Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

In Re: Randal Scott Banks and Debra Louise Banks v. Washington Trust Bank; C. Barry Zimmerman


July 31, 2012


Appeal from the United States Bankruptcy Court for the District of Idaho Honorable Terry L. Myers, Chief Bankruptcy Judge, Presiding Bk. No. 11-20008



Argued and Submitted on June 14, 2012 at Boise, Idaho

Filed - July 31, 2012

Before: HOLLOWELL, JURY, and MARKELL, Bankruptcy Judges.

The debtors appeal an order of the bankruptcy court that disallowed their homestead exemption claim.



Randal and Debra Banks (the Debtors) filed a chapter bankruptcy petition on January 4, 2011. At the time of filing, they lived at a home situated on five acres of real property 7 located on Linzy Lane in Athol, Idaho (Linzy Lane). The Debtors' 8 schedules revealed that Linzy Lane was over-encumbered. It was 9 valued by the Debtors at $250,000. Bank of America held a first 10 deed of trust in the amount of $263,933 and a second deed of 11 trust in the amount of $54,028.92.

12 In addition to owning Linzy Lane, the Debtors owned a 50% 13 interest in a commercial building in Pinehurst, Idaho 14 (Pinehurst). The Debtors valued their interest in Pinehurst, 15 which is unencumbered, at $100,000. The Debtors and their 16 business associate rent Pinehurst to Real Life Ministries (the 17 Church) for a monthly rent of $2,630. The Church's lease ran 18 through May 2012 with options for renewal. However, according to 19 the Debtors, the Church wanted a location with more adequate 20 parking and told the Debtors it did not intend to renew the lease 21 after it expired.

22 Just prior to filing bankruptcy, on December 22, 2010, the 23 Debtors executed and recorded a declaration of abandonment of 24 homestead on Linzy Lane. At the same time, the Debtors also 25 executed and recorded a declaration of homestead on Pinehurst 26 (Declaration). The Declaration stated that the Debtors "intend 27 to reside [at Pinehurst] in the future." On their bankruptcy 28 Schedule C, the Debtors claimed a $100,000 homestead exemption 1 for Pinehurst.

2 On January 19, 2011, the Debtors' filed their chapter 13 3 plan. The chapter 13 plan proposed to pay Linzy Lane's first 4 mortgage directly to Bank of America (on which they were current) 5 and "strip-off" the second mortgage as wholly unsecured. They 6 did not propose to surrender Linzy Lane. Indeed, the Debtors 7 continue to reside there.

8 At the § 341 meeting of creditors held February 4, 2011, the 9 Debtors testified that they did not, at the time, intend to move 10 to Pinehurst. They stated that if they lost the rental income 11 and were unable to re-lease the space, they would have to 12 consider leaving Linzy Lane for Pinehurst. Thus, they stated 13 that, "If we can't maintain our house, we might have to [move to 14 Pinehurst]." Based in part on this testimony, the Trustee filed 15 an objection to the Debtors' homestead exemption for Pinehurst. 16 Washington Trust Bank (Washington Bank) joined in the objection.

17 An evidentiary hearing was held on July 6, 2011. At the 18 hearing, Mr. Banks testified that the Debtors intended to reside 19 at Pinehurst if the rental income was lost. Mr. Banks 20 acknowledged that Pinehurst was not zoned for residential living 21 and was not available for occupancy until at least June 2012. He 22 testified that the Debtors had not taken steps to re-zone 23 Pinehurst in order to reside there. However, the Debtors 24 provided photographs of Pinehurst and asserted that Pinehurst was 25 ready for residential habitation given that the Church had 26 facilities for restrooms, an industrial kitchen, and various 27 rooms that could be used as bedrooms. 28 Additionally, the evidence revealed that the Debtors obtained the benefit of a homeowners exemption for Linzy Lane for 2 tax purposes; however, the Debtors did not request a similar tax 3 exemption for Pinehurst.

4 On July 28, 2011, the bankruptcy court issued its ruling on 5 the objection, finding that "several probative factors . . 6 impeached the legitimacy of the debtors' stated and declared 7 subjective intent" to reside at Pinehurst and, therefore, they 8 were not eligible to claim a homestead exemption for it. Hr'g 9 Tr. (July 28, 2011) at 14-15. On August 8, 2011, the bankruptcy 10 court entered its order sustaining the objection of the Trustee 11 and Washington Bank and disallowing the exemption. The Debtors 12 timely appealed.


14 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 15 § 157(b)(2)(B) and 28 U.S.C. § 1334. We have jurisdiction under 16 28 U.S.C. § 158.


18 Did the bankruptcy court err in determining that the Debtors 19 were not entitled to claim a homestead exemption for Pinehurst?


21 We review a bankruptcy court's conclusions of law de novo 22 and its factual findings for clear error. Hopkins v. Cerchione 23 (In re Cerchione), 414 B.R. 540, 545 (9th Cir. BAP 2009); Kelley 24 v. Locke (In re Kelley), 300 B.R. 11, 16 (9th Cir. BAP 2003).

25 Questions of a debtor's right to claim an exemption are questions 26 of law subject to de novo review. In re Kelley, 300 B.R. at 16. 27 However, the issue of a debtor's intent to reside on the property 28 claimed as exempt is a question of fact reviewed under the 1 clearly erroneous standard. Id.; In re Moore, 269 B.R. 864, 869 2 (Bankr. D. Idaho 2001).

3 A finding is clearly erroneous if it is "illogical, 4 implausible, or without support in the record." Retz v. Samson 5 (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010) (citing United 6 States v. Hinkson, 585 F.3d 1247, 1261-62 & n.21 (9th Cir. 2009) 7 (en banc)).


Property that may be exempted from the bankruptcy estate is 10 set forth in § 522(b)(1). Idaho has opted out of the federal 11 exemption scheme and permits its debtors only the exemptions 12 allowable under state law. 11 U.S.C. § 522(b)(2), (b)(3)(A); 13 Idaho Code (I.C.) § 11-609 (debtor may exempt from property of 14 the estate only such property as is specified under the laws of 15 this state). Therefore, while "the federal courts decide the 16 merits of state exemptions, . . . the validity of the claimed 17 state exemption is controlled by the applicable state law."

18 In re Kelley, 300 B.R. at 16; Thorp v. Gugino (In re Thorp), 19 2009 WL 2567399, *3 (D. Idaho, Aug. 12, 2009); I.C. § 11-609.

20 Idaho law allows debtors to claim a homestead exemption, not 21 to exceed $100,000 in equity, in real property under I.C. §§ 55- 22 1001-1011. A homestead "consists of the dwelling house or the 23 mobile home in which the owner resides or intends to reside." 24 I.C. § 55-1001(2). There are two methods of creating a homestead 25 exemption in Idaho. An automatic homestead exemption is created 26 for property described as a homestead under I.C. § 55-1001 from 27 and after the time the property is occupied as a principal 28 residence by the owner. I.C. § 55-1004(1).

1 Alternatively, a property owner may establish a homestead 2 for exemption purposes by declaration. Id.; I.C. § 1004(2). To 3 declare a homestead in "unimproved or improved land that is not 4 yet occupied as a homestead," the property owner must execute and 5 record a declaration establishing his or her intent to reside on 6 the property in the future. Id.; I.C. § 55-1004(3).

7 Additionally, if the owner also owns another property on which he 8 resides, he must record a declaration of abandonment of homestead 9 for the other property. I.C. § 55-1004(2).

The Debtors complied with these requirements. They properly 11 abandoned their claim to an automatic homestead exemption for 12 Linzy Lane and recorded the Declaration to establish Pinehurst as 13 their future homestead. However, the Trustee and Washington Bank 14 contend that, despite what they said in the Declaration, the 15 Debtors do not intend to reside at Pinehurst. Thus, the Trustee 16 and Washington Bank assert that the Debtors failed to meet the 17 requirements for claiming a homestead exemption under I.C. § 55- 18 1001(2) ("Property included in the homestead must be actually 19 intended or used as a principal home for the owner.").

20 A debtor's entitlement to an exemption is determined based 21 upon facts as they existed at the time the petition is filed. 22 In re Cerchione, 414 B.R. at 548; Culver, LLC v. Chiu (In re 23 Chiu), 266 B.R. 743, 751 (9th Cir. BAP 2001) (citing White v. 24 Stump, 266 U.S. 310, 313 (1924)); Cisneros v. Kim (In re Kim), 25 257 B.R. 680, 685 (9th Cir. BAP 2000); In re Thorp, 2009 WL 26 2567399, at *3. The issue in this case is whether the Debtors 27 actually intended, at the time of filing, to use Pinehurst as 28 their primary residence. Although the Debtors declared they intended to reside at Pinehurst, the bankruptcy court found that there were "impeaching and contradictory facts" that demonstrated they had "no present intention to leave [Linzy Lane]." H'rg Tr. (July 28, 2011) at 12-13.

For example, the Debtors continued to reside at Linzy Lane post-petition and continued to pay the first mortgage without defaulting on any payments. Linzy Lane was central to their chapter 13 plan because they indicated they intended to strip-off the second mortgage. Additionally, Pinehurst was a commercial building, in which the Debtors had only a half-interest. Thus, the bankruptcy court noted that the Debtors had potential liabilities to their business partner for conversion of use or loss of rental income if the Debtors used Pinehurst as a residence. The bankruptcy court also noted that Pinehurst would require a zoning variance for residential use. Pinehurst was not even available until June 2012, at the earliest, if the Church decided not to renew its lease.

The Debtors argue that none of these facts or other evidence put forth by the Trustee or Washington Bank overcame the Declaration and the Debtors' testimony that they intended to reside at Pinehurst.*fn2 As the Debtors assert in their brief on appeal, "[t]he disagreement is as to what the evidence is capable of showing about subjective intent of the Banks" and "what inferences can be made from the circumstantial evidence presented."

5 In its ruling, the bankruptcy court made a factual finding 6 that the Debtors, despite what they stated, did not actually 7 intend to make Pinehurst their homestead or permanent residence.

8 The bankruptcy court determined that there were other factors 9 that made their statements regarding their intent not credible.

A homestead declaration must be filed in good faith, which is 11 construed as meaning that "'it must speak the truth.'" Wilson v. 12 Arkison (In re Wilson), 341 B.R. 21, 27 (9th Cir. BAP 2006) 13 (applying Washington law); see also, Blagg v. Bass, 261 F.2d 631, 14 635 (9th Cir. 1958). There must be a "good faith intent to 15 occupy the premises as a homestead and intent must be shown by 16 something more than mere declarations." In re Harris, 2010 WL 17 2595294, *5 (Bankr. D. Idaho June 23, 2010) (internal citation 18 omitted). After reviewing the record, we conclude that the 19 bankruptcy court's finding that the Debtors did not intend to 20 occupy Pinehurst as their homestead or residence was not 21 illogical, implausible, or without support in inferences from the 22 facts in the record.

23 As noted by the bankruptcy court, the Debtors failed to 24 provide any evidence that corroborated their intent to move to 25 Pinehurst. There was no evidence that they had researched 26 whether a zoning variance could be obtained in order to reside at 27 Pinehurst, which is located in a strip mall, or, that they had 28 negotiated an arrangement with their business partner to reside 8 1 at Pinehurst. Mr. Banks testified that because there was no debt 2 on the building, the Debtors would only be responsible for taxes 3 and insurance and therefore, by moving to Pinehurst, they could 4 cut their expenses considerably. But there was no mention of 5 what rent or other payments would be required given the co- 6 ownership of the property.

7 Furthermore, the Debtors testified that they intended to 8 reside at Linzy Lane "unless something forces [them] out." 9 Mr. Banks testified that if the Debtors no longer had the rental 10 income from Pinehurst, then they would move into the building. 11 In the event they moved to Pinehurst, they would either try to 12 rent Linzy Lane or surrender it at that time. The Debtors 13 acknowledged that they intended to move essentially if no better 14 option came along that would allow them to remain. See In re 15 Harris, 2010 WL 2595294, at *5 ("The intent to reside is 16 equivocal and insufficient to establish a homestead.").

17 Idaho's homestead exemption statutes are liberally construed 18 in favor of debtors. In re Cerchione, 414 B.R. at 546; In re 19 Kline, 350 B.R. 497, 502 (Bankr. D. Idaho 2005).

Nevertheless, 20 we must defer to the bankruptcy court's findings of fact based on 21 credibility. Additionally, "[w]here there are two permissible 22 views of the evidence, the fact finder's choice between them 23 cannot be clearly erroneous." Anderson v. City of Bessemer City, 24 N.C., 470 U.S. 564, 574 (1985). Accordingly, the bankruptcy 25 court's finding that the Debtors did not actually intend to 26 reside at Pinehurst is not clearly erroneous. The bankruptcy 27 court, therefore, did not err in sustaining the Trustee's and 28 Washington Bank's objection to the Debtors' claim of a homestead exemption for Pinehurst.


The Debtors failed to establish the intent to reside on 4 Pinehurst, which was required to claim a homestead exemption. As 5 a result, we AFFIRM the bankruptcy court's order disallowing the 6 homestead exemption.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.