513 F.3d 212 (5th Cir. 2008), 06-11263, In re Rogers

Docket Nº:06-11263.
Citation:513 F.3d 212
Party Name:In the matter of: Sarah K. ROGERS, Debtor. Jack C. Wallace, Appellant, v. Sarah K. Rogers, Appellee.
Case Date:January 04, 2008
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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513 F.3d 212 (5th Cir. 2008)

In the matter of: Sarah K. ROGERS, Debtor.

Jack C. Wallace, Appellant,


Sarah K. Rogers, Appellee.

No. 06-11263.

United States Court of Appeals, Fifth Circuit

January 4, 2008

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         David Michael O'Dens (argued), SettlePou, Dallas, TX, for Appellant.

         Holly B. Guelich (argued), Dallas, TX, for Appellee.

         Appeal from the United States District Court for the Northern District of Texas USDC No. 3:06-CV-619.

         Before DeMOSS, DENNIS and OWEN, Circuit Judges.

         DeMOSS, Circuit Judge:

         This case involves a question of first impression in this circuit: the statutory interpretation of the newly enacted homestead exemption cap, 11 U.S.C. § 522(p)(1), found in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). The issue is whether the homestead exemption cap applies to a homestead interest established within the 1,215-day period preceding the filing of the bankruptcy petition despite the fact that the debtor acquired title to the property before that statutory period. The bankruptcy court answered this question in the negative, and the district court

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affirmed. For the reasons discussed below, we affirm.

         I. Factual & Procedural Background

         On January 17, 1994, the Appellee, Sarah K. Rogers ("Rogers" or "debtor"), inherited a 72.5 acre tract of real property known as 14849 Kelly Road, Forney, Texas ("Forney Property"). Rogers was single when she inherited the Forney Property from her mother. Subsequently, Rogers married George E. Rogers, and they purchased a 5.1 acre tract of real property known as 8644 South F.M. 549, Rockwall, Texas ("Rockwall Property"). Rogers and her husband constructed a residence on the Rockwall Property and claimed it as their homestead. In January 2004, Rogers separated from her husband, moved into a mobile home on the Forney Property, and claimed the Forney Property as her homestead. On April 6, 2004, Rogers and her husband divorced. Pursuant to the divorce decree, Rogers was divested of all right, title and interest in the Rockwall Property, and no equity from the Rockwall Property was rolled-over into the Forney Property. The divorce decree awarded the Forney Property to Rogers, but this award simply affirmed the reality that the Forney Property was her separate property because she inherited it from her mother before marriage.

         Prior to 2004, Rogers and her husband had borrowed money from the Appellant, Jack C. Wallace, to embark on an ultimately unsuccessful business venture. Wallace eventually sued to recover the unpaid loan balance, and on April 19, 2004, he obtained a state-court judgment against both the debtor and her then ex-husband, for the total principal amount of $316,180.95, in addition to court costs and post-judgment interest.

         On September 28, 2005, the debtor filed for relief under Chapter 7 of the Bankruptcy Code. The debtor elected state law exemptions in accordance with the provisions of 11 U.S.C. § 522(b). In her Schedule C, the debtor claimed her homestead exemption on the Forney Property in the amount of $359,000. Wallace filed a timely objection to the debtor's claimed homestead exemption, arguing that 11 U.S.C. § 522(p)(1) capped the debtor's homestead exemption at the federal statutory amount of $125,000 because the debtor acquired her homestead interest in the Forney Property within the 1,215-day period preceding the filing of her bankruptcy petition.

         The bankruptcy court orally denied Wallace's objection at a hearing held on January 18, 2006, and this ruling was memorialized by written order dated February 7, 2006. On October 16, 2006, the district court affirmed the bankruptcy court's order overruling Wallace's objection to the claimed homestead exemption. Wallace then perfected this timely appeal.

         II. Analysis

         A. Standard of Review

         We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. "We review the decision of the district court by applying the same standard to the bankruptcy court's findings of fact and conclusions of law as the district court applied." Total Minatome Corp. v. Jack/Wade Drilling, Inc. (In re Jack/Wade Drilling, Inc.), 258 F.3d 385, 387 (5th Cir. 2001). The bankruptcy court's findings of fact are subject to clearly erroneous review, while its conclusions of law are reviewed de novo. Id.

         B. The debtor is entitled to her full homestead exemption.

         1. 11 U.S.C. § 522(p)(1)

         The bankruptcy estate is comprised of "all legal or equitable interests of the

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debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1); Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991). Rogers elected to exempt the Forney Property as her homestead under Texas state law. See 11 U.S.C. § 522(b); see also TEX. CONST. art. XVI, § 50; see also TEX. PROP.CODE §§ 41.001-.002. " 'An exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor.' " Norris v. Thomas (In re Norris), 413 F.3d 526, 527 (5th Cir. 2005) (quoting Owen, 500 U.S. at 308, 111 S.Ct. 1833).

         Enacted as part of BAPCPA, 11 U.S.C. § 522(p)(1) limits the state law homestead exemption under certain circumstances.1 Section 522(p)(1) prevents the debtor from exempting certain interests from the bankruptcy estate if they were acquired by the debtor during the statutory period and their aggregate value exceeds a certain dollar threshold. The statute reads, in relevant part:

[A]s a result of electing . . . to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate [$125,000]2 in value in--real or personal property that the debtor or dependent of the debtor claims as a homestead.

11 U.S.C. § 522(p)(1)(D). The statute further states that "any amount of such interest does not include any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor's current principal residence, if the debtor's previous and current residences are located in the same State." Id. § 522(p)(2)(B).

         2. The bankruptcy court held that the term "interest" refers to title, and the district court held that the term "interest" refers to equity.

         Both the bankruptcy court and the district court held that Rogers was entitled to her homestead exemption, but they gave different reasons for this holding. The bankruptcy court predominantly focused on construing the relationship between different phrases in § 522(p)(1)(D) while the district court focused on interpreting the meaning of the term "interest." Ultimately, the two courts interpreted the term "interest" differently: the bankruptcy court interpreted it to mean an unquantifiable "property interest," which presumably refers to title or fee ownership, and the district court interpreted it to mean "some legal or equitable interest that can be quantified by a monetary figure," which presumably refers to equity. Both courts reached the same conclusion regarding the applicability of § 522(p)(1)(D) because a homestead interest is not the equivalent of title or equity.

         The bankruptcy court construed § 522(p)(1) to mean that a debtor "can't exempt any amount in excess of $125,000 if an interest in property was acquired by the debtor during the 1,215 day period preceding the date of the filing of the petition." Thus, the bankruptcy court

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concluded that the phrase "any amount" modifies the phrase "that exceeds in the aggregate $125,000." In the words of the bankruptcy court, "it's got to be the interest that's acquired, not an amount of interest." The bankruptcy court concluded that § 522(p)(1) was inapplicable because Rogers acquired her "property interest" in the Forney Property in 1994, which was outside the statutory period.

         Although the Texas Supreme Court has characterized the homestead interest as a "legal interest" created by the Texas Constitution, the bankruptcy court held that this "legal interest" was not the type of "property interest" covered by § 522(p)(1). Although it did not further define the term "property interest," the bankruptcy court's conclusion that the phrase "any amount" does not modify the term "interest" strongly suggests that it equated acquiring a "property interest" with acquiring title to the property. Furthermore, the only case cited by the bankruptcy court at the hearing held that the term "interest" refers to title, not equity. See In re Blair, 334 B.R. 374, 376 (Bankr. N.D. Tex. 2005).

         Based on the legislative history, the bankruptcy court concluded that the purpose of the statute was to close the "mansion loophole" and prevent debtors from moving to states with more generous homestead exemptions on the eve of bankruptcy in order to avail themselves of those exemptions. After observing that Rogers did not move to Texas in anticipation of bankruptcy and that her homestead designation of the Forney Property was precipitated by divorce, the bankruptcy judge overruled Wallace's objection and held that Rogers may exempt the entirety of her homestead from the bankruptcy estate.

         On appeal, the district court affirmed the bankruptcy court's order. Wallace v. Rogers (In re Rogers), 354 B.R. 792, 798 (N.D. Tex. 2006). Unlike the bankruptcy court, the district court assumed that the phrase "any amount" modifies the term "interest," so the issue was whether...

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