In re Yau
| Decision Date | 21 May 1990 |
| Docket Number | Bankruptcy No. LA 89-23683-AA. |
| Citation | 115 BR 245 |
| Parties | In re Dolly YAU, aka Dolly Hung; and Fat Yau, aka Fat N. Yau, aka Yau Fat, aka Norman Yau, Debtors. |
| Court | U.S. Bankruptcy Court — Central District of California |
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Brian L. Davidoff, Petillon & Davidoff, Los Angeles, Cal., for creditors Wen-Hsiang Chen and Susan Chen.
H. James Rosenberg, Law Offices of David B. Bloom, Los Angeles, Cal., for debtor.
David A. Greene, Saltzburg, Ray & Bergman, Los Angeles, Cal., for trustee.
Dolly and Fat Yau (the "Debtors") own a single family residence located in Glendale, California (the "Glendale property"). On August 10, 1983, Fat Yau caused to record a declaration of homestead in the official records of Los Angeles County that described the Glendale property. Mr. Yau resided at the Glendale property at that time.
On December 10, 1984, Fat Yau married Dolly Yau and they lived at the Glendale property. On January 7, 1985, Mr. Yau executed an Individual Grant Deed conveying an interest in the Glendale property to Ms. Yau. It is unknown precisely what interest was transferred to Ms. Yau.1
Around April 1989, the Debtors vacated the Glendale property and moved into a house owned by Ms. Yau's parents in Monterey Park, California. The Debtors then leased the Glendale property to a third party for $3500 per month.
On October 26, 1989, the Debtors filed a joint petition under Chapter 7 of the Bankruptcy Code. In their petition they listed their address in Monterey Park. In their Schedule B-4 they claimed a $45,000 homestead exemption in the Glendale property pursuant to Bankruptcy Code2 section 522(b)(2) and California Code of Civil Procedure ("CCP") section 703.140(b)(1).
At the section 341(a) meeting of creditors held November 29, 1989, the Debtors testified that they did not live at the Glendale property, but resided in Monterey Park.
The chapter 7 trustee timely filed a motion opposing the Debtors' claimed homestead exemption, and certain creditors filed points and authorities in support of this motion. Prior to the hearing on this motion, the Debtors filed an amended Schedule B-4 claiming a $45,000 homestead exemption in the Glendale property pursuant to CCP sections 703.140(a), 704.730(a)(2) and 704.920.3
The trustee asserts the Debtors cannot claim a homestead exemption in the Glendale property because they do not reside there. The Debtors contend that the Glendale property is exempt whether or not they occupied the Glendale property when they filed their chapter 7 petition.4 The court is called upon to determine whether, under the facts of this case, the Debtors are entitled to a homestead exemption in the Glendale property.
Bankruptcy Code section 522(d) lists the exemptions that a debtor can claim in a bankruptcy case. However, Bankruptcy Code section 522(b) permits each state to prohibit its debtors from using these exemptions. California has so "opted out," which means that a debtor in a California bankruptcy case can only claim exemptions under California law and any applicable federal non-bankruptcy laws. CCP section 703.130.
The Debtors assert in their amended Schedule B-4 the exemption of CCP section 703.140(a). This section provides, inter alia, that California joint debtors in a bankruptcy case may choose either the ordinary state exemptions applicable when a creditor enforces a money judgment or the listed set of exemptions, which are substantially similar to the bankruptcy exemptions described in 11 U.S.C. section 522(d). Thus, mere reference to CCP section 703.140(a) does not disclose which exemptions the Debtors have claimed.
The Debtors' amended Schedule B-4 also cites CCP section 704.730(a)(2) as authority for a $45,000 homestead exemption. This section, which is found in Article 4 of Chapter 4 of the California Enforcement of Judgments Law ("Article 4"), provides that the amount of the homestead exemption is $45,000 if the judgment debtor (or spouse of the judgment debtor) who resides in the homestead is, at the time of the attempted sale thereof, a member of a family unit and at least one member of the family unit either owns no interest in the homestead or whose only interest in the homestead is a community property interest with the judgment debtor. "Homestead" is defined in Article 4 as the principal dwelling in which the judgment debtor (or his or her spouse) resided on the date the judgment creditor's lien attached to the dwelling and in which the judgment debtor (or his or her spouse) resided continuously thereafter until the date the court determines the dwelling is a homestead. CCP section 704.710(c). This is known as the "dwelling exemption."
Under California law the dwelling exemption for real property owned in fee simple is automatic; nothing has to be recorded. However, the dwelling exemption only applies to an involuntary or forced sale of the homestead, such as an execution sale pursuant to levy by a judgment creditor. CCP section 704.720(b) and 1982 Legislative Committee Comment thereto. This Court must, therefore, find that the Glendale property will be sold at an involuntary or forced sale to determine whether the Debtors can claim the dwelling exemption.
In In re Cole, 93 B.R. 707 (Bankr. 9th Cir.1988) the debtor filed a chapter 11 petition and acted as debtor in possession. The debtor was unable to maintain the monthly payments on his residence and subsequently sold it while the chapter 11 case was pending. The debtor claimed a dwelling exemption of $45,000 in the proceeds of sale, but the bankruptcy court denied this exemption.
On appeal, the Bankruptcy Appellate Panel (the "BAP") found that there was "little practical difference" between a chapter 7 trustee and a debtor in possession in a liquidating chapter 11. After noting that a chapter 7 trustee's sale of a residence was a forced sale, the BAP determined that sale by the debtor in possession in a liquidating chapter 11 was also a forced sale. Consequently, it sustained the debtor's dwelling exemption.
In In re Knudsen, 80 B.R. 193 (Bankr.C. D.Cal.1987), the debtor entered into an escrow to sell his home before filing for bankruptcy. The sale, however, was not consummated until after the filing for bankruptcy. The Knudsen court held that this was a voluntary sale and, as a result, the dwelling exemption did not apply.
In the instant case, there was no escrow pending to sell the Glendale property at the time the Debtors filed their petition. If the trustee's objection is sustained, it seems clear that the Glendale property may be sold with or without the Debtors' consent. Consequently, under the Cole case, the trustee's objection is tantamount to a motion to sell, and sale of the Glendale property by the trustee would be an involuntary or forced sale.5 If so, the Debtors must satisfy the residency requirement to obtain the dwelling exemption in the Glendale property.
As noted above, if there is a forced or involuntary sale, to successfully claim the dwelling exemption under California law a debtor (or his or her spouse) must have continuously resided at the dwelling from the date the creditor's lien attached until the date the court determines the dwelling is a homestead. Only when there is a temporary absence from the dwelling, such as a vacation or hospital stay, does a debtor who vacates the dwelling satisfy the continuous residency requirement. 1983 Legislative Committee Comment to CCP section 704.710.
In the instant case, when the Debtors filed their chapter 7 petition, they were leasing out the Glendale property which they claim as their homestead. The Debtors had moved from the Glendale property to the Monterey Park property because they could not afford the monthly payments at the Glendale property. The Monterey Park property was owned by one of the Debtors' parents who let them live there rent free. The Debtors stated that they did not intend to abandon their homestead interest in the Glendale property by moving from that property, and that they hoped to return there sometime in the future. However, they provided no evidence of how much time may lapse before they would return or, indeed, that they would ever move back into the Glendale property.
Thus, because the Debtors are not temporarily absent from the Glendale property and have not resided at the Glendale property since before this chapter 7 case was filed, they are not entitled to the automatic dwelling exemption of CCP section 704.730.
The Debtors also claim in their Schedule B-4 that they are entitled to the homestead exemption of CCP section 704.920. That section, which is found in Article 5 of Chapter 4 of the Enforcement of Judgments Law ("Article 5"), states that a dwelling (as defined by CCP section 704.710(c)) at which an owner or spouse resides may be selected as a declared homestead by recording a homestead declaration. Thereafter, the dwelling is a declared homestead. CCP section 704.920. It is undisputed that Mr. Yau caused to record a homestead declaration for the Glendale property on August 10, 1983, and that he resided there on that date. Although there is no evidence that Mr. Yau owned the Glendale property when the homestead declaration was recorded, the court can infer that he was the owner on that date because (1) he has been an owner since at least 1985 and (2) the trustee has not satisfied his burden of proving that the homestead declaration is defective. See Bankruptcy Rule 4003(c). Consequently, the Court will assume that from and after August 10, 1983, the Glendale property was a declared homestead under Article 5.
In In re Anderson, 824 F.2d 754 (9th Cir.1987), the debtors recorded a declaration of homestead on their home in Mendocino, California. Later, a...
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