The First Circuit recently determined that a deficiency judgment arising out of a mortgage foreclosure is a judicial lien which may be avoided by Debtors under §522(f) in In re Hart, 2003 U.S. App. Lexis 8674 (1st Cir. May 8, 2003). Specifically, the First Circuit found that the language contained in §522(f)(2)(C) revealed no intent on the part of Congress to create an exception to §522(f), for deficiency judgments arising out mortgage foreclosures, which permits a Debtor to avoid the fixing of liens on an interest of the Debtor in certain property.
In Hart, a Maine court granted a bank a foreclosure and sale judgment on the Debtors’ home. After the sale, the bank obtained a deficiency judgment in the amount of $11,718.54 and brought an action in state court to enforce the judgment. The Debtors then filed for Chapter 7 relief and then filed a Lien Avoidance Motion in Bankruptcy Court claiming the bank’s judicial lien impaired an exemption they were entitled to under §522(d)(1) and (5). The bank unsuccessfully argued, relying on the language of §522(f)(2)(C), that because the lien arose from a deficiency judgment after foreclosure of a mortgage, the Debtor was unable to avoid it by relying on §522(f).
In affirming the District Court, the First Circuit established that mortgage foreclosure deficiency judgments are like any other judicial lien subject to avoidance by the Debtor set forth under §522(f).