In re Taylor (Williams v. Taylor), Adv. No. 05-9140, 2006 Bankr. LEXIS 1357 (Bankr. N.D. Ga. May 3, 2006)(Massey).
The Plaintiff was a judgment creditor of the debtors, and had a judgment lien on their property. The Plaintiff filed an adversary proceeding against the debtors and the secured lender seeking a declaratory judgment that his judgment lien had priority over the lender’s consensual lien. The complaint sought no relief against the debtors separate and apart from the relief sought against the lender.
The basic facts are the following. Debtors borrowed $124,000, secured by a security deed, in May 1998. Plaintiff obtained his judgment in the amount of $305,025 in August 2002. Debtors refinanced in September 2003. In January 2005 debtors filed a Chapter 13 petition, which was converted to a Chapter 7 in June 2005. Debtors exempted the real property in their schedules, and no objections were filed. The case was subsequently closed as a no-asset case.
Plaintiff claimed that his judgment lien took priority over the subsequent deed to secure debt that resulted from the refinance, and the lender defended on the grounds of equitable subordination.
The Court sua sponte held that it did not have subject matter jurisdiction over the proceeding. The real property at issue was no longer property of the estate because the Debtors, without objection, exempted the property. Therefore, any judgment declaring the rights of the competing lien creditors could not possibly affect the bankruptcy estate or the rights of the debtors insofar as the bankruptcy case is concerned. The liens still attach to the property, and the Plaintiff can pursue his remedies in state court.