Walters v. Bank of West (In Re Walters)Walters v. Bank of West (In Re Walters)
Jody May Walters appeals from an order of the bankruptcy court 1 on October 1, 2010, sustaining Bank of the West’s objection to her claim of a homestead exemption as to the bank’s claim.
Standard of Review
The issue of whether the bankruptcy court properly construed the Iowa homestead exemption statute is a question of law, which we review de novo.
Kukowski v. Wagner (In re Kukowski),
BACKGROUND
Jody Walters and her husband, David Walters, owned a number of residential properties in Iowa and Florida between 1999 and 2010. Walters and her husband lived together at several of those properties. They often built or remodeled houses and then sold them for profit. It was typical for them to own more than one house at a time.
The properties included the following:
_Iowa Properties_
_Address_Dates_
3437 Scenic Valley Sept. 1999-0ct.2004
Dr., West Des
Moines_
259 62nd St., West Oct. 2004-Dec.2005
Des Moines_
116 62nd St., West
Des Moines_
3800 Fuller Rd., Sept. 2006-July 2008
West Des Moines_
1650 Lakeview Dr., July 2008-Present
Pleasant Hill
_Florida Properties_
,_Address_Dates_
_Falling Waters June 2000-Nov.2001
Dr., Naples_
4717 Shinecock Dr., Nov. 2001-June 2003
Naples_
5050 Cerromar Dr., June 2003-May 2005
Naples_
117 Forrest Hill Dec. 2005-Sept.2006
Blvd., Naples_
5051 Cerromar Dr., Dec. 2005-Sept.2006
Naples_
100721 Mirasol Ave., Mar. 2007-0ct.2008
Miramar
In August of 2006, the Walters sold a house at 5051 Cerromar Drive, Naples, Florida. They received net sale proceeds of $470,908.98. Walters maintains that this was her homestead at the time.
In August of 2007, Walters Investments International, Inc. transferred the Pleasant Hill property and $204,000 to Joseph and Deborah Sloan. The Walters reimbursed the Sloans for the expenses relating to the property, including real estate taxes and insurances. They admitted that the purpose of the transaction was to protect the house from attachment by their creditors. They built a house at the Pleasant Hill property in the Sloans’ name, although it was built to the Walters’ specifications.
In February of 2008, Bank of the West obtained judgments in excess of two million dollars against Walters, her husband, and others. Also in 2008, the Fuller house was returned to the lender. The Walters did not receive any proceeds. Walters moved from the Fuller house to the Pleasant Hill house in July of 2008. In June of 2009, the Sloans transferred the Pleasant Hill property to the Walters by quitclaim deed.
Walters filed an individual chapter 7 petition on January 3, 1010. On her Schedule C, she claimed as exempt an interest the Pleasant Hill property. Bank of the West filed an objection her claim of homestead exemption. The court stated at the onset of the evidentiary hearing, “The bank bears the burden to prove the debt- or’s claim of exemption is not proper.” The bank proceeded first at trial, although the court allowed the parties to combine their direct examinations of the witnesses. After the bank rested, Walters’ attorney indicated that the debtor would not be presenting any additional evidence. After additional briefing, the court issued a memorandum opinion and order sustaining the bank’s objection to Walters’ homestead exemption. This appeal ensued.
Discussion
I. Burden of Proof
The parties argue at length about the proper burden of proof. Bankruptcy Rule 4003(b) provides: “In any hearing under this rule, the objecting party has the burden of proving that the exemptions are not properly claimed.” Fed. R. Bankr.P. 4003(c);
see also Peoples’ State Bank of Wells v. Stenzel (In re Stenzel),
II. Applicable Iowa Law
The issue on appeal is whether the bankruptcy court properly sustained the bank’s objection to Walters’ homestead exemption. 2 Because Iowa has opted out of the federal exemption scheme, debtors in Iowa must claim exemptions under Iowa state law. 11 U.S.C. § 522(b); Iowa Code § 627.10 (2010). Under Iowa law, “The homestead of every person is exempt from judicial sale where there is no special declaration of statute to the contrary.” Iowa Code § 561.16. “The homestead must embrace the house used as a home by the owner, and, if the owner has two or more houses thus used, the owner may select which the owner will retain.” Iowa Code § 561.1 (2010).
Walters claims the Pleasant Hill property as her homestead. It is undisputed that the bank obtained its judgment on the defaulted loans prior to the acquisition of the Pleasant Hill property and the bank argues that pursuant to § 561.21(1) of the Iowa Code, Walters is not entitled to exempt the homestead from execution by the bank because the bank’s debts arose prior to the acquisition of the Pleasant Hill property.
Section 561.21(1) provides: “The homestead may be sold to satisfy debts of each of the following classes: Those contracted prior to its acquisition, but then only to satisfy a deficiency remaining after exhausting the other property of the debtor, liable to execution.” Iowa Code 561.21(1) (2010);
In re Allen,
Walters acquired the Pleasant Hill property in July of 2008, several months after the bank obtained its judgments and several years after the underlying debts were contracted. Walters argues that although the Pleasant Hill property was acquired after she became indebted to the bank and after the bank obtained its judgments, she is nonetheless entitled to protect her interest in the property under § 561.20 of the Iowa Code as an exempt homestead because the Pleasant Hill property was acquired with the proceeds of a former homestead, the Cerromar property in Florida, which was acquired prior to the bank’s judgments.
Section 561.20 provides: “Where [¶]... ] a new homestead has been acquired with the proceeds of the old, the new homestead, to the extent in value of the old, is exempt from execution in all cases where the old or former one would have been.” Iowa Code § 561.20 (2010). This section “gives to the owner of the homestead the right to change homesteads, and when a homestead is disposed of for the purpose of investing the proceeds in a new homestead the proceeds are exempt from execution, and there is reasonable time allowed to make the change.”
Elliott v. Till,
III. Debtor Not Entitled to Homestead Exemption
To summarize, it is uncontested that the Pleasant Hill property was the debtor’s domicile when she filed her petition, which might otherwise entitle her to a homestead exemption. However, the bank has established that its debt was incurred before the debtor acquired the Pleasant Hill property, which means the property would not be exempt from the bank’s judgment. However, the debtor claims that the Pleasant Hill property was acquired with the proceeds of a homestead acquired before she incurred the debt to the bank and therefore it is exempt from the bank’s judgment. It is on this last factual issue that this appeal turns. Can the bank establish one or more of the exclusions provided by the Iowa legislature in § 521.20 and the Iowa Supreme Court in Elliott v. Till?
The bankruptcy court found that Walters had always considered Iowa her domicile, and that she never intended to claim Florida as her domicile. The court only found evidence of temporary or sporadic stays in Florida. This was not clearly erroneous. Walters executed an affidavit on May 17, 2010 stating that the Fuller location was “her most recent primary residence” prior to Pleasant Hill. Walters and her husband offered conflicting and ambig-
Under Florida law, “no debtor is automatically ‘receiving the benefits of the Florida Constitutional homestead exemption simply by owning a home. A debtor must take affirmative steps to take advantage of the Florida Constitutional homestead exemption, and the failure to do so subjects the home to sale.”
In re Fyock,
Even if the Cerromar property had been Walters’ homestead, the bankruptcy court found that the Pleasant Hill property was not acquired with the proceeds from the sale of the Cerromar property. Section 561.20 only applies where the new “homestead has been acquired with the proceeds of the old.” Iowa Code § 561.20. The plain meaning of the statute excludes situations such as this, where the debtor has not only commingled the funds in numerous accounts, but also transferred the property to other people.
The facts of this case are analogous to those in
Peninsular Stove Co. v. Roark,
in which a couple sold their homestead with the intention of reinvesting the funds in a new homestead, but a year later, invested the money in a firm in which the husband was a member.
Peninsular Stove Co. v. Roark,
Both Walters and her husband testified that they would have no way to prove that they actually used the Cerromar proceeds to acquire the Pleasant Hill property.
Finally, while the debtor argues that the bank must satisfy its debts from nonexempt assets first, that issue is not properly before us. The issue before the bankruptcy court was whether Walters is entitled to her homestead exemption. The bank will still have to exercise its rights under state law, and Walters and her husband will be entitled to raise their other defenses at that time
CONCLUSION
Because the bankruptcy court properly sustained the bank’s objection to the debt- or’s claim of homestead exemption as to the bank’s preexisting debts, we affirm.
Notes
. The Hon. Anita L. Shodeen, United States Bankruptcy Judge for the Southern District of Iowa.
. The bank raises several alternative legal arguments in support of its position that the debtor is not entitled to exempt the Pleasant Hill property and only concedes that the Pleasant Hill property was the debtor’s primary residence at the time she filed her petition. Because the bankruptcy court decided the issue on other grounds, it did not reach those issues and neither do we.