Diaz v. Kosmala (In re Diaz)
| Decision Date | 11 March 2016 |
| Docket Number | Bk. No. 8:13–19194–CB,BAP No. CC–15–1219–GDKi |
| Citation | 547 B.R. 329 |
| Parties | In re: Andy Diaz, Debtor. Andy Diaz, Appellant, v. Weneta M.A. Kosmala, Trustee, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Michael J. Carras of Conforti & Carras, APC argued on behalf of Appellant Andy Diaz;
Erin P. Moriarty of the Law Offices of Weneta M.A. Kosmala argued on behalf of Appellee Weneta M.A. Kosmala, Trustee.
Before: GAN,1 DUNN, and KIRSCHER, Bankruptcy Judges.
Debtor Andy Diaz ("Diaz") appeals from a final order granting the motion of the chapter 72 trustee, Weneta M.A. Kosmala ("Trustee"), to disallow Diaz's homestead exemption claimed under California law. The Trustee's motion was joined by Susan Wilson, Diaz's former mother in law and creditor in the case. Because the bankruptcy court incorrectly interpreted California homestead law, we VACATE and REMAND.
Prior to 2011, Diaz was married to Rebecca Wilson Diaz, and lived at a residence in Fullerton, CA. ("Property"). The couple had a son, who is now about eight years old. In October, 2011, Diaz suffered two major brain aneurysms
which required multiple surgeries and initially left him in a coma for several weeks. After some time, Diaz awoke from the coma, but was unable to walk or talk. The aneurysms caused symptoms similar to a stroke. Diaz began recovering from the aneurysms, and after a few months, was released to the care of his mother, who lived across the street and six doors down from the Property. As Diaz's recovery progressed, he regained the ability to walk and talk, however, he remains unable to work and continues to receive Social Security Disability benefits. Diaz and Rebecca Wilson Diaz divorced in 2011. On November 9, 2013, Diaz filed his chapter 7 case.
Originally, Diaz claimed the California "wildcard" exemptions of Cal.Civ.Proc.Code § 703.140(b)
. After the Trustee moved for turnover of the Property in 2015, Diaz filed an amended schedule C to claim the automatic homestead exemption under Cal.Civ.Proc.Code § 740.730(a)(3). Because Diaz was disabled, the amount of the exemption was $175,000.3
Trustee objected to the claimed homestead exemption on the basis that Diaz did not reside in the Property on the date of filing, and that his absence could not be considered temporary for the purposes of claiming the exemption under California law. Specifically, the Trustee argued that Diaz lacked a foreseeable prospect of having the ability to resume occupancy of the Property.
The Trustee's objection was supported by declarations of Rebecca Wilson Diaz and her mother Susan Wilson, which are virtually identical. Their statements are as follows:
, Diaz cannot care for himself;
3. Diaz is never left alone and requires constant care from his mother or brother Gilbert;
4. The Property is occupied by Diaz's brother and sister-in-law, Arthur and Priscilla;
5. Debtor has been allowed to spend the night at the Property a few times, but only in the capacity of a "visitor" and with his mother and Gilbert continuing to provide care. In the morning, Diaz is returned to his mother's house;
6. The bulk of Diaz's personal effects remain at his mother's house;
7. Visitations with Diaz's son occur at his mother's house; and
8. All correspondence is sent to Diaz's mother's house and all interactions between Wilson Diaz and Diaz have taken place there.
Diaz responded to the Trustee's objection and argued that his condition had improved dramatically and that he had returned to living in the Property on a full-time basis. Diaz questioned the Trustee's reliance on Susan Wilson's testimony because as the estate's largest creditor, she would benefit from disallowing the exemption. Diaz supported his opposition with a declaration in which he made the following statements:
Arthur and Gilbert Diaz also filed declarations stating that Diaz resides in the Property.
Trustee filed a reply to Diaz's opposition and argued that Diaz provided no evidence that his absence was temporary. Trustee argued that because Diaz was living nearby at his mother's house, and the Property was occupied by family members, Diaz did not need to change address information. The mortgage and utilities could remain in Diaz's name but be paid by Arthur and Priscilla. Trustee argues that because Diaz was living at his mother's house, he had no use for his furniture and other household items, which remained at the Property for the use of Arthur and Priscilla. Trustee again argued that Diaz was not able to live alone or care for himself, so his absence could not be temporary.
On June 30, 2015, the bankruptcy court held a hearing on the Trustee's motion. At the end of the hearing, the court granted the Trustee's motion to disallow the homestead exemption, ruling:
And, you know, this is a sad situation, but I am going to grant the motion of the Trustee. This has to do with a very substantial homestead, the highest homestead that would be available. And I cannot find that the debtor is entitled to this homestead because at the time of the bankruptcy three and a half years ago he was not living in the property and it does appear to me that the folks that have benefitted from this three and a half years of bankruptcy are the relatives, so I am going to grant the motion.
June 30, 2015 Hr'g Tr., at 16:11–20.
After the ruling, Diaz's attorney asked if it would change the court's analysis if Diaz had been in a rehabilitation hospital instead of recovering at his mother's house. In response, the court clarified the ruling:
Well, I—I'd have to look at the law. You're free to appeal. I'm not saying I enjoyed making this type of decision, but we do have to look at a snapshot at the time of filing. And there has been a substantial period of time that has gone by before he was able to move back into the house. And as I said, I'm also a little suspicious, I've got to tell you, that Mr. Diaz probably was not capable of making the decision to file bankruptcy and that the benefit totally went to his relatives who stayed in that house. And now – you know, now $175,000 homestead exemption seems like an incredibly large exemption for someone who hasn't lived in the house for a number of years.
June 30, 2015 Hr'g Tr., at 17:6–18.
On July 8, 2015, the bankruptcy court entered an order granting the Trustee's motion. Diaz timely appealed.
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b)(2)(B). A bankruptcy court's order denying an exemption is a final, appealable order. Preblich v. Battley, 181 F.3d 1048, 1056 (9th Cir.1999). We have jurisdiction under 28 U.S.C. § 158.
Did the bankruptcy court err in interpreting the California homestead exemption statute?
"The right of a debtor to claim an exemption is a question of law that we review de novo." Elliott v. Weil (In re Elliott), 523 B.R. 188, 191 (9th Cir. BAP 2014)
. The bankruptcy court's interpretation of state exemption laws is reviewed de novo. Calderon v. Lang (In re Calderon), 507 B.R. 724, 728 (9th Cir. BAP 2014). De novo review requires that we consider a matter anew, as if no decision had been rendered previously. Id.
When a debtor files a Chapter 7 petition, all of the debtor's legal or equitable interests in property become property of the estate, subject to the debtor's right to reclaim certain property as exempt. Schwab v. Reilly, 560 U.S. 770, 774, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010)
. Section 522 provides a default list of exemptions, but allows states to opt out of the federal scheme and define their own exemptions. 11 U.S.C. §§ 522(b)(2), (b)(3)(A), (d). California has opted out of the federal exemption scheme. Cal.Civ.Proc.Code § 703.130. The bankruptcy court decides the merits of state exemptions, but the validity of the exemption is controlled by California law. LaFortune v. Naval Weapons Ctr. Fed. Credit Union (In re LaFortune), 652 F.2d 842, 846 (9th Cir.1981). Therefore, we must interpret and apply California law to determine whether Diaz was entitled to claim the homestead exemption.
Diaz has claimed the "automatic" homestead exemption of Cal.Civ.Proc.Code §§ 704.710
–704.810. The automatic homestead exemption protects a debtor from a forced sale and requires that the debtor reside in the homestead property at the time of a forced sale. Redwood Empire Prod. Credit Ass'n v. Anderson (In re Anderson), 824 F.2d 754, 757 (9th Cir.1987) ; Cal.Civ.Proc.Code §§ 704.710(a) -(c), 704.720, 704.730, 704.740. The filing of a bankruptcy petition constitutes a forced sale for purposes of the automatic homestead exemption. Kelley v. Locke (In re Kelley), 300 B.R. 11, 21 (9th Cir. BAP 2003).
Section 704.710(c)
provides:
"Homestead" means the principal dwelling (1) in which the judgment debtor or the judgment debtor's spouse resided on the date the judgment creditor's lien attached to the dwelling, and (2) in which the judgment debtor or the judgment debtor's spouse resided continuously thereafter until the date of the court determination that the dwelling is a homestead.
Cal.Civ.Proc.Code § 704.710(c)
was amended in 1983 to remove the word "actually," which appeared before "resided," in order to avoid a...
To continue reading
Request your trial
- Sarachek v. Luana Sav. Bank (In re Agriprocessors, Inc.)
-
In re Gilman
...statute specifically allocates the burden of proof to the debtor, Rule 4003(c) does not change that allocation." In re Diaz , 547 B.R. 329, 337 (9th Cir. BAP 2016) ; see also Raleigh v. Ill. Dep't of Revenue , 530 U.S. 15, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000) (holding that the burden of pr......
-
In re Aubry
...and the BAP concerning burdens of proof, production and persuasion”; other citations and quotations omitted); see also, In re Diaz, 547 B.R. 329, 336 (9th Cir. BAP 2016) (discussing the burden of proof under Rule 4003(c) as stated in In re Carter) . Subsequently, the United States Supreme C......
-
In re Hammond
... ... California, have agreed with his position. See, ... e.g. , In re Diaz , 547 B.R. 329 (B.A.P. 9th Cir ... 2016); In re Williams , 556 B.R. 456 (Bankr. C.D ... ...