In re Hyman
| Decision Date | 12 February 1991 |
| Docket Number | Bankruptcy No. LA 88-24553,BAP No. CC-89-1651-MeVP,Adv. No. 89-00544-GM. |
| Citation | 123 BR 342 |
| Parties | In re Irwin HYMAN and Janice Hyman, Debtors. Irwin HYMAN and Janice Hyman, Appellants, v. Gary PLOTKIN, Chapter 7 Trustee, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Richard M. Moneymaker, Los Angeles, Cal., for appellants.
Amy L. Goldman, Los Angeles, Cal., for appellee.
Before MEYERS, VOLINN and PERRIS, Bankruptcy Judges.
I
Joint debtors under Chapter 7 of the Bankruptcy Code ("Code") brought this action against their estate trustee seeking a declaratory judgment that the debtors' principal residence was an exempt asset and no longer property of the estate. From an Order of the trial court granting summary judgment in favor of the Trustee, this appeal ensues. We AFFIRM.
II
Irwin and Janice Hyman ("Hymans") filed a voluntary petition under Chapter 7 of the Code on November 21, 1988. They listed their principal residence as an asset, stating its value to be $415,000 and claiming a $45,000 homestead exemption. Gary Plotkin, the trustee ("Trustee"), did not object within 30 days either to the debtors' asset valuation or to the homestead claim. The Trustee later sought to sell the residence and presumably retain for the estate any proceeds from the sale above the sum of the encumbrances and the homestead exemption.
The Hymans initiated this adversary proceeding against the Trustee for a judgment declaring the residence to be an exempt asset no longer within the estate, or in the alternative, declaring that all postpetition appreciation accrues for the benefit of the debtors. The Trustee moved for summary judgment and that motion was granted following a hearing, with the judgment being entered July 12, 1989.
III
The Panel reviews summary judgments de novo. In re Two S Corp., 875 F.2d 240, 242 (9th Cir.1989); In re Softalk Publishing Co., 856 F.2d 1328, 1330 (9th Cir.1988); In re Orosco, 93 B.R. 203, 207 (9th Cir.BAP 1988). A summary judgment may be affirmed only if it appears, after reviewing all evidence and factual inferences in the light most favorable to the opposing party, that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. In re Seaway Express Corp., 105 B.R. 28, 30 (9th Cir.BAP 1989), aff'd 912 F.2d 1125 (9th Cir.1990). California state law controls substantive questions involving homestead exemption rights. See In re Peters, 91 B.R. 401, 408 (W.D.Tex.1988); In re Schneider, 9 B.R. 488, 491-92 (N.D.Cal. 1981). See also In re Anderson, 824 F.2d 754, 756 (9th Cir.1987).
IV
The Hymans do not argue that any material fact is at issue. Rather, the Appellants make a series of legal arguments that build on one another to their urged conclusion that the Trustee may not now sell the Hyman residence because it is no longer part of the estate.
The Appellants argue that since the Trustee did not object within 30 days to the valuation of their residence stated on the original schedules filed, that value may not now be disputed. They further contend that the physical dwelling itself was a validly claimed exempt asset and since there was no surplus value in the asset at the time of the petition it reverted from the estate to the debtors. Hence the Appellants conclude that the property is no longer the Trustee's to sell or at least that any postpetition appreciation in value belongs to them. Four legal questions are thus raised by this appeal: first, whether the debtor is correct in assuming that no surplus value existed in the property; second, whether the $45,000 California homestead exemption refers to a physical asset or to a debtor's equity in such asset; third, whether an asset with both exempt and non-exempt equity reverts to a debtor or rather whether postpetition appreciation is part of the "proceeds" of estate property; and fourth, whether the Trustee is now estopped from challenging the stated value of the Hyman property.
Without the benefit of a formal appraisal, the Appellants stated the value of their residence to be $415,000. They maintain that consequently, no surplus value exists for the estate because the sum of the encumbrances, homestead exemption and selling costs is $425,811.01. The debtors' position is predicated on the listed encumbrances of $278,107.20 and $69,503.81, being added to the $45,000 homestead exemption and selling costs of $33,200, calculated at eight percent of the $45,000 value attributed to the property. The selling costs must be added in, say the debtors, because only after payment of such costs would the estate realize any value from the sale. Further, the debtors assert, without statutory or case authority, that "in California, Trustees . . . subtract eight (8%) percent for costs of sale."
If the selling costs are not added in, however, the equity available for the estate would be any amount exceeding $392,611.01 (encumbrances totalling $347,611.01 plus the homestead exemption of $45,000). Even by the Appellants' own valuation of $415,000, therefore, equity would exist in the property. The Trustee would thus have the right to administer the property to assure payment to secured creditors and at sale the Trustee would retain any surplus for the estate above the $45,000 to be paid to the debtors.
The debtors' assertions about the eight percent selling costs are not supported by the California statute governing sale of a homestead. Section 704.800 of the Code of Civil Procedure (West 1989) provides in pertinent part:
(a) If no bid is received at a sale of a homestead pursuant to a court order for sale that exceeds the amount of the homestead exemption plus any additional amount necessary to satisfy all liens and encumbrances on the property, including but not limited to any attachment or judgment lien, the homestead shall not be sold and shall be released and is not thereafter subject to a court order for sale upon subsequent application by the same judgment creditor for a period of one year.
No mention is made of any requirement that the selling costs also be exceeded for a bid to be accepted; only the encumbrances and homestead exemption are counted. Based solely on the figures scheduled by the Appellants, which valued the residence at $415,000 with secured liens of $347,611 and a homestead exemption of $45,000, the conceded equity in excess of all secured claims and exemptions is approximately $22,389. The Trustee had a duty to attempt to "collect and reduce to money" this property of the estate and would be remiss if he failed to do so. See 11 U.S.C. § 704(1).
Further, this Panel is not bound by the assertions of customary practices of Trustees. It may well be that the property can be sold at far less administrative cost than $33,200. We are not persuaded that California law either requires the Trustee to withhold eight percent selling costs or that selling costs are included in the sum that must be exceeded under California Civil Procedure Code Section 704.800. Placing such a restriction on the Trustee in this case would in practical effect raise the debtors' exemption by an additional $33,200, an effect not contemplated by the California homestead provisions. We focus on this aspect of the appeal in order to demonstrate that in the context of a grant of summary judgment, even accepting the facts on valuation in the light most favorable to the debtors, they would not be entitled to prevail. Of course, if summary judgment in favor of the Trustee was not appropriate and this was tried on the merits, the discussion regarding the use of costs of sale figures would undoubtedly lose its significance if the Trustee is able to prove that the valuation of the property is anywhere near the $650,000 his evidence suggested.
The debtors chose to proceed under the liquidation provisions of Chapter 7; as stated recently, Matter of Lindsey, 823 F.2d 189, 191 (7th Cir.1987).
Appellants' suggestion that homestead protection attaches to physical property rather than to a debtor's economic interest in the property is undermined by the California Constitution, California homestead statutes and interpreting case law.
The concept that some interests are immune from the reach of creditors is enshrined in the California Constitution: "The Legislature shall protect, by law, from forced sale a certain portion of the homestead and other property of all heads of families." (emphasis added) Cal. Const. Art. XX, Section 1.5. The statutory scheme implementing this provision appears at Cal.Civ.Proc.Code §§ 704.710-.850 (West 1989) and is said to "provide protection for a portion of the equity in the debtor's home against creditors who seek satisfaction by forced sale of the home." (emphasis added). Note, Exemptions Under the Bankruptcy Code: Using California's New Homestead Law as a Medium for Analysis, 72 Calif.L.Rev. 922, 938 (1984). See also R. Aaron, Bankruptcy Law Fundamentals § 7.03 (1989).
The portion of the Hymans' homestead entitled to protection is $45,000. Cal.Civ. Proc.Code § 704.730. The California legislative ceiling on the value of an exemption contrasts with statutes like those of Minnesota and Texas which place acreage rather than value limitations on homestead exemptions. See Minn.Stat. § 510.02 (1990); Tex. Prop.Code Ann. §§ 41.001-.002 (1989) ().
The "excess value" in a California homestead, the value above encumbrances and the exemption amount, has always been available to creditors. In Payne v. Cummings...
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