Honorable Ralph B. Kirscher, Chief U.S. Bankruptcy Judge.
At Butte in said District this 30th day of November, 2015.
Debtors' five Motions to avoid judicial liens on their claimed Montana homestead
Daniel S. Morgan of Missoula represented Debtors at the hearing; Debtor Beverly Ann Bauer-Fix ("Beverly") testified. Harold V. Dye of Missoula represented The Olson Estate. Raymond P. Tipp of Missoula represented Kinney. The Court admitted: Debtors' Exhibits ("Ex.") 1, 2, 3, 4, and 5; Olson's Ex. A, B, C, and D; and Kinney's Ex. G into evidence by stipulation. CBS filed no response and made no appearance at the hearing, which by operation of Montana Local Bankruptcy Rule 9013-1(f) is deemed an admission by CBS that the relief requested should be granted.
This Court has exclusive jurisdiction of this Chapter 13 bankruptcy under 28 U.S.C. § 1334(a). Debtors' five Motions to avoid judicial liens are core proceedings under 28 U.S.C. § 157(b)(2).
Debtors, Kinney and the Olson Estate filed a "Statement of Stipulated Facts" on October 8, 2015 (Doc. 77), which sets for the following undisputed facts:
Doc. 77.
Other undisputed facts may be gleaned from the testimony and exhibits admitted into evidence, and the documents on the case docket. The declaration of homestead which Timothy and Beverly signed and recorded on March 7, 2008, states that they "actually reside on the premises located at 21335 Old Highway 93, Florence," Montana, and claim it as their homestead "for the joint benefit of each of us, and our family." Ex. 3.
On their Chapter 13 petition Debtors stated that their street address was 21335 Old Highway 93 in Florence, Missoula County, Montana.
Beverly testified that, as of March 30, 2015, the Fixes had no residence other than 21335 Old Highway 93 in Florence, and they had not received a deed to the Arizona property from the Hailers. She testified that they received a deed to the Arizona property from Hailers after the April 1, 2015, closing. Prior to closing, she testified, the Hailers did not allow them to move into the house on the Arizona property, but that after the closing, in May 2015, they moved into the house on the Arizona property and were living there on the date of the hearing. On cross examination, Beverly testified that she briefly lived in her motorhome with her husband on the Arizona property prior to the closing.
The purchase contract between the Fixes and Hailers, Ex. B, provides that the close of escrow of the sale shall occur on April 1, 2015. In addition, Ex. B requires that the Fixes make an additional $10,000 down payment delivered by November 15, 2015, and the sellers would finance the $169,900 amount due in monthly payments, with a balloon payment due September 1, 2018. Beverly testified that the down payment they received from Fontaines are proceeds which are directly traceable from the sale of 21335 Old Highway 93 in Florence, and that it has been less than 18 months since they entered into the contract for deed with the Fontaines.
The notice of commencement of case and deadlines was mailed to creditors and parties in interest on April 2, 2015, including to Kinney and Olson. A deadline of 30 days after the conclusion of the meeting of creditors for filing objections to Debtors' claims of exemption was included in the notice. Two meetings of creditors were held on May 14, 2015, and on June 15, 2015. Beverly testified that they discussed the purchase agreement of the Arizona property with the Trustee at the creditors' meeting. Afterwards, no timely objection to Debtors' claimed homestead declaration in 21335 Old Highway 93 in Florence was filed.
Debtors' Schedule A lists the Florence residence as real property owned in fee simple by "H" with a current value of $335,000.00 securing claims in the amount
Schedule B lists Debtors' personal property, including the "2000 Dutchstar Motorhome" owned by Beverly, and $4,000 worth of cashier's checks from the sale of their Montana residence at item 1.
On Schedule C ("Property Claimed as Exempt") Debtors list under "Real Property" their Florence residence at 21335 Old Highway 93 as a homestead under MONT. CODE. ANN. § 70-32104 and § 25-13-615, with a value of the claimed exemption stated in the amount of $215,000; and immediately below claimed as exempt under the same homestead statutes $30,000 described as "Earnest money for purchase of Arizona real estate from Contract for Deed on Montana residence (Declaration of Homestead recorded on 3/7/08 in Missoula County)." Debtors also claimed as exempt under § 25-13-614 the sum of $150 in cash on hand, and the $4,000 in Cashier's checks from the contract for deed on their Montana residence under § 70-32-104 and § 25-13-615.
Schedule D lists a first and second mortgage on the residence in Florence and judgment liens held by Dealer Services Corporation, Olson, and Kinney. It appears from the schedules that Dealer Services Corporation holds a judgment lien against the Debtors' business. CBS is not scheduled on Schedule D.
Schedule G lists under executory contracts and unexpired leases a "Contract for Deed to sell Montana Residence" naming the other parties to the contract as Shawn & Janis Fontaine of Stevensville, Montana. The purchase agreement with Hailers was not listed on Schedule G. Asked on cross examination why that agreement was not listed on Schedule G, Beverly testified that the agreement had not closed until April 1 and they did not own the Arizona property.
Debtors' filed their five Motions to avoid judgment liens on July 22, 2015, each of which is based on § 522(f)(1)(A) on the grounds that the liens impair Debtors' homestead exemption to which they are entitled. Beverly testified that the judgment liens of CBS, Kinney and the Olson Estate impair their homestead exemption. CBS did not file a response.
The Olson Estate filed an objection on August 5, 2015, on the grounds that the Debtors contracted to sell their homestead to the Fontaines and to purchase real property in Arizona prepetition and because Timothy had been employed in Arizona for four months. Kinney filed their objection on September 21, 2015, on the same grounds as the Olson Estate's objection, and in addition contended that Debtors' abandoned their Montana homestead prepetition and that an automatic homestead exemption attached to Debtors' Arizona property by state statute, ARIZ. REV. STAT. § 33-1101, which was not waived because no waiver was recorded under ARIZ. REV. STAT. § 33-1104.
Ex. 2 is a Montana cadastral "Property Record Card" for 21335 Old U.S. Highway 93 in Florence, which states that it was last modified on 8/24/2015. Ex. 2 states
On September 18, 2015, Debtors filed a motion for approval of the buy sell agreement of their Florence residence at 21335 Old Highway 93 South to the Fontaines. The motion was served on Kinney, CBS, the Olson Estate and other creditors. No objection was filed, and the Court entered an Order on October 6, 2015, granting Debtors' motion to sell 21335 Old Highway 93 under the terms of the buy sell agreement. That Order is final.
Fontaines agreed under the buy sell agreement to pay the Fixes an additional $20,000 if Fontaines cannot sell their house by October 31, 2015. Ex. A. Beverly testified that they did not give Fontaines possession of 21335 Old Highway 93 on the date they signed Ex. A, nor did they give Fontaines the right to own the property. She described Ex. A as a "very loose arrangement." Ex. A gives the Fontaines the right to inspect the property; Beverly did not know if Fontaines had completed a second property inspection to which they were allowed.
Beverly testified that she still has animals and a garage full of personal property at 21335 Old Highway 93. At the hearing, she testified that kept her animals and personal property at 21335 Old Highway 93 in case the sale to Fontaines did not go through and Fontaines defaulted. Beverly testified that she planned on returning to the property to retrieve her animals and belongings in contemplation of the closing of the sale of 21335 Old Highway 93, which had been approved. She expected that the closing of the sale of 21335 Old Highway 93 to the Fontaines was expected to take place within a week of the hearing.
If, however, the Fontaines default under the terms of the agreement to purchase 21335 Old Highway 93, Beverly testified, she and Timothy will move back to Montana and 21335 Old Highway 93.
Although the attorneys for Kinney and the Olson Estate cross examined Beverly, they called no witnesses of their own in their cases-in-chief. As a result, Beverly's testimony is uncontroverted. This Court observed Beverly's demeanor while she testified under oath and under cross examination; the Court finds that Beverly is a credible witness. See In re Taylor, 514 F.2d 1370, 1373-74 (9th Cir.1975); see also Casey v. Kasal, 223 B.R. 879, 886 (E.D.Pa. 1998).
Debtors move to avoid the judicial liens of Kinney, Olson Estate and CBS under § 522(f)(1)(A), which provides that "a 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." § 522(f)(1)(A). In re Chiu, 304 F.3d 905, 907 (9th Cir.2002); In re Quane, 16 Mont. B.R. 475, 476-77 (Bankr.D.Mont.1998).
The purpose of lien avoidance under § 522(f) is to protect a debtor's exemptions. Goswami v. MTC Distrib. (In re Goswami), 304 B.R. 386, 392 (9th Cir. BAP 2003). The Ninth Circuit explained:
Chiu, 304 F.3d at 908.
Under § 522(f)(1), "a debtor may avoid a lien if three conditions are met: (1) there was a fixing of a lien on an interest of the debtor in property; (2) such lien impairs an exemption to which the debtor would have been entitled; and (3) such lien is a judicial lien." Id. quoting Estate of Catli v. Catli (In re Catli), 999 F.2d 1405, 1406 (9th Cir.1993).
No dispute exists that the liens of Kinney, Olson Estate and CBS are judicial liens resulting from judgments, thus satisfying condition (3). Ex. 5, G. From the time the judgments in favor of Kinney, Olson Estate and CBS were docketed, they became liens against the Debtors' real property in Missoula County pursuant to MONT. CODE ANN. ("MCA") § 25-9-301(2).
Condition (1), that there was a fixing of a lien on an interest of the Debtors in property, also is satisfied by the evidence in the record. The critical inquiry on condition (1) is whether the debtor possessed the interest to which the lien fixed, before it fixed. Chiu, 304 F.3d at 908, citing Farrey, 500 U.S. at 299, 111 S.Ct. 1825. The debtor need not have an interest in the property at the time it moves to avoid. Chiu, 304 F.3d at 908, quoting In re Vincent, 260 B.R. 617, 620-21 (Bankr.D.Conn.2000).
The stipulated facts quoted above show that the Fixes purchased 21335 Old Highway 93 in Florence, Montana in March of 2005. Ex. 5 shows that the Olson Estate judgment was recorded on October 22, 2014, while the Fixes resided on the property and before they either purchased the Arizona property or entered into the buy sell agreement with Fontaines in 2015. Thus, the Olson Estate judgment fixed on an interest of the Debtors in 21335 Old Highway 93.
Ex. G shows the date of entry of Kinney's judgment as March 9, 2015. Like the Olson Estate's judgment, the date Kinney's judgment was docketed is long after the date the Fixes possessed their ownership interests in the Florence homestead. On the other hand, it overlaps with the dates on which the Fixes contracted to sell their Florence property to the Fontaines. See Stipulated Fact 6.
Kinney argues that Debtors' interest in the Florence homestead ended on February 2, 2015, when they moved to Arizona and established an automatic homestead exemption in Arizona by state statute. Kinney's post-hearing brief does not cite a single case to support its argument.
The evidence does not support Kinney's argument. It is true that Ex. A, the purchase and sale agreement of 21335 Old Highway 93 South to Fontaines, is dated February 2, 2015. However, the Fontaines were not entitled to possession to the property until May 1, 2015, at the earliest, Ex. A, and that sale still had not closed as of the date of the hearing. No evidence or argument exists that Debtors' homestead declaration, Ex. 3, dated March 7, 2008, was in any way defective or invalid at the time they executed it. Stipulated Facts 3 and 5 establish that the Fixes moved into their homestead in March of 2005, and claimed it as their residence in their homestead declaration, Ex. 3, and
A claimant is entitled to temporarily vacate a homestead premises for such things as employment, as Timothy did, and still claim a homestead exemption. In re Blastek, 20 Mont. B.R. 523, 524 (Bankr. D.Mont.2003); In re MacKenzie, 16 Mont. B.R. 338, 340-41 (Bankr.D. Mont.1998). Section 70-32-302 provides that a "homestead can be abandoned only by a declaration of abandonment or a grant thereof...." Beverly answered "yes" when asked on direct examination by her attorney whether the Fixes filed an abandonment of their Montana homestead. However, there is no written abandonment
The Olson Estate argues, without citation to case law, that while the homestead may not be abandoned, the Debtors can waive their right to avoid judicial liens "by their conduct which is taking proceeds from the sale of the property and using those proceeds to acquire homestead property in another state." That is an incorrect statement under both Montana and Arizona law.
Timothy's departure for employment in Arizona did not affect Beverly's homestead exemption. Since the Fixes are married, § 70-32-103, MCA, allows the homestead to be selected from the property of either spouse; Beverly signed the declaration of homestead Ex. 3. Further, the evidence in the record shows that Beverly only briefly stayed in her motorhome on the Arizona property, then she returned to Montana. Stipulated Fact 5. The evidence shows that the sale to Fontaines has not closed. Beverly's uncontroverted testimony is that if the Fontaines default under the buy sell agreement the Fixes will return to 21335 Old Highway 93 and resume residence in their homestead.
Debtors' "conduct" in taking proceeds from the sale of property and using them to acquire homestead property in another state is not inconsistent with § 70-32-216 ("Tracing homestead proceeds") which provides that if property that could have been claimed as a homestead has been sold, "the owner is entitled for 18 months to exemption of the proceeds that are traceable." In re Snyder, 2006 MT 308, ¶ 13, 335 Mont. 11, 149 P.3d 26, 28 (2006), In Snyder, the Montana Supreme Court concluded that even though a person no longer resided on property, he or she could still claim a homestead under MCA § 70-32-216, which provides that if sold property could have been claimed an exempt homestead, the proceeds that are traceable to it may be exempted. Beverly's testimony that all their exemptions claimed under
Condition (2), that the lien impairs an exemption to which the Debtors would have been entitled, is partially undisputed. Kinney and Olson Estate failed to argue that their judicial liens do not impair Debtors' homestead exemption. They argue that Debtors are not entitled to a homestead exemption because Timothy moved to Arizona and established an automatic homestead exemption under Arizona statutes and that they waived their right to avoid judicial liens. The Olson Estate argues that the deed between Hailers and Debtors was valid upon execution and acknowledgment under Arizona law.
Debtors contend that they held valid homestead rights in their Florence, Montana, residence on the date they filed their bankruptcy petition; that they did not claim or have any Arizona homestead rights on the petition date; and that MCA § 70-32-216(1) allows them to exempt the proceeds that are traceable from the sale of their Montana homestead for 18 months, citing Snyder, 2006 MT 308, ¶¶ 9, 10, 335 Mont. 11, 149 P.3d 26.
Section 522(b)(3)(A) provides for exemption of property under Federal, or State or local law,
§ 522(b)(3)(A); See In re Urban, 375 B.R. 882, 888-89 (9th Cir.2007).
The Olson Estate and Kinney argue that Arizona statutes govern the Debtors' allowance of exemptions. However, the 730-day domicile period required under § 522(b)(3)(A) is not shown by the evidence in the record with respect to either Timothy or Beverly in Arizona. Stipulated Fact 5 establishes that Timothy drove Beverly's motorhome to Arizona in the winter of 2014-15, which at most is 180 days. Section 522(b)(3)(A) thus prohibits Debtors from claiming exemptions under Arizona law even if they wished to because they do not meet the 730-day domicile requirement in Arizona. To the extent Arizona's statutory "automatic" homestead exemption or other statutes conflict with § 522(b)(3)(A), the law of the United States controls under the Supremacy Clause. U.S. Const. art. 6, cl. 2.
Olson Estate argues that the unrecorded deed of the Arizona property from Hailers to the Fixes was valid when the deed was executed on March 30, 2015, not when the deed was recorded after the closing on April 1, 2015, citing ARIZ. REV. STAT. § 33-412B which provides "Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding."
Olson Estate cites no case authority supporting its argument and fails to take into account the legal effect of an escrow. In a 1925 case, the Arizona Supreme Court in Lewis v. Rouse, 29 Ariz. 156, 240 P. 275 (1925), wrote that, when a deed of conveyance is placed in escrow, the law provides that a purchaser is not entitled to possession of premises if he has failed to perform his agreement to make payments.
Lewis v. Rouse, 29 Ariz. 156, 240 P. 275, quoting Burnett v. Caldwell, 9 Wall. 290, 19 L.Ed. 712 (1869).
The court repeated the rule from Lewis v. Rouse in Snyder v. Betsch, 56 Ariz. 508, 512, 109 P.2d 613 (1941). It appears to remain good law in Arizona.
Stipulated Facts 8, 9, 10, 11, and 12 establish the down payment made by the Fixes to Hailers was placed in escrow and the closing took place on April 1, 2015, after the date Fixes filed their Chapter 13 petition. Ex. B is the buy sell agreement for the Fixes' purchase of the Arizona property. It provides that deed of trust shall be recorded at the Close of Escrow, which is specified at Part 1d as April 1, 2015, and discussed further at Part 3. Part 1e provides that the Seller shall deliver possession of the premises at the Close of Escrow. Given this stipulated and uncontroverted evidence and the Arizona Supreme Court decision in Lewis v. Rouse, 29 Ariz. at 160-61, 240 P. 275, this Court does not agree with the Olson Estate that the Fixes acquired legal ownership of the Arizona property on March 30, 2015, thereby triggering Arizona homestead statutes.
Stipulated Fact 5 establishes that Beverly remained behind at their Montana homestead when Timothy moved to Arizona, and her testimony that they will return to their Montana homestead if the Fontaines default is uncontroverted. Thus, under § 522(b)(3)(A), Debtors may exempt property under Montana law.
A debtor's entitlement to claimed exemptions generally is determined as of the date the bankruptcy petition is filed. In re Cerchione, 414 B.R. 540, 548 (9th Cir. BAP 2009); In re Chiu, 266 B.R. 743, 751 (9th Cir. BAP 2001), aff'd., 304 F.3d 905 (9th Cir.2002); Goswami, 304 B.R. at 391-92, citing White v. Stump, 266 U.S. 310, 313, 45 S.Ct. 103, 69 L.Ed. 301 (1924), and Chiu. However, the Ninth Circuit Court of Appeals has reversed this Court for ruling that debtors could not file a declaration of homestead after the date of their bankruptcy petition. See Martinson v. Michael, 163 F.3d 526, 529 (9th Cir. 1998).
This Court above rejected Kinney's and the Olson Estate's arguments that the Debtors' waived their Montana homestead exemption by selling it to Fontaines, a sale which the evidence showed had not closed as of the date of the hearing, and that Debtors triggered an automatic homestead exemption under Arizona statute when Timothy moved Beverly's motorhome onto Hailers' Arizona property. The evidence shows that the close of escrow of the Arizona purchase did not occur until after the petition date, on April 1, 2015.
On the petition date of March 30, 2015, the stipulated facts show that Beverly remained at 21335 Old Highway 93 in Florence, where the Fixes had resided since 2005 and for which they recorded a declaration of homestead in 2008. Beverly's testimony and Stipulated Fact 9 shows that the Fixes used $30,000 of the $40,000 received from the Fontaines in early 2015 to make their down payment to Hailers on the Arizona property and the other $10,000 is traceable to the proceeds from the pending sale of their homestead to Fontaines. The proceeds are traceable from the sale of Debtors' Montana homestead and are exempt for 18 months under § 70-32-216(1).
MCA § 70-32-101 provides that a "homestead consists of the dwelling house or mobile home, and all appurtenances, in which the claimant resides and the land, if any, on which the same is situated, selected as provided in this chapter." By way of limitation, MCA § 70-32104(1) provides that a "homestead may not exceed $250,000 in value." Debtors' claims of exemptions of homestead and traceable homestead proceeds do not exceed the $250,000 limit.
In sum, based upon the language of MCA §§ 70-32-101, 70-32-104, 70-32-201 ("Homestead exempt from execution generally") and 70-32-216(1) and under the liberal construction of those statutes under the Montana Constitution, this Court finds and concludes that the Debtors have shown by a preponderance of the evidence that they are entitled to their claims of homestead exemption in 21335 Old Highway 93 in Florence, Montana, and traceable proceeds therefrom, in an amount not to exceed $250,000 in value.
Adding to that sum the Debtors' $250,000 allowable exemption results in an amount of $520,654.48. § 522(f)(2)(iii). Under the formula of § 522(f)(2)(A), the judicial liens of CBS, Kinney and the Olson Estate impair Debtors' exemption to the extent that $520,654.48 exceeds the value of the Debtors' interest, shown by Stipulated Fact 17 as $335,000, which results in an impairment to the extent of $185,654.48. The result is that the judicial liens of CBS, Kinney and the Olson Estate, which together total $63,603.49, are avoidable in their entire amount under § 522(f)(1)(A).
