Kipp v. Sweno, No. CX-03-140.

• Decision Date: 24 June 2004
• Docket Number: No. CX-03-140.
• Citation: 683 N.W.2d 259
• Parties: John L. KIPP, et al., Respondents, v. Thomas SWENO, Appellant.
• Court: Minnesota Supreme Court

683 N.W.2d 259

John L. KIPP, et al., Respondents, v. Thomas SWENO, Appellant.

No. CX-03-140.

Supreme Court of Minnesota.

June 24, 2004.

Gerald G. Workinger, Jr., Edina, MN, for Appellant.

Fabyanske, Westra and Hart, P.A., M.T. Fabyanske (# 28022), Christopher P. Chilstrom (# 218005), Minneapolis, MN, for Respondent.

Leonard, Street & Deinard, Joseph M. Finley (# 12378X), St. Paul, MN, for Amici Curiae Minnesota Land Title Association and Real Property Section of the Minnesota State Bar Association.

Heard, considered and decided by the court en banc.

OPINION

GILBERT, Justice.

This is a case of first impression regarding Minn.Stat. § 510.02 (2002), which establishes a monetary value limitation to the homestead exemption. Appellant Thomas Sweno was found guilty of fraud after ceasing to work on a construction property that he agreed to build for respondents. A judgment was entered against appellant. Pursuant to this judgment, appellant was served with a notice of a sheriff's execution sale of his personal real estate property that was owned in joint tenancy with his spouse. Appellant served and filed a certificate of ownership and designation of homestead, claiming an "undivided one-half interest" in the property subject to the sheriff's execution sale. The district court concluded that appellant's undivided one-half interest in the property could not be reached by judgment creditors. On appeal, the court of appeals reversed the district court's determination that appellant's portion of the joint tenancy could not be severed and remanded the case back to the district court. On remand, the district court entered a judgment of foreclosure against appellant, and the sheriff was authorized to sell the property. The sheriff sold the property to respondents after they made a credit bid. Appellant appealed the district's court judgment authorizing the sale, arguing that his spouse's interest was not properly protected in the sale. The court of appeals, in an unpublished opinion, reaffirmed the sale of appellant's property. We granted review of the court of appeal's decision. We reverse and remand to the district court. The facts in this case are undisputed. Appellant Thomas Sweno was hired in 1983 to build a home for respondents in a platted portion of the City of Lake Elmo in Washington County. In January 1987, after appellant ceased work on the property, respondents sued appellant, alleging that appellant defrauded them regarding the construction cost. A jury found appellant guilty of fraud. A judgment was entered against appellant for $168,633, representing the jury's damage award plus interest. Appellant's spouse was not a party to that action.

In January 2000, the district court issued a writ of execution on the judgment, which by that time had increased to $269,341.50 after interest. Appellant was served with the writ and notice of a sheriff's execution sale of his personal real estate property. Appellant's property was owned in joint tenancy with his spouse. Pursuant to Minn.Stat. § 550.175, subd. 3 (2002), appellant served and filed a certificate of ownership and designation of homestead, claiming an "undivided one-half interest" in the property subject to the sheriff's execution sale. Appellant claimed that the $200,000 homestead exemption, under Minn.Stat. § 510.02, exceeded his one-half interest in the property that was valued at $309,900.

On November 16, 2000, the district court concluded that appellant's undivided one-half interest in the property could not be reached by judgment creditors. The court focused on the fact that appellant holds the property in joint tenancy with his spouse. Citing Minn.Stat. § 500.19, subd. 5 (2002) and O'Hagan v. United States, 86 F.3d 776 (8th Cir.1996), the court concluded that the joint tenancy could not be severed without consent of appellant's spouse. It noted that joint tenancy dissolves "if the property is sold (with the consent of both spouses) or if one spouse predeceases the other."

The court of appeals reversed the district court's determination that appellant's portion of the joint tenancy could not be severed. Kipp v. Sweno, 629 N.W.2d 468, 474-75 (Minn.App.), rev. denied (Minn. Aug. 22, 2001) ("Kipp I"). The court of appeals relied on Minn.Stat. § 510.02, which provides that the value of the homestead exemption, "whether the exemption is claimed jointly or individually, may not exceed $200,000." Id. at 471. It further held that the district court is required to order an independent appraisal of the property, pursuant to Minn.Stat. § 550.175, subd. 4(b) (2002), because respondents were not satisfied with the appraisal. Kipp I, 629 N.W.2d. at 473. The court of appeals then remanded the case to the district court. Id. at 475.

On remand, respondents moved to foreclose their judgment lien. The district court entered a judgment of foreclosure against appellant for $264,186.05, with $33,721.73 in interest, together with attorney fees and the costs of collection. The judgment was declared a "lien against the Sweno property," and the sheriff was authorized to sell the property if the bid amount exceeded the mortgages, plus the $200,000 statutory homestead exemption. The Sweno property consisted of 10 lots and was ordered to be "sold as one parcel" if the bid was in excess of $274,603.35 (the $200,000 homestead exemption plus existing mortgage balances).¹ Notice of the sheriff's sale was personally served on appellant and his spouse and was published for 6 successive weeks. The sheriff sold the property to respondents when they made a credit bid of $300,306.84. Respondents moved for an order confirming the sheriff's sale. The district court confirmed the sale.

Appellant appealed the district's court judgment authorizing the sale, arguing that a homestead should not have been sold under credit because a credit sale prevented him from receiving an immediate payment of the $200,000 homestead exemption amount. See Kipp v. Sweno, No. CX-03-140, 2003 WL 21791190, at *2 (Minn.App. August 5, 2003) ("Kipp II") (unpublished). Appellant further asserted that his spouse's interest was not properly protected in the sale. The court of appeals reaffirmed that "Sweno's property can be sold by execution, so long as his [spouse's] interest is protected." Id. The court noted that after the 1-year redemption period expired, respondents would be allowed to sell the property. Id. at *3 n. 1. This court granted review of the court of appeal's decision in Kipp II.

Appellant argues that his homestead, which is held in joint tenancy with his spouse, cannot be unilaterally severed and sold by a judgment creditor of appellant.² We agree. Minnesota has had a long history of recognizing the importance of a homestead exemption, including a provision in the Minnesota Constitution. Minnesota Constitution art. I, § 12 provides: "A reasonable amount of property shall be exempt from seizure or sale for the payment of any debt or liability. The amount of such exemption shall be determined by law." According to Minn.Stat. § 510.01 (2002), a homestead is defined as:

The house owned and occupied by a debtor as a debtor's dwelling place, together with the land upon which it is situated to the amount of an area and value hereafter limited and defined, shall constitute the homestead of such debtor and the debtor's family, and be exempt from seizure of sale under legal process on account of any debt not lawfully charged thereon in writing * * *.

If the debtor is married, "the homestead title may be vested in either spouse, and the exemption shall extend to the debts of either or of both * * * and the dwelling house so owned and occupied shall be exempt." Minn.Stat. § 510.04 (2002). Minnesota case law has historically liberally construed the homestead exemption in favor of the debtor. See e.g., Northwestern Nat. Bank of S. St. Paul v. Kroll, 306 N.W.2d 104, 105 (Minn.1981); Denzer v. Prendergast, 267 Minn. 212, 217-18, 126 N.W.2d 440, 444 (1964); In re Olson, 45 B.R. 501, 504 (Bankr.D.Minn.1984).

In 1993, the legislature for the first time provided a monetary limit to the value of a homestead exemption. Act of May 3, 1993, ch. 79, § 2, 1993 Minn. Laws 244. Prior to the 1993 amendment, there were only area or size limits on homesteads. The current limitations, which include limitations on both the size and valuation of the homestead, can be found in Minn.Stat. § 510.02 (2002):

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 * * *.

Since the 1993 amendment, the value limit on a homestead exemption has raised new and complex issues relating to real estate law, marital rights, due process rights of nondebtor joint tenants, possessory interest, survivorship and life estate interests, along with determining the rights of the judgment creditors to use, possess, partition, and control survivorship interests of the homestead property. The legislature has attempted to address some of these issues, but the multitude of statutes involved do not provide clear answers to the questions we are presented with in this case.

Appellant owns his homestead property in joint tenancy with his spouse. Minnesota has recognized joint tenancies through both common law and statutes. Minnesota Statutes § 500.19, subd. 1 (2002) provides that "[e]states, in respect to the number and connection of the owners, are divided into estates in severalty, in joint tenancy, and in common." In Minnesota, joint tenancy is not presumed and must be specified by the parties. Minn.Stat. § 500.19, subd. 2 (2002). Appellant and his spouse each have an undivided one-half interest in this homestead property, which includes the present right of use and occupancy and the right of survivorship. If appellant and his spouse's joint tenancy interest is severed,...