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Judge Nugent

10-12479 Ruck (Doc. # 128)

In Re Ruck, 10-12479 (Bankr. D. Kan. May 19, 2011) Doc. # 128

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SO ORDERED.
SIGNED this 18 day of May, 2011.


________________________________________
ROBERT E. NUGENT
UNITED STATES CHIEF BANKRUPTCY JUDGE
PUBLISHED

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


IN RE: )
)
THOMAS G. RUCK, ) Case No. 10-12479
THERESA A. RUCK, ) Chapter 7
)
Debtors. )

________________________________________________)

ORDER GRANTING CENTRAL NATIONAL BANK’S
MOTION FOR SUMMARY JUDGMENT

The Debtors Thomas and Theresa Ruck moved to avoid the lien of a foreclosure judgment
that impairs two tracts that they have claimed exempt, citing 11 U.S.C. § 522(f)(1).1 In support of
their motion to avoid, they claim that the judgment is not only a judicial lien, but also that the
judgment has lapsed according to Kansas law. The owner of the judgment, Central National Bank

1 Dkt. 35.
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(Central), objected to the lien avoidance motion and objected to the debtors’ claim of exemptions
as well. Central moves for summary judgment.2 After reviewing the parties respective submissions,
the Court is prepared to rule.3

The Court has jurisdiction over this contested matter.4 The matter is a core proceeding.5

SUMMARY JUDGMENT STANDARDS

Federal Rule Civil Procedure 56(c) directs the entry of summary judgment in favor of a party
who “shows that there is no genuine dispute as to any material fact and that the movant is entitled
to a judgment as a matter of law.”6 The Court’s function in reviewing a motion for summary
judgment is to first determine whether genuine disputes as to material facts exist for trial. In making
this determination, the Court may not weigh the evidence nor resolve fact issues.7 The Court must
construe the record in a light most favorable to the party opposing the summary judgment.8

2 Dkt. 57, 58.

3 Debtors appeared by their attorney Cal Wiebe. Central National Bank appeared by its
attorney Michael Munson.

4 28 U.S.C. § 1334.

5 28 U.S.C. § 157 (b)(2)(A), (B), and (K).

6 All future references to “Rule” will refer to the Federal Rules of Civil Procedure, which
apply to adversary proceedings under Federal Rule Bankruptcy Procedure 7001, et seq., unless
otherwise noted. Before December 1, 2010, Rule 56 provided that summary judgment should be
rendered if there is “no genuine issue as to any material fact and that the movant is entitled to
judgment as a matter of law.”

7 First Sec. Bank of New Mexico, N.A. v. Pan Am. Bank, 215 F.3d 1147, 1154 (10th Cir.
2000) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986)); Concrete Works of Colo.,
Inc. v. City and County of Denver, 36 F.3d 1513, 1518 (10th Cir. 1994) (Court may not resolve
disputed questions of fact at the summary judgment stage).

8 McKibben v. Chubb, 840 F.2d 1525, 1528 (10th Cir. 1988) (citation omitted).

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Once the Court determines which facts are not in dispute, it must then determine whether
those uncontroverted facts establish a sufficient legal basis upon which to grant movant judgment
as a matter of law.9 If different ultimate inferences may properly be drawn from the facts, summary
judgment is not appropriate.10

UNCONTROVERTED FACTS

Central relies on its extensive statement of facts, nearly all of which are uncontroverted.11
Thomas and Theresa Ruck were married. Mrs. Ruck died on July 25, 2010, just days after the Rucks
filed this case. In 1996, the Rucks made two promissory notes to Central and granted two mortgages
that encumbered different tracts, to secure the repayment of both notes. The mortgages covered
property in Marion County commonly known as **** Remington (Remington Property) and ****
275th Street (275th Property). In 1998, they gave a third note to Central and granted a second
mortgage on the 275th Property to secure it. The Rucks defaulted on their obligations under these
notes and Central foreclosed in state court, filing Marion County Case No. 01-C-28 in May of 2001.
On December 20, 2001, the state court entered its Journal Entry of Judgment in which Central
received a judgment on all three notes and a decree foreclosing all three mortgages.

9 E.E.O.C. v. Lady Baltimore Foods, Inc., 643 F.Supp. 406, 407 (D. Kan. 1986) (Even if
there are no genuine issue of material fact, the movant still has the burden to show it is entitled to
judgment as a matter of law.).

10 Sec. Nat. Bank v. Belleville Livestock Comm’n Co., 619 F.2d 840, 847 (10th Cir.
1979).

11 The Rucks’ attempted controversions mainly consist of repeated statements that the
Court should, as it always does, disregard editorial or conclusory comments in the affidavit of
the Loren Barten, a bank officer. Similarly, Central’s controversion of some of the Rucks’
statements alleges that some of the facts alleged are irrelevant to the instant dispute. We need
not tax this record with an exhaustive discussion of these positions; rather the facts in this case
are pretty straightforward and are summarized in this section.

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The first paragraph in the decretal portion of the Journal Entry reads:

By agreement of the parties, Plaintiff [Central] shall not execute on its judgments

herein, or conduct a Sheriff’s sale of the foreclosed property, so long as it receives

[payments]....12
Highly summarized, the debtors were to make $350 monthly payments on the first note’s judgment
and $175 monthly payments on the second until they were both paid. When one of the notes was
paid, the debtors were to begin payments of $350 monthly on the third note’s judgment until it was
paid. If the debtors missed any payments, after 10 days, Central could execute on its judgment and
apply to the state court for an order of sale. The debtors made and continue to make these payments
and have paid Central over $47,000 through August 30, 2010. No executions or orders of sale have
been requested by Central and none has been issued by the state court. Central has filed no renewal
affidavits or applications for revivor of the judgments contained in the Journal Entry.

The Rucks filed this chapter 7 bankruptcy on July 22, 2010. They exempted both tracts as
their respective homesteads on Schedule C. In January of 2010, Thomas filed for divorce from
Theresa. They had previously been divorced in 2003, but had remarried in 2008. While the Rucks
were divorced, Theresa lived at the Remington Property and Thomas lived at the 275th Property.
The Rucks claim that they intended to resume this arrangement upon completion of the 2010 divorce
case, but in the spring of 2010 cancer intervened and Theresa fell ill.13 The debtors claim that the
Remington house was not in good condition and that Theresa remained at the 275th Property with
Thomas so her family could care for her.14 She succumbed to the cancer on July 25, 2010, three

12 Dkt. 58-8, Ex. 7, p. 8.

13 There is no record support for their claimed intention to live separately.

14 This factual allegation is also unsupported in the record, but the Court may draw

inferences in favor of the Rucks as non-moving parties and will infer from Mrs. Ruck’s death

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days after filing this case. Thomas filed Schedule C on September 8, 2010 in which the debtors
sought to exempt both tracts as separate homesteads. While there is nothing in the record bearing
on the respective location of these tracts, the Court observes that the Remington Property is located
in the Southeast Quarter of Section 19, Township 18 South, Range 4 East of the 6th P.M. while the
275th Property sits in the Southeast Quarter of Section 24, Township 18 South, Range 3 East of the
6th P.M. While the sections abut one another (S24-T18S-R3E lies due east of S19-T18S-R4E), each
tract lies within the southeast quarter of its section. They cannot be contiguous. Each tract is
defined by metes-and-bounds and appears to be land-locked within its respective quarter section.
The tracts are likely not more than a mile apart. Both Rucks inhabited the 275th Property on the
petition date.

ANALYSIS

Judicial Lien Avoidance under § 522(f)(1)

The Rucks move to avoid the lien of Central’s Journal Entry as a judicial lien and invoke the

provisions of § 522(f)(1). That section provides:

(f)(1) Notwithstanding any waiver of exemptions but subject to paragraph (3), the
debtor may avoid the fixing of a lien on an interest of the debtor in property to the
extent that such lien impairs an exemption to which the debtor would have been
entitled under subsection (b) of this section, if such lien is–

(A) a judicial lien, other than a judicial lien that secures a debt of a
kind that is specified in section 523(a)(5) [a domestic support
obligation];
Thus, a debtor may seek to have a judicial lien avoided if it impairs property that debtor may

exempt. Subsection (f)(2)(A) states that “a lien shall be considered to impair the exemption” to the

three days after filing that this is the case. It is certainly plausible.
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extent the sum of the lien, all of the other liens on the property, and the amount of the exemption the
debtor could claim in the property exceed the value of the debtor’s interest in the property.
Subsection (f)(2)(B) states that where the property is subject to more than one lien, an avoided lien
does not count in the calculation. Subsection (f)(2)(C) states:

(C) This paragraph shall not apply with respect to a judgment arising
out of a mortgage foreclosure.
This subsection excepts mortgage foreclosure judgments from consideration as a “lien . . .
considered to impair an exemption” as referenced in (f)(2)(A).
The term “judicial lien” is defined in the Code at § 101(36) as a “lien obtained by judgment,
levy, sequestration, or other legal or equitable process or proceeding.” A “lien” is a “charge against
or interest in property to secure payment of a debt or performance of an obligation.”15 Notably, a
“security interest” is separately defined in the Code at § 101(51) as a “lien created by an
agreement[.]”
The Rucks’ motion to avoid is predicated on the supposition that when a note is reduced to
judgment and a foreclosure decree is entered authorizing the sale of the mortgaged property, the
mortgage lien merges into the judgment and that renders it a judicial lien. They argue that the
exceptional language in § 522(f)(2)(C) does not operate to except foreclosure judgments from being
avoided like other judicial liens under § 522(f).
The Tenth Circuit Bankruptcy Appellate Panel has held that a foreclosure judgment is not
a judicial lien because it is the result of a consensual agreement (the note and mortgage) of the
parties. In In re Nichols, the court dealt with facts nearly identical to these, applying Oklahoma

15 11 U.S.C. § 101(37).
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law.16 The debtors sustained a judgment foreclosing their home mortgage, but filed bankruptcy
before a sale could be held. They argued that the foreclosure judgment was an avoidable judicial
lien that impaired their homestead. The Nichols court noted that a security interest, being a
consensual lien, is substantially different in form from a judicial lien. Because the creditor’s interest
in the Nichols’ land arose from a security interest created by an agreement, and not merely from a
judgment, the lien of the foreclosure decree was a security interest to which § 522(f)(1)(A) does not
apply. Oklahoma law provides that a mortgage lien does not merge into a foreclosure decree, nor
is it extinguished by one. The lien is only extinguished by the foreclosure sale.

The Rucks erroneously argue that under Kansas law a foreclosed mortgage merges into and
is extinguished by the entry of foreclosure judgment. Their case citations do not support that
statement. They rely on cases that hold that a junior lienholder’s mortgage is extinguished upon the
purchase of the encumbered land by the senior lienholder at a sheriff’s sale.17 In Fidelity Bank v.
King, a junior lienholder entered a general appearance in the case, but did not otherwise participate.
Citing the Restatement (Third) of Property, the Court of Appeals noted that a judicial sale conducted
to foreclose a senior lien terminates the interests of any junior lienholders, except in the equitable
circumstance where the judgment debtor acquires the property.18 While it is true that a Kansas
mortgage that has been reduced to judgment cannot be foreclosed again, the debtors point to no
Kansas authority that provides that a judgment creditor’s senior mortgage loses its lienholder status

16 265 B.R. 831 (10th Cir. BAP 2001).
17 Fidelity Bank v. King, 33 Kan. App.2d 804, 109 P.3d 180 (2005).
18 See Restatement (Third) of Property, § 7.1.


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when the decree is entered.19 To the contrary, it is the foreclosure sale, not the mere entry of the
decree, that terminates the relationship of the mortgagor and mortgagee.20 While the mortgage may
have “merged” into the foreclosure decree, that does not convert the consensual lien of the mortgage
to a judicial lien that is avoidable by use of § 522(f)(1).

Many courts so hold.21 Indeed, even in the Hart case relied on so heavily by the debtors, the
First Circuit held that § 522(f)(2)(C) “contrast[s] mortgage foreclosure judgments from liens which
are avoidable under § 522(f), clarifying that the entry of a foreclosure judgment does not convert
the underlying consensual mortgage into a judicial lien which may be avoided. Mortgage foreclosure
judgments do not become judicial liens subject to avoidance under § 522.”22 Hart dealt with a
markedly different set of facts than those at bar. There, the debtors suffered the foreclosure and sale
of their home in Maine. They also owned property in Massachusetts. After the judicial sale of the
Maine land, the lender enforced its deficiency judgment against the Massachusetts property. The
First Circuit affirmed the order of the Massachusetts bankruptcy court avoiding the judgment lien
on the Massachusetts property as a judicial lien that impaired the debtors Massachusetts homestead

19 Dumont v. Taylor, 67 Kan. 727, 74 P. 234 (1903) (foreclosed lien merges into
judgment and cannot be subject of further foreclosure action). This rule was codified in KAN.
STAT. ANN. § 60-2414(k)(no second sale permitted).

20 See Application of Small Business Admin. for Exemption from Ad Valorem Taxation in
Meade County, Kan., 14 Kan.App.2d 600, 604, 797 P.2d 879 (1990); Mid Kansas Federal Sav.
and Loan Ass’n of Wichita v. Zimmer, 12 Kan. App.2d 735, 740, 755 P.2d 1352 (1988); Federal
Land Bank of Wichita v. Brown, 15 Kan. App. 2d 302, 305-06, 807 P.2d 702 (1991) (After
creditor forecloses its mortgage lien and sells the property at sheriff’s sale, creditor no longer has
a lien in the property with a right to redeem.).

21 In re Burns, 437 B.R. 246 (Bankr. N.D. Ohio 2010); In re Hart, 328 F.3d 45 (1st Cir.
2003); In re Maxwell, 2010 WL 4736206 (Bankr. E.D. Tenn. Nov. 16, 2010); In re McMorris,
436 B.R. 359 (Bankr. M.D. La. 2010); In re Biles, 2011 WL 1600521 (Bankr. N.D. Okla. 2001).

22 In re Hart, 328 F.3d 45, 49 (1st Cir. 2003).

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exemption. The Hart court distinguished the lien of a foreclosure decree from the lien of a
deficiency judgment holding that the latter can be a judicial lien for § 522(f) purposes.

In summary, the Rucks are not entitled to avoid the lien of the unenforced foreclosure decree
on either of these properties because the lien is not a “judicial lien” under § 522(f)(1) and Central
is entitled to summary judgment on that point.

Lapsed Foreclosure Judgments

Alternatively, the debtors argue that the foreclosure judgment has lapsed under KAN. STAT.
ANN. § 58-2314 and Central’s purported judgment lien may be avoided on this additional basis.23
This section pertains to dormancy, revivor, and renewal of unenforced foreclosure judgments. It
provides:

 Whenever real estate mortgages have been . . . foreclosed by judgment of the district
court in any county in the state of Kansas, and no renewal affidavit shall have been
filed or no execution or orders of sale shall have been issued thereon within five
years and no proceedings have been instituted in accordance with the provisions of

K.S.A. 60-2404 [revivor of dormant judgment] . . . to revive the judgment . . . then
it shall be the duty of the clerk of the court on application of any party in interest,
to record in the office of the register of deeds in which the mortgage is recorded, an
instrument giving the date of the entry of the judgment of foreclosure . . . together
with the statement that no renewal affidavit was filed, nor execution or order of sale
issued within five years, nor any proceedings to revive the judgment were instituted
within seven years from the date of the entry of the judgment. The recorded
instrument shall operate as a cancellation and release of the mortgage.24
Like the general judgment dormancy statute, § 58-2314 contains a tolling provision to prevent a

23 Under the Rules, a challenge to the Bank’s secured status for reasons outside the ambit
of § 522(f)(1) should be pursued as an adversary proceeding, see Fed. R. Bankr. P. 7001(2) (“a
proceeding to determine the validity, priority, or extent of a lien . . . other than a proceeding
under Rule 4003(d)[pertaining to § 522(f) lien avoidance]” is an adversary proceeding). The
Bank has not objected to the debtors’ proceeding on this theory by motion.

24 Section 58-2314(a) (Emphasis added.).

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judgment from becoming dormant after five years where “enforcement of the judgment by legal
process is stayed or prohibited.”25 The Court need not determine whether the 2001 foreclosure
judgment’s dormancy clock was tolled by the parties’ forbearance agreement that was incorporated
into the foreclosure judgment and became a part of the state court’s orders. That agreement
provided that Central would forbear from enforcement of the foreclosure judgment so long as the
debtors made the payments against the judgment as set forth in the journal entry.26 There is nothing
in the summary judgment record before this Court that the “instrument” described in § 58-2314(a)
has been recorded with the Marion County Register of Deeds and therefore, the Court cannot
conclude as a matter of law that a cancellation and release of the mortgages described in the
foreclosure decree has been effectuated. The debtors’ request to avoid enforcement of the
foreclosure judgment on the basis of § 58-2314(a) must be denied.

25 See KAN. STAT. ANN. §§ 58-2314(b), 60-2403(c).

26 The Court observes that a plain reading of the foreclosure decree suggests that Central
was prohibited from enforcing the foreclosure judgment by legal process (i.e. conducting a
sheriff’s sale of the property) so long as debtors made the agreed upon payments: “Plaintiff shall
not execute on its judgments herein, or conduct a Sheriff’s Sale of the foreclosed property, so
long as it receives a minimum payment . . .” See Dkt. 58-8 (Ex. 7, pp. 8-9 of Journal Entry of
Judgment attached to Central’s Memorandum in Support of Summary Judgment.). See First Nat.
Bank of Norton v. Harper, 161 Kan. 536, 540-41, 169 P.2d 844 (1946) (To “execute” on the
judgment is the act of carrying into effect the final judgment and decree of the court; it is the
process of the court or writ issued by the clerk and directed to the sheriff of the county for
enforcement of the judgment.). Debtors’ periodic payments standing alone did not toll the
dormancy period. See Dallas v. Dallas, 236 Kan. 92, 94, 689 P.2d 787 (1984) (partial payment
of judgment does not toll the dormancy statute and prevent the judgment from becoming
dormant). See also St. Joseph Development Corp. v. Sequenzia, 25 Kan. App. 2d 514, 968 P.2d
682 (1998) (bankruptcy automatic stay tolled the running of dormancy period of judgment). It
was the parties’ enforceable forbearance agreement memorialized in the foreclosure decree that
prevented Central from executing. The debtors enjoyed the benefits of the forbearance
agreement, continuing to make payments on a mortgage debt they now contend was extinguished
by a lapse they allege results from the agreement from which they have benefitted. This is the
illogical effect of what debtors urge upon the Court today.

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Homestead Exemption Objection

We turn now to the controversy surrounding debtors’ attempt to exempt both tracts. The
debtors are entitled to claim the homestead that they occupied and had established at the date of the
petition. According to their petition, the debtors inhabited the 275th Property at that time. The sole
uncontroverted fact bearing on this issue is that Central’s president inspected the Remington
property on October 6, 2010, some time after the July 22 filing date, and found it unoccupied. At
the time the Rucks filed this case, there was a pending divorce proceeding in state court. As noted
above, the two tracts the debtors seek to exempt are not contiguous, but are probably not more than
a mile apart.

Section 522(b) permits the debtors to exempt property that would be exempt at Kansas law
from their estate. The Kansas Constitution at Article 15, § 9 provides for the exemption of “a
homestead, occupied as a residence by the family of the owner” from forced sale. KAN. STAT. ANN.
§ 60-2301 provides that “a homestead” occupied by “the owner or by the family of the owner, or
by both the owner and family thereof” shall be excepted from forced sale.

This Court has previously held that Kansans who are married but occupy separate residences
may not claim separate homesteads at Kansas law.27 In In re Sauer, the debtors were separated, but
not divorced. No divorce case was pending. They merely determined they could not live together
and occupied separate residences in the towns of Lakin and Kinsley, about 115 miles apart.
Applying the plain language of the homestead statute, the Court concluded that there is only one
homestead available to the owner or the family of the owner.28 Mrs. Ruck resided with Mr. Ruck

27 In re Sauer, 403 B.R. 722 (Bankr. D.Kan. 2009).
28 See Atchison Sav. Bank v. Wheeler’s Adm’r, 20 Kan. 625, 1878 WL 971 (1878).
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at the 275th Property at the date of filing. The Remington property was empty at some time after
the filing. The Court sees no reason to depart from Sauer and concludes that, as a matter of law, the
Rucks are not entitled to exempt two homesteads.29

Summary

There being no genuine dispute as to any material fact in connection with the nature of the
foreclosure judgment the debtors seek to avoid, Central is entitled to judgment as a matter of law
that the foreclosure judgment cannot be avoided as a judicial lien utilizing § 522(f)(1). There being
nothing in the summary judgment record concerning the filing of a § 58-2314(a) instrument, the
Court cannot conclude that the foreclosure judgment has lapsed or that the underlying mortgages
have been canceled and released. The debtors’ motion to avoid Central’s lien on that basis should
also be denied. Likewise, in the absence of any factual controversy concerning Central’s objection
to debtors’ claimed exemption of two homesteads, Central is entitled to judgment as a matter of law
that the debtors’ sole homestead is the 275th Property.

Central National Bank’s motion for summary judgment is therefore GRANTED.

# # #

29 As a result of the divorce filing, Mrs. Ruck gained an undivided interest in all of the
marital property, KAN. STAT. ANN. § 23-201, but the undivided ownership does not expand her
ability to exempt a property that she did not occupy at filing.

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