Opinion
NOT FOR PUBLICATION
Argued and Submitted at Seattle, Washington: January 19, 2006
Appeal from the United States Bankruptcy Court for the Western District of Washington. Bk. No. 04-23672. Honorable Thomas T. Glover, Bankruptcy Judge, Presiding.
Before: KLEIN, SMITH and DUNN, [ Bankruptcy Judges.
Hon. Randall L. Dunn, United States Bankruptcy Judge for the District of Oregon, sitting by designation.
MEMORANDUM
This is an appeal from a bankruptcy court order sustaining the trustee's objection to the debtor's claimed homestead exemption in a residence that the debtor no longer owned and from which he had been removed by a prebankruptcy state-court order. We AFFIRM.
FACTS
The facts are not in dispute. The debtor and appellant, Ronald L. Wilson, and his spouse, Mary Wilson, owned real property commonly known as 4516 Pender Drive, Ferndale, Washington (" residence"). Ronald and Mary separated in 2001 and divorced in 2003. Ronald occupied the residence by himself from February 2001 until June 2004, when he was required by court order to vacate.
A decree of dissolution entered on May 21, 2003, and not appealed, dissolved the marriage, awarded the residence to Mary Wilson, provided that Ronald was " divested of his interest in property, " and provided that Mary should take physical possession of the residence on or before May 15, 2004, and proceed to sell it. Even though the order divested Ronald of his interest in the residence, it provided that he would receive one half of the proceeds from the sale of the residence, less two debts totaling $4,200.
Ronald ceased to occupy the property in June 2004, after which the property was marketed in accordance with the state-court order.
On October 2, 2004, Ronald executed a homestead declaration, wherein he stated that he was residing or, intended to reside, on the premises. The homestead declaration was recorded on October 4, 2004.
On October 21, 2004, Ronald (hereinafter " debtor") filed a voluntary petition under chapter 7, listing an address in Bellingham, Washington as his residence. In Schedule A, even though he had been divested of ownership in a final order that had not been appealed, the debtor listed a half interest in the previous Ferndale residence. He claimed the residence as exempt in the amount of $40,000 in Schedule C pursuant to Revised Code of Washington (" RCW") 6.13.010, 6.13.020, and 6.13.030.
When the debtor learned that the Ferndale residence had been sold on October 12, 2004, and that the proceeds from the sale, approximately $84,000, were in a blocked escrow account pursuant to an order entered by the Whatcom County Superior Court, the debtor notified the trustee.
On December 16, 2004, the trustee filed an objection to the debtor's claim of exemption. The trustee, appellee Peter Arkison, objected on the following grounds: (1) the debtor did not present evidence that he resided on the property at the time the petition was filed in order to claim the automatic homestead exemption under RCW 6.13.030 and 6.13.040; (2) the debtor did not show that he filed a Declaration of Homestead required by 6.13.040 if he was not living on the property at the time the petition was filed; and (3) the debtor did not show that he filed a declaration that he had not abandoned his interest in the property as required by RCW 6.13.050.
On the same day, the trustee also filed a motion for an order sustaining his objection to the debtor's claim of exemption and for turnover of funds.
On December 21, 2004, the debtor's former spouse filed a response to the trustee's objection entitled " Declaration of Mary Wilson in Support of Response to Motion on Homestead and Turnover." The debtor's former wife objected to the homestead claim " to the extent that it does not pay off the debts that were according to court order to be paid from the house sale proceeds, to the extent that it does not reflect the property adjustments in the divorce decree, to the extent that it does not reimburse her for her expenses in preventing the house from being foreclosed and to maintain it for sale, and for back and current unpaid child support."
On January 5, 2005, the debtor filed a three-page " opposition to trustee's motion to turnover funds and objection to exemptions" and a declaration in support thereof. The debtor framed his first argument as whether he was entitled to prepare and record a declaration of homestead on his residence after he had been excluded from the residence by court order. He contended that he followed all of the rules by filing a homestead declaration and thereafter putting the trustee on notice that he claimed the property as exempt. The debtor explained that he could not control the actions of the Whatcom County Superior Court or of his former spouse.
Additionally, the debtor's opposition addressed the trustee's contention that he had not filed a declaration that he had not abandoned his interest in the property as required by RCW 6.13.050. Although one may lose his homestead if he abandons his property for more than six months and fails to record a declaration of non-abandonment, the debtor argued he did not voluntarily abandon his property, but was forced off the property by a court order. Moreover, when he filed bankruptcy, he had not yet been excluded from the property for more than six months.
The debtor did not, however, address the implications of the divestiture of his interest that had occurred by virtue of the final and unappealable divorce decree.
On January 12, 2005, the court held a hearing on the trustee's objection to the debtor's homestead exemption, wherein the court ultimately sustained the trustee's objection. No evidence was taken. Nobody objected to the procedure employed.
The court emphasized that the debtor faced the problem that he either had to reside on the property or have an intent to reside on the property in order to qualify for the homestead exemption. The debtor did not reside on the property.
As to the intent inquiry in connection with filing a declaration of homestead, the court questioned how the debtor could file a homestead declaration and state that he intended to live at the residence, when the previously entered divorce decree ordered that he could not live at the residence and awarded possession and title to the debtor's former spouse. The court stated that the debtor's intent to reside on property was " not a reality because he's been thrown out."
The debtor's counsel explained that the debtor had done everything he could " to let the world know that he want[ed] his portion of proceeds from the sale of his homestead." Thereafter, the court questioned counsel whether the debtor or the debtor's former spouse received the homestead or if there were two homesteads. Counsel for the debtor's former wife explained that his client had not lived there for several years, while the debtor's counsel explained that the divorce decree and Whatcom County Superior Court order did not address who received the homestead or whether or not they were giving up a homestead. Ultimately, the court explained that probably no one received the homestead exemption because she had not lived there for years. The debtor responded that the difficulty with such a solution was that then the community lost the exemption.
Near the end of the hearing, the court explained that if one presumed that a person preserved a homestead right in proceeds, which the statute allowed, and a year passed without spending the proceeds, one could not claim the proceeds as exempt because the character of the proceeds had changed. The debtor's counsel responded that under that analogy the character of the proceeds had not changed because the proceeds were from a transaction that occurred the previous month.
Ultimately, after noting that the issue " might be worth an appeal ... it's a new question, " the court reiterated that the debtor was not residing on the property and could not have an intent to reside on the property as to qualify for the homestead exemption. The debtor's counsel responded that the debtor had made a motion to set aside the divorce decree. There is no evidence in the record regarding this purported motion.
At the end of the hearing, the court explained that it would only rule on the homestead issue and not on the motion for turnover because debtor's former wife needed to commence an adversary proceeding for turnover. The court did not make findings of fact and conclusions of law.
The debtor's former spouse commenced an adversary proceeding against the debtor and the trustee on February 10, 2005. On April 29, 2005, the bankruptcy court entered an Order for Turnover of Funds that ordered Whatcom Land Title to turn over half of the approximately $84,000 presently in its possession to the debtor's former spouse and that Whatcom Land Title pay the second half of the funds then in its possession to the trustee.
This timely appeal ensued.
JURISDICTION
The bankruptcy court had jurisdiction via 28 U.S.C. § 1334. We have jurisdiction under 28 U.S.C. § 158(a)(1).
ISSUE
Whether the debtor had a good faith intent to reside in property when he recorded a Washington declaration of homestead in property in which he no longer owned any legal or equitable interest, that was in the process of sale by court, and from which he had been removed pursuant to court order.
STANDARD OF REVIEW
The scope of a state law exemption involves construction of state law that we review de novo. Casserino v. Casserino (In re Casserino), 290 B.R. 735, 737 (9th Cir. BAP 2003). Since the court did not make findings of fact and conclusions of law, we review the entered order de novo as if it had been a motion for summary judgment. Dias v. Elique, 436 F.3d 1125, 2006 WL 267154 (9th Cir. 2006).
DISCUSSION
The debtor's inescapable dilemma is one of timing. We are persuaded that the prebankruptcy declaration of homestead was ineffective and that at the time the debtor filed his voluntary petition, he was not entitled to claim a homestead exemption in the subject property under Washington law.
I
When a debtor elects to claim an exemption under state law pursuant to 11 U.S.C. § 522, a debtor must comply with the state law in effect at the time of the filing of his bankruptcy petition. England v. Golden (In re Golden), 789 F.2d 698, 700 (9th Cir. 1986). Accordingly, we apply Washington law in determining whether the debtor may claim a homestead exemption.
Under Washington law, the homestead consists of real or personal property that the owner uses as a residence. RCW § 6.13.010(1). Property included in the homestead must be actually intended or used as the principal home for the owner. Id.
RCW 6.13.010(1) provides in pertinent part:
A
Although Washington does not require that the " owner" of a homestead have a legal interest in the property and regards possession by way of occupancy and use as the key to the right to homestead, where there is not such occupancy one must have at least an equitable interest in the property in order to have a homestead. Felton v. Citizens Fed. Sav. & Loan Ass'n, 101 Wn.2d 416, 679 P.2d 928, 930 (Wash. 1989).
Washington has two methods for claiming a homestead. Arkison v. Gitts (In re Gitts), 116 B.R. 174, 178 (9th Cir. BAP 1990), aff'd and adopted, 927 F.2d 1109 (9th Cir. 1991). First, under RCW 6.13.040(1), an automatic homestead exemption is created for " [p]roperty described in RCW 6.13.010 [which] constitutes a homestead and is automatically protected by the exemption described in RCW 6.13.070 from and after the time the property is occupied as a principal residence by the owner." Id.
RCW 6.13.040 provides, in pertinent part:
RCW 6.13.070 provides in pertinent part:
The second method for claiming a homestead is for a landowner to declare a homestead. Gitts, 116 B.R. at 178. " [I]mproved land that is not yet occupied as a homestead" is protected by the exemption from and after the time the declaration or declarations are filed for the record. Id., citing RCW 6.13.040(1).Accordingly, in order to " establish a valid declared homestead exemption, an owner must intend to reside on the property, record a declaration of homestead, and record a declaration of abandonment of any automatic homestead or any existing declared homestead." Id.
In this instance, at the time the debtor filed bankruptcy, we are persuaded that he could not use either method for claiming a homestead exemption under Washington law. Cisneros v. Kim (In re Kim), 257 B.R. 680, 684 (9th Cir. BAP 2000) (a debtor's exemptions rights are determined as of the petition date); Wolf v. Salven (In re Wolf), 248 B.R. 365, 367-68 (9th Cir. BAP 2000); Magallanes v. Williams (In re Magallanes), 96 B.R. 253, 255 (9th Cir. BAP 1988).
B
Under RCW 6.13.040(1), homestead protection is " automatic" if the occupancy requirement is met. RCW 6.13.040; Gitts, 116 B.R. at 178; Sweet v. O'Leary (In re Sweet), 88 Wn.App. 199, 944 P.2d 414, 415 (Wash.Ct.App. 1997). Here, at the time the debtor filed his petition, he did not occupy the residence. Pursuant to the decree of dissolution, he could no longer occupy the residence and had been " removed" from the residence four months before he filed his petition. Consequently, the debtor did not occupy the property and, thus, was not entitled to an automatic homestead exemption.
C
The only other way the debtor could have exempted the property was by executing a declaration establishing that he intended to reside on the property. RCW 6.13.010(1); RCW 6.13.040(3). Accordingly, as the debtor contends, the pivotal issue at the bankruptcy court was whether the debtor satisfied the intent requirement.
Ordinarily, intent is an inherently subjective matter that is poorly suited to summary disposition. In this instance, however, the crucial fact was beyond dispute: the bankruptcy court questioned how the debtor could possibly have intended to reside in a residence from which he had been excluded by court order.
The debtor contends that although there are no cases that squarely address the intent issue, there are cases that address the requirement that a homestead declaration be filed in " good faith, " which has been construed to mean that the statement of intent must be accurate. Heck v. Kaiser Gypsum Co., 56 Wn.2d 212, 351 P.2d 1035, 1036 (Wash. 1960); Clark v. Davis, 37 Wn.2d 550, 37 Wn.2d 850, 226 P.2d 904, 908 (Wash. 1951).
In Clark, the Washington Supreme Court had to decide " how [Clark] could, in good faith, have intended to reside on the premises when, at the time she filed her [homestead] declaration, the property had been ordered sold in the partition suit which she, as plaintiff, had instituted." Clark, 226 P.2d at 908. Ultimately, the supreme court determined that at the time Clark " filed her declaration of homestead, she, in good faith, actually intended to occupy the premises with her family as a home." Id. The supreme court came to this conclusion because Clark attended the partition sale and made several bids. Id. " She had with her a cashier's check for $500 to make the earnest money payment as required by the notice of sale. It was testified without objection that she had also contacted a bank concerning a loan in the event she was the successful bidder, and the bank agreed to loan her the money." Id.
Although the debtor contends that he should prevail under the rule in Clark because he executed his declaration of intent to occupy in good faith, Clark is of no help to the debtor. The problem with the " good faith" inquiry in this instance is that the record is devoid of any evidence of good faith. As noted, the bankruptcy court did not, and was not asked to, take any testimony regarding the issue pursuant to Federal Rule of Bankruptcy Procedure 9014(d).
On the record before us, there is only the debtor's homestead declaration on a standard fill-in-the-blanks form, the dissolution order terminating his ownership interest and excluding him from the property, and the debtor's declaration asserting that he had no intention of abandoning his interest in the property when he was forced to find other living arrangements and that in order to protect his homestead interest he filed a declaration. His declaration does not speak either to his good faith or to his intention to return to the property. Moreover, as the trustee points out, the record does not contain evidence that the debtor took any affirmative steps to return to the property or to either establish or retain an ownership interest in the property.
The bottom line is that the homestead declaration " must speak the truth" in order to be valid. Bank of Anacortes v. Cook, 10 Wn.App. 391, 517 P.2d 633, 637 (Wash.Ct.App. 1974) (" Cook"). In other words, it must accurately reflect the declarant's true intent. Heck, 351 P.2d at 1036 (factual indicia contradicted intent); Clark, 226 P.2d at 908 (factual indicia supported intent).
Factually, the truth in this appeal is that at the time the debtor executed and recorded the declaration, he did not reside on the premises nor, as a matter of law, could he reside there in the future because the divorce decree divested any interest in the property that he had and further required that he be physically excluded from the property. To the extent that the debtor could form an intent to return to the property when he was aware that he could not return to it pursuant to a court order, it is not consistent with the circumstances at hand.
It is suggested that Gitts is the definitive case on the issue presented by this appeal. The decision in Gitts is inapposite. In that situation, the debtors were, as a matter of law and fact, entitled to a Washington homestead and entitled to switch their homestead to another property. Gitts, 116 B.R. at 180. This is not the situation in this appeal.
As the Washington Supreme Court has held, it is " well settled" under Washington law that " a declaration of homestead is a right or privilege given a property owner by statute, so that its validity depends upon compliance with the statutory requirements and only by such compliance does the homestead come into existence." Cook, 517 P.2d at 636.
In this instance, the debtor was not in compliance with the statutory requirement that he actually " intend" to occupy the residence. Hence, his prebankruptcy declaration was not effective and the facts do not warrant entitlement to a homestead as of the date of filing of the bankruptcy.
CONCLUSION
For the foregoing reasons, we AFFIRM.
(1) The homestead consists of real or personal property that the owner uses as a residence. In the case of a dwelling house or mobile home, the homestead consists of the dwelling house or the mobile home in which the owner resides or intends to reside, with appurtenant buildings, and the land on which the same are situated and by which the same are surrounded, or improved or unimproved land owned with the intention of placing a house or mobile home thereon and residing thereon. A mobile home may be exempted under this chapter whether or not it is permanently affixed to the underlying land and whether or not the mobile home is placed upon a lot owned by the mobile home owner. Property included in the homestead must be actually intended or used as the principal home for the owner.
Wash. Rev. Code § 6.13.010(1) (1999).
(1) Property described in RCW 6.13.010 constitutes a homestead and is automatically protected by the exemption described in RCW 6.13.070 from and after the time the real or personal property is occupied as a principal residence by the owner or, if the homestead is unimproved or improved land that is not yet occupied as a homestead, from and after the declaration or declarations required by the following subsections are filed for record or, if the homestead is a mobile home not yet occupied as a homestead and located on land not owned by the owner of the mobile home, from and after delivery of a declaration as prescribed in RCW 6.15.060(3)(c) or, if the homestead is any other personal property, from and after the delivery of a declaration as prescribed in RCW 6.15.060(3)(d). (2) An owner who selects a homestead from unimproved or improved land that is not yet occupied as a homestead must execute a declaration of homestead and file the same for record in the office of the recording officer in the county in which the land is located. 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 recording officer in the county in which the land is located. (3) The declaration of homestead must contain: (a) A statement that the person making it is residing on the premises or intends to reside thereon and claims them as a homestead ....
Wash. Rev. Code § 6.13.040 (1993).
(1) Except as provided in RCW 6.13.080, the homestead is exempt from attachment and from execution or forced sale for the debts of the owner up to the amount specified in RCW 6.13.030. The proceeds of the voluntary sale of the homestead in good faith for the purpose of acquiring a new homestead, and proceeds from insurance covering destruction of homestead property held for use in restoring or replacing the homestead property, up to the amount specified in RCW 6.13.030, shall likewise be exempt for one year from receipt, and also such new homestead acquired with such proceeds.
Wash. Rev. Code § 6.13.070 (1987).