In re: JASWINDER SINGH BHANGOO
*1 FILED DEC 22 2021 ORDERED PUBLISHED SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. EC-21-1158-BSL JASWINDER SINGH BHANGOO,
Debtor. Bk. No. 21-10035 JASWINDER SINGH BHANGOO,
Appellant,
v. OPINION
ENGS COMMERCIAL FINANCE CO.;
ASCENTIUM CAPITAL, LLC,
Appellees. Appeal from the United States Bankruptcy Court for the Eastern District of California Jennifer E. Niemann, Bankruptcy Judge, Presiding Before: BRAND, SPRAKER, and LAFFERTY, Bankruptcy Judges.
APPEARANCES: David Max Gardner argued for appellant; Andrew K. Alper of Frandzel Robins Bloom & Csato, L.C. argued for appellee Ascentium Capital, LLC.
BRAND, Bankruptcy Judge:
INTRODUCTION Appellant, chapter 7 [1] debtor Jaswinder Singh Bhangoo, appeals an order sustaining an objection to his claimed automatic homestead exemption under *2 California law. The bankruptcy court determined that Bhangoo's absence from the homestead property was not temporary, and therefore he did not meet the continuous residency requirement for a homestead under California Code of Civil Procedure ("CCP") § 704.710(c), which defines "homestead" for purposes of CCP § 704.730.
We publish to clarify that, for an absence to be deemed "temporary" under the California statute, the debtor must demonstrate that he or she had a continuous intent to return to the homestead property throughout the absence. Bhangoo did not demonstrate such intent. Seeing no legal error by the bankruptcy court, or any clear error in its factual finding regarding Bhangoo's intent with respect to the property, we AFFIRM.
FACTS
A. Prepetition events
In 2011, Bhangoo purchased a home in Bakersfield, California – the Wild Rogue Property – and lived there with his family until sometime in 2018. In 2015 and 2016, creditors Engs Commercial Finance Co. and Ascentium Capital, LLC (together "Creditors") obtained judgments against Bhangoo and recorded abstracts of judgment which attached to the Wild Rogue Property.
Sometime in 2018, Bhangoo and his family moved out of the Wild Rogue Property and into a larger, rented home in Bakersfield – the Cimarron Property. The purpose for the move was so that Mrs. Bhangoo's parents could move in with the Bhangoos; the Wild Rogue Property was too small for the extended Procedure.
family. It was understood that the in-laws would be living with the Bhangoos at the Cimarron Property temporarily. The in-laws did not contribute to the household expenses while living there. At some undisclosed time and for undisclosed reasons, the in-laws moved out.
Upon moving out of the Wild Rogue Property, the Bhangoos rented it out, first to an unnamed tenant for one year, then to a tenant named Brown, whose one-year lease began on September 12, 2019. Shortly after moving in, Brown stopped paying rent. Eventually, after delays related to the COVID-19 pandemic, the Bhangoos obtained a judgment against Brown, and she was evicted from the Wild Rogue Property in February 2021, a month after Bhangoo filed his bankruptcy case.
B. Postpetition events
Bhangoo filed his chapter 7 bankruptcy case on January 8, 2021. On his petition, Bhangoo represented that he lived at the Wild Rogue Property, but he was living at the Cimarron Property which he listed as his mailing address. Bhangoo claimed a $300,000 automatic homestead exemption for the Wild Rogue Property under CCP § 704.730.
At his § 341(a) meeting two months later, Bhangoo testified that he lived at the Cimarron Property and that the Wild Rogue Property was rented out on the petition date. Bhangoo explained that he was in the process of moving back into the Wild Rogue Property. Once the necessary repairs were completed after Brown's departure, Bhangoo and his family returned to the Wild Rogue Property on April 5, 2021.
Creditors objected to Bhangoo's claimed homestead exemption on two grounds: (1) Bhangoo did not reside at the Wild Rogue Property on the petition date; and (2) Bhangoo had not resided continuously at the Wild Rogue Property from the date the judicial liens attached. Creditors argued that Bhangoo's absence from the Wild Rogue Property was not temporary, because the act of renting it out – i.e., giving others the right to control, possess, and use it – was inconsistent with the statute's requirement that the debtor "resided continuously" in the property until the date the court determines that it is a homestead.
In response, Bhangoo argued that his absence from the Wild Rogue Property was only temporary and that he intended to return there. Bhangoo stated that, while Brown was living in the Wild Rogue Property, he and his wife decided that the rent for the Cimarron Property was unaffordable. Bhangoo stated that it was his specific intent to return to the Wild Rogue Property when Brown defaulted on the lease, and that he would have moved back there before the petition date if it were not for the COVID-19 related delays. Bhangoo argued that his intent to return was further demonstrated by the fact that he kept his driver's license address at the Wild Rogue Property.
After two hearings, the bankruptcy court sustained Creditors' objection and denied Bhangoo's claimed automatic homestead exemption. The court found that his absence from the Wild Rogue Property was not temporary. Thus, because Bhangoo did not continuously reside in the Wild Rogue Property from the date Creditors' judgment liens attached, he did not meet the continuous residency requirement for a homestead. This timely appeal followed.
JURISDICTION The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
ISSUE Did the bankruptcy court err in finding that Bhangoo did not satisfy the continuous residency requirement for an automatic homestead exemption?
STANDARDS OF REVIEW
The right of a debtor to claim an exemption is a question of law we review
de novo, and the bankruptcy court's findings of fact with respect to a claimed
exemption, including a debtor's intent, are reviewed for clear error.
Elliott v.
Weil (In re Elliott)
,
DISCUSSION A. Law governing California automatic homestead exemptions
California has opted out of the federal exemption scheme and permits its
debtors only the exemptions allowable under state law. CCP § 703.130.
Consequently, while the federal court decides the merits of state exemptions,
the validity of the claimed state exemption is controlled by California law.
Phillips v. Gilman (In re Gilman)
,
In California, there are two types of homestead exemptions: (1) a declared
homestead exemption, which a party must record and which was not done in
this case; and (2) an automatic homestead exemption. "An automatic homestead
exemption arises by operation of law when a party's principal dwelling is sold
in a forced sale."
In re Cumberbatch
,
Under California law, the party claiming the automatic homestead
exemption has the burden of proof on the existence of the exemption. CCP
§ 703.580(b). The bankruptcy court is required to apply the state law burden of
proof on exemptions claimed in California.
See Raleigh v. Ill. Dep't of Revenue
,
California law imposes a residency requirement for an automatic
homestead exemption. It applies to a judgment debtor's principal dwelling
(1) in which the judgment debtor (or spouse) resided at the time the judgment
creditor's lien attached to the dwelling, and (2) in which the judgment debtor
(or spouse) resided continuously until the court determines that the dwelling is
a homestead in connection with a forced sale. CCP §§ 704.710(c), 703.100(b)(1).
The factors a court considers in determining residency for homestead purposes
are the debtor's physical occupancy of the property and the debtor's intent to
live there.
In re Gilman,
It is undisputed that Bhangoo resided at the Wild Rogue Property when
Creditors' judgment liens attached and that he did not physically occupy the
Wild Rogue Property on the petition date. The bankruptcy court correctly
observed that this did not necessarily prevent him from claiming an automatic
homestead exemption. In 1983, CCP § 704.710(c) was amended to delete the
word "actually," which appeared before "resided," to create a temporary
absence doctrine designed to accommodate such situations as a vacation or
hospital stay and prevent the loss of a homestead exemption.
See
17 Cal.L.Rev.
Comm. Reports 854 (1983). Courts applying the amended statute have found
that a debtor who did not physically occupy a property on the petition date is
not precluded from claiming the automatic homestead exemption on that basis
alone.
See e.g., In re Diaz,
Thus, a debtor temporarily absent from his or her principal dwelling can
claim a homestead exemption if the debtor can establish an intent to return to
the principal dwelling after the absence.
Id.
;
In re Karr,
B. The bankruptcy court did not err in finding that Bhangoo's absence was
not temporary and that he did not satisfy the continuous residency requirement.
The bankruptcy court found that, based on the evidence, Bhangoo's absence from the Wild Rogue Property was not a temporary one. While he may have initially left there to accommodate his in-laws, no evidence suggested that he intended to, or attempted to, return to the Wild Rogue Property when his in- laws ceased residing at the Cimarron Property. Further, Bhangoo's residence at the Cimarron Property did not appear dependent upon whether his in-laws *9 resided there, since they did not contribute to the household expenses while living there.
The bankruptcy court also found that Bhangoo's execution of two consecutive one-year lease agreements with tenants demonstrated no immediate desire to return to the Wild Rogue Property. Neither Bhangoo, his wife, nor any other family member resided in the Wild Rogue Property during his absence. Although Bhangoo stated that he intended to return to the Wild Rogue Property when Brown defaulted, the facts did not demonstrate that he intended to return there when he vacated that property or before Brown defaulted. In other words, Bhangoo did not say that he would have moved back to the Wild Rogue Property had Brown not defaulted.
Bhangoo argues that the bankruptcy court "clearly erred" by taking a "comparison approach" of similar homestead exemption cases involving temporary absences, in particular, Allen , to conclude that his absence was not temporary. Instead, argues Bhangoo, a court should simply adjudicate the evidentiary issues of what evidence established that the debtor intended the subject property to be the homestead, and what evidence existed that demonstrated an actual intent to return.
The bankruptcy court did not err by reviewing similar case law for its determination that Bhangoo's absence was not temporary. Many courts, including this one, have condoned that same analysis. Further, the bankruptcy court did adjudicate the evidentiary issues Bhangoo asserts, just not in his favor.
The bankruptcy court found that Bhangoo's case was more like
Allen
and
Redwood Empire Production Credit Association v. Anderson (In re Anderson),
824
*10
F.2d 754 (9th Cir. 1987), and less like
Dodge
and
Pham.
In
Allen
, a case from a
California Court of Appeal, the debtor rented out the subject property to
tenants, but reserved for himself the right to use a one-car garage on the
property and an apartment above the garage.
In Anderson , four months prior to their bankruptcy filing the debtors purchased and moved into a home in Sonoma, leased their Mendocino home to tenants, but claimed a homestead exemption for the Mendocino home. 824 F.2d at 755. The purpose of the move to Sonoma was so that the husband could be closer to the college he was attending. With little analysis, the Ninth Circuit Court of Appeals held that the debtors were not entitled to the homestead exemption because they did not reside in the Mendocino property. Id. at 756-57. The court found that "the absence from Mendocino could not be construed as a temporary absence like a vacation or hospital stay which the homestead statutes are designed to excuse." Id. at 756.
In
Dodge
, the debtors claimed a homestead exemption for their home in
Sacramento.
In
Pham
, the debtors initially resided in Los Angeles.
Eventually, the debtors rented an apartment in Los Angeles to ease their commute and to permit their younger children to return to their Los Angeles schools. Most of the debtors' furniture and possessions remained in the Bakersfield property, as did the debtors' eldest daughter who attended school there and paid no rent. The debtors returned to the Bakersfield property on weekends and holidays. They also intended to cease renting the Los Angeles apartment once their youngest child graduated from high school, in four years. Id. The court allowed the debtors' claimed homestead exemption for the Bakersfield property, finding that they had maintained it as their principal residence and that their absence from it was only temporary. Id. at 919-20.
As the bankruptcy court observed, Bhangoo's case was unlike Dodge or Pham . In those cases, the debtors rented an apartment away from the homestead residence for employment purposes and, more importantly, regularly returned *12 to the homestead. Here, Bhangoo did not occupy the Wild Rogue Property for at least two years.
There are other cases worthy of discussion. The first is
In re Fisher
, No. 09-
91587-D-7,
The issue in Fisher was whether the debtors' intent to move back into the Tracy Property was sufficient to make that property their homestead for purposes of CCP § 704.710. Id. The debtors testified that, as of the petition date, they intended to move back to the Tracy Property after their tenant moved out. Id. at *1. The court was not convinced. Finding the facts materially similar to Anderson , it reasoned that the debtors' circumstances were substantially different from the situation of a temporary absence for a vacation or hospital stay. Id. at *2-3. The debtors had substituted one principal dwelling for another, and thereby broke the chain of continuous residency in the Tracy Property. Id. at *3. They had purchased and moved into the Turlock Property between one *13 and two years before they filed their petition and had rented out the Tracy Property. There was also no indication at the time the debtors moved that they did not intend the Turlock Property to be their principal dwelling. Id. at *2.
Another noteworthy case is
Bruton
. There, the debtor's homestead
property was a condominium in San Diego.
In
Karr
, this Panel noted the "useful analysis" set forth in
Bruton
for
resolving temporary absence issues.
Besides Bhangoo's testimony that the absence was a temporary accommodation for his in-laws and that he always intended to return to the Wild Rogue Property, the only objective evidence of his intent to return was that he kept his driver's license address at the Wild Rogue Property. Other objective evidence demonstrated a lack of intent to return to the Wild Rogue Property or to maintain it as his principal dwelling. Bhangoo executed two consecutive one-year lease agreements to tenants, the second of which may have been extended had the tenant not defaulted; there was no evidence to the contrary. Bhangoo's mailing address was the Cimarron Property, and he apparently left no personal belongings at the Wild Rogue Property. Bhangoo also offered no evidence as to how "temporary" the living situation would be with his in-laws at the Cimarron Property. There was no evidence as to how long the families intended to live there when the decision was made to move and rent out the Wild Rogue Property. There was also no evidence as to when or why the in-laws moved out of the Cimarron Property or that Bhangoo and his family moved out as a result.
Bhangoo argues that the bankruptcy court ruled against him because he executed two consecutive one-year leases and moved out of the Wild Rogue Property. We disagree. That is just one of the factors the court considered, albeit heavily. Arguably, a debtor's renting out of the homestead property would *15 indicate an intent not to maintain it as his or her principal dwelling or to return. However, the debtor's renting out of the homestead or the reason for the absence is not the controlling question. What matters is the debtor's intent, and the debtor's conduct with respect to the homestead is a manifestation of that intent which the court must consider. The bankruptcy court considered the evidence as to Bhangoo's intent and found that he did not establish, as a matter of fact, that his absence from the Wild Rogue Property was temporary. Given the record, we see no clear error in that finding.
Bhangoo also argues that Creditors did not sufficiently meet their burden of persuasion to shift the burden to him to show that the homestead exemption was properly claimed. Bhangoo argues that the only evidence Creditors presented was the petition which indicated that he did not live at the Wild Rogue Property on the petition date. Creditors presented not only that fact, but also Bhangoo's testimony from the § 341(a) meeting that he did not live at the Wild Rogue Property and was renting it out to a non-related third party.
It is not clear what additional evidence Creditors had to present to satisfy
their burden of persuasion. In
Karr
, the chapter 7 trustee sufficiently met her
burden of persuasion to shift the burden of proof to the debtor by relying
primarily on the debtor's statements in the petition with respect to venue, which
indicated that she lived in the Central District of California when the homestead
was in the Northern District, and the debtor's stated address, which was not the
homestead address.
In summary, the bankruptcy court applied the correct law and made findings supported by the evidence. Accordingly, it did not err when it concluded that Bhangoo did not continuously reside in the Wild Rogue Property for purposes of CCP § 704.710, and denied the claimed homestead exemption under CCP § 704.730.
CONCLUSION
For the reasons stated above, we AFFIRM.
Notes
[1] Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal Rules of Bankruptcy