Scott Jencks v. AgVantage FSScott Jencks v. AgVantage FS
Debtors/Appellants Scott Warren Jencks and Linda Lee Jencks appeal the bankruptcy court‘s order denying their motion to avoid a judicial lien and dismissing the adversary complaint they filed. For the following reasons, we reverse and remand for further proceedings.
BACKGROUND
On July 2, 2021, twelve days before Debtors filed their bankruptcy petition, sellers/grantors of real property located at 344 South Sheakley Avenue, New Hampton, Iowa (New Hampton Property), signed a warranty deed transferring this property to Debtors for $195,000.00.
Debtors petitioned for bankruptcy reliеf on July 14, 2021. On page 2 of their petition, they listed 28277 Usher Road, Waucoma, Iowa, (Waucoma Property) as their residence. On Schedule A, Debtors listed the Waucoma Property and valued it at $250,000.
Debtors also listed the Waucoma Property on Schedule C, claiming it fully exempt. Specifically, Debtors claimed the Waucoma Property exempt under
Debtors did not list their interest in New Hampton Property in their schedules and statements.
The Bankruptcy Trustee conducted the Section 341 Meeting of Creditors on August 23, 2021, and abandoned Debtors’ property.
The next day, Debtors signed a Declaration of Homestead, listing Waucoma Property Parcels B and E. They did not include the vacant lot, Parcel A, in the Declaration of Homestead. They filed the Declaration of Homestead with the Fayette County, Iowa, Recorder on August 30, 2021. Debtors served the Declaration of Homestead on AgVantage on August 26, 2021, prepared a Declaration of Homestead Re: Proof of Service on September 27, 2021, and filed it with the Fayette County, Iowa, Recorder on September 29, 2021. The Proof of Service also listed Parcels B and E, but not Parcel A.
The Chickasaw County Recorder filed the warranty deed conveying the New Hampton Property to Debtors on October 15, 2021. On or about October 20, 2021, Debtors sold the homestead house and adjoining hog confinement (Waucoma Property, Parcels B and E), and signed the warranty deed transferring this property. The warranty deed was recorded on October 29, 2021. Debtors retained their interest in the 22.581-acre vacant lоt (Waucoma Property, Parcel A).
Debtors received their discharge on November 3, 2021. The bankruptcy court closed the case the same day.
After AgVantage initiated its collection action but before the sale, Debtors sought to reopen their bankruptcy case tо file a motion to avoid AgVantage‘s judicial lien. The Court reopened the case on March 7, 2023, and Debtors filed their Motion to Avoid Judicial Lien on March 15, 2023. Debtors claimed that AgVantage‘s judicial lien against the Waucoma Property, Parcel A, impaired their exemption and sought an order avoiding it under
The bankruptcy court held a telephonic hearing on Debtors’ Motion to Avoid Judicial Lien on April 19, 2023, and took the matter under advisement.
Debtors filed a Motion to Determine Discharge of Debt on April 26, 2023, arguing that AgVantage‘s lien did not attach to the Waucoma Property under
The bankruptcy court held a telephonic hearing on June 9, 2023, a few weeks after the Waucoma Property, Parcel A, sale. The bankruptcy court noted that it took Debtors’ Motion to Avoid Lien under advisement and found that Debtors’ Motion to Determine Discharge of Debt was redundant. It denied the mоtion.
The bankruptcy court сombined the oral argument on Debtors’ Motion to Avoid Judicial Lien in the main case and AgVantage‘s Motion to Dismiss in the adversary proceeding. After the telephonic hearing on February 16, 2024, the bankruptcy court took both matters under advisement and ruled on them in one opinion and order.1
Since the outcome of the lien avoidance issue and Debtors’ request for contempt sanctions in the adversary proceeding both depended on the analysis of Debtors’ homestead exemption, the bankruptcy court considered this issue first. Highlighting Iowa law regarding the homestead exemption, the bankruptcy court found that Debtors claimed the Waucoma property exempt on the petition date. Although AgVantage did not timely object to the exemption, the bankruptcy court ruled that AgVаntage was not barred from raising the exemption issue in the lien avoidance context. In reaching this conclusion, the bankruptcy court highlighted Debtors’ failure to disclose the New Hampton Property purchase that “would have led to an objection.”
Ruling in favor of AgVantage, the bankruptcy court found that Debtors were not entitled to exempt the Waucoma Property, including Parcel A, because they had already purchased the New Hampton Property. It explained that “Parcel A lost its homestead status when Debtors purchased the New Hampton Property and used it as their homestead. Parcel A was vacant—Debtors were not actually using it as a
Because it concluded that Debtors did not properly claim their homestead exemption, the bankruptcy court found AgVantage‘s lien did not impair аn exemption under
In addressing AgVantage‘s motion to dismiss the adversary proceeding, the bankruptcy court found it had jurisdiction to decide the case.2 It ruled that Debtors failed to establish that AgVantage violated the discharge injunction because AgVantage held a valid lien, it enforced its in rem rights against property that “was no longer even arguably part of its homestead,” and it did not seek to collect discharged debt. Accordingly, it granted AgVantage‘s motion and dismissed the adversary proceeding.
Less than two weeks later, on September 6, 2024, Debtors filed a Motion to Amend Judgment in the adversary proceeding, arguing AgVantage offered no evidence that the New Hampton Warranty Deed was delivered to Debtors or that Debtors paid for the property before they petitioned for bankruptcy relief. Debtors also claimed AgVantage offered no evidence proving ownership or homestead status of the New Hampton Property. Conversely, Debtors highlighted the two sworn declarations Debtors offered in support of their claim that the Waucoma Property was their homestead: the bankruptcy petition аnd supporting schedules and their Declaration of Homestead. The bankruptcy court denied the motion.
STANDARD OF REVIEW
We review the bankruptcy court‘s findings of fact for clear error and its conclusions of law de novo. Ridings v. Casamatta (In re Allen), 628 B.R. 641, 642 (B.A.P. 8th Cir. 2021) (citing Brown v. Luker (In re Zepecki), 277 F.3d 1041, 1045 (8th Cir. 2002)).
DISCUSSION
Debtors appeal the bankruptcy court‘s order denying their Motion to Avoid Judicial Lien and dismissing the adversary proceeding. They argue thаt the bankruptcy court erred in finding that they established a new homestead shortly before petitioning for bankruptcy relief. Debtors also maintain the bankruptcy court erred in finding that AgVantage did not violate the discharge injunction.
A. The bankruptcy court‘s factual findings regarding Debtors’ homestead are not supported by the record.
Under section 522 of the Bankruptcy Code, a debtor may exempt certain property from the bankruptcy estate and avoid a lien that impairs his or her exempted property.
Debtors’ eligibility tо exempt homestead property is determined by applying Iowa law3 to the facts and circumstances as of the date they petitioned for bankruptcy relief. Lerbakken v. Sieloff & Assocs. (In re Lerbakken), 949 F.3d 432, 435-36 (8th Cir. 2020) (“A debtor‘s exemptions are determined as of the time of the filing of his [bankruptcy] petition.” (alteration in original) (quoting Armstrong v. Peterson (In re Peterson), 897 F.2d 935, 937 (8th Cir. 1990))). Courts tasked with analyzing whether a debtor properly claimed the homestead exemption or abandoned it under Iowa law must consider surrounding circumstances, including ownership, residency and intent. See
The record shows that the bankruptcy court considered Debtors’ petition and schedules. The petition shows Debtors lived at the Waucoma Property. Schedule C establishes that Debtors intended to claim, and claimed, the Waucoma Property as their homestead on the petition date.
Under bankruptcy law, Debtors’ exemption claim enjoys presumptive validity, and the objecting party carries the burden of proving that the exemption is not properly claimed. See
Likewise, under Iowa law, “once a homestead is acquired, it is presumed to continue until its use is terminated.” In re Lambеrt, No. 00-0255-DH, 2000 WL 35798604, at *3 (Bankr. S.D. Iowa Dec. 5, 2000) (citing In re McClain‘s Estate, 262 N.W. 666, 669 (Iowa 1935)). If the debtor no longer occupies the homestead, the burden of proving a valid homestead exemption shifts. As the In re Lambert court explained:
[O]nce actual occupancy ceases, a presumption arises that the homestead is abandoned. Crail v. Jones, 221 N.W. 467, 469 (Iowa 1928). In that instance, the burden shifts to the one claiming the exemption to show a fixed, specific, and abiding intent to return. Id.; Citizens’ Bank of Milo v. Frank, 235 N.W. 30, 32 (Iowa 1931).
“Whether or not a homestead has been abandoned is largely a matter of intent to be determined on the particular facts in each case. The question is one of intention and that must usually be determined from the testimony of the parties in the light of the surrounding circumstances.” Charter v. Thomas, 292 N.W. 842, 843 (Iowa 1940) (internal citations omitted).
In re Lambert, 2000 WL 35798604, at *3.
AgVantage argues that it met its burden of proving that Debtors did not properly claim a homestead exemption in the Wauсoma Property by offering evidence of a warranty deed conveying the New Hampton Property to Debtors that the sellers signed on July 2, 2021, (12 days before the petition date) and filed on October 15, 2021. Doc. 23-4. This warranty deed, without more, is not sufficient to rebut Debtors’ presumptively valid exemption claim, to show that Debtors failed to properly claim the Waucoma Property as their homesteаd or to shift the burden to Debtors to show they did not abandon the Waucoma Property.
There is some evidence that Waucoma Property Parcel A lost its homestead status when Debtors filed a Declaration of Homestead that did not include Parcel A in August 2021, when they transferred their interest in the homestead house and hog confinement (Parcels B and E) in October 2021, and when they recorded the deed to the New Hampton Property in October 2021. But this evidence is not sufficient to show Debtors’ residency or intent to maintain or abandon the Waucoma Property on July 14, 2021, the petition date. See In re Lerbakken, 949 F.3d at 435-36 (ruling that bankruptcy exemptions are determined as of the petition date). The record includes no evidence that Debtors lived at the New Hampton Property or intended to reside at the New Hampton Property on the petition date. Both parties acknowledged that the bankruptcy court heard no testimony regarding where Debtors lived on the petition date and whether they intended to abandon the Waucoma Property at that time. The only evidence of Debtors’ residency and intent on the petition date is the petition and schedules. The bankruptcy court‘s finding that Debtors were using the New Hampton Property as their homestead, with no evidence in the record
B. The bankruptcy court erred by neglecting to apply the presumptions afforded to Debtors in the context of a Rule 12(b)(6) Motion to Dismiss.
Debtors argue that the bankruptcy court erred in finding that AgVantage did not violate the discharge injunction when it pursued a Praecipe and Request for Execution in state court and acquired Parcel A of the Waucoma Property through the sheriff‘s sale. In its opinion and order, the bankruptcy court found that AgVantage held a valid lien on Waucoma Property (Parcel A) and that Parcel A “was no longer even arguably part of its homestead.” It concludеd that Debtors failed to meet their burden to establish that AgVantage is in contempt of any court order and that AgVantage violated the discharge injunction. Doc. 42 at 12.
On review of the bankruptcy court‘s decision, we begin with the procedural posture of the motion before the bankruptcy court. AgVantage sought dismissal of Debtors’ claim and cause of action under
Additionally, as discussed above, Debtors’ homestead exemption claim enjoys presumptive validity. See
Accordingly, we find that the bankruptcy court erred, as a matter of law, in reaching the merits of Debtors’ claims without affording Debtors the presumptions to which they are entitled. Its decision to grant AgVantage‘s motion to dismiss the adversary proceeding is reversed.
CONCLUSION
For the reasons stated, the decision of the bankruptcy court is reversed, and the case remanded for an evidentiary hearing and other proceedings consistent with this opinion.