In re Stenzel, 01-2003.

• Decision Date: 30 August 2002
• Docket Number: No. 01-2003.,01-2003.
• Citation: 301 F.3d 945
• Parties: In re Quentin B. STENZEL, Debtor. Peoples' State Bank of Wells, Appellee, v. Quentin B. Stenzel, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

301 F.3d 945

In re Quentin B. STENZEL, Debtor.

Peoples' State Bank of Wells, Appellee, v. Quentin B. Stenzel, Appellant.

No. 01-2003.

United States Court of Appeals, Eighth Circuit.

Submitted: February 14, 2002.

Filed: August 30, 2002.

Rehearing and Rehearing En Banc Denied: October 24, 2002.

Brian F. Leonard, argued, Minneapolis, MN, for appellant.

Stephen J. Behm, argued, Mankato, MN, for appellee.

Before LOKEN and RILEY, Circuit Judges, and KORNMANN,^* District Judge.

LOKEN, Circuit Judge.

When Minnesota farmer Quentin B. Stenzel petitioned for Chapter 7 bankruptcy relief, he claimed a homestead exemption for the five acres he owned and occupied as his residence. Creditor Peoples' State Bank of Wells discovered that Stenzel also owned an undivided one-third remainder interest in the nearby parcel where his mother resided as a life tenant. Stenzel then amended his bankruptcy schedules to claim an additional homestead exemption for 155 acres of that parcel. The Bank objected to the additional 155-acre claim. The Bankruptcy Court allowed the amended claim, concluding that Stenzel owned and occupied the 155 acres for purposes of the homestead exemption under Minnesota law. The Bankruptcy Appellate Panel (BAP) reversed, and Stenzel appeals. We have jurisdiction over a final order denying a bankruptcy exemption. In re Huebner, 986 F.2d 1222, 1223-24 (8th Cir.1993). We reverse and remand.

I.

Stenzel grew up on the 155-acre parcel¹ and began helping his father farm the property when he was ten years old. Stenzel bought the adjacent five-acre parcel from his grandparents when he married in 1963. He and his wife have lived there ever since. The five-acre parcel lies across county highway 29 from the 155-acre parcel. Stenzel's father quit farming the larger parcel in the mid-1980's. Stenzel farmed the tillable acreage until 1989, when he quit planting crops because of operating losses. Unknown to Stenzel, his parents conveyed undivided one-third remainder interests in the 155-acre parcel to Stenzel and his two sisters in 1990, with their mother retaining a life estate in the property.

Stenzel conducted a hog farming operation until he sold his livestock shortly before filing the Chapter 7 petition. He used outbuildings on the five-acre parcel for this purpose, as well as barns and farrowing sheds on the 155-acre parcel. He did not pay rent to his mother for use of those buildings, but he paid the water and electric bills and was responsible for their upkeep. After 1989, his mother cash rented the 148 acres of tillable land and used the rental income to pay taxes and living expenses. Although Stenzel stopped farming before filing the Chapter 7 petition, he has resumed his hog farming operation and intends to resume farming the tillable acreage when crop prices improve. His mother expects Stenzel to farm the 155-acre parcel after her children inherit it.

A debtor may exempt from his bankruptcy estate property that is exempt under state law on the date the petition is filed. See 11 U.S.C. § 522(b)(2)(A). The party objecting to a claimed exemption, here the Bank, has the burden of proving the debtor is not entitled to the exemption. See Bankruptcy Rule 4003(c). In this case, the parties agree that Stenzel may exempt his ownership interest in the five-acre parcel. The issue is whether the 155-acre parcel is also included in his homestead exemption under Minnesota law so that his one-third remainder interest in that parcel is exempt from his bankruptcy estate.

II.

Subject to exceptions not relevant here, Minnesota law exempts "[t]he house owned and occupied by a debtor as the debtor's dwelling place, together with the land upon which it is situated [from] seizure or sale under legal process on account of any debt." Minn.Stat. § 510.01. For agricultural property, this homestead exemption is limited to 160 acres. See § 510.02. The ownership requirement for a homestead exemption is liberally defined. "Any interest in the land, whether legal or equitable, shall constitute ownership, within the meaning of this chapter." Minn. Stat. § 510.04. Here, the parties agree Stenzel's undivided one-third remainder interest constituted a present ownership interest in the 155-acre parcel. The issue is whether Stenzel occupied the 155-acre parcel within the meaning of Minn.Stat. § 510.01 when he petitioned for Chapter 7 relief.

The Bank argues that Stenzel did not occupy the 155-acre parcel as a matter of law because his remainder interest conferred no present right of possession, and the homestead exemption requires "a concurrence of ownership and occupancy, the former sustaining the latter." Kaser v. Haas, 27 Minn. 406, 7 N.W. 824, 825 (1881). We agree with Stenzel the Minnesota Supreme Court rejected this contention in Denzer v. Prendergast, 267 Minn. 212, 126 N.W.2d 440, 442-43 (1964). In Denzer, the debtor, like Stenzel, owned a residual interest in a family farm that was subject to his mother's life estate. Though this future interest did not entitle him to possession or occupancy while the life tenant was alive, the debtor in fact lived with his mother. The Court concluded that an oral agreement between the debtor and his mother provided a sufficient right of occupancy, specifically rejecting the above-quoted passage from Kaser and focusing instead on "whether the ownership and occupancy affords a community connection of such significance as to give reason to believe that the preservation of that connection will in the long run make the debtor and his family better able to fulfill their social obligation to be self-sustaining." 126 N.W.2d at 444.

Stenzel argues that any agricultural property in which the debtor has an ownership interest and actual possession qualifies for the Minnesota homestead exemption. But that states the exemption too broadly, because it disregards the homestead basis for the exemption. The statute exempts "[t]he house owned and occupied by a debtor ... together with the land upon which it is situated." The italicized language precludes the exemption of land that is not contiguous with the land on which the debtor's home is located, whether or not the debtor has an ownership interest in the non-contiguous parcel and occupies it for farming. See Michels v. Kozitza, 610 N.W.2d 368, 371 (Minn.App.2000).

As we read the numerous cases, Minnesota courts have been pragmatic in determining the extent to which contiguous farmland qualifies for the homestead exemption, seeking to decide each case in a manner consistent with the purposes underlying the exemption. For example, though "a debtor may claim only one homestead," Hommerding v. Travelers Ins. Co., 393 N.W.2d 389, 391 (Minn.App. 1986), exempt land may "consist of two or more separate descriptions, or tracts, of land, provided the same are so situated that they may be occupied and cultivated as one body of land." Brixius v. Reimringer, 101 Minn. 347, 112 N.W. 273, 273 (1907). Moreover, it is settled that two persons may each claim a homestead exemption in the same land, provided they each reside on the land and have the requisite ownership interest. See Eberhart v. Nat'l Citizens' Bank, 172 Minn. 200, 214 N.W. 793, 794 (1927) (two brothers occupying separate portions of one farmhouse); Matter of Guardianship of Huesman, 381 N.W.2d 73, 77 (Minn.App. 1986) (two brothers having undivided one-half interests in a farm as tenants-in-common). Similarly, an owner who lives in a building may exempt the entire building even if he leases portions of the premises to others. See, e.g. Winland v. Holcomb, 26 Minn. 286, 3 N.W. 341 (1879).

In this case, the 155-acre and the five-acre parcels are contiguous, so they are eligible for a combined homestead exemption under Brixius. If Stenzel had purchased the contiguous 155-acre parcel from his parents with the intent of expanding his five-acre family farm, we have no doubt the entire 160 acres would qualify for the homestead exemption. Likewise, if Stenzel's parents had built a second house on the larger parcel for Stenzel's family and conveyed a one-half ownership interest to him, both Stenzel and his mother could claim the entire parcel as a homestead exemption. Instead, Stenzel has only a future ownership interest in the 155-acre parcel; that parcel has historically been his parents' homestead, not part of his five-acre homestead; and Stenzel uses a portion of that parcel only for farming, with the permission of his mother, the life tenant. In these circumstances, did he occupy the 155-acre parcel in such a manner that it became, in the words of the statute, "land upon which [his dwelling place] is situated"? This question is not answered by Denzer, where the debtor lived on a single farm with his mother, nor by Brixius, where only the debtor resided on one of two contiguous parcels of farmland that were found to comprise a single farm.

Suppose two farmers live across the road from each other. The older has no children and wishes to quit farming but remain on his property. The two farmers enter into an agreement whereby the older conveys the remainder interest in his homestead to his young neighbor, retaining a life estate, and the neighbor promises to farm the property for their mutual benefit until the life tenant dies. At least if the younger farmer intends by this arrangement to create a single farm out of the two properties, the agreement establishes an ownership interest, actual present occupancy, and the significant "community connection" referred to in Denzer. That is sufficient to entitle the younger farmer to a homestead exemption in both properties, assuming they do not exceed the 160-acre limitation.

In contrast to the above hypothetical, which included a formal agreement between unrelated neighbors, the BAP concluded in this case that Stenzel's homestead exemption does not include the 155-acre parcel as a matter of law because he had no "legally valid present possessory interest" in that parcel....