In re Engstrom, Bankruptcy No. 05-39536.

• Citation: 370 B.R. 205
• Decision Date: 20 June 2007
• Docket Number: Bankruptcy No. 05-39536.
• Parties: In re Dorcey David ENGSTROM and Elizabeth Ann Engstrom, Debtors.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota

370 B.R. 205

In re Dorcey David ENGSTROM and Elizabeth Ann Engstrom, Debtors.

Bankruptcy No. 05-39536.

United States Bankruptcy Court, D. Minnesota.

June 20, 2007.

Randall S. Johnson, Attorney at Law, St. Paul, MN, for Debtors.

ORDER OVERRULING OBJECTION OF CREDITOR ERIN FEEHAN-NELSON TO DEBTORS' CLAIM OF HOMESTEAD EXEMPTION

GREGORY F. KISHEL, Chief Bankruptcy Judge.

This Chapter 7 case came on before the Court on the objection of Erin Feehan-Nelson a scheduled creditor, to the Debtors' claim of homestead exemption. The objector appeared by her attorney, Chad C. Alexander. The Debtors appeared by their attorney, Randall S. Johnson. The following order memorializes the disposition of the issues presented, based upon the written objection, the Debtors' response, exhibits received at the hearing, other relevant filed documents, and the arguments of counsel.

NATURE OF PROCEEDING AT BAR

The Debtors filed a voluntary petition under Chapter 7 on October 14, 2005. On their Schedule A, for "Real Property," they noted an interest in property they described as "Debtors' homestead located at 14805 45th Street' S, Afton, MN 55001." They assigned a value of $407,000.00 to this property, noting an "Amount of Secured Claim" at $270,960.19. In their original Schedule C the Debtors claimed an exemption for their interest in this real estate, under the homestead provisions of Minnesota state law, Minn.Stat. §§ 510.01.02.¹ They assigned a value of $136,039.81 as the "Value of Claimed Exemption."

Erin Feehan-Nelson, a scheduled unsecured creditor, timely filed an objection to the Debtors' claim of homestead exemption. She maintains that the size of the parcel of real estate in question exceeds that protectable under Minnesota statute, given the location and characteristics of the property. She then argues that a partition of the acreage between exempt and non-exempt portions would unreasonably affect the value of the non-exempt portion that would be liquidated by the trustee. Thus, she requests a directive to the trustee to sell the real estate as a whole, with the proceeds to be apportioned between the Debtors and the bankruptcy estate.

In response, the Debtors argue that the characteristics of the property entitle them to the larger of the two acreage limitations for homestead protection available under Minnesota law, sheltering it to the extent of its full area. Then, they maintain, because their equity in the real estate does not exceed the value limitation of the statute, their full interest in the property is exempt.

FINDINGS OF FACT²

1. The real estate in question is a parcel of 4.7 acres in area, on which the Debtors' house is located.

2. The real estate is located within the limits of the City of Afton, Minnesota, in Washington County.

3. Debtor Dorcey David Engstrom purchased the real estate itself in 1967. The Debtors constructed the house on it in 1986. With their 16-year-old son, they resided in the house on the real estate as their dwelling place, on the date they filed their bankruptcy petition.

4. The real estate is approximately two miles from the boundary of the "Old Village" of Afton, that portion of the city that was first platted in 1855 into lots of a size appropriate to the higher-density residential and commercial uses of a mid-19th century Midwestern small town.

5. The Debtors' five-acre lot is one of a group of eight contiguous lots of the same size and proportions, arranged in two north-to-south rows of four each.

6. The Debtors' five-acre lot is legally described by survey, not by reference to a plat.

7. The eight-lot grouping that includes the Debtors' lot is immediately bordered on all sides by individually-owned tracts of land of around fifteen to thirty acres in size, with the exception of a subdivided parcel named "Collin Green Addition" on the Northeast. Collin Green Addition is approximately forty acres in size. It has been subdivided into eight lots. A single residential structure with outbuilding(s) is located on each such lot in this addition.

8. Several dozen lots of five acres in size, clustered similarly to the Debtors', are present within the city limits of Afton, in unplatted groupings of two up to twelve lots each. Most of them are located in an arc of 1.5 to 2.5 miles out from the Debtors' lot. They extend from one located due east of the Debtors' lot toward one located to the north-northwest of the Debtors' lot. Between all of these small clusters of five-acre lots are individually-owned tracts varying in size from around ten acres up to about eighty acres. This pattern of small groupings of smaller lots of five to ten acres each, surrounded by larger tracts, is present throughout the area of the City of Afton, with the exception of the Old Village and a half-dozen areas that apparently were subdivided and platted. One such subdivided area is called "Remus Addition"; it lies about one-half mile to the east-southeast of the Debtors' lot. Immediately to the west of the Old Village, but at least two miles to the northeast of the Debtors' lot is a large area, labeled "County Auditor's Plat # 5," with its southerly portion labeled "Valliswood." Immediately adjacent to that and to its west are two smaller such areas, both apparently subdivided, which are titled "Afton Highlands" and "Clover Estates." To the west of that, but one-half mile away and separated by a half-dozen larger individually-owned tracts, is another subdivision labeled "Meadow Ridge."

9. The land occupied by the Debtors as their residence is not included in the laid out or platted portion of the city in which it is located.

10. When the Debtors commenced this case, the value of their real estate was $407,000.00; a mortgage was attached to the real estate, to secure debt then of a balance of $270,960.19; and the Debtors thus held an interest in the land, or equity, of a value of $136,039.81.

11. In the months immediately before their bankruptcy filing, the Debtors raised 20-odd chickens on the real estate, to produce eggs for their own home consumption. They also maintained one beehive. They did not carry on any cultivation of row crops or husbandry of livestock on the real estate. The Debtors admit that, as a matter of fact, they are not engaged in farming as an occupation; both carry on employment or business away from their home place.

CONCLUSIONS OF LAW

1. The area of the land occupied by the Debtors as their residence does not exceed the acreage limitation of Minn.Stat. § 510.02.

2. As of the commencement of this case, value of the Debtors' interest in the land that they claimed exempt did not exceed $200,000.00.

3. As a result, the land occupied by the Debtors as their residence qualifies as a homestead exempt under Minn.Stat. § 510.01.

4. As such, that land is exempt from the estate in this case by operation of 11 U.S.C. § 522(b)(2)(A), and it is not subject to administration by the trustee via apportionment, sale, or any other means.

DISCUSSION

In Minnesota, the creation of a statutory exemption from claims of creditors for real estate used as a homestead is authorized by Article I, Sec. 12 of the State Constitution. Kipp v. Sweno, 683 N.W.2d 259, 262 (Minn.2004); In re Haggerty, 448 N.W.2d 363, 364 (Minn.1989); Barton v. Drake, 21 Minn. 299, 302 (1875); Cogel v. Mickow, 11 Minn. 475 (Gil. 3M) (1866). Minn.Stat. Chap. 510 sets forth the homestead exemption. It begins with a definition that reads, in pertinent part:

The house owned and occupied by a debtor as the debtor's dwelling place, together with the land upon which it is situated to the amount of area and value hereinafter limited and defined, shall constitute the homestead of such debtor and the debtor's family, and be exempt from seizure or sale under legal process on account of any debt not lawfully charged thereon in writing, except such as are incurred for work or materials furnished in the construction, repair, or improvement of such homestead, or for services performed by laborers or servants and as is provided in section 550.175.

Minn.Stat. § 510.01. More relevant to the dispute at bar is "how limited," by "[a]rea and value," is that exemption:

The homestead may include any quantity of land not exceeding 160 acres, and not included in the laid out or platted portion of any city. If the homestead is within the laid out or platted portion of a city, its area must not exceed one-half of an acre. The value of the homestead exemption, whether the exemption is claimed jointly or individually, may not exceed $200,000 or, if the homestead is used primarily for agricultural purposes, $500,000 exclusive of the limitations set forth in section 510.05.

Minn. Stat § 510.02.³

This objection to the Debtors' claim of homestead exemption focuses entirely on the first two sentences of Minn.Stat. § 510.02. The first issue raised by the objector is, which of the two levels of statutory limitation on the size of an exempt homestead applies to the Debtors' residential real estate. This will turn on whether that real estate is "included in the laid out or platted portion" of Afton, the city in which it is located.⁴ This is an issue of fact. Nat'l Bank of the Republic of New York v. Banholzer, 69 Minn. 24, 71 N.W. 919, 920-921 (1897).

As originally presented, this seemed to pose a confounding dilemma. The objector's counsel had peppered his briefs and arguments with citations to the transcript of the Rule 2004 examination of the Debtors; plat mats; zoning maps, municipal comprehensive plans, and land use ordinances; statements on valuation from the Washington County Assessor; and case law citations state and federal. From this he constructed a dense, detailed, and rapid-fire theory or objection: that the Debtors' lot and home were smack in the middle of "an upscale suburban residential neighborhood," an upper-crust exurban compound of sorts, where citified residents fleeing the less pleasing aspects of the metropolitan environment were...