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In re O'Sullivan

United States Court of Appeals, Eighth Circuit

September 22, 2017

In re: Casey Drew O'Sullivan Debtor
v.
Casey Drew O'Sullivan Debtor - Appellee CRP Holdings, A-1, LLC Creditor - Appellant

          Submitted: September 5, 2017

         Appeal from United States Bankruptcy Court for the Western District of Missouri - Joplin

          Before SCHERMER, NAIL and SANBERG, Bankruptcy Judges.

          SCHERMER, Bankruptcy Judge

         CRP Holdings, A-1, LLC (CRP) appeals the bankruptcy court's[1] order holding that CRP holds a judicial lien against the real property of Casey Drew O'Sullivan (Debtor) and avoiding that lien under Bankruptcy Code § 522(f)(1). We have jurisdiction over this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons that follow, we affirm.

         ISSUE

         The sole issue on appeal is whether CRP has a judicial lien on the Debtor's real property (either enforceable or unenforceable). We hold that CRP has an unenforceable lien on the Debtor's property.

         BACKGROUND

         The facts are not in dispute. Because they have already been set forth in detail in previous opinions by the bankruptcy court, by us, and by the Eighth Circuit, we summarize them here.

         In 1995, the Debtor and his wife acquired real property in Barton County, Missouri as their residence (Property). In 2015, CRP obtained a default judgment in the Circuit Court of Platte County, Missouri, against the Debtor, but not his wife. CRP promptly recorded the judgment in the Circuit Court of Barton County, Missouri.

         A few months later, the Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code. The Debtor claimed an exemption in his interest in his home under both Mo. Rev. Stat. § 513.475 (homestead exemption) and Bankruptcy Code §522(b)(3)(B) (tenancy by the entireties). The Debtor filed a motion to avoid CRP's judgment lien under Bankruptcy Code § 522(f)(1) to the extent it impaired the Debtor's exemption. CRP objected to the Debtor's § 522(f)(1) motion, but it did not object to the Debtor's claimed exemption or the discharge of the Debtor's debt. The bankruptcy court entered a Chapter 7 discharge order.

         The bankruptcy court granted the Debtor's § 522(f)(1) motion, concluding that "CRP's judgment lien - although perhaps not enforceable - certainly affixed upon the Debtor's home upon CRP's recording of its judgment in Barton County." In re O'Sullivan, No. 15-30173-can7, 2015 WL 3526996, at *2 (Bankr. W.D. Mo. 2015). CRP appealed the matter to us, and we affirmed.

         The Eighth Circuit Court of Appeals then reversed and remanded the matter to the bankruptcy court. It stated that the lower courts assumed that CRP had a judicial lien. The Eighth Circuit expressed doubt whether CRP had a lien that affixed to the Property, [2] but it recognized a distinction between unenforceable liens and nonexistent liens, stating that an unenforceable lien is avoidable under §522(f)(1). The court provided a summary:

In sum, if under Missouri law CRP's notice of foreign judgment failed to give rise to a lien on O'Sullivan's exempt homestead property, the debt would have been dischargeable through the bankruptcy proceedings. O'Sullivan would then not need to resort to § 522(f) to avoid CRP's judgment. Alternatively, O'Sullivan could move to avoid the lien under § 522(f)(1) if CRP's notice ...

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