JURY, Bankruptcy Judge:
Chapter 7
The bankruptcy court sustained Trustee's objection. Looking first to the laws of Nevada and Delaware regarding limited liability companies, the court found that Debtor did not have an ownership interest in the property during the time when the LLC was the record title holder. Next, the court relied upon Nevada case law which required a debtor to have some form of equity in the property in order to claim a homestead — the court finding that this equity contemplated ownership. Finally, the bankruptcy court followed out-of-jurisdiction case law which rejected a debtor's attempt to claim a homestead exemption in real property held in the name of an LLC. Debtor moved for reconsideration which the bankruptcy court denied. This appeal
The facts are undisputed. Debtor and his spouse (Ms. Caldwell) purchased real property located on Eagle Hills Drive, Las Vegas, Nevada (Property) in March 1994. The record shows that Debtor and Ms. Caldwell have continuously resided in the home on the Property since they purchased it and have made all mortgage payments, paid taxes, maintained insurance and assumed all other responsibilities of a real property owner. Since 1994 they have transferred title to the Property seven times to and from the Trust and the LCC. These transfers were for no consideration and, per Debtor's declaration, for estate planning purposes.
In June 1998, they transferred the Property to the Trust with Debtor and Ms. Caldwell as the sole trustees via a recorded quitclaim deed. Over five years later, in October 2003, the Property was transferred from the Trust back to Debtor and Ms. Caldwell as joint tenants via a recorded quitclaim deed. In February 2006, Debtor and Ms. Caldwell transferred the Property back to the Trust via a recorded quitclaim deed.
On October 14, 2008, Debtor formed the LLC, a Delaware limited liability company, by filing Articles of Organization with the Delaware Secretary of State. Debtor and Ms. Caldwell are the sole members of the LLC. In November 2010, the Property was transferred from the Trust to the LLC via a recorded quitclaim deed. On April 26, 2011, a declaration of homestead was recorded against the Property by the LLC.
On October 10, 2011, the Property was transferred from the LLC to the Trust. On the same date, a declaration of homestead was recorded against the Property, this time by the Trust, which stated the following: "This declaration constitutes an abandonment of the former declaration recorded on April 26, 2011."
On September 5, 2014, 1061 days after the LLC transferred title to the Property to the Trust, Debtor filed his chapter 7 petition (Petition Date). Ms. Nelson was appointed as the chapter 7 trustee.
In his schedules, Debtor listed the Property value as $1,065,000 and total liens of $516,802, leaving a net equity of $548,198 in the Property. Debtor claimed the full $550,000 homestead exemption in the Property under Nevada Revised Statutes (NRS) 21.090(1)(l) and 115.050.
Trustee objected to Debtor's homestead exemption in the amount of $550,000, seeking to limit it to $155,675 under § 522(p)(1) due to the transfer from the LLC to the Trust within the 1215-day period prior to the Petition Date.
In response, Debtor argued that the limitation under § 522(p)(1) did not apply because he always retained a beneficial and equitable interest in the Property despite the numerous transfers of legal title to and from the Trust and the LLC. Debtor reasoned that such interests were retained since he and his spouse were the sole trustees of the Trust and the sole members of the LLC and thus Debtor was "merely transferring title from himself to an entity owned by him." He also asserted that although the LLC held the title to the Property, his continuing payment of taxes, the mortgage, and insurance indicated that he and Ms. Caldwell continued to use and consider the Property as their own. Debtor further maintained that neither he nor Ms. Caldwell needed to be
In a supporting declaration, Debtor testified that the transfers of title to the Property were "made for estate planning purposes only, pursuant to advice from [his] financial planners and/or counsel." He also declared:
After a hearing on January 27, 2015, the bankruptcy court placed its findings of fact and conclusions of law on the record on February 17, 2015. The court ruled that Debtor acquired an interest in the Property on October 10, 2011, the date the LLC transferred the Property to the Trust, and because this date was 1061 days prior to the petition date, § 522(p)(1) limited Debtor's homestead exemption to $155,675. In reaching this conclusion, the court noted that under either Nevada or Delaware limited liability law, Debtor did not hold an interest in the Property while it was titled in the name of the LLC because the LLC was a separate legal entity and a member's interest in a limited liability company is personal property. The court further noted that a requirement for exempting equity in a homestead under Nevada law was an ownership interest rather than a general or possessory interest in the Property, citing Savage v. Pierson, 123 Nev. 86, 157 P.3d 697 (2007). Finally, relying on out-of-jurisdiction case law which interpreted exemption statutes in other states, the bankruptcy court rejected Debtor's contention that he could claim a homestead exemption in real property held in the name of an LLC. Based on all these authorities, the court found that Debtor acquired his interest in the Property within the meaning of § 522(p)(1)(A) on October 10, 2011, when title to the Property was transferred by the LLC to the Trust.
On February 24, 2015, the bankruptcy court entered the order sustaining Trustee's objection (Exemption Order). On the same day, Debtor filed a motion for reconsideration. There, Debtor maintained that the LLC held the Property "in trust" for Debtor and Ms. Caldwell. As a result of this trust-like arrangement, Debtor asserted that he retained a beneficial or equitable interest in the Property and, therefore, he could claim a homestead exemption in the Property under Nevada homestead law even though the LLC was the record titleholder of the Property.
On March 3, 2015, Debtor filed a notice of appeal (NOA) from the Exemption Order. Subsequently, the bankruptcy court rejected Debtor's "in trust" theory on the ground that there was no evidence of an express trust between Debtor and the LLC and thus even if such a trust existed, it was a "secret" trust. The court denied his motion for reconsideration by an order entered on March 13, 2015 (Reconsideration Order). Debtor then filed an amended NOA indicating that he was appealing both the Exemption Order and the Reconsideration Order.
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
Whether the bankruptcy court erred by finding that § 522(p)(1) applied under these circumstances.
A bankruptcy court's interpretation of the Bankruptcy Code is a matter of law subject to de novo review. Predovich v. Staffer (In re Staffer), 262 B.R. 80, 82 (9th Cir. BAP 2001), aff'd, 306 F.3d 967 (9th Cir.2002).
We review a bankruptcy court's interpretation of state law de novo in order to determine if it correctly applied the substantive law. Kipperman v. Proulx (In re Burns), 291 B.R. 846, 849 (9th Cir. BAP 2003) (citing Astaire v. Best Film & Video Corp., 116 F.3d 1297, 1300 (9th Cir. 1997) (issues of state law are reviewed de novo).
Findings of fact are reviewed under a clearly erroneous standard. A court's factual determination is clearly erroneous if it is illogical, implausible, or without support in the record. United States v. Hinkson, 585 F.3d 1247, 1261-62 & n. 21 (9th Cir.2009) (en banc).
Section 522(p)(1) imposes a limitation on the homestead exemption a debtor can claim regardless of the applicable state law exemptions. In re Kane, 336 B.R. 477, 481 (Bankr.D.Nev.2006); In re Virissimo, 332 B.R. 201, 207 (Bankr.D.Nev.2005).
Section 522(p)(1) provides in relevant part:
To determine whether the statutory cap applies, we consider whether Debtor "acquired an interest" within 1215 days of filing for relief.
In this regard, Trustee submits that Debtor had no interest in the Property prior to the October 10, 2011 transfer of legal title from the LLC to the Trust because (1) the LLC held legal title to the Property; (2) the LLC was the legal owner
In response, Debtor asserts that he retained a beneficial and equitable interest in the Property since 1994 despite the transfers of title to and from the LLC and the Trust over the years. To demonstrate his retained interest, he points out that he and Ms. Caldwell have continuously resided in the dwelling on the Property since 1994 and have paid the mortgage, taxes, and insurance. Debtor further asserts that he could claim a homestead exemption under Nevada law while title was held by the LLC because of his use and continued possession of the Property as a "householder," and there is no requirement that he hold legal title to the Property for it to be a homestead under Nevada law. According to Debtor, since he retained an interest in the Property and it was always his homestead, the Property was always an exempt asset under Nevada law despite the transfer of title to the LLC. Based on these premises, Debtor contends that he did not "acquire an interest" when the LLC transferred title to the Property to the Trust within 1061 days before the Petition Date, and thus the limitation of § 522(p)(1) is not applicable. In short, Debtor's position, for purposes of the homestead exemption, is that he retained a sufficient interest in the Property during all the multiple conveyances of legal title to and from the LLC. For the reasons discussed below, Debtor has the better argument.
We look to Nevada law to determine whether Debtor held an interest in the Property which would support a claim of homestead while the LLC was the sole titleholder. Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) (determination of property rights is controlled by state law). NRS 21.090(1)(l) exempts homestead property from execution "as provided for by law." Under NRS 115.005(2)(a), the "Homestead" is broadly defined as "the property consisting of ... [a] quantity of land, together with the dwelling house thereon and its appurtenances;...." These statutes do not designate how title to the property is to be held, and they do not limit the estate that must be owned, i.e., fee simple or some lesser interest. Nevada courts have held that the exemption should be liberally and beneficially construed in favor of the debtor and protecting the family home. See In re Norris, 203 B.R. 463, 465 (Bankr.D.Nev.1996) (citing Jackman v. Nance, 109 Nev. 716, 857 P.2d 7 (1993)).
In Nevada, to secure the benefits of the statutory provisions exempting the homestead from forced sale, it is necessary that a declaration of homestead be filed for record.
Debtor maintains that he was the "householder" of the Property since he and his family continuously occupied the Property as their primary residence since 1994. We note that the requirement of "householder" as used in the declaration statute is directed at persons "not married." NRS 115.020(2)(a). As we understand the record, Debtor was married. Nonetheless, the "householder" definition is useful for our analysis. Based on the undisputed evidence that Debtor continually resided on the Property since 1994 and was at all times in actual possession of the house, we have no doubt that Debtor meets the definition of a "householder" under Nevada law. Debtor met the possession and occupancy requirements for a "householder" and did not need to hold fee simple title to the Property to achieve that status under Nevada law. Accordingly, Debtor has established that the Property was protected as a homestead even when the LLC was the titleholder.
Although Debtor was a "householder," Nevada law requires that a homestead claimant have some type of interest in the property to claim the "equity" exemption up to $550,000 under NRS 115.010. While Nevada law does not distinguish between the types of interests in property that qualify for the homestead exemption,
Although Savage is factually distinguishable from this case, the Nevada court's interpretation of "equity" in the context of the homestead exemption provides some
The record shows that the interest Debtor retained in the Property after the transfer of legal title to the LLC was more than a general interest or the mere right to exclusive possession. According to the record, he retained all the indicia of ownership by his possession and use of the Property along with the payment of the mortgage, taxes, and insurance. Plainly, the "equity" in the Property which is subject to the exemption was the result of payments made by Debtor over the years. Trustee did not present any evidence to controvert these facts. We thus conclude that Debtor was not divested of all interests in the Property by the transfer of legal title to the Property to the LLC. Accordingly, Debtor's homestead rights in the Property before and after the transfers of title remained unchanged.
Finally, it does not matter that a declaration of homestead with respect to the Property was filed on October 10, 2011, within 1061 days of the filing of the petition. The filing of a homestead declaration does not trigger the statutory cap under § 522(p)(1). Greene v. Savage (In re Greene), 583 F.3d 614, 620 (9th Cir. 2009). Like the debtor in Greene, Debtor acquired his exemptible interest in the Property in 1994, well outside the statutory period contained in § 522(p)(1), and, as discussed above, that exemptible interest never changed.
In enacting § 522(p)(1), we do not believe that Congress envisioned limiting a debtor's homestead exemption where as here (1) debtor purchased the property in 1994, well before the start of the 1215-day period, (2) continuously possessed and occupied the Property as his homestead, and (3) accumulated the "equity" by making regular mortgage payments throughout his occupancy.
In sum, we conclude that the transfer of title from the LLC to the Trust did not constitute an "interest" that was "acquired" by Debtor to limit his homestead claim, within the meaning of § 522(p)(1). As discussed above, Nevada law protected Debtor's homestead rights in the Property throughout the various transfers of title. Therefore, the statutory cap does not apply.
We REVERSE the bankruptcy court's order limiting Debtor's homestead exemption pursuant to § 522(p)(1).
