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In re Taylor

United States Court of Appeals, Tenth Circuit

August 14, 2018

In re: MARK A. TAYLOR, Debtor.
v.
MARK A. TAYLOR. Appellee. WILLIAM F. SANDOVAL IRREVOCABLE TRUST, Appellant,

          Appeal from the United States Bankruptcy Court for the District of Colorado (Bankruptcy Case No. 1:15-BK-20255-MER)

          Joseph P. Stengel, Evans Case, LLP, Denver, Colorado, for Appellant.

          Keri L. Riley, Kutner Brinen, P.C., Denver, Colorado (Jeffrey S. Brinen, Kutner Brinen, P.C., Denver, Colorado, with her on the briefs), for Appellee.

          Before LUCERO, PHILLIPS, and MORITZ, Circuit Judges.

          LUCERO, Circuit Judge.

         We are presented in this appeal with a question of statutory interpretation. Debtor Mark Taylor seeks to avoid a set of liens that the William F. Sandoval Irrevocable Trust (the "Trust") recorded on his home, which Taylor jointly owns with his former wife. The Bankruptcy Code provides that a debtor may avoid certain liens that impair an exemption, and sets forth a formula to determine the extent to which an exemption is impaired. 11 U.S.C § 522(f). We must determine how that formula applies to a homestead exemption when a home is jointly owned with a non-debtor. Based on the plain language of § 522(f) and the structure of the Bankruptcy Code as a whole, we conclude that the impairment calculation must use the value of other liens on the home corresponding to the debtor's percentage of ownership, rather than the full amount of the liens. Exercising jurisdiction under 28 U.S.C. § 158(d)(2)(A), we reverse and remand.

         I

         In 2006, William Sandoval established the Trust and named Taylor trustee. Taylor misappropriated a large amount of money from the Trust, eventually resulting in three state court judgments against Taylor in favor of the Trust, in the amounts of $384, 930.18, $53, 090.48, and $23, 452.20. Taylor never appealed any of the judgments.

         Taylor owns an undivided 50 percent interest in a residential property located in Littleton, Colorado (the "Residence"). Taylor's ex-wife, Laura Taylor, owns the remainder. The Trust recorded liens on the Residence totaling $461, 472.86. It subsequently attempted to foreclose on the Residence, and obtained an appraisal valuing the home at $962, 000.

         In September 2015, Taylor filed for bankruptcy under Chapter 13 of the Bankruptcy Code. Laura is not a debtor in the bankruptcy proceeding. In his amended schedules, Taylor listed the value of the Residence as $560, 000, and his interest in it as $280, 000. The Trust filed an adversary complaint arguing that its judgment liens are non-dischargeable under 11 U.S.C. § 523(a)(4) and (a)(6). On Taylor's motion, the case was converted to a Chapter 7 bankruptcy proceeding.

         Taylor moved to avoid the Trust's liens under § 522(f), arguing that the sum of the liens on the Residence and his homestead exemption exceeded the value of his interest in the property. The parties agreed that Taylor is entitled to a homestead exemption of $37, 500 under Colorado law. The Residence is encumbered by several debts: a mortgage in favor of U.S. Bank, a homeowners' association lien, and tax liens. Taylor proposed the following calculation:

Judgment liens in favor of the Trust:

$461, 472.86

Homestead exemption:

$ 37, 500.00

All other liens on the Residence:

$485, 345.12

Total:

$984, 317.98

Less the value of Taylor's interest:

($280, 000.00)

Amount of impairment:

$704, 317.98

         Because the impairment exceeds the amount of the Trust's liens, Taylor argued that the Trust's liens should be avoided in their entirety. The Trust countered that the calculations should include only half of the value of the other liens on the Residence because Taylor possessed only a 50 percent interest. It also argued that the value of the Residence was $962, 000. The Trust thus proposed the following figures:

Judgment liens in favor of the Trust:

$461, 472.86

Homestead exemption:

$37, 500.00

All other liens on the Residence *.50:

$242, 672.56

Total:

$734, 268.43[1]

Less the value of Taylor's interest:

($481, 000.00)

Amount of impairment:

$253, 268.43


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