Category Archives: Bankruptcy and Judgment Liens

Bankruptcy and Service of Motion To Avoid Judicial Lien

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The issue here is who must be served when filing a motion to avoid a judicial lien under Section 522 or 506 of the Bankruptcy Code. There could be a number of parties involved or a number of attorneys involved in obtaining and enforcing the judicial lien before a bankruptcy case is filed. So who has to be served with the motion to value or avoid the lien? Is service required on the state court attorney that obtained the judgment, the original creditor or the potential attorney now representing the creditor in the bankruptcy case?

FRBP 9014 and 7004

Once the bankruptcy case is filed the Federal Rules of Bankruptcy Procedure, Federal Rules of Procedure and local bankruptcy rules take over. All states have laws governing the enforcement and collection of lien rights and judicial lien rights. Procedures for contested matters in bankruptcy cases are governed by Federal Rule of Bankruptcy Procedure 9014, which requires service of a motion “in the manner provided for service of a summons and complaint by Rule 7004 . . . .” Rule 9014(a). So we have to look to FRBP 7004. Service of a summons and complaint varies depending upon the type of entity the creditor is. Whether the creditor is a sole proprietorship, limited liability company, corporation or is insured depository institution. If FDIC insured service shall be made by certified mail addressed to an officer of the institution unless— (1) the institution has appeared by its attorney, in which case the attorney shall be served by first-class mail; (2) the court orders otherwise after service upon the institution of notice of an application to permit service on the institution by first-class mail sent to an officer of the institution designated by the institution; or (3) the institution has waived in writing its entitlement to service by certified mail by designating an officer to receive service.

Ninth Circuit Bankruptcy Appellate Panel Case

In a recent 9th Cir. BAP case; Teresa Bryant, Appellant, vs. The Bank of New York Mellon; Select Portfolio Servicing, BAP No. CC-16-1009-DKuF, discussed the proper service of a motion to avoid a judicial lien. In this case Ms. Bryant’s bankruptcy attorney served the motion by certified mail on a bank officer of Mellon pursuant to FRBP 7004 and served each attorney that appeared on behalf of Mellon in the bankruptcy case. In the Northern District of California we have a local rule that says if a claim was filed for the lien, then the address provided on the claim has to be served in addition to the requirements of FRBP 7004 be met. Mellon tried to argue that since their state court attorney was not served the motion to value service was defective. This issue was addressed in Frates v. Wells Fargo Bank, N.A. (In re Frates), 507 B.R. 298, 301 (9th Cir. BAP 2014). The appellee bank in Frates argued their state court attorney should have been served with the motion to value or avoid. The Ninth Circuit BAP said no.

The Ninth Circuit Bankruptcy Appellate Panel previously concluded that compliance with Rule 7004(h) was all that was required. The court recognized that California law would have required service of post-judgment motions on the state court attorney, but the court did not “perceive any reason why compliance with California law should be compelled in light of the procedural due process safeguards provided by the rules themselves. This means that when enforcing the judicial lien under California law post-judgment motions must be served on the state court attorney for the judgment creditor. That is not the case after a bankruptcy case is filed.

You Do Not Have To Serve The State Court Attorney

Bankruptcy case rules make no mention of serving a motion to avoid a judicial lien on any state court attorney involved in the matter previously. In the Bryant appeal the debtor’s bankruptcy attorney served the attorney that made an appearance for Mellon and filed a motion for relief from stay filed in the bankruptcy case and still served an officer of Mellon by certified mail. The Ninth Circuit Bankruptcy Appellate Panel held nothing more was required. The lower bankruptcy court unfortunately evaluated the circumstances of not serving the state court attorney as a possible fraud on the bankruptcy court for not serving Mellon’s state court attorney with the motion to value. The 9th Circuit Bankruptcy Appellate Panel decidedly said no. There was no fraud on the bankruptcy court.

What Creditors Attorneys Should Do

If a state court attorney wants to be noticed or a creditor wants their state court attorney that obtained the judgment to be served then the state court attorney should file a request for special notice in the bankruptcy case. Then they have to be provided notice. In Chapter 7 bankruptcy cases judicial liens can be avoided in no assets cases. In a no asset case there is no call for creditors to file claims or even make an appearance in the case at all. Under these circumstances no attorney will make an appearance for a creditor in the Chapter 7 no asset bankruptcy case. The only viable service is pursuant to FRBP 9014 and 7004. In Chapter 13 bankruptcy cases claims are called to be filed on behalf of creditors. So in theory in a Chapter 13 case there could be an attorney or other party to provide notice to and meet the requirements of FRBP 7004.

How Do I Get Rid of a Judgment or Judicial Lien From My House?

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When filing for bankruptcy you may avoid a judicial or judgment lien from your house pursuant to 11 U.S.C. §522(f) if the bankruptcy filers interest in that property would be exempt but for the existence of the judgment or judicial lien. A motion must be filed with the court and given that the lien can be avoided or removed without the consent of the lien holder notice of the motion to the lien holder is extremely important.

A recent Ninth Circuit Bankruptcy Appellate Panel case discusses the service requirements for a motion to avoid a lien. See Frates v. Wells Fargo Bank, N.A.; BAP No. NC-13-1366-JuKiD Before discuss this case further there are ways to get rid of the judgment lien from your house outside of filing for bankruptcy protection. You could satisfy the judgment entered against you. The amount you will have to pay will include prejudgment interest, post-judgment interest, costs of enforcement of the judgment and attorney fees and costs. You might be able to negotiate a settlement, make the payments and then the judicial lien holder should remove the lien. A lump sum cash payment today is better than years of payments and uncertainty of when the lien holder will ever see a penny to collect on the judgment.

When filing for bankruptcy you may avoid a judicial or judgment lien from your house.

When filing for bankruptcy you may avoid a judicial or judgment lien from your house.

Back to the Frates case. In this case the Frates’ filed for bankruptcy protection under Chapter 13 of the Bankruptcy Code. They had a judgment lien recorded against their house and sought to avoid the lien pursuant to Section 522(f) by filing the appropriate motion with the court. Wells Fargo was the lien holder and never responded to the motion. So the Frates’ bankruptcy attorney sought enter of the order by default on the motion to avoid. The Bankruptcy Court denied the entry of the order by default on procedural grounds: (1) the notice of the motion failed to identify the real property and (2) the notice, motion and accompanying pleadings were not served on counsel listed on the abstract of judgment as required under Cal. Code Civ. P. (CCP) § 684.010. The Frates’ bankruptcy attorneys moved for reconsideration which the court denied. This appeal was then filed.

Notice of this motion is the issue in this case. Rule 9014(a), in turn, provides that relief shall be requested by motion and “reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought.” The Bankruptcy Court for the Northern District of California has a scream or die notice process that may be used for certain motions pursuant to LBR 9014. Notice and opportunity for a hearing is served on the opposing party and then it is incumbent on the opposing party to file a timely opposition or request for hearing. If opposition or a request for hearing is not timely filed the party that filed the motion may request entry of the order by default. “The standard for what amounts to constitutionally adequate notice, however, is fairly low; it’s ‘notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objection.’” Espinosa v. United Student Aid Funds, Inc., 553 F.3d 1193, 1202 (9th Cir. 2008) (citing Mullane, 339 U.S. at 314), aff’d, 559 U.S. 260 (2010).

Under these facts though Wells Fargo Bank, N.A. is an insured depository institution whereby service is governed by FRBP 7004(h). This rule provides service must be by certified mail addressed to an officer of the institution. In this case the debtors’ did serve Wells Fargo Bank, N.A. by certified mail and addressed the service to an officer of the institution. The other issue was whether California Civil Procedure Section 684.010 must be followed when serving a motion to avoid a lien. C.C.P. §684.010 governs judgment enforcement under California law and says notices and other papers are required to be served on the judgment creditor’s attorney of record rather than on the judgment creditor if the judgment creditor has an attorney of record. In Frates the 9th Circuit Bankruptcy Appellate Panel held that nowhere do the bankruptcy rules require compliance with C.C.P. §684.010 in lien avoidance actions and applying C.C.P. §684.010 creates confusion about where and when bankruptcy practitioners should follow state law even when they comply with applicable bankruptcy rules.