Opinion
Page 252w
186 B.R. 252w (Bkrtcy.C.D.Cal. 1995) In re Scott Adam DETTMAR, Debtor. Bankruptcy No. SV 94-38947-GM. United States Bankruptcy Court, C.D. California. September 5, 1995[Copyrighted Material Omitted]
Marcus G. Tiggs, Slate and Leoni, Los Angeles, CA, for debtor.
Raymond M. Sutton, Sherman Oaks, CA, for Eclat.
Denise Lamante, Chapter 7 Trustee, Beverly Hills, CA.
March J. Tiffany, U.S. Trustee, Los Angeles, CA.
MEMORANDUM OF OPINION ON MOTION TO AVOID LIEN UNDER 11 U.S.C. § 522(f) RE: ECLAT TEXTILE CO., LTD.
GERALDINE MUND, Bankruptcy Judge.
PROCEDURAL HISTORY
Scott Adam Dettmar ("Dettmar") filed a voluntary petition under Chapter 7 of the Bankruptcy Code, schedules, and a statement of financial affairs on August 4, 1994. In Schedule "A", Dettmar disclosed his interest in real property described as his primary residence located at 19425 Bilmoor Place, Tarzana, California (the "Property"), with a current market value of $355,000.00 and a secured claim of $290,000.00 encumbering the Property. In Schedule "C", Dettmar claimed a $75,000.00 exemption in the Property pursuant to California Code of Civil Procedure ("CCP") §§ 704.730 and 704.910. Dettmar's Schedule "D" revealed secured claims in favor of Bank of America, Eclat Textile Co., Ltd. ("Eclat"), and Pacific Heritage Bank. Bank of America's lien was characterized as a first deed of trust on Dettmar's primary residence in the amount of $290,000.00. Eclat and Pacific Heritage Banks' liens were described as abstracts of judgment in the amounts of $162,597.00 and $149,795.00, respectively.
On November 18, 1994, Dettmar filed a motion to avoid the liens of Eclat and Pacific Heritage Bank under 11 U.S.C. § 522(f)(1) and pursuant to Local Bankruptcy Rule 111(7)(a)(vi), arguing that Eclat and Pacific Heritage Banks' judicial liens impaired his California homestead exemption. Eclat opposed the motion and requested a hearing. March 23, 1995 was set as the hearing date on Dettmar's motion to avoid Eclat's lien. Pacific Heritage Bank did not oppose the motion, and accordingly, on December 27, 1994, an order was entered granting Dettmar's motion and avoiding Pacific Heritage Bank's judicial lien in its entirety.
Congress amended § 522(f) on October 22, 1994. However, Congress did not intend for the newly enacted § 522(f) to be applied retroactively. Since the instant case was filed prior to October 22, 1994, amended § 522(f) does not apply.
On March 23, 1995, the Court tentatively denied Dettmar's motion to avoid Eclat's lien. However, the matter was submitted for further briefs on the issue of whether Dettmar is entitled to a homestead exemption when he no longer retains an ownership interest in the Property. Supplemental briefs were filed by both parties.
STATEMENT OF FACTS
On November 18, 1991, Joan Dettmar, Dettmar's mother, executed a grant deed that transferred the Property to Joan Dettmar and Dettmar, whereby each received a 50% interest as tenants in common. The grant deed was recorded on November 26, 1991. Thereafter, the Property was encumbered by a deed of trust in favor of Bank of America, securing a note in the original principal amount of $300,000.00.
On February 10, 1992, Dettmar executed a quitclaim deed which conveyed his ownership interest in the Property back to his mother. The quitclaim deed was never recorded.
Eclat filed a civil lawsuit on February 24, 1992, in the Los Angeles Superior Court against several defendants, including Dettmar. Eclat applied for a right to attach order and writ of attachment against Dettmar. Following a contested hearing, a right to attach order was issued in favor of Eclat against Dettmar and the other named defendants. The order was filed and entered on August 5, 1992. Subsequently, Eclat obtained a writ of attachment and caused the writ to be recorded on August 13, 1992.
Attachment "A" affixed to the right to attach order provides in pertinent part:
Pacific Heritage Bank obtained a writ of attachment on January 26, 1993, and on February 11, 1993, recorded a Notice of Attachment with the Los Angeles County Recorder's Office. In addition, Pacific Heritage Bank caused an abstract of judgment to be recorded on July 11, 1994, with the San Bernardino County Recorder's Office.
Dettmar and his wife, Philippa, began residing in the Property in May, 1994. In July, 1994, Dettmar obtained an appraisal which indicated that the Property was worth $355,000.00. On July 29, 1994, Dettmar recorded a Declaration of Homestead with respect to the Property. Dettmar and his wife resided in the Property on the date the voluntary petition was filed, August 4, 1994.
According to Debtor's Response to Creditor's Opposition filed by Dettmar on February 28, 1995, the Property has been Dettmar's primary residence since May, 1994. (Pg. 2, ll. 6-7).
BIFURCATED ANALYSIS
In the instant case, the Court is presented with two situations, each requiring a distinct analysis. In the first situation, referred to as the "Fraudulent Transfer Analysis", the Court presumes that the quitclaim deed from Dettmar to his mother constituted a fraudulent transfer. Accordingly, the quitclaim deed is treated as if no transfer occurred. Under this scenario, Dettmar retained a 50% ownership interest in the Property as a tenant in common with his mother. In the second situation, referred to as the "Possessory Interest Analysis", the Court presumes that the quitclaim deed from Dettmar to his mother is a valid transfer of Dettmar's ownership interest in the Property. When Dettmar subsequently took up residence in the Property, he no longer retained his ownership interest.
Under each analysis, the Court applies § 522(f)(1) to determine whether Eclat's attachment lien can be avoided. To avoid a judicial lien by applying § 522(f)(1), a multi-step examination is required. First, the Property must be listed on the debtor's schedules and claimed as exempt. In re Morgan, 149 B.R. 147, 151 (9th Cir. BAP1993). In the instant case, Dettmar has satisfied this requirement since he claimed, in Schedule "C", a $75,000.00 exemption in the Property pursuant to CCP §§ 704.730 and 704.910.
§ 522(f) provides in part as follows:
Second, § 522(f)(1) requires a judicial lien. 11 U.S.C. § 522(f)(1); Morgan, 149 B.R. at 151. "Judicial lien" is defined in 11 U.S.C. § 101(36) as a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." Does Eclat's attachment lien constitute a judicial lien? According to the case of In re Figy, 102 B.R. 785, 787 (Bankr.S.D.Cal.1989), a pre-judgment writ of attachment is a judicial lien for the purposes of § 522(f)(1). Therefore, Eclat's attachment lien, which was premised on the pre-judgment writ of attachment, satisfies the judicial lien requirement of § 522(f)(1).
The third step in determining whether a judicial lien is avoidable is to determine whether the debtor would have been entitled to claim an exemption in the absence of the lien. Owen v. Owen, 500 U.S. 305, 312, 111 S.Ct. 1833, 1837, 114 L.Ed.2d 350 (1991); In re Galvan, 110 B.R. 446, 450 (9th Cir. BAP1990). This determination is made as of the date the debtor files bankruptcy. In re Herman, 120 B.R. 127, 130 (9th Cir. BAP1990). The court considers a hypothetical state of affairs. Owen v. Owen, 500 U.S. at 311, 111 S.Ct. at 1837. The court treats the judicial lien as non-existent until the date of the bankruptcy at which time there is a hypothetical attempt to levy on the property by the trustee. Herman, 120 B.R. at 130.
Assuming an exemption is available, in this case the California homestead exemption , the court must determine the extent to which the exemption is available as of the date the bankruptcy petition was filed. In re Mayer, 167 B.R. 186, 188 (9th Cir. BAP1994); Galvan, 110 B.R. at 450. To calculate the extent of the exemption, the court must apply the formula set forth in Galvan:
Dettmar claims that Eclat waived its right to challenge the existence of Dettmar's California homestead exemption because no timely objection was made to his claim of exemption pursuant to Bankruptcy Rule 4003. However, despite failing to file a timely objection to Dettmar's claim of exemption, Eclat may nevertheless challenge the exemption in the context of defending a lien avoidance motion. See In re Morgan, 149 B.R. 147, 153 (9th Cir. BAP 1993).
Because exemptions are available only to the extent that the debtor possesses equity in the property sought to be exempted, the fact finder must calculate the extent to which the debtor would possess such equity in the absence of the judicial lien at issue.
Equity in this sense is found by deducting the security interests in the property sought to be exempted--exclusive of the judicial lien at issue and the unsecured interests, if any, which are junior in priority to the judicial lien--from the value of such property. The exemption available for use by the debtor in terms of Section 522(f)(1), what we will refer to as the debtor's available exemption, is equal to the lesser of (1) the equity of the debtor in the property sought to be exempted or (2) the maximum value of the exemption claimed.
Galvan, 110 B.R. at 450.
The final step in establishing whether a judicial lien is avoidable under § 522(f)(1) is to determine the extent to which the available exemption is impaired by the judicial lien. In re Chabot, 992 F.2d 891, 893 (9th Cir.1993). However, in making this determination, the Court must initially establish whether the judicial lien is a valid, attached lien. Id. at 893. If there is a valid, attached lien, then the Court must determine whether it impairs the exemption and therefore must be avoided under § 522(f)(1). Id. If the lien in question did not attach and is therefore invalid, the lien is avoided. See In re Jones, 180 B.R. 575, 577 (9th Cir. BAP1995). In the recent case of In re Amiri, 184 B.R. 60, 64 (9th Cir. BAP 1995), the Ninth Circuit Bankruptcy Appellate Panel, after first determining that the judicial lien in question attached to debtors' residence, applied the reasoning of Chabot and concluded that regardless of whether there was little or no equity, the judicial lien did not impair the debtors' homestead exemption under California law, and therefore could not be avoided.
FRAUDULENT TRANSFER ANALYSIS
Eclat asserts that the right to attach order granted to Eclat in the state court was premised on the provisions of the Uniform Fraudulent Transfer Act. Cal.Civ.Code §§ 3439-3439.12. A creditor, without filing an avoidance action, may enforce its claim for a fraudulent transfer against the transferred property in the transferee's hands as if no transfer occurred by attaching the transferred property or its proceeds. Cal.Civ.Code § 3439.07(a)(2); Alan M. Ahart, California Practice Guide: Enforcing Judgments and Debts 3-67, at 3:342 (1994). The Uniform Fraudulent Transfer Act does not apply to property to the extent it is encumbered by a valid lien and to the extent it is generally exempt under nonbankruptcy law. Cal.Civ.Code § 3439.01(a)(1), (2).
In the present case, Eclat obtained a right to attach order against the Property in August, 1992. The Property is encumbered by a valid lien in favor of Bank of America in the sum of $290,000.00 as of the petition date. In addition, Dettmar may be entitled to a valid California homestead exemption. Under California law, Eclat would not be entitled to enforce its attachment lien to the extent of Bank of America's lien or any valid homestead exemption. Cal.Civ.Code § 3439.01(a)(1), (2).
Eclat implies that the quitclaim deed from Dettmar to his mother, executed on February 10, 1992, constituted a fraudulent transfer under California law. For the sake of analysis and in the absence of supporting evidence, the Court presumes that the quitclaim deed constituted a fraudulent transfer. In accordance with California law, no transfer occurred. Since no transfer occurred, Dettmar retained a 50% ownership interest in the Property as a tenant in common with his mother.
The Court applies the provisions of § 522(f)(1) and the case law interpreting this section to determine whether, under these circumstances, the attachment lien of Eclat can be avoided. The Court has already found that Dettmar listed the Property on his schedules and claimed an exemption in the Property. In addition, the Court has found that Eclat's attachment lien satisfies the judicial lien requirement of § 522(f)(1). The Court now focuses on the remaining § 522(f)(1) issues.
Dettmar's Available Exemption in Absence of Eclat's Lien
Bankruptcy Code § 522(b)(2) gives individual states the opportunity to "opt out" of the federal exemptions provided in § 522(d) and to utilize their own exemptions. 11 U.S.C. § 522(b)(2). California has chosen to "opt out" of the federal exemption scheme. CCP § 703.130. Dettmar asserts a $75,000.00 homestead exemption in the Property pursuant to CCP §§ 704.730 and 704.910.
California has codified two types of homestead exemptions. The first California homestead exemption is the automatic dwelling house exemption ("automatic homestead exemption") which is found in Article 4 of Chapter 4 of the California Enforcement of Judgments Law. CCP §§ 704.710-704.850. The automatic homestead exemption only applies in the context of a forced sale of the homestead property. See CCP § 704.800. CCP § 704.720(b) provides that "[i]f a homestead is sold under this division ... the proceeds of sale ... are exempt in the amount of the homestead exemption provided in Section 704.730." If the homestead property is sold, the levying officer is required to distribute the proceeds to pay off the consensual liens and the judgment debtor's automatic homestead exemption prior to satisfying any judgment liens. CCP § 704.850(a). "Homestead" is defined in CCP § 704.710(c) as follows:
"Homestead" means the principal dwelling (1) in which the judgment debtor or the judgment debtor's spouse resided on the date the judgment creditor's lien attached to the dwelling, and (2) in which the judgment debtor or the judgment debtor's spouse resided continuously thereafter until the date of the court determination that the dwelling is a homestead.
CCP § 704.710(a) defines "dwelling" as "a place where a person resides" and lists several examples of what may qualify as a dwelling.
In this case, the forced sale requirement is satisfied. The filing of the bankruptcy petition constitutes a hypothetical attempt by the trustee to levy on the property. Mayer, 167 B.R. at 189. This hypothetical levy is the functional equivalent of a forced sale for the purposes of determining the existence of the automatic homestead exemption. In re Mulch, 182 B.R. 569, 574 (Bankr.N.D.Cal.1995) (citing Mayer, 167 B.R. at 189; Morgan, 149 B.R. at 153; Herman, 120 B.R. at 130). In addition, on the date the petition was filed, Dettmar and his wife resided in the Property as their principal dwelling. This satisfies the principal dwelling requirement of CCP § 704.710(c). However, when Eclat's lien attached to the dwelling, neither Dettmar nor his spouse resided in the Property. Nevertheless, this fact does not preclude Dettmar from satisfying the residency requirement because the only date of residency relevant in determining whether Dettmar is entitled to the homestead exemption, in the absence of Eclat's lien, is the petition date. Mayer, 167 B.R. at 189; In re Bruton, 167 B.R. 923, 925 (Bankr.S.D.Cal.1994); In re Dodge, 138 B.R. 602, 606 (Bankr.E.D.Cal.1992). Finally, Dettmar and his wife continue to reside in the Property. Thus, Dettmar is entitled to the protection of the automatic homestead exemption.
The second California homestead exemption is the declared homestead exemption which is found in Article 5 of Chapter 4 of the California Enforcement of Judgments Law. CCP §§ 704.910-704.995. CCP § 704.920 provides that "[a] dwelling in which an owner or spouse of an owner resides may be selected as a declared homestead pursuant to this article by recording a homestead declaration in the office of the county recorder of the county where the dwelling is located." The recorded declaration of homestead must include the name of the declared homestead owner, a description of the declared homestead, and a statement that the declared homestead is the principal dwelling of the declared homestead owner. CCP § 704.930(a)(1)-(3). The "declared homestead owner" is defined to include the "owner of an interest in the declared homestead who is named as a declared homestead owner in a homestead declaration recorded pursuant to this article." CCP § 704.910(b)(1). "Dwelling" as used in CCP § 704.920 is defined in CCP § 704.910(c) as "any interest in real property that is a 'dwelling' as defined in Section 704.710, but does not include a leasehold estate with an unexpired term of less than two years...." As stated above, CCP § 704.710 defines "dwelling" as a place where a person resides. The most significant distinguishing feature of the declared homestead is that the declared homestead entitles the judgment debtor to the exemption upon a voluntary sale of the homestead property while the automatic homestead exemption does not.
Here, in the absence of Eclat's attachment lien, Dettmar is also entitled to the added protection of the declared homestead exemption. Dettmar is a declared homestead owner because he retained a 50% ownership interest in the property and was named as a declared homestead owner in the recorded Declaration of Homestead. In addition, Dettmar and his wife resided in the Property on the date the Declaration of Homestead was recorded. Further, the recorded Declaration of Homestead satisfies the requirements of CCP § 704.930(a)(1)-(3).
Under the Fraudulent Transfer Analysis, Dettmar qualifies for both the automatic and declared homestead exemption. The Court next determines the extent of Dettmar's California homestead exemption in the context of a § 522(f)(1) analysis. CCP § 704.730 provides in relevant part:
(a) The amount of the homestead exemption is one of the following:
(2) Seventy-five thousand dollars ($75,000) if the judgment debtor or spouse of the judgment debtor who resides in the homestead is at the time of the attempted sale of the homestead a member of a family unit, and there is at least one member of the family unit who owns no interest in the homestead or whose only interest in the homestead is a community property interest with the judgment debtor.
In the instant case, Dettmar and his wife have continuously resided in the Property since the Declaration of Homestead was recorded. In addition, no evidence has been presented to establish that Dettmar's wife owns an interest in the homestead, community or otherwise. Thus, the maximum value of Dettmar's California homestead exemption is $75,000.00.
For purposes of § 522(f)(1), the Court applies the formula provided in Galvan. The equity in the Property is determined by deducting the secured lien of Bank of America of $290,000.00 from the $355,000.00 Property value claimed in Dettmar's schedules. The judicial liens of Eclat and Pacific Heritage Bank are excluded from this calculation. The resulting equity is $65,000.00. Dettmar's available equity is $32,500.00 since he would be entitled to a 50% share of the equity as he retained a 50% ownership interest in the Property. The remaining $32,500.00 equity would go to Dettmar's mother since she retained the other 50% ownership interest in the Property. Applying the Galvan formula, Dettmar is entitled to the lesser of $75,000.00, the maximum value of Dettmar's exemption, or $32,500.00, Dettmar's equity in the Property. Accordingly, Dettmar's available exemption is $32,500.00.
Impairment of Dettmar's Exemption
According to the Ninth Circuit Court of Appeals in Chabot, the first step in analyzing the impairment issue is to determine whether, under California law, Eclat's attachment lien attached to Dettmar's residence. Chabot, 992 F.2d at 893. If there is a valid, attached lien, the court then determines whether it impairs the exemption. Id. If, however, the lien did not attach and is therefore invalid, the lien is avoided. See Jones, 180 B.R. at 577.
Pursuant to CCP § 704.950(a), a judgment lien does not generally attach to a declared homestead if the declared homestead is recorded prior to the recordation of the abstract of judgment. An exception to this general rule is provided in CCP § 704.950(c) such that a judgment lien attaches to a declared homestead in the amount of any surplus over the total of the homestead exemption and the liens and encumbrances existing when the judgment is recorded. In Jones, the court held that in applying the exception in CCP § 704.950(c), the correct date to determine the amount of liens and encumbrances is the date of the petition and not the date the judgment is recorded. Jones, 180 B.R. at 580.
In the instant case, Eclat does not have a judgment lien as Eclat has not recorded an abstract of judgment. Instead, Eclat holds an attachment lien against the Property. According to the express provisions of the statute, CCP § 704.950 applies only to judgment liens, not attachment liens. Although Eclat's judgment lien, once obtained, will relate back to the time of the prior attachment lien, CCP § 697.020, "judgment lien" as referred to in CCP § 704.950 does not encompass Eclat's attachment lien. Therefore, CCP § 704.950 does not apply in the present case.
To resolve the issue of whether Eclat's attachment lien attached to Dettmar's residence, the Court must look beyond the confines of Articles 4 and 5 of Chapter 4 of the California Enforcement of Judgments Law. CCP § 487.025 provides in relevant part:
(a) The recording of a homestead declaration (as defined in Section 704.910) does not limit or affect the right of a plaintiff to attach the declared homestead described in the homestead declaration, whether the homestead declaration is recorded before or after the declared homestead is attached.
(b) An attachment lien attaches to a homestead (as defined in Section 704.710) in the amount of any surplus over the total of the following:
(1) All liens and encumbrances on the homestead at the time the attachment lien is created.
(2) The homestead exemption set forth in Section 704.730.
The language of CCP § 487.025(b) closely parallels the language in CCP § 704.950(c), but is not limited to attachment to a declared homestead. CCP § 487.025(b) contemplates the valuation of liens and encumbrances at the time the attachment lien is created. In Jones, the Ninth Circuit Bankruptcy Appellate Panel focused on nearly identical language in § 704.950(c) and addressed the issue of whether liens and encumbrances were to be determined as of the bankruptcy filing date or the date the abstract of judgment was recorded. The Jones court concluded that the correct date to determine the amount of liens and encumbrances is the date the petition is filed. Jones, 180 B.R. at 580. In accordance with Jones, the Court finds that for the purposes of determining the amount of liens and encumbrances under CCP § 487.025(b), the correct date for such determination is the date the bankruptcy petition is filed.
When CCP § 487.025(b) is applied in this case, there is no surplus equity over the total liens and encumbrances valued at the petition date and Dettmar's homestead exemption to which Eclat's attachment lien can attach. Dettmar and his mother each own a 50% interest in the Property as tenants in common. Only Dettmar's 50% interest in the Property is subject to an execution sale; not the Property itself. CCP § 704.820(a). Eclat's attachment lien does not extend to the mother's 50% interest. Dettmar's homestead exemption consumes his equity in the Property. Nothing remains to which Eclat's lien can attach. Therefore, since Eclat's lien did not attach, the lien is avoided under the Fraudulent Transfer Analysis. In the absence of a valid, attached lien, the Court does not consider whether Eclat's attachment lien impairs the exemption.
POSSESSORY INTEREST ANALYSIS
Under this analysis, the Court presumes that the quitclaim deed from Dettmar to his mother is a valid transfer, divesting Dettmar of his ownership interest in the Property. When Dettmar and his wife took up residence in the Property in May, 1994, Dettmar no longer retained his ownership interest.
Debtor argues that because the quitclaim deed was never recorded, debtor's ownership interest could not have been superseded by an unrecorded quitclaim deed. Debtor's argument is without merit. Under California law, there is no requirement that a quitclaim deed be recorded in order to vest title to real property in the name of the grantee. Casey v. Gray, 13 Cal.App.4th 611, 614, 16 Cal.Rptr.2d 538 (2nd Dist.1993). Moreover, California Civil Code § 1107 provides that "[e]very grant of an estate in real property is conclusive against the grantor, also against everyone subsequently claiming under him, except a purchaser or incumbrancer who in good faith and for a valuable consideration acquires a title or lien by an instrument that is first duly recorded."
Under this set of facts, the Court applies § 522(f)(1) and the relevant case law to determine whether Eclat's attachment lien can be avoided. Dettmar has fulfilled the first requirement of § 522(f)(1) because he claimed an exemption in the Property and listed the Property on his schedules. In addition, Eclat's attachment lien satisfies the judicial lien requirement of § 522(f)(1). Figy, 102 B.R. at 787. The Court now examines the remaining § 522(f)(1) issues.
Dettmar's Available Exemption in Absence of Eclat's Lien
Initially, the Court must address the issue of the nature of Dettmar's interest in the Property. Dettmar characterizes his interest as possessory and, alternatively, as a future interest insofar as Dettmar would be an heir to the Property upon the death of his mother. Dettmar's future interest assertion is not supported by California law as California Civil Code § 700 provides that "[a] mere possibility, such as the expectancy of an heir apparent, is not to be deemed an interest of any kind."
Eclat describes Dettmar's interest as a leasehold estate, more specifically, a tenancy at will. A tenancy at will is an estate in land which confers a right to possession of the premises and is distinguishable from a license which conveys no estate in land. Covina Manor, Inc. v. Hatch, 133 Cal.App.2d Supp. 790, 792-93, 284 P.2d 580 (1955). Witkin, in his treatise on California law, describes a tenancy at will as follows:
A tenancy at will is created by agreement of the parties, but has no fixed term and is terminable at the will of either party. It results from an entry and occupancy by the tenant with the permission of the owner, e.g., under an invalid contract or lease.
4 B.E. Witkin, Summary of California Law, Real Property § 513 (9th ed. 1987) (citations omitted).
Although the circumstances surrounding Dettmar's entry and occupancy of the Property are obscure, both Dettmar and Eclat assert that Dettmar's interest in the Property is possessory. In effect, both are arguing that Dettmar's interest constitutes a tenancy at will. This argument necessarily implies that Dettmar and his wife entered and occupied the Property with the permission of Dettmar's mother. Since both parties essentially agree that Dettmar's interest is possessory, and not merely a license, the Court finds the nature of Dettmar's interest to be a leasehold estate--a tenancy at will.
Is Dettmar entitled to a California automatic homestead exemption when he retains a possessory interest in the Property? The Supreme Court of California has answered this question in the affirmative. Bell v. Wilson, 172 Cal. 123, 126, 155 P. 625 (1916); See also Blackburn v. Drake, 211 Cal.App.2d 806, 818-19, 27 Cal.Rptr. 651, 659 (1st Dist.1963). In Bell v. Wilson, the court stated "the homestead in no wise depends upon the character of the title which the homestead claimant has. A mere naked possession, without other title, may be impressed with the homestead characteristic." Bell v. Wilson, 172 Cal. at 126, 155 P. 625. Moreover, in the recent bankruptcy court decision of In re Donaldson, 156 B.R. 51, 52 (Bankr.N.D.Cal.1993), Judge Jaroslovsky suggested that the debtor's retention of a possessory interest throughout the bankruptcy proceedings would support the existence of debtor's claimed California automatic homestead exemption.
In the instant case, the parties agree that a mere possessory interest in the Property, assuming that the applicable residency requirement of CCP § 704.710(c) is satisfied, will support the automatic homestead exemption under California law. The Court has already determined that the residency requirement of CCP § 704.710(c) has been satisfied since the only date of residency relevant in determining whether Dettmar is entitled to the homestead exemption, in the absence of Eclat's lien, is the petition date. Mayer, 167 B.R. at 189; Bruton, 167 B.R. at 925; Dodge, 138 B.R. at 606. Here, Dettmar and his wife resided in the Property as their principal dwelling on the date the petition was filed. Thus, under the Possessory Interest Analysis, Dettmar qualifies for the automatic homestead exemption.
Is Dettmar entitled to a California declared homestead exemption when he retains a possessory interest in the Property? A declared homestead refers to the dwelling described in a homestead declaration. CCP § 704.910(a). A dwelling means "any interest in real property (whether present or future, vested or contingent, legal or equitable) that is a 'dwelling' as defined in Section 704.710, but does not include a leasehold estate with an unexpired term of less than two years...." CCP § 704.910(c) (emphasis added). If Dettmar cannot meet the dwelling requirement of CCP § 704.910(c), he would not be entitled to the declared homestead exemption.
In the instant case, Dettmar's tenancy at will constitutes an interest in real property.
Page 262.
However, a tenancy at will, by definition, has no fixed term and is terminable at will. Thus, since Dettmar's tenancy at will leasehold estate has an unexpired term of less than two years, Dettmar cannot satisfy the dwelling requirement of CCP § 704.910(c). Consequently, under the Possessory Interest Analysis, Dettmar is not entitled to the declared homestead exemption.
The Court now focuses on the extent of Dettmar's automatic homestead exemption. Dettmar's available exemption, for purposes of § 522(f)(1), is equal to the lesser of (1) the equity of Dettmar in the Property sought to be exempted or (2) the maximum value of the exemption claimed. Galvan, 110 B.R. at 450. With respect to (1), applying the Galvan formula results in no equity of Dettmar in the Property sought to be exempted. Dettmar has only a mere possessory interest in the Property. Dettmar's mother has the ownership interest in the Property and would be entitled to any available equity upon forced sale of the Property. As to (2), as previously set forth under the Fraudulent Transfer Analysis, the maximum value of Dettmar's California homestead exemption is $75,000.00. Thus, since Dettmar is entitled to the lesser of $-0- or $75,000.00, Dettmar's available exemption is $-0-. Although Dettmar qualifies for the automatic homestead exemption under California law, the exemption is valueless for purposes of § 522(f)(1).
Impairment of Dettmar's Exemption
The first step in the impairment analysis is to determine whether Eclat's attachment lien attached to Dettmar's possessory interest in the Property. Chabot, 992 F.2d at 893.
Dettmar's tenancy at will interest in the Property is not subject to attachment pursuant to CCP § 487.010. More specifically, CCP § 487.010 allows attachment of a natural person's interests in real property except leasehold estates with unexpired terms of less than one year. CCP § 487.010(c)(1). A tenancy at will qualifies as a leasehold estate with an unexpired term of less than one year since it has no fixed term and is terminable at will. Therefore, under the Possessory Interest Analysis, Eclat's attachment lien did not attach to Dettmar's tenancy at will interest. Eclat admits in its Supplemental Brief filed on April 6, 1995 that its attachment lien did not reach Dettmar's possessory interest as follows:
"Thus, in August of 1992, ECLAT obtained its attachment lien, not on Mr. DETTMAR's tenancy at will (which did not yet exist, and which would not support an attachment lien), but on the one-half interest in the Property that he had previously quitclaimed to his mother for no consideration."
Supplemental Reply Brief of Creditor (Pg. 5, ll. 8-13).
Eclat's attachment lien is avoided under the Possessory Interest Analysis since it did not attach to Dettmar's tenancy at will interest in the Property. See Jones, 180 B.R. at 577. The Court need not reach the issue of whether Eclat's attachment lien impairs Dettmar's valueless exemption.
CONCLUSION
The Court finds that Eclat's attachment lien is subject to avoidance regardless of whether the Court applies the Fraudulent Transfer Analysis or Possessory Interest Analysis. Accordingly, Dettmar's motion to avoid Eclat's judicial attachment lien is granted.
The following described property, and all of the same, is subject to the Application for the Issuance of Writ of Attachment/Writ of Attachment pursuant to the provisions of Code of Civil Procedure Section 487.010 as follows:
1. CCP Section 487.010(c)(1)--interest in real property except leasehold estates unexpired terms of less than one (1) year:
ANY AND ALL INTERESTS OF DEFENDANT SCOTT A. DETTMAR IN THE REAL PROPERTY COMMONLY KNOWN AS 19425 BILMOOR PLACE, TARZANA, CA 91356....
Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is
(A) a judicial lien....