wvbankers.org 26 West Virginia Banker Stephen B. Brown Sr. serves as Vice President Communications & Market Development/Title Attorney for Investors Title Insurance Company. He assists in underwriting, identifies and resolves major claims, formulates risk management solutions, and develops and implements legislative and regulatory policies on behalf of the company. He is a premiere speaker in paralegal and attorney education regarding legislative and regulatory issues, claims prevention, and risk management. Steven can be reached at sbrown@invtitle.com. was authorized and sufficient pursuant to Section 363 to remove the liens or may require a legal opinion that the sale had the intended effect. The trustee may avoid certain liens by using the trustee’s avoidance powers under the Bankruptcy Code, thereby removing the attachment of the liens to the property. Any avoidance by the trustee of the lien pursuant to the Bankruptcy Code requires entry by the court of an order avoiding the liens. In addition, the debtor may “strip” the liens from the property in a confirmed bankruptcy plan or may have judgment liens avoided under the circumstances described in 11 U.S.C. 522(f). Both events require an order of the Bankruptcy Court confirming the bankruptcy plan or avoiding the lien. However, the mere existence of an order confirming a bankruptcy plan with “lien stripping” provisions, or an order avoiding a lien pursuant to Section 522(f) as to a particular piece of property, may not be sufficient to avoid the lien. In Chapter 12 and Chapter 13 bankruptcy cases, neither the avoidance of judgment liens by the debtor pursuant to Section 522(f)(1)(A) nor the stripping of liens pursuant to a confirmed plan is final unless and until the debtor completes the Chapter 12 or Chapter 13 bankruptcy plan, and obtains a discharge pursuant to Sections 1228 or 1328 of the Bankruptcy Code. Accordingly, any order confirming a plan with “stripping” provisions or avoiding a lien against real property pursuant to Section 522(f)(1)(A) should be reviewed by a knowledgeable bankruptcy attorney or by the title insurer to determine whether the bankruptcy order has the effect of actually avoiding judgment liens and removing them as liens against the property of the bankruptcy debtor. It should be noted that if a debtor has obtained a discharge in bankruptcy, and a pre-judgment lien attached to the debtor’s real property prior to bankruptcy has not been avoided or otherwise removed from the property during the pendency of the bankruptcy, the debtor may, under certain circumstances, be able to have the bankruptcy attorney reopen the case to remove the lien pursuant to Section 522(f) of the Bankruptcy Code if the property is of the type that could be exempted pursuant to applicable state or bankruptcy law. For that reason, the property owner should be allowed to determine whether removing the lien is feasible prior to being required to pay the lien at or before closing the transaction. Finally, it should also be noted that a bankruptcy proceeding by a property owner may have the effect of extending the duration of a judgment lien on the real property if the judgment lien survives the bankruptcy proceeding. 11 U.S.C Section 108(a) may have the effect of extending the duration of a judgment lien at least 30 days after the expiration of the bankruptcy case if the lien otherwise would have expired during the bankruptcy proceeding. In addition, some states have laws that toll the statute of limitation for a judgment lien during the period in which a creditor is enjoined from enforcing his lien during the pendency of a bankruptcy proceeding. Failure by the title examiner to consider any such tolling in determining whether a judgment lien has expired would be a serious mistake. In short, the determination of whether pre-bankruptcy judgment liens remain attached to property of a judgment debtor who has been through a bankruptcy proceeding is a process fraught with traps for the title examiner. A consultation with a knowledgeable bankruptcy attorney and a call to the title insurer with full disclosure of the bankruptcy information is essential to protect the interests of the title examiner, the person rendering the title opinion, the title insurer, the lender, the buyer, and the seller of the real property. The title examiner should not rely upon statements of the debtor or the trustee to determine whether or not a sale of real property allegedly “in the ordinary course of business” of the debtor is sufficient to remove the attached judgment liens from the property. Continued from page 25
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