Bradley, Matter of

• Decision Date: 13 May 1992
• Docket Number: No. 91-1031,91-1031
• Citation: 960 F.2d 502
• Parties: In the Matter of Kelly P. BRADLEY, Debtor. Kelly P. BRADLEY, Appellant, v. PACIFIC SOUTHWEST BANK, FSB, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 502

960 F.2d 502

In the Matter of Kelly P. BRADLEY, Debtor.

Kelly P. BRADLEY, Appellant, v. PACIFIC SOUTHWEST BANK, FSB, Appellee.

No. 91-1031.

United States Court of Appeals, Fifth Circuit.

May 13, 1992.

Rehearing and Rehearing En Banc

Denied June 18, 1992.

Roger L. Mandel, H. DeWayne Hale, Marc W. Taubenfeld, Hale, Spencer, Stanley, Pronske & Trust, P.C., Dallas, Tex., for appellant.

Susan Foster, Larry F. Amerine, Biggers, Beasley, Amerine & Earle, Dallas, Tex., for appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before KING, JOHNSON and EMILIO M. GARZA, Circuit Judges.

JOHNSON, Circuit Judge:

Even before the ink had dried on the joint resolution of Congress that admitted Texas as the twenty-eighth state in the Union, Texas citizens enjoyed broad homestead rights. See Tex. Const. art. VII, § 22 (1845). Not much has changed in the last 145 or so years. As it did in the dawning days of the state, the homestead exemption in Texas continues to "protect citizens and their families from the miseries and dangers of destitution." Franklin v. Coffee, 18 Tex. 413, 415-16 (1857). Kelly P. Bradley, the debtor in this bankruptcy proceeding, appeals the determination of both the bankruptcy court and the district court that she is not entitled to homestead rights in all 129.47 acres of her family farm. Concluding that this determination is based upon an incorrect understanding of Texas homestead law, this Court reverses the judgment of the courts below and remands to the district court for further proceedings consistent with this opinion.

I. FACTS AND PROCEDURAL HISTORY

Debtor Kelly P. Bradley and her husband, Scott Bradley, own 129.47 acres of rural property located within the city limits of Westlake, Texas. The Bradleys acquired this property, known as "Paigebrooke Farm," through a partnership agreement they executed with several other investors in 1977. The partnership agreement specified that the Bradleys could occupy fifteen acres of Paigebrooke Farm as their homestead, but the partnership would seek to develop the remaining 114.47 acres of the property for commercial or residential use. The Bradleys moved into a house located in the approximate center of the farm and, in accordance with the partnership agreement, constructed several ranch buildings within an unfenced fifteen acre section surrounding the family house. ¹ Since 1978 they have used the remaining acreage to grow hay and raise cattle.

In 1982, after repeated unsuccessful attempts to develop the remaining 114.47 acres of Paigebrooke Farm, the Bradleys terminated the partnership and purchased the interests of the other investors. Subsequently, the Bradleys have used all 129.47 acres of Paigebrooke Farm as their home and ranch. Besides growing hay and raising cattle on the remaining 114.47 acre section of the property, since at least 1985 they have also bred and sold horses on the property. The Bradleys have registered the entire farm with the USDA Soil Conservation Service and have filed Schedule F farm income forms with their annual tax returns.

In August 1985 Kelly Bradley and her husband entered into a loan transaction with Seguin Savings Association, the predecessor of current creditor Pacific Southwest Bank, FSB. Seguin Savings agreed to loan the Bradleys a sum in excess of five million dollars. As part of the collateral to secure payment of the note, the Bradleys granted Seguin Savings a third lien deed of trust covering all of Paigebrooke Farm except the fifteen acres on which their home and ranch buildings stood. In addition, the Bradleys executed a "homestead disclaimer" that purported to release all of their homestead claims to the 114.47 acres.

Two years later, Kelly Bradley filed a voluntary petition for Chapter 11 bankruptcy relief. Electing the state exemption scheme authorized in the Bankruptcy Code, ² Bradley claimed a rural homestead in all 129.27 acres of Paigebrooke Farm. Because Texas law does not permit creditors to satisfy their claims through forced sale of a homestead, Bradley requested that the bankruptcy court disallow Seguin Savings' secured claim against Paigebrooke Farm. On December 12, 1988, the bankruptcy court entered findings of fact and conclusions of law. The court concluded that Paigebrooke Farm indeed was rural in character and that Bradley had neither alienated nor abandoned her homestead rights to the property. The court further concluded, however, that the debtor could claim only fifteen acres of the farm as her rural homestead. ³ On November 26, 1990, the district court affirmed these conclusions. 121 B.R. 306.

II. DISCUSSION

Texas law recognizes both urban and rural homesteads. If a debtor uses land as "an urban home or as a place to exercise a calling or business in the same urban area," then the debtor is entitled to claim up to an acre of the land, in one or more tracts, as an urban homestead. ⁴ Tex.Prop.Code Ann. § 41.002(a) (Vernon Supp.1991). See also Tex. Const. art. XVI, § 51. ⁵ If a debtor uses land "for the purposes of a rural home," then the debtor is entitled to claim up to two hundred acres of the land, in one or more tracts, as a rural family homestead. ⁶ Tex.Prop.Code Ann. § 41.002(b) (Vernon Supp.1991). See also Tex. Const. art. XVI, § 51. In either instance, the Texas homestead is exempt from forced sale "except for the purchase money thereof, or a part of such purchase money, the taxes due thereon, or for work and material used in constructing improvements thereon." Tex. Const. art. XVI, § 50.

Bradley contends that the bankruptcy court, as well as the district court, erred in limiting her to a fifteen acre homestead. She argues that, under Texas law, she is entitled to claim all 129.47 acres of Paigebrooke Farm as her rural homestead. On appeal of a bankruptcy proceeding, this Court applies a two level standard of review. We review the factual findings of the bankruptcy court under the "clearly erroneous" standard. In re Niland, 825 F.2d 801, 806 (5th Cir.1987). According to this deferential standard, we should overturn the factual findings of the bankruptcy court only when, after review of all the evidence, we are left with a "firm and definite conviction" that the bankruptcy court committed a mistake. United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). Unlike factual findings, however, we review the legal conclusions of the bankruptcy court under the less deferential de novo standard. In re Missionary Baptist Foundation, 712 F.2d 206, 209 (5th Cir.1983). Thus, if a bankruptcy court premises a finding of fact upon an improper legal standard, the finding of fact "loses the insulation of the clearly erroneous rule." Id.

The de novo standard requires that this Court conduct an independent analysis of Texas homestead law. See Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991). ⁷ Because homesteads are favorites of the law, we must give a liberal construction to the constitutional and statutory provisions that protect homestead exemptions. See Tolman v. Overstreet, 590 S.W.2d 635, 637 (Tex.Civ.App.--Tyler 1979, no writ); Kunkel v. Kunkel, 515 S.W.2d 941, 946 (Tex.Civ.App.--Amarillo 1974, writ ref'd n.r.e.); Garrett v. Katz, 23 S.W.2d 436, 438 (Tex.Civ.App.--Dallas 1929), modified on other grounds, 27 S.W.2d 373 (Tex.Civ.App.--Dallas 1930, no writ). Indeed, we must uphold and enforce the Texas homestead laws even though in so doing we might unwittingly "assist a dishonest debtor in wrongfully defeating his creditor." Cocke v. Conquest, 120 Tex. 43, 35 S.W.2d 673, 678 (1931). Mindful of these principles, we turn to the substance of this case.

A. Initial Burden of Proof

It is well settled in Texas that an individual who seeks homestead protection has the initial burden to establish the homestead character of her property. Lifemark Corp. v. Merritt, 655 S.W.2d 310, 314 (Tex.App.--Houston [14th Dist.] 1983, writ ref'd n.r.e.). To meet this initial burden of proof, the claimant must "show a combination of both overt acts of homestead usage and the intention on the part of the owner to claim the land as a homestead." Sims v. Beeson, 545 S.W.2d 262, 263 (Tex.Civ.App.--Tyler 1976, writ ref'd n.r.e.). Once the claimant has established the homestead character of her property, the burden shifts to the creditor to disprove the continued existence of the homestead. See Sullivan v. Barnett, 471 S.W.2d 39, 43 (Tex.1971); Lifemark Corp., 655 S.W.2d at 314. ⁸

The initial burden to establish the homestead character of property is a short hurdle. In the usual case, mere evidence of "overt acts of homestead usage" is sufficient to meet this burden. As long as the claimant can demonstrate that she has used her property for homestead purposes, then the Texas courts will presume that the homestead claimant possesses the requisite intent. See Youngblood v. Youngblood, 124 Tex. 184, 76 S.W.2d 759, 761 (1934). "Possession and use of land by one who owns it and who resides upon it makes it the homestead in law and in fact." First Interstate Bank v. Bland, 810 S.W.2d 277, 286 (Tex.App.--Fort Worth 1991, no writ) (emphasis added). See also Lifemark Corp., 655 S.W.2d at 315 ("[I]nvestigation of intention need not be made when the land is actually put to homestead use. Such actual use is the most satisfactory and convincing evidence of intention."). ⁹

In the instant case, Bradley demonstrated that she and her family have used all 129.47 acres of Paigebrooke Farm for homestead purposes. As the bankruptcy court acknowledged in its findings of fact, Bradley and her family live in a house on the property and have used the entire farm to grow hay and raise livestock. Findings of Fact at 3. The Texas courts have routinely held that use of property for farming or ranching purposes, accompanied by occupancy of the property, is sufficient to imbue the property with a homestead...