Gourdin v. Agin

• Decision Date: 17 June 2010
• Docket Number: Bankruptcy No. 09-16884-FJB.,BAP No. MB 09-070.
• Citation: 431 B.R. 885
• Parties: David A. GOURDIN, Sr., Debtor.David A. Gourdin, Sr., Appellant,v.Warren E. Agin, Chapter 7 Trustee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, First Circuit

431 B.R. 885

David A. GOURDIN, Sr., Debtor.

David A. Gourdin, Sr., Appellant,

v.Warren E. Agin, Chapter 7 Trustee, Appellee.

BAP No. MB 09-070.

Bankruptcy No. 09-16884-FJB.

United States Bankruptcy Appellate Panel of the First Circuit.

June 17, 2010.

COPYRIGHT MATERIAL OMITTED

Norman Novinsky, Esq., on brief for Appellant.

Warren E. Agin, Esq., on brief for Appellee.

Before LAMOUTTE, VAUGHN, and KORNREICH, United States Bankruptcy Appellate Panel Judges.

KORNREICH, Bankruptcy Judge.

David A. Gourdin, Sr., is the debtor in this case. Warren E. Agin, the chapter 7 trustee, objected to the debtor's claim of a homestead exemption in his former marital residence under Massachusetts law on grounds that the state probate court had divested the debtor of his interest in that property in a divorce action prior to bankruptcy. This appeal by the debtor is from the order of the bankruptcy court sustaining the trustee's objection. We AFFIRM.

BACKGROUND

The debtor and Michelle Gourdin were married in 1986 and purchased their marital residence in 1989.¹ In 1994, the debtor declared their marital residence to be a homestead under Massachusetts law. In December, 2006, the debtor moved out of the residence and out of state. Michelle and their two minor children continued to occupy the marital residence. The debtor returned to Massachusetts in 2007, but he did not return to the residence. Divorce proceedings were commenced and fully litigated to a final disposition in the Massachusetts probate court. In the resulting “Judgment of Divorce Nisi” entered on April 30, 2008,² the probate court awarded the residence to Michelle and ordered the debtor to “forthwith convey all right, title and interest” to her. She became obligated to sell the residence after their youngest child turned 18 or upon his graduation from high school, whichever occurred later. The judgment authorized Michelle to retain a specified amount of money from the net proceeds of sale to reimburse her for the liens for which the debtor was responsible and allowed her to keep a sum equal to unpaid child support due at the time of sale. The remaining proceeds were to be divided 75% to Michelle and 25% to the debtor. Under the scheme ordered by the probate court, the debtor was to retain no interest in the marital residence beyond a claim against Michelle for 25% of the net proceeds of sale.

The debtor failed to convey his interest in the residence to Michelle. She sought relief for this failure in the probate court. In an order entered on May 5, 2009, entitled “Appointment Pursuant to Rule 70” (the “divestment order”),³ the probate court divested the debtor of title and vested his title in a master “who shall have full power and authority to convey defendant's interest to [Michelle], as per the Judgment of Divorce dated April 30, 2008.” The master executed a deed conveying the marital residence to Michelle on June 18, 2009. She recorded the deed on August 5, 2009.

The debtor filed his chapter 7 petition on July 21, 2009, two weeks before Michelle recorded the deed. He listed a 25% interest in the marital residence on his schedule of real property and showed the net value of that interest to be $85,143.00, based upon a fair market value of $358,000.00 less a 5% broker's commission.⁴ He also claimed a homestead exemption under Massachusetts law.⁵

In a timely objection to the debtor's homestead exemption, the trustee argued that the debtor could not claim the residence to be exempt under Massachusetts law for two reasons: first, the probate court had transferred full title in the residence to Michelle prior to bankruptcy; and, second, the debtor had abandoned the residence. According to the trustee, the debtor's sole claim arising from the residence was a right to receive a portion of the proceeds of sale, a right that is not protected by the Massachusetts Homestead Act.

In the debtor's response to the trustee's objection, he admitted the entry of the divorce judgment after trial. He also admitted the essential content of that judgment without conceding its finality.⁶ The debtor also admitted the entry and content of the divestment order without challenging its finality. Yet, despite those admissions he insisted that his interest in the residence had not been terminated by the probate court because his “title was not transferred until after bankruptcy.” According to the debtor's reckoning, as the holder of record title, he was entitled to exempt his claim to the proceeds of sale. The debtor also asserted that the transfer of title and post-bankruptcy recording of the deed by Michelle were violations of the automatic stay.⁷

The bankruptcy court sustained the trustee's objection and disallowed the debtor's homestead exemption, following a hearing, in a minute order stating:

The Trustee's objection to the debtor's claim of homestead exemption is hereby sustained and the exemption disallowed.

The debtor's interest in the marital property was terminated prepetition by two orders of the Probate Court: the divorce judgment, which awarded the property to his former wife, Michelle, and the May 5, 2009 order, which vested the property in a master under obligation to transfer debtor's record title to Michelle. The debtor retains no interest in the property. Instead, he has a right to payment from Michelle, albeit one whose amount and timing are dependent on the sale of the house. This asset is only a right to payment, not a continuing interest in the real property, and therefore cannot be claimed as exempt under c. 188.

It is true that, as of the filing of the bankruptcy petition, the deed transferring title may not have been delivered to Michelle. This fact is irrelevant because, as of that date, the debtor was bound by the Probate Court orders. Therefore, as of the petition date, the debtor held only bare record title and not any equitable interest in or right to the property. Under 11 U.S.C. § 541(d), the bankruptcy estate acquired the property only to the extent of the debtor's legal title, but not to the extent of the equitable interest in the property that he did not hold. In short, the estate acquired no equitable interest in the property, and what legal title it acquired was held at sufferance and in contempt, subject to the Probate Court's orders of divestiture and transfer. I am satisfied that the debtor brought no interest in the property into the estate and therefore cannot claim an interest in the property as exempt under c. 188. Nor does it matter that the transfer was not recorded prepetition. Recording perfects a transfer against certain third parties. As between the debtor and Michelle, however, perfection was unnecessary: the termination of the debtor's interest in the property was res judicata. Under 11 U.S.C. § 541(a)(1), the estate received the debtor's interest subject to the Probate Court orders, with no better title than the debtor himself had. Nor has the Trustee indicated any intent to recover any interest in the property by exercise of his rights as a hypothetical bona fide purchaser for value under 11 U.S.C. § 544. Even if he could do so (I make no ruling on that issue), he has not, and therefore the estate simply does not own an interest in the property to claim as exempt.

This appeal followed.

JURISDICTION

A bankruptcy appellate panel may hear appeals from “final judgments, orders and decrees [pursuant to 28 U.S.C. § 158(a)(1) ] or with leave of the court, from interlocutory orders and decrees [pursuant to 28 U.S.C. § 158(a)(3) ].” Fleet Data Processing Corp. v. Branch (In re Bank of New England Corp.), 218 B.R. 643, 645 (1st Cir. BAP 1998). “A decision is final if it ‘ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.’ ” Id. at 646 (citations omitted). An order granting or denying a claimed exemption is a final, appealable order. Aroesty v. Bankowski (In re Aroesty), 385 B.R. 1, 3 (1st Cir. BAP 2008); Hildebrandt v. Collins (In re Hildebrandt), 320 B.R. 40, 42-43 (1st Cir. BAP 2005).

STANDARD OF REVIEW

A bankruptcy court's findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo. See Lessard v. Wilton-Lyndeborough Coop. School Dist., 592 F.3d 267, 269 (1st Cir.2010). Our review of this matter is de novo because the facts are undisputed. U.S. v. Rogers, 521 F.3d 5, 9 (1st Cir.2008). We may affirm a decision of the bankruptcy court on any basis apparent in the record. See Chiang v. Verizon New England Inc., 595 F.3d 26, 34 (1st Cir.2010).

DISCUSSION

Two assertions of error are raised by the debtor on appeal: first, that the bankruptcy court erred in finding that the trustee had met his burden of proof on his objection to the homestead exemption claim; and, second, that the bankruptcy court erred in concluding that the divorce judgment and divestment order had terminated the debtor's homestead interest in the marital residence. We begin our analysis with an overview of the applicable bankruptcy law.

The commencement of a bankruptcy case creates an estate. See 11 U.S.C. § 541(a).⁸ A bankruptcy estate is comprised of all legal and equitable interests of a debtor in property as of the commencement of the case with limited exceptions.⁹See 11 U.S.C. § 541(a)(1); Pasquina v. Cunningham (In re Cunningham), 513 F.3d 318, 323 (1st Cir.2008). “ Section 541 is construed broadly to bring in any and all of the debtor's property rights within the bankruptcy court's jurisdiction and the umbrella of protections granted by the Bankruptcy Code, and to promote the goal of equality of distribution.” Abboud v. The Ground Round, Inc. (In re The Ground Round, Inc.), 335 B.R. 253, 259 (1st Cir. BAP 2005) (citing U.S. v. Whiting Pools, Inc., 462 U.S. 198, 205 n. 9, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983)) aff'd, 482 F.3d 15 (1st Cir.2007). Federal law will determine whether an interest in property is property of the estate, but state law will determine what constitutes a legal or equitable...