2005 Homestead Exemption amendment applies to debts incurred prior to the amendment’s effective date

1256 Hertel Avenue Associates v. Calloway, 12‐1603‐bk (2d Cir. Aug 1, 2014)

Read the full decision Here

The issue in this case is whether the 2005 Amendment applied to a debt and judgment lien procured prior to the enactment of the Amendment. Here, Hertel, reduced the debt to a perfected judgment lien prior to the amendment to the Homestead Exemption law. Holding that judgment liens are not vested property interests, the Bankruptcy Court ruled in favor of Calloway (who owed the debt). The District Court affirmed on the same grounds and added that, even if the judgment lien were a constitutionally protected property interest, the 2005 amendment’s effect on Hertel’s lien did not constitute a taking.

The Law at issue is N.Y. C.P.L.R. 5206, amended in August 2005, increasing the state’s homestead exemption from $10,000 to $50,000. See 2005 N.Y. Laws ch. 623. The homestead exemption entitles New York debtors to exempt their homes “from application to the satisfaction of a money judgment,” id., and is also available to debtors in bankruptcy proceedings, see N.Y. Debt. & Cred. Law § 282; 11 U.S.C. § 522(b)(3)(A).

After reviewing the long history of the law and the numerous amendments over the past century, the Court found that…

“Inherent in Hertel’s judgment lien was the implied limitation of a homestead exemption that predictably and necessarily must be adjusted from time to time to account for the changing values of the homes it protects. This limitation having been part of Hertel’s judgment lien from the start, the 2005 Amendment neither effected a total taking of Hertel’s property nor upset its reasonable investment‐backed expectations. Thus, we conclude that the 2005 Amendment’s application to pre‐enactment judgment liens does not violate the Takings Clause of the Fifth Amendment.”

The Second Circuit held that…

“In sum, we hold (1) that the 2005 Amendment applies to all creditors and all obligations, including pre‐existing obligations, regardless of whether the debt was reduced to a judgment lien prior to the statute’s enactment; and (2) that retroactive application of the exemption does not constitute an uncompensated taking of pre‐enactment judgment liens in violation of the Takings Clause.”

#bankruptcy #judgmentlien #cplr #hertelavenueassociates #corymorris #corymorrislawyer

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