In the recent case Rodgers, Powers & Schwartz, LLP v. Minkina (In re Minkina), No. 22-1624, 2023 U.S. App. LEXIS 22394 (1st Cir. Aug. 24, 2023)[1], the First Circuit had to evaluate the propriety of a valuation method adopted in the Bankruptcy Appellate Panel’s decision in Snyder v. Rockland Tr. Co., 249 B.R. 40 (1st Cir. B.A.P. 2000). The subject on appeal was whether there was an error in stating a debtor’s interest in the property held as a Massachusetts tenant by the entirety for the lien avoidance formula under Section 11 U.S.C. §522(f).
Minkina and her husband owned a home in Brookline, Massachusetts as tenants by the entirety. In 2018, Mikina filed a petition for relief under Chapter 13, but her husband did not. The parties agreed that the home was worth $1.05 million. However, the property was subject to two mortgages totaling $177,741 and a judicial lien solely on Minkina’s interest in the property for $250,094. Minkina moved to avoid the judicial lien under Section §552(f) as an impairment on her homestead exemption. Minkina asserted that her husband caused a homestead declaration to be recorded in December 2010, entitling the couple to a $500,000 homestead exemption. The judicial lienholder contended that the value of the debtor’s interest was the home’s entire value which was more than $1 million which meant the debtor’s homestead exemption would not be impaired and they could not avoid the lien. Additionally, both parties stipulated that the fair market value of the debtor’s interest in the homestead was no more than $525,000.
The First Circuit Court of Appeals permitted a direct appeal and reviewed the bankruptcy court’s prior treatment of the claims de novo. Judge Howard explained how Section §522(f)(1) permits a debtor “to avoid the fixing” of a “judicial lien” that “impairs an exemption” to the extent that the judicial lien, all other liens on the property, and the exemption “exceeds the value of the debtor’s interest in the property that the debtor would have in the absence of any liens.” Moreover, Section §522(a)(2) defines “value” to mean “fair market value as of the date of the filing of the petition.” In reviewing the Snyder decision, Judge Howard stated that the Court “impermissibly departed from Congress’s explicit instructions to value the debtor’s interest in the property absent any liens as the fair market value thereof for the 522(f) formula. Turning to federal law, he said “The value in question here is not of the property, nor the tenancy as a whole, but rather of the debtor’s interest in the tenancy, which is subject to the suite of encumbrances described above that do not apply to the tenancy as a whole,” noting that encumbrances include “uncertainty” about the debtor’s ownership were the debtor to predecease. Further, he discusses how “Bankruptcy courts are in the best position to divine fair market value in any individual case, and we go no further than to reiterate the need to focus on the text of the Code.”
Ultimately, the Court found since neither state nor federal law requires a valuation of Minkina’s interest as the full value of her home, the stipulation stands, and the bankruptcy court was correct in accepting the valuation of no more than $250,000.
[1] Article: https://www.abi.org/newsroom/daily-wire/first-circuit-describes-how-to-value-an-interest-in-entireties-property
Opinion linked in article