3d at 460 (“In order to extinguish or modify a lien, the debtor must take some affirmative step toward that end.”).  As one court observed:

A secured creditor must, of course, respond to an attempt by the trustee or debtor to disallow or avoid his lien.  Does the listing of the secured claim as being unsecured in the debtor’s schedules require a response by the secured creditor?  No, the secured creditor need only respond to a formal challenge to the security interest (e.g., an adversary proceeding brought pursuant to the trustee’s avoiding powers, an adversary proceeding initiated by the debtor under 11 U.S.C. § 522(f), or a formal objection to the secured claim under 11 U.S.C. § 506(d)). 

In re Pierce, 29 B.R. at 614; see also In re Cabrillo, 101 B.R. 443, 449 (Bankr. E.D. Pa. 1989) (“The Debtors may not avoid a valid security interest simply by listing the pledged collateral as exempt on their schedules.”); In re Andrews, 22 B.R. 623, 625 (Bankr. D. Del. 1982) (requiring “an adversary proceeding to determine the validity, priority or extent of a lien” by filing complaint seeking to avoid judicial lien); Everidge v. Am. Sec. Corp., 464 N.E.2d 374, 376 (Ind. Ct. App. 1984) (“The case law in this area holds that avoidance requires the filing of a formal complaint to initiate adversary proceedings.”).

Avoidance of a lien on property exempt under 11 U.S.C. § 522(f) must be made by motion.  Fed. R. Bankr. P. 4003(d).  Such a motion would satisfy the requirement that “reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought.”  Fed. R. Bankr. P. 9014(a).  Weber does not claim to have made such a motion, nor does the record contain evidence of such a proceeding before the bankruptcy court.  We further note that this procedural requirement by the person seeking to avoid the lien is consistent with the procedure in Farrey, 500 U.S. at 293-94, 111 S. Ct. at 1827-28, and in Boyd, 741 F.2d at 1113.   

Weber cites Hentges for the proposition that Minnesota requires a creditor to object to the homestead exemption during the proceedings.  But Hentges is factually distinguishable from Farrey.  In Hentges, the appellants had received docketed judgments against the debtor, which created liens “upon all real property in the county then or thereafter owned by the judgment debtor.”  Hentges, 436 N.W.2d at 492 (quoting Minn. Stat. § 548.09, subd. 1 (1982)).  Unlike Farrey where the debtor’s property interest arose simultaneously with the lien, the liens in Hentges attached to property in which the debtor already had an interest.  Id. at 491.  “Since the property was exempt when appellants acquired the property, which was also before respondents acquired their liens, appellants are entitled to discharge of respondents’ liens . . . .”  Id.; see also Triangle Refineries, 364 N.W.2d at 865-66 (disallowing judgment lien from attaching to exempt homestead property).  Hentges does not apply here where the lienholder had perfected his unavoidable lien on the debtor’s property interest before the debtor began the bankruptcy process.  See Farrey, 500 U.S. at 300, 111 S. Ct. at 1831 (“Congress primarily intended § 522(f)(1) as a device to thwart creditors who . . . rush to court to obtain a judgment to defeat the debtor’s exemptions.”). 

Although Weber included the lien held by Hall on the list of unsecured creditors on her bankruptcy petition, Weber’s discharge did not affect the enforceability of the lien, which had been perfected before the bankruptcy petition.  Accordingly, despite Hall’s lack of participation in Weber’s bankruptcy proceeding, the lien passed through those proceedings unaffected.  Therefore, Hall is entitled to foreclose on the lien.

III.

Finally, Weber contends that a provision in the divorce decree, separate from the provision that created the lien, contains a condition precedent that nullifies enforcement of the lien.  Neither party contends that the dissolution decree is ambiguous.  The interpretation of an unambiguous dissolution decree is a question of law, which we review de novo.  Emerick ex rel. Howley v. Sanchez, 547 N.W.2d 109, 112 (Minn. App. 1996). 

The provision at issue states:

JOINT BILLS AND DEBTS.  That the parties have extensive joint obligations and/or remaining debts from their marriage relationship.  [Grouchevski] shall pay both [Grouchevski’s] and [Weber’s] share of these debts, but may receive additional funds from the homestead equity to reimburse [Grouchevski] for [Weber’s] share.  However, [Grouchevski] is discharged from responsibility to pay these debts under this Judgment and Decree if he files bankruptcy on these debts.  In that case, [Grouchevski] shall not receive any additional funds under [the homestead provision].

(Emphasis added.)  Weber argues that, when Grouchevski filed for bankruptcy and his debts were discharged on January 7, 2003, Grouchevski failed to satisfy a condition precedent of the dissolution decree.  Weber maintains that “any additional funds under [the homestead provision]” should be interpreted to mean any funds under the homestead provision.  Therefore, Weber asserts, the unsatisfied provision operated to extinguish Grouchevski’s right to foreclose on the lien interest. 

When read in context, the plain language of the paragraph does not support Weber’s interpretation.  The paragraph requires Grouchevski to pay any remaining joint debts, entitling him to augment his share of the homestead equity beyond that already provided for by the lien.  Next, the provision acknowledges that, if Grouchevski declares bankruptcy, a discharge of these debts would nullify his obligation to pay such joint debts.  Finally, in order to prevent any unjust enrichment, Grouchevski loses the corresponding entitlement to homestead equity in addition to that secured by the lien because he would not be liable for those joint debts.  The paragraph, therefore, precludes Grouchevski from unjustly enriching himself by avoiding joint debts through bankruptcy while adding to his share of the homestead equity secured by the lien.  Because the plain language of the joint-debts provision does not support the interpretation advanced by Weber, the provision does not prevent Hall from foreclosing on the lien. 

Accordingly, the district court properly granted Hall judgment on the pleadings, permitting Hall to foreclose on the lien. 

Affirmed.