Prior to the bankruptcy filing, the Debtors’ had a property which was foreclosed on. There was a deficiency balance in the amount of $294,380.21 plus interest, attorney’s fees, and costs recorded in Loudoun County, which attached to the Debtors’ residence at that time.
Union Bank argues that the Judgment Lien cannot be avoided under §522(f) alleging that a deficiency judgment “arises out of “ a foreclosure and the Code prohibits the foreclosure of such liens and that the Debtors’ motion came 8 years after the case was closed and is barred by the doctrine of laches.
The Court noted that a decision whether or not to reopen a bankruptcy case is committed to the Court’s discretion, Haukins v. Landmark Fin. Co., 727 F.2d 324, 326 (4th Cir. 1984). While the Court should generally avoid ruling on the underlying merits of a dispute in connection with a motion to reopen, the Court should not reopen a case where no relief can be accorded to the parties and reopening would be a futile act. In re Potes, 336 B.R. 731, 732 (Bankr. E.D. Va. 2005).
The Court found that no court in the 4th Circuit has issued an opinion directly on point, but that a vast majority of courts have held that mortgage deficiency liens are no within the ambit of “judgments arising out of a mortgage foreclosure” as provided in § 522(f)(2)(C) and therefore can be avoided under §522(f).
This Court agrees with the majority and believes that this paragraph was intended to avoid the situation where, in judicial foreclosure States, a debtor might file for bankruptcy after a judgment for foreclosure is entered, but before the foreclosure sale is completed, thereby avoiding the mortgage creditor’s lien and affording the debtor a windfall unintended by Congress when it enacted §522(f). Motion to reopen granted.