Anderson, In re
| Decision Date | 10 August 1987 |
| Docket Number | No. 85-2874,85-2874 |
| Citation | 824 F.2d 754 |
| Parties | In re Eric ANDERSON and Anna Anderson, Debtors. REDWOOD EMPIRE PRODUCTION CREDIT ASSOCIATION, Appellant, v. Eric ANDERSON and Anna Anderson, Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Rita E. Whalen, Santa Rosa, Cal., for appellant.
Lysbeth Goodman, Santa Rosa, Cal., and Basil Plastiras, San Francisco, Cal., for appellees.
Appeal from the United States District Court for the District of Northern California.
Before NORRIS, BEEZER and BRUNETTI, Circuit Judges.
I. Facts
The debtors in this case recorded a Declaration of Homestead on their home in Mendocino, California in October 1982. After the declaration was recorded, the California legislature substantially altered statutory provisions for homesteads by enacting the new Enforcement of Judgments Act ("NEJA"), which became effective on July 1, 1983. In December 1983, Redwood Empire Production Credit Association ("REPCA") recorded an Abstract of Judgment (judgment lien) on the Mendocino home, in which the debtors have about $30,000 in equity.
In order that Mr. Anderson might be closer to the college which he was attending, the debtors moved from their Mendocino house in January 1984 and leased it. They purchased a second house in Sonoma County and moved into it. Four months later, the Andersons filed a Chapter 7 bankruptcy petition.
When the petition was filed, the Andersons had little or no equity in the Sonoma home. The debtors scheduled a homestead exemption on the Mendocino home based on the recorded Declaration of Homestead. REPCA objected to the exemption on the grounds that California law requires actual residence in the homestead and that the debtors did not reside in their Mendocino house. The bankruptcy judge agreed and disallowed the homestead. The debtors appealed to the district court, which reversed the bankruptcy court. We conclude that the bankruptcy court was correct and therefore reverse the district court.
II. Overview
This appeal raises the question whether the California Enforcement of Judgments Act (Cal.Civ.Proc.Code Sec. 680.010 et seq.) gives these debtors a homestead exemption in bankruptcy based on a declaration of homestead recorded pursuant to prior state law. We must decide the factual question whether the debtors still reside in their Mendocino house and the legal question of the applicability of the California exemption laws. This court recently articulated the appropriate standard of review for bankruptcy cases thus:
Because we are in as good a position as the district court to review the findings of the bankruptcy court, we independently review the bankruptcy court's decision. [citations omitted] We review the bankruptcy court's findings of fact under the clearly erroneous standard and its conclusions of law de novo. [citations omitted].
In re Commercial Western Finance Corp., 761 F.2d 1329, 1333 (9th Cir.1985). In bankruptcy actions, the federal courts decide the merits of state exemptions, but the validity of the claimed state exemption is controlled by the applicable state law. In Re LaFortune, 652 F.2d 842, 846 (9th Cir.1981). We can find no relevant California cases which discuss the problems raised in this appeal. We are bound by California rules of construction in our independent interpretation of the California statutes at issue, however.
The statutory provisions affecting homesteads are primarily located in Article 4 (Secs. 704.710-704.850) and Article 5 (Secs. 704.910-704.995) of Title 5, Division 2, Chapter 4 of the California Code of Civil Procedure. Article 4 provides for an "automatic" homestead, for which no recording is necessary. Article 5 provides for recorded declarations of homestead.
Contrary to the debtors' assertions, recordation of an Article 5 declaration of homestead does not constitute an election of the declared homestead over the automatic homestead. As we will demonstrate, Article 4 and Article 5 each confer different rights on the debtor, and there is no overlap between these rights. A debtor may thus have Article 4 rights, or Article 5 rights, or both or neither.
In order to settle the question whether these debtors can claim an exemption in bankruptcy, we first must determine whether the debtors are entitled to the benefits of Article 4 or Article 5 or both. We then examine the benefits conferred on them by the applicable articles. Finally, since we conclude that the debtors' substantive rights have been changed by the new legislation, we must decide whether the change violates the Contracts Clause.
III. Applicable Articles
At the outset, we acknowledge that the debtors resided in the Mendocino home at the time they filed their declaration of homestead, but did not reside in the house when they filed their bankruptcy petition. They moved their household to Sonoma County for the purpose of attending college and rented the Mendocino house to others. Under these circumstances, the absence from Mendocino could not be construed as a temporary absence like a vacation or hospital stay which the homestead statutes are designed to excuse. See Legislative Committee Comment to amended Cal.Civ.Proc.Code Sec. 704.710.
The Bankruptcy Court found by stipulation that the Debtors were not residing in the Mendocino home on the date of bankruptcy. Order Disallowing Homestead Exemption, No. 1-84-00607, slip op. at 2 (Bankr. N.D.Cal. Mar. 26, 1985). The District Court Judge did not reach the factual issue, since she determined that residency is not a prerequisite to the exemption. The bankruptcy court's factual determination that the Andersons did not live in the Mendocino home is not clearly erroneous, and we apply the law based on this factual finding.
Clearly these debtors are not entitled to the benefits of the Article 4 exemption on their Mendocino house. The "automatic" homestead exemption can only be claimed by a debtor who resides (or who is related to one who resides) in the homestead property at the time of a forced judicial sale of the dwelling. Cal.Civ.Proc.Code Secs. 704.710(a), (b), (c), 704.720, 704.730, 704.740.
By virtue of the recorded declaration of homestead under prior law, these debtors are entitled to the benefits of the Article 5 declared homestead. Under Article 5, a " 'declared homestead' means the dwelling described in a homestead declaration." Cal.Civ.Proc.Code Secs. 704.910(a), 704.710(c). "Homestead declaration" includes declarations recorded under prior law. Cal.Civ.Proc.Code Sec. 704.910(d)(2). The Article 5 definitions, unlike those in Article 4, do not require continued residency.
Although residency is required to properly declare an Article 5 homestead, moving away from the homestead does not destroy the exemption status. Under the pre-NEJA law, a valid homestead remains effective until the party claiming the homestead abandons the homestead. California Bank v. Schlesinger, 159 Cal.App.2d Supp. 854, 324 P.2d 119, 122 (1958). The same rule is continued for NEJA filings. "From and after the time of recording, the dwelling is a declared homestead for the purposes of this article." Cal.Civ.Proc.Code Sec. 704.920. The Legislature specifically provided several ways for one to abandon a declared homestead. A homeowner can file a declaration of abandonment. Cal.Civ.Proc.Code Sec. 704.980. Additionally, one may have only one declared homestead at a time: a declaration of homestead by the same person on another property constitutes abandonment of the first declared homestead by operation of law. Cal.Civ.Proc.Code Sec. 704.990. The Legislature has not expressed any intent to terminate declarations of homestead upon vacating the homestead premises, and we refuse to infer one.
We conclude, as did the district court, that the debtors, having properly filed a declaration of homestead under prior law, are entitled to the benefits of Article 5. The district court's memorandum did not discuss the rights conferred by Article 5, but implicitly held that Article 5 grants a homestead exemption to the same extent as Article 4. In order to dispose of this appeal, however, we must consider the nature of the rights provided under the "declared homestead" and "homestead exemption" statutes.
IV. Substantive Rights Under NEJA
The debtors essentially contend that Article 5 incorporated the Article 4 exemption by reference so that their declaration of homestead entitled them to all of the benefits of Article 4. REPCA, on the other hand, argues that NEJA changed the law of declared homesteads so that a declaration only provides for benefits in addition to those conferred by Article 4. After a careful analysis of the statute, we conclude that REPCA is correct. Article 4 protects the homestead from forced sale without prior court order. Cal.Civ.Proc.Code Sec. 704.740(a). Article 5 provides additional benefits for debtors who file a declaration of homestead. Proceeds from voluntary sale are protected. Cal.Civ.Proc.Code Sec. 704.960. Judgment liens do not attach to the equity protected by the declared homestead exemption. Cal.Civ.Proc.Code Sec. 704.950. And protection of the declared homestead against attachment of judgment liens survives the deceased homestead owner. Cal.Civ.Proc.Code Sec. 704.995.
As a starting point, we note that under NEJA, the effect of a declaration of homestead recorded under former law is limited to the effect given the homestead by Article 5. Cal.Civ.Proc.Code Sec. 694.090. Statements in legislative commitee reports which are in accord with a reasonable interpretation of a statute will be followed by courts to assist in interpretation of legislative intent. Wolfe v. Lipsy, 163 Cal.App.3d 633, 642, n. 2, 209 Cal.Rptr. 801, 807, n. 2 (1985). In connection with Article 5, the Senate Legislative Committee commented:
[T]he effect of a declaration of homestead recorded...
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