Opinion
NOT FOR PUBLICATION
Submitted Without Argument at Pasadena, California, May 21, 2010,
Appeal from the United States Bankruptcy Court for the District of Idaho. Bk. No. 08-40730-JDP. Honorable Jim D. Pappas, Bankruptcy Judge, Presiding.
Before HOLLOWELL, RUSSELL [ and JURY, Bankruptcy Judges.
Hon. David E. Russell, Bankruptcy Judge for the Eastern District of California, sitting by designation.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
The debtors in this case sought to avoid two judicial liens to the extent the liens impaired their homestead exemption. However, the bankruptcy court determined that the Debtors did not satisfy the requirements for lien avoidance under § 522(f) because they were not entitled to a homestead exemption under § 522(b). We AFFIRM.
Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
The recitation of facts is taken from the parties' Stipulation of Facts Regarding 522 On 362 Motions, which was filed September 14, 2009 (docket #197).
Wade and Yvonne Gardner (the Debtors) filed a chapter 7 bankruptcy petition on August 20, 2008. At that time, they lived at a home they owned on Van Elm in Blackfoot, Idaho (Van Elm). The Debtors also owned property at Rich Lane in Blackfoot, Idaho (Rich Lane). The Debtors parked a 5th-wheel trailer on Rich Lane in July 2008, and stayed there occasionally. They began construction of a residence on Rich Lane around the time they filed bankruptcy.
On August 20, 2008, the Debtors executed and recorded a declaration of homestead for Rich Lane. The Debtors did not, however, execute and record a notice of abandonment of homestead on Van Elm, which was being foreclosed on at the time. According to the Debtors, they were advised by the county clerk's office to file a declaration for Rich Lane in order to indicate their intention to claim an exemption in it. When they filed their bankruptcy petition later that same day, the Debtors listed their address as Rich Lane and claimed a $100,000 homestead exemption for it under Idaho Code (I.C.) § 55-1003. Neither the bankruptcy trustee or any other party objected to the Debtors' claim to a homestead exemption for Rich Lane within the 30-day time limit of Rule 4003(b).
In June and July 2008, just prior to the time the Debtors filed for bankruptcy, two of their creditors obtained judgments and properly recorded them in the county clerk's office. Kent and Judy Campbell (the Campbells) obtained a judgment in the amount of $28,130 and recorded it on June 11, 2008 (the Campbell Lien). Dykeman Construction, Inc. (Dykeman) obtained a judgment against the Debtors in the amount of $82,342.03 and recorded it on July 7, 2008 (the Dykeman Lien).
On May 29, 2009, the Debtors filed motions to avoid the Campbell Lien and the Dykeman Lien. The Campbells objected on June 26, 2009, and filed a motion for relief from stay. Dykeman also objected on June 26, 2009. A hearing on the Debtors' motion to avoid the Campbell Lien was held on August 12, 2009. However, Dykeman waived a hearing on the motion and agreed to submit the matter on the briefs. The bankruptcy court, in a Memorandum Decision entered October 5, 2009, determined that the Debtors were not entitled to a homestead exemption on Rich Lane, and, therefore did not satisfy the requirements for lien avoidance under § 522(f). The same day, the bankruptcy court entered orders denying the Debtors' motions to avoid the Campbell Lien and the Dykeman Lien. The Debtors timely appealed.
The hearing was combined with the Campbell's motion for relief from stay. The bankruptcy court addressed the merits of the motion in its Memorandum Decision and entered a separate order granting stay relief. That order is not part of this appeal.
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(K). We have jurisdiction under 28 U.S.C. § 158.
The Debtors argue that the appeal " will become moot" because they intend to file a motion to avoid the Campbell Lien and the Dykeman Lien to the extent it impairs the Debtors' other exemptions. However, the issue of mootness is a threshold jurisdictional question. Giesbrecht v. Fitzgerald (In re Giesbrecht), 429 B.R. 682, 2010 WL 1956618 (9th Cir. BAP 2010). An appeal is moot only if the appellate court cannot grant effective relief to the appealing party even if it decides the merits in his or her favor. Pilate v. Burrell (In re Burrell), 415 F.3d 994, 998 (9th Cir. 2005). If we were to reverse the bankruptcy court, the Debtors would be provided relief because they would be able to avoid the Campbell Lien and the Dykeman Lien, therefore, the appeal is not moot. We decline to speculate on the Debtors' future § 522 arguments.
III. ISSUE
Did the bankruptcy court err in determining that the Debtors were not entitled to a homestead exemption for Rich Lane under § 522(b)?
The Debtors do not argue that the bankruptcy court erred in determining that the failure of a creditor to object to the homestead exemption claim does not bar it from contesting the lien avoidance action. In re Conley, 99.1 IBCR 7 (Bankr. D. Idaho 1999) (" The need to address the exemption's validity . . . arises at the time the assault under § 522(f) is launched."); Morgan v. Fed. Deposit Ins. Corp. (In re Morgan), 149 B.R. 147, 152 (9th Cir. BAP 1993) (same).
IV. STANDARDS OF REVIEW
We review a bankruptcy court's conclusions of law, including its interpretations of provisions of the Bankruptcy Code and state law, de novo. Hopkins v. Cerchione (In re Cerchione), 414 B.R. 540, 545 (9th Cir. BAP 2009).
V. DISCUSSION
A. Lien Avoidance Under § 522(f)
The Debtors contend they may avoid the Campbell Lien and the Dykeman Lien under § 522(f). Section 522(f) provides that " 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 . . . if such lien is . . . a judicial lien[.]" 11 U.S.C. § 522(f)(1)(A). In order to avoid the liens, the Debtors must satisfy
a four-part test for avoidance of a lien:
(1) There must be an exemption to which [they] " would have been entitled" under subsection (b) of § 522;
(2) The property must be listed on [their] schedules and claimed as exempt;
(3) The lien at issue must impair the claimed exemption; and
(4) The lien must be either a judicial lien or another type of lien specified by statute.
In re Morgan, 149 B.R. at 151 (citation omitted); 11 U.S.C. § 522(f)(1)(A).
It is the Debtors' burden to demonstrate that they meet the requirements to avoid a judicial lien under § 522(f)(1). Estate of Catli v. Catli (In re Catli), 999 F.2d 1405, 1406 (9th Cir. 1993). In this case, the only dispute is whether the Debtors met their burden by establishing their entitlement to a claim of homestead under § 522(b).
The Campbell Lien and the Dykeman Lien were both judicial liens because they were obtained " by judgment." See 11 U.S.C. § 101(36). Thus, the Debtors satisfied the last three elements of the four-part test because the Rich Lane Property was listed as exempt on the Debtors' schedules and the liens impaired the exemption.
B. Homestead Exemptions Under § 522(b)
Property that may be exempted from the bankruptcy estate is set forth in § 522(b)(1). Idaho has opted out of the federal exemption scheme and permits its debtors only the exemptions allowable under state law. 11 U.S.C. § 522(b)(2), (b)(3)(A); I.C. § 11-609. Therefore, while " the federal courts decide the merits of state exemptions, . . . the validity of the claimed state exemption is controlled by the applicable state law." Kelley v. Locke (In re Kelley), 300 B.R. 11, 16 (9th Cir. BAP 2003); Thorp v. Gugino (In re Thorp), 2009 WL 2567399 *3 (D. Idaho 2009).
Idaho law allows debtors to claim a homestead exemption, not to exceed $100,000 in value, in real property under I.C. § § 55-1001-1011. A homestead " consists of the dwelling house or the mobile home in which the owner resides or intends to reside, . . . and the land on which the same are situated . . .; or unimproved land owned with the intention of placing a house or mobile home" on the land for the purpose of residing there. I.C. § 55-1001(2).
There are two methods of creating a homestead exemption in Idaho. An automatic homestead exemption is created for property described as a homestead under I.C. § 55-1001 from and after the time the property is occupied as a principal residence by the owner. I.C. § 55-1004(1). Alternatively, a property owner may establish a homestead for exemption purposes by declaration. I.C. § 55-1004(1); 1004(2). To declare a homestead in " unimproved or improved land that is not yet occupied as a homestead, " the property owner must execute and record a declaration establishing his or her intent to reside on the property in the future. Id .; I.C. § 55-1004(3).
However, if the owner also owns another parcel of property on which the owner presently resides or in which the owner claims a homestead, the owner must also execute a declaration of abandonment of homestead on that other property and file the same for record with the recorder of the county in which the land is located.
I.C. § 55-1004(2) (emphasis added).
A debtor's entitlement to an exemption is determined based upon facts as they existed at the time the petition is filed. In re Cerchione, 414 B.R. at 548; Cisneros v. Kim (In re Kim), 257 B.R. 680, 685 (9th Cir. BAP 2000); White v. Stump, 266 U.S. 310, 313, 45 S.Ct. 103, 69 L.Ed. 301 (1924); In re Thorp, 2009 WL 2567399 at *3. The Debtors had an automatic homestead exemption for Von Elm because they lived there at the petition date. A valid homestead remains effective until it is abandoned. The statute requires that if a debtor records a homestead when he or she owns another parcel of property on which he or she resides, the debtor must execute and record a declaration of abandonment. I.C. § 1004(2).
The only other method of abandoning a homestead under Idaho law is by non-residency for a continuous period of at least six months where no declaration of nonabandonment has been filed. I.C. § 55-1006.
Although Idaho's homestead exemption statutes are liberally construed in favor of debtors, In re Cerchione, 414 B.R. at 546 (citations omitted), " [t]he liberal construction cannot . . . be used to interpret the homestead laws in a way that contradicts 'the plain and unambiguous language of the statute.'" In re Thorp, 2009 WL 2567399 at *5 (citation omitted); In re Cerchione, 414 B.R. at 546. The Debtors argue they filed the homestead declaration as instructed by the county clerk's office staff, however, such instruction is not legal advice that could be reasonably relied upon. See, e.g., In re Bach, 2007 WL 405039 *1 (Bankr. D. Ariz. 2007); Barr v. Barr (In re Barr), 217 B.R. 626, 629 (Bankr. W.D. Wash. 1998). Given the plain language of I.C.
§ 55-1004(2), filing the declaration of homestead could not constitute an election of the declared homestead over the automatic homestead. Therefore, because the Debtors did not abandon the automatic homestead created on Von Elm, they did not comply with the requirements for establishing a declared homestead exemption for Rich Lane. Accordingly, they have not demonstrated entitlement to a homestead exemption for Rich Lane sufficient to satisfy § 522(f)(1).
VI. CONCLUSION
For the foregoing reasons, we AFFIRM the bankruptcy court's orders denying the Debtors' motions to avoid the Campbell Lien and the Dykeman Lien.