Given the title of this blog and our usual inclinations in takings cases, you would be forgiven for assuming that we'd have a negative review of the Second Circuit's opinion in 1256 Hurtel Avenue Associates, LLC v. Bulan, No. 12-1603-bk (Aug. 1, 2014), which held that a legislative increase in the size of the homestead exemption -- which had the effect of wiping out an existing judgment lien -- was not a taking. But before you jump to that conclusion, read on, since we have a couple of nice things to say about the opinion.
In 2005, the New York legislature increased the homestead exemption -- which exempts a certain amount from being used to satisfy money judgments -- from $10,000 to $50,000. Five years later, the legislature raised it again to $75,000. Good for homeowners, not so good for those to whom homeowners owe money. But these type of exemptions has been around for quite a while (as the court noted, not quite "time immemorial," but 150 years or so, in our terms, pretty darn long), and the scope and amount has increased over time. A buck ain't what it used to be, after all.
This was an appeal from a bankruptcy, where the homeowner had approximately $25,000 of equity in her home. 1256 Hurtel had a $4,682 judgment, and another creditor had a $5,973 judgment. Thus, when the amount of the exemption increased from $10,000 to $50,000, the value of Hurtel's judgment went to zero, because all of the homeowner's equity became shielded. Good for the homeowner, not so good for Hurtel.
The court first held that the 2005 amendment applied retroactively to all obligations, even those which had been incurred prior to the law's adoption. See slip op. at 10-17. The stuff that piqued our interest begins on page 17, where the court analyzed the takings claim. As noted above, we actually liked big parts of this opinion.
First, the court avoided the easy dodge and rejected the lower courts' conclusion that a judgment lien is not "property" for purposes of the Takings Clause. New York law says that type of interest is not "vested" because a lienholder's rights are a creature of statute, which means that what the legislature giveth, it may taketh away. An "old case" from the New York Court of Appeals (1872) holds just that, but the Second Circuit elaborated on the traditional maxim that property for purposes of the Fifth and Fourteenth Amendments is defined by refeference to state law. That may be so held the Second Circuit, but that's not the entire equation, because the "determination [of whether a plaintiff owns constitutionally-protected property], despite its state-law underpinnings, is ultimately one of federal constitutional law." Slip op. at 20. The court analyzed analogous cases, and concluded that, like a mechanic's lien, a judgment lien entitles the lienholder to force a sale of property and obtain payment in priority over others. "The legal rights of a judgment lienholder are obviously far fewer than those of an owner in fee simply, but a judgment lien, like other security interests, 'is indisputably a property interest protected by the Fourteenth Amendment.'" Slip op. at 22 (quoting Ford Motor Credit Co. v. NYC Police Dep't, 503 F.3d 186, 191 (2d Cir. 2007). Nice.
Second, having scored that victory, things went south for the property owner thereafter, but even though the court ultimately concluded that its lien was not taken by the increase in the exemption amount (a case of mere "legislative tinkering" as the court held, see slip op. at 26), we still appreciate the way the court walked through the Lucas and Penn Central analysis. This wasn't a physical taking, and Hurtel had not made a record to show that its judgment lien actually was wiped out, because it had not demonstrated that the pre-2005 increase lien actually had value. See slip op. at 27. And it failed the "investment-backed expectations" part of Penn Central because homeonwer exemption statutes have been around for a long, long time, and thus part of a lienholder's property interest is the "background principle" that the legislature may from time to time expand the scope and amount of the exemption. We're not 100% down with this analysis -- what if the legislature increased the exemption to, say, 100% of the value of a home, i.e., totally exempted owner-occupied homes -- would that not be a taking?
But that, we suppose, is for a future case.
1256 Hertel Avenue Associates, LLC v. Bulan, No. 12-1603-bk (2d Cir. Aug. 1, 2014)
