Opinion
The report of Frederick N. Sinks, referee in bankruptcy, is as follows:
The bankrupt was adjudicated as such November 1, 1932. At that time he was the owner of 180 acres of farm land on which he resided with his wife. The land was not mortgaged, but is incumbered with judgment liens aggregating about $25,000. None of the judgments are subject to attack as preferences.
In Schedule B-5 the bankrupt claimed a homestead by metes and bounds pursuant to the provisions of section 11730, Gen. Code. Ohio. The trustee in bankruptcy, after his qualification as such, duly filed a return of exempt property in which he set off to the bankrupt certain chattel property as to which there is no dispute, but he refused to set off a homestead to the bankrupt, assigning as his reason that the house and land claimed as such could not be separated from the whole farm without a material and disproportionate shrinkage in value of the balance remaining, and he recommended the sale of the farm as a whole, and the payment to the bankrupt of $1,000 in money out of the proceeds of the sale.
To this return of the trustee the bankrupt excepted in writing and repeated his demand that a homestead be assigned to him by metes and bounds.
The original appraisement fixed the value of the whole farm at $10,000.
The matter having come on for hearing upon the exceptions of the bankrupt to the return of the trustee, it developed that the bankrupt asked that a tract of about fourteen acres, including and surrounding the house used as a homestead, be assigned to him, while the trustee, still resisting an assignment by metes and bounds, claimed that one acre of ground was sufficient; the location of the farm house and other buildings and the water supply being responsible for the conflicting contentions as to acreage.
Thereupon a reappraisement was ordered which shows the following values:
House and one acre of land $2,500; Balance of farm $40 per acre. House and 14 acres of land $3,500; Balance of farm $36 per acre.
While the amount of land to be set off with the house is of importance, the decisive question is the right of the bankrupt to an assignment of a homestead by metes and bounds. The bankrupt insists upon a strict construction of the exemption statutes of the state.
The trustee claims that, because of practical difficulties in complying with these statutes in administering an estate in bankruptcy, a substantial compliance with their provisions is sufficient.
The Ohio statute governing the assignment of homesteads provides that one who meets the other requirements of the statute is entitled to have set off to him free from sale a homestead not to exceed in value $1,000, and it further provides that where the homestead claimed is of a greater value than the amount named and will not bear division without manifest injury or inconvenience, the party so claiming it shall pay, as rental for the property set off, a sum fixed by the appraisers as a reasonable annual rent over and above $100; this rent to be paid quarterly to the plaintiff in execution or to the clerk of the common please court to be applied on the judgment debt.
It will facilitate the solution of this proposition to determine, first, the nature of the interest which a debtor has in real estate which is commonly denominated a homestead right.
The case of In re Watson, 4 Ohio Fed. Dec. 198, was decided by Judge Sherman of the District Court for the Northern District of Ohio, in the year 1869, under the then Ohio statutes, which were substantially the same as the existing ones. The court in his opinion speaking of the nature of the debtor's homestead right says: 'It is, therefore, clear to my mind, that the debtor does not acquire, in the homestead so set off to him, a fee simple absolute title, but he possesses only a qualified right, a right to possess and occupy, so long as he uses it as a homestead for his family, and otherwise complies with the provisions of the statute. It is a personal right for the benefit of himself and family, and when he or they leave the property and cease to occupy it as a homestead, the lien acquired by the judgment and levy, which was suspended by the operation of the statute, is revived, and again operates, and the property may be sold under the execution, free from the encumbrance of the homestead exemption. It is a right of possession personal to the debtor, and does not run with the land, and a sale by him would not convey any right to the purchaser.'
The Supreme Court of Ohio takes substantially the same view. Genell v. Hirons, 70 Ohio St. 309-325, 71 N.E. 709; McComb v. Thompson, 42 Ohio St. 139.
Does this right so defined by the courts pass to the trustee in bankruptcy as an asset of the estate? The authorities hold that it does not and the trustee has no title to it.
In the case of Lockwood v. Exchange Bank, decided by the Supreme Court of the United States, 190 U.S. 294, 23 S.Ct. 751, 47 L.Ed. 1061, the court says, as set forth in the syllabus: 'Under the Bankruptcy Act of 1898 (11 USCA), the title to property of a bankrupt which is generally exempted by the law of the State in which the bankrupt resides, remains in the bankrupt and does not pass to the trustee, and the bankrupt court has no power to administer such property even if the bankrupt has, under a law of the State, waived his exemption in favor of certain of his creditors. The fact that the act confers upon the bankruptcy court authority to control exempt property in order to set it aside does not mean that the court can administer and distribute it as an asset of the estate. The two provisions of the statute must be construed together and both be given effect.'
Later on our own Circuit Court of Appeals, in the case of Marine National Bank v. Swigart, 262 F. 854, says: 'A homestead interest in lands in Ohio, though mortgaged, does not pass to the owner's trustee in bankruptcy.'
It will be noted that the Circuit Court of Appeals refers to the bankrupt's right as a 'homestead interest in lands,' indicating that the bankrupt has not the fee. This interest of the bankrupt would seem to be analogous to that set forth in the case of Wilson v. Perrin, 62 F. 629, also decided by our Circuit Court of Appeals, in which a mortgage was given on a stock of goods subject to all exemptions from execution to which the mortgagor is entitled under the laws of the state. The statute under construction was that of the state of Michigan, which authorizes a bankrupt to claim specific goods, or goods of a specific value, as exempt. Judge Lurton in deciding the case used this language on page 634 of 62 F.: 'The effect of the mortgage involved in this case was to convey to the assignor the entire stock of merchandise, subject to the right of the mortgagor to select therefrom goods to the value of $250; the mortgagee taking a defeasible title to the entire stock, subject to be defeated by a selection of the exempt goods, when such selection should be made by the mortgagor or his agent. ' Continuing the court says: 'We see no difficulty * * * in concluding that such a mortgage * * * affords no more difficulties in a separation of the property mortgaged from that which is exempt than in the case of a * * * bankruptcy' etc.
It would seem, therefore, by analogy, that the homestead interest of a bankrupt in real estate is in the nature of a charge on the real estate, or a special form of lease.
To the same effect will be found the decision of Judge Westenhaver of the Northern District of Ohio, in the case of In re Hewit, 244 F. 245, on page 249 of the opinion, in which it is stated that the bankrupt, after he files his petition, 'is the owner of nothing except a right to claim a homestead in the premises.'
That this interest cannot be administered by the trustee in bankruptcy as an asset has already been pointed out.
Coming now to the question of the method of setting off a homestead in bankruptcy, where property not to exceed $1,000 in value cannot be segregated without manifest injury to that which remains, we have two conflicting decisions of the District Court of the Northern District of Ohio, namely: In re Watson, 4 Ohio Fed.Dec. 198, supra; and In re Crum, 221 F. 729, 734. In the former the court follows literally the Ohio statutes and directs the sale of the whole property, subject to and specifically reserving in the bankrupt all the rights and privileges incident to his homestead interest therein. In the latter case the court directed the sale of the whole property and the payment out of the proceeds of $500 to the bankrupt, for the stated reason that: 'The inapplicability of this statute to the settlement of a bankrupt's estate is evident, and the custom, which has grown up in Ohio, and which, while not within the exact letter of the exemption statutes, is well within their spirit, of allowing the debtor head of a family absolutely $500 out of the proceeds of sale of his homestead, which has a value of more than $1,000 may well be followed in the settlement of bankrupts' estates in this jurisdiction.'
The applicable statutes of Ohio are known as section 11730, 11733, 11734, 11735, 11737, and 11738 and read as follows:
Section 11730 provides: 'Husband and wife living together * * * may hold exempt from sale on judgment or order, a family homestead not exceeding one thousand dollars in value.' Section 11733 provides: 'When a homestead is sold to pay a lien which precludes the allowance thereof, the residue of the proceeds, not exceeding five hundred dollars, shall be paid to the widow, or in case there be no widow, to the minor child, unmarried, in lieu of a homestead,' etc. Section 11734 provides: 'On application of the debtor, his wife, agent, or attorney, before sale, if such debtor has a family, and if the lands or tenements about to be levied upon * * * constitute their homestead, the officer executing a writ of execution founded on a judgment or order, shall cause the inquest of appraisers, upon their oaths, to set off to such debtor, by metes and bounds, a homestead not exceeding one thousand dollars in value.' Section 11735 provides: 'When the homestead of a debtor in execution consists of a house and a lot of land which, in the opinion of the appraisers, will not bear division without manifest injury and inconvenience, the plaintiff in execution shall receive, in lieu of the proceeds of a sale of the homestead, the amount over and above one hundred dollars, annually adjudged by the appraisers as a reasonable rent for it, until the debt, costs, and interest are paid. The rent above one hundred dollars, shall be payable in quarterly payments, * * * and may be paid to the plaintiff in execution, or his assigns, or the clerk of the common please court of the county in which the homestead is situated.' Section 11738 provides as follows: 'Husband and wife living together * * * resident of this state, and not the owner of a homestead, in lieu thereof, may hold exempt from levy and sale, real or personal property to be selected by such person or his attorney, before sale, not exceeding five hundred dollars in value, in addition to the amount of chattel property otherwise by law exempted.'
Considering now the power of the bankruptcy court to control the manner of awarding the bankrupt his homestead rights, the case of In re Friedrich, 100 F. 284, decided by the Seventh United States Circuit Court of Appeals, lays down what seems to be the accepted general rule that: 'A voluntary bankrupt must claim the exemptions to which he is entitled by the law of the state, at the time of filing his petition; but a severance of the exempted articles or property from the rest of his estate is not to be made by the debtor * * * but by the trustee. * * * The bankruptcy act, while allowing to debtors the exemptions provided by the state law, itself regulates the manner in which such exemptions are to be claimed, set apart, and awarded.'
Before reaching a final conclusion, it would be well to quote again from the interesting opinion of Judge Westenhaver in Re Hewit, supra, page 249 of 244 F.: 'But, as stated by me in the Radcliffe Case ((D.C.) 243 F. 716), a different situation exists when title to all the debtor's property has been transferred by a general assignment or by operation of the Bankruptcy Law, upon an adjudication, to an assignee or to a trustee in bankruptcy. The bankrupt cannot then be said to be the owner of the homestead which he had previously owned, and which he may still be occupying. He is the owner of nothing except a right to claim a homestead in the premises or an allowance in lieu thereof under the sections above cited of the Ohio statutes.'
It would seem from the foregoing, and I so hold, that the homestead right of the bankrupt is one that cannot be ignored, and of which he cannot be deprived without his consent, and that if he insists on using and occupying the family homestead and observes the other requirements of the statute as to rentals, the trustee in bankruptcy can do nothing but acquiesce therein, and there remains merely a matter of detail in causing an appraisement of the property to establish the amount of the rentals to be paid.
But the interest of the bankrupt in the homestead is, as stated by Judge Sherman, purely personal. If he chooses to waive it he may do so, but this does not, ipso facto, deprive him of all exemption rights. He may if he wishes elect to take $500 in money in lieu of a homestead, pursuant to the provisions of section 11738, Gen. Code Ohio, for, as Judge Westenhaver pointed out, when he conveys his property to his trustee in bankruptcy he is not then the owner of a homestead.
We come now to consider the practical question of sale of the real estate by the trustee where the bankrupt elects to claim a homestead. There should first be a segregation of the homestead and the rental value thereof fixed. The resultant figure, less $100, would constitute the annual charge, payable quarterly, which the bankrupt would assume. This obligation of the bankrupt should be offered for sale by the trustee, together with the real estate, as a whole.
In the instant case there has been a valuation fixed by appraisers specially appointed by this court of the acreage which the bankrupt claims, and the acreage which the trustee believes he is entitled to as pertinent and essential to the enjoyment of the house. The appraisers, however, did not estimate the rental value of either tract nor did they express an opinion as to the acreage essential.
The homestead sections of the General Code of Ohio treat of values, not of dimensions, but I think it is a fair inference that it is the duty of the appraisers to determine what real estate shall go with the residence, and undoubtedly it is their duty to fix the rental value of the property so found by them to constitute a homestead.
The appraisers, therefore, should reconvene and determine the extent of the land to be set off as well as its rental value.
When the sale is accomplished the purchaser will get a fee simple to all of the farm except the homestead acreage. As to this he will get a fee qualified by the homestead interest of the bankrupt. He will also become the payee of future rentals due from the bankrupt. John R. Tanner, of London, Ohio, for bankrupt.
H. H. Crabbe, of Columbus, Ohio, for trustee.
HOUGH, District Judge.
This day this matter came on to be heard upon the certificate in review of Referee Frederick N. Sinks, and the papers and documents submitted therewith, as set forth in the certificate of said referee, the oral statements of fact of counsel, and their arguments and the opinion of the referee.
On consideration whereof, the court approved and confirms the findings of the referee both in fact and in law, and the order of the referee, upon which the petition in review was based, is approved and confirmed in all respects.