Opinion
NOT FOR PUBLICATION
Argued and Submitted at Phoenix, Arizona: January 20, 2006
Appeal from the United States Bankruptcy Court for the District of Arizona. Bk. No. 02-01943-EWH. Honorable Eileen W. Hollowell, Bankruptcy Judge, Presiding.
Before: MONTALI, SMITH and CARROLL, [ Bankruptcy Judges.
Hon. Peter H. Carroll, United States Bankruptcy Judge for the Central District of California, sitting by designation.
MEMORANDUM
Sergio and Sandra Renteria (" Debtors") appeal a final order of the bankruptcy court entered on February 9, 2005, which effectively sustained the chapter 7 trustee's objection to Debtors' homestead exemption. We REVERSE and REMAND.
I. FACTS
At the time they commenced their Chapter 12 case on April 26, 2002, Debtors were family farmers operating a 320-acre farm in Cochise County, Arizona (the " real property"). The real property was encumbered by a lien in favor of the United States Department of Agriculture, Farm Service Agency (" FSA") securing a debt in excess of $800,000. Located on the real property was a mobile home (not owned by Debtors as of the petition date) as well as a permanent dwelling structure (the " dwelling"), both of which were in a state of disrepair. They claimed a homestead exemption in the amount of $100,000 under Arizona Revised Statute (" A.R.S.") § 33-1101. The trustee did not object.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated prior to the effective date (October 17, 2005) of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23.
Schedule C merely reflects " Homestead" in the " value claimed amount" of $100,000.
According to Debtors, the mobile home could be more easily repaired than the dwelling, and as a result, Debtors undertook to make the mobile home their primary residence. On September 19, 2003, Debtors filed a motion to use $20,000 of estate funds and $18,000 in gift money from family members for the purchase of the mobile home. According to Debtors, they had no other living accommodations available to them. The court ultimately granted the motion after Debtors expressly stipulated that the mobile home would not be subject to any claim of exemption.
At no time did Debtors reside, or intend to reside, in the dwelling.
Debtors admit to having executed a written abandonment or waiver of the homestead as it pertained to the mobile home.
On June 18, 2004, the case converted to a chapter 7. Following the conversion, Debtors amended their schedules, but made no changes to the homestead exemption. Cognizant of the pre-conversion exemption waiver, the trustee requested, in the form of an objection, that Debtors clarify the basis of the claimed homestead exemption.
Debtors took the position that because the trustee did not object to the homestead exemption at the outset of the chapter 12 filing, the exempt property was no longer property of the estate at the time of conversion. Accordingly, the exempt property was effectively removed from the reach of the trustee or creditors.
The trustee responded that Debtors had waived any right to a homestead exemption as a condition of using estate funds for the purchase of the mobile home.
A hearing was held on December 29, 2004. Debtors maintained their arguments, and in addition, claimed that notwithstanding the waiver of a homestead exemption in the mobile home, the exemption attached to the real property and the dwelling. They contended that any one of the categories of the applicable Arizona homestead law, quoted infra, allowed them the claimed exemption. Thus they argued that they could exempt the real property and the dwelling. Noting that Debtors had conceded that the only habitable living accommodation on the real property was the mobile home, and not the dwelling, the court described the situation as follows:
Therefore, the only category of exemption available to Debtors is ARS § 33-1101(A)(4).
The Debtors were initially entitled to the exemption category for a mobile home and the land on which it was located. The Trustee did not object to that exemption.
It then rejected these arguments, holding that:
[w]hen the Debtor[s] sought to purchase the mobile home from the mortgage company, and use [sic] estate funds to do so, they waived their homestead exemption rights. Whatever property may have been removed by the initial exemption, was returned to the Bankruptcy Estate in exchange for the use of Estate funds to purchase the mobile home. The Debtors are bound by their earlier waiver....
Debtors appeal.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 and § § 157(b)(1) and (b)(2)(B). We have jurisdiction under 28 U.S.C. § § 158(b) and (c).
III. ISSUES
A. Whether the trustee lacks standing to challenge Debtors' homestead exemption;
B. Whether the bankruptcy court erred when it sustained the trustee's objection to the homestead exemption based on the Debtors' waiver of exemption in the mobile home.
IV. STANDARD OF REVIEW
Questions regarding the right of a debtor to claim exemptions are questions of law reviewed de novo. In re Arnold, 252 B.R. 778, 784 (9th Cir. BAP 2000); In re Goswami, 304 B.R. 386, 389 (9th Cir. BAP 2003); In re Kim, 257 B.R. 680, 684 (9th Cir. BAP 2000). Whether property is included in a bankruptcy estate is a question of law also subject to de novo review. In re Kim, 257 B.R. at 684; In re Central Ark. Broad. Co., 68 F.3d 213, 214 (9th Cir. 1995).
V. DISCUSSION
A. Standing
Debtors contend that because FSA's lien against the real property exceeded its value, the estate had no equity in the property from which profits could be realized from its sale. In the absence of such a pecuniary interest, Debtors assert that the trustee did not have standing to object to the exemption.
Issues pertaining to the sale of the real property are not before us, and therefore, we decline comment. We do note, however, that it has been sold, a fact that may render this matter moot and compels us to remand.
The Ninth Circuit, in Matter of Fondiller, 707 F.2d 441, 442 (9th Cir. 1983), has held that " [o]nly those persons who are directly and adversely affected pecuniarily by an order of the bankruptcy court [have] standing to appeal that order." Direct and adverse effect can include " diminution in property, increase in burden, or detrimental affect of rights." Id.
Here, the argument that the estate has no pecuniary interest in objecting to the homestead exemption is unsupported by the record. Undoubtedly, the estate has a pecuniary interest in objecting to the homestead exemption as a successful challenge would increase the assets of the estate by $100,000, the amount of the claimed exemption. The fact that the real property has since been sold does not negate the trustee's standing as of the time of the objection.
Debtors argue that because the panel has consistently held that a debtor does not have standing to contest actions affecting the size of the estate, it should follow that trustees also lack such standing. We reject this reasoning. As we noted in In re Stoll, 252 B.R. 492 (9th Cir. BAP 2000), a case relied on by Debtors, a chapter 7 debtor ordinarily does not have a pecuniary interest in the property of the estate because the estate's legal representative is the trustee - not the debtor. In re Stoll, 252 B.R. at 495 n.4.
An obvious exception would be where there is a surplus, or at least a substantial possibility of a surplus, after all creditors have been paid in full. In re Stoll, 252 B.R. at 495 n.4.
We conclude that the trustee had standing to object to Debtors' homestead exemption.
B. Debtors did not waive their right to a homestead exemption in the real property.
Notwithstanding the waiver of exemption in the mobile home, Debtors argue that they continued to hold a homestead exemption on the real property and dwelling. According to Debtors, while it is true that they executed a written abandonment or waiver of the homestead as it pertained to the mobile home, they did not abandon the homestead as to the real estate and the dwelling. As a result, a homestead in these assets was permitted under A.R.S. § 33-1104.
The homestead exemption under Arizona law is governed by A.R.S. § 33-1101, which provides
A. Any person the age of eighteen or over, married or single, who resides within the state may hold as a homestead exempt from attachment, execution and forced sale, not exceeding one hundred fifty thousand dollars in value, any one of the following:
At the time the bankruptcy was filed, the maximum exemption amount was $100,000.
1. The person's interest in real property in one compact body upon which exists a dwelling house in which the person resides.
2. The person's interest in one condominium or cooperative in which the person resides.
3. A mobile home in which the person resides.
4. A mobile home in which the person resides plus the land upon which that mobile home is located.
As there are no condominiums or cooperatives on the real property, A.R.S. § 33-1101(A)(2) does not apply. Further, Debtors concede that they executed a written abandonment or waiver as to the mobile home, therefore, A.R.S. § § 33-1101(A)(3) is also inapplicable. Thus, Debtors' eligibility for a homestead exemption can only fall within A.R.S. § 33-1101(A)(1) or (A)(4).
Under A.R.S. § 33-1101(A)(1), a person may claim a homestead on a dwelling house in which the claimant resides. " Resides" is defined as the " physical presence of the individual claiming a homestead exemption." In re Elia, 198 B.R. 588, 597 (Bankr. D. Ariz. 1996). A debtor, however, may be entitled to a homestead exemption for his residence even though he was not physically present at the time of the homestead claim if he intended the premises to be his residence. In re Garcia, 168 B.R. 403, 408 (D. Ariz. 1994).
The record is clear that as of the date of the commencement of the bankruptcy case, Debtors did not physically reside in the dwelling. Moreover, as evidenced by the representations made during the hearing to utilize estate funds, Debtors' clearly intended to reside in the mobile home. Nothing in the record suggests that Debtors ever intended to reside in the dwelling. Therefore, Debtors could not claim a homestead exemption in the dwelling and the real property as allowed under A.R.S. § 33-1101(A)(1).
As the bankruptcy court correctly noted, the only issue that remains is whether Debtors were eligible for a homestead exemption under A.R.S. § 33-1101(A)(4). While it is clear that Debtors waived their right to a homestead as to the mobile home, the law provides for a homestead in the mobile home " plus" the land upon which the mobile home is located. We know of no reason why Arizona law would preclude a debtor from waiving one portion of a two-part exemption. Debtors claimed a homestead in the real property and the mobile home, there was no timely objection to that combined objection, then they waived a portion of it. We believe the bankruptcy court incorrectly treated an unequivocal waiver only of the mobile home to be a waiver of the properly claimed exemption in the real property. However, because the real property has been sold, the bankruptcy court needs to determine whether it has any ongoing jurisdiction to resolve the competing claims of Debtors and FSA in the real property (the trustee having none), and if so, to determine the rights of the parties.
VI. CONCLUSION
For the foregoing reasons, we REVERSE the bankruptcy court's order that sustains the trustee's objection to the Debtors' claim of exemption in the real property and REMAND to determine whether it has jurisdiction to resolve, and if so, to resolve, whatever issues remain from this dispute.
DISSENT
SMITH, Bankruptcy Judge, dissenting:
Debtors clearly waived their right to claim a homestead as to the mobile home. The majority, however, pushes the ball a bit further to conclude that the waiver of an exemption in the mobile home does not constitute a waiver of an exemption on the land upon which it is situated pursuant to A.R.S. § 33-1101(A)(4). I disagree.
Notably, this issue was not raised by Debtors on appeal.
A.R.S. § 33-1101(A)(4) provides
A. Any person the age of eighteen over, married or single, who resides within the state may hold as a homestead exempt from attachment, execution and forced sale, not exceeding one hundred fifty thousand dollars in value, any one of the following:
At the time the bankruptcy was filed, the maximum exemption amount was $100,000.
4. A mobile home in which the person resides plus the land upon which that mobile home is located.
A.R.S. § 33-1101(A)(4)(emphasis added).
This section authorizes a person to exempt the mobile home in which he resides and the land on which it is located. It does not, however, contemplate an exemption on the land alone. See e.g., In re Unkefer, 44 B.R. 55, 58 (Bankr. D. Ariz. 1984)(noting that prior to 1983, the Arizona legislature allowed an exemption solely based on the land, but has since redesigned the law so that a debtor must now reside on the homestead property claimed).
When Debtors stipulated to waive any right to a homestead exemption in exchange for the use of estate funds, by operation of law, they concurrently and necessarily waived the right to assert a homestead exemption on the underlying land. Therefore, the bankruptcy court properly held
[W]hen the Debtor sought to purchase the mobile home from the mortgage company, and use estate funds to do so, they waived their homestead exemption rights [sic] Whatever property may have been removed by the initial exemption, was returned to the Bankruptcy Estate in exchange for the use of Estate funds to purchase the mobile home. The Debtors are bound by their earlier waiver; accordingly, the Trustee's objection to the Debtors claim of a homestead exemption is SUSTAINED.
Accordingly, the order should be affirmed.