In re Walters

• Decision Date: 20 June 2011
• Docket Number: BAP No. 10–6075.
• Parties: In re Jody May WALTERS, Debtor.Jody May Walters, Debtor–Appellant,v.Bank of the West, Creditor–Appellee.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Eighth Circuit

450 B.R. 109

In re Jody May WALTERS, Debtor.Jody May Walters, Debtor–Appellant,
v.
Bank of the West, Creditor–Appellee.

BAP No. 10–6075.

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted: May 1, 2011.Decided: June 2, 2011.Rehearing Denied June 20, 2011.

[450 B.R. 111]

Jerrold Alan Wanek, Des Moines, IA, for appellant.Jonathan Kramer, Des Moines, IA, for appellee.Before KRESSEL, Chief Judge, FEDERMAN and VENTERS, Bankruptcy Judges.KRESSEL, Chief Judge.

Jody May Walters appeals from an order of the bankruptcy court ¹ on October 1, 2010, sustaining Bank of the West's objection to her claim of a homestead exemption as to the bank's claim.

Standard of Review

The issue of whether the bankruptcy court properly construed the Iowa homestead exemption statute is a question of law, which we review de novo. Kukowski v. Wagner (In re Kukowski), 356 B.R. 712, 714 (8th Cir. BAP 2006). We review the court's findings of fact for clear error. Kaelin v. Bassett (In re Kaelin), 308 F.3d 885, 888 (8th Cir.2002); Barrows v. Christians (In re Barrows), 408 B.R. 239, 243 (8th Cir. BAP 2009). “Findings of fact may be clearly erroneous if we have a definite and firm conviction that the bankruptcy court committed a mistake.” Cadlerock Joint Venture II, L.P. v. Sandiford (In re Sandiford), 394 B.R. 487, 489 (8th Cir. BAP 2008).

BACKGROUND

Jody Walters and her husband, David Walters, owned a number of residential properties in Iowa and Florida between 1999 and 2010. Walters and her husband lived together at several of those properties. They often built or remodeled houses and then sold them for profit. It was typical for them to own more than one house at a time.

The properties included the following:

+---------------+
                ¦Iowa Properties¦
                +---------------+
                

Address Dates
                

3437 Scenic Valley Dr., West Des Moines Sept. 1999–Oct.2004
                259 62nd St., West Des Moines Oct. 2004–Dec.2005
                116 62nd St., West Des Moines
                3800 Fuller Rd., West Des Moines Sept. 2006–July 2008
                1650 Lakeview Dr., Pleasant Hill July 2008–Present
                

+------------------+
                ¦Florida Properties¦
                +------------------+
                

Address Dates
                

____ Falling Waters Dr., Naples June 2000–Nov.2001
                4717 Shinecock Dr., Naples Nov. 2001–June 2003
                5050 Cerromar Dr., Naples June 2003–May 2005
                117 Forrest Hill Blvd., Naples Dec. 2005–Sept.2006
                5051 Cerromar Dr., Naples Dec. 2005–Sept.2006
                100721 Mirasol Ave., Miramar Mar. 2007–Oct.2008
                

[450 B.R. 112]

Walters identified 3437 Scenic Valley Drive as her homestead from September of 1999 through October of 2004. In 2002 and 2004, the Walters executed guarantees in favor of Bank of the West in connection with loans involving their business, Walters Investments International, Inc. d/b/a Walters Homes Ltd. In October of 2004, the Walters moved from 3437 Scenic Valley Drive to 259 62nd Street, but that house was destroyed by fire in December of 2005. After the fire, they moved to 116 62nd Street. In 2006, they moved to 3800 Fuller Road.

In August of 2006, the Walters sold a house at 5051 Cerromar Drive, Naples, Florida. They received net sale proceeds of $470,908.98. Walters maintains that this was her homestead at the time.

In August of 2007, Walters Investments International, Inc. transferred the Pleasant Hill property and $204,000 to Joseph and Deborah Sloan. The Walters reimbursed the Sloans for the expenses relating to the property, including real estate taxes and insurances. They admitted that the purpose of the transaction was to protect the house from attachment by their creditors. They built a house at the Pleasant Hill property in the Sloans' name, although it was built to the Walters' specifications.

In February of 2008, Bank of the West obtained judgments in excess of two million dollars against Walters, her husband, and others. Also in 2008, the Fuller house was returned to the lender. The Walters did not receive any proceeds. Walters moved from the Fuller house to the Pleasant Hill house in July of 2008. In June of 2009, the Sloans transferred the Pleasant Hill property to the Walters by quitclaim deed.

Walters filed an individual chapter 7 petition on January 3, 1010. On her Schedule C, she claimed as exempt an interest the Pleasant Hill property. Bank of the West filed an objection her claim of homestead exemption. The court stated at the onset of the evidentiary hearing, “The bank bears the burden to prove the debtor's claim of exemption is not proper.” The bank proceeded first at trial, although the court allowed the parties to combine their direct examinations of the witnesses. After the bank rested, Walters' attorney indicated that the debtor would not be presenting any additional evidence. After additional briefing, the court issued a memorandum opinion and order sustaining the bank's objection to Walters' homestead exemption. This appeal ensued.

Discussion I. Burden of Proof

The parties argue at length about the proper burden of proof. Bankruptcy Rule 4003(b) provides: “In any hearing under this rule, the objecting party has the burden of proving that the exemptions are not properly claimed.” Fed. R. Bankr.P. 4003(c); see also Peoples' State Bank of Wells v. Stenzel (In re Stenzel), 301 F.3d 945, 947 (8th Cir.2002) (citing Fed. R. Bankr.P. 4003(c) and stating, “The party objecting to a claimed exemption, here the Bank, has the burden of proving the debtor is not entitled to the exemption.”). According to the advisory committee notes, “The Code changes the thrust of [the former Rule 403] by making it the burden of the debtor to list his exemptions and the burden of parties in interest to raise objections in the absence of which ‘the property claimed as exempt on such list is exempt;’ § 522( l ).” Fed. R. Bankr.P. 4003. advisory committee's note (1983). “[I]f the objecting party fails to produce evidence in support of the objection, any factual issue must be resolved in favor of the debtor.” 9 Collier on Bankruptcy,

[450 B.R. 113]

¶ 4003.04 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). Once the objector meets its burden, the burden of production shifts to the debtor to produce evidence that the claimed exemption is proper, though the burden of persuasion remains with the objector. Carter v. Anderson (In re Carter), 182 F.3d 1027, 1029 n3 (9th Cir.1999). However, the burden of proof is largely irrelevant in this case, because the bankruptcy court found that the bank had provided sufficient evidence and it found that there was no credible evidence to rebut the bank's showing. The burden of proof only would have made a difference if the evidence had been in equipoise or if the bank had failed to offer any credible evidence to support its case.

II. Applicable Iowa Law

The issue on appeal is whether the bankruptcy court properly sustained the bank's objection to Walters' homestead exemption.² Because Iowa has opted out of the federal exemption scheme, debtors in Iowa must claim exemptions under Iowa state law. 11 U.S.C. § 522(b); Iowa Code § 627.10 (2010). Under Iowa law, “The homestead of every person is exempt from judicial sale where there is no special declaration of statute to the contrary.” Iowa Code § 561.16. “The homestead must embrace the house used as a home by the owner, and, if the owner has two or more houses thus used, the owner may select which the owner will retain.” Iowa Code § 561.1 (2010).

Walters claims the Pleasant Hill property as her homestead. It is undisputed that the bank obtained its judgment on the defaulted loans prior to the acquisition of the Pleasant Hill property and the bank argues that pursuant to § 561.21(1) of the Iowa Code, Walters is not entitled to exempt the homestead from execution by the...