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
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 1 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. 2 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.
3 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. 4 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), 523 B.R. 188, 191 (9th Cir. BAP 2014) (citing Kelley v. Locke (In
re Kelley), 300 B.R. 11, 16 (9th Cir. BAP 2003)). Factual findings are clearly
erroneous if they are illogical, implausible, or without support in the record.
Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). A finding of fact is
not clearly erroneous if a permissible view of the evidence of record supports
the finding. SEC v. Rubera, 350 F.3d 1084, 1093-94 (9th Cir. 2003).
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), 887 F.3d 956, 964 (9th Cir. 2018); In re Kelley, 300
5 B.R at 16 (citing LaFortune v. Naval Weapons Ctr. Fed. Credit Union (In re
LaFortune), 652 F.2d 842, 846 (9th Cir. 1981)).
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, 302 B.R. 675, 678 (Bankr. C.D. Cal. 2003)
(citing In re Mulch, 182 B.R. 569, 572 (Bankr. N.D. Cal. 1995)). "The filing of a
bankruptcy petition constitutes a forced sale for purposes of the automatic
homestead exemption." Diaz v. Kosmala (In re Diaz), 547 B.R. 329, 334 (9th Cir.
BAP 2016) (citing In re Kelley, 300 B.R. at 21).
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,
530 U.S. 15, 20 (2000); In re Diaz, 547 B.R. at 337 ("[W]here a state law exemption
statute specifically allocates the burden of proof to the debtor, Rule 4003(c) does
not change that allocation."); In re Pashenee, 531 B.R. 834, 837 (Bankr. E.D. Cal.
2015). Notwithstanding this burden on the debtor, bankruptcy courts must
"liberally construe 'the law and facts to promote the beneficial purposes of the
homestead legislation and to benefit the debtor.'" In re Gilman, 887 F.3d at 964
(quoting Tarlesson v. Broadway Foreclosure Invs., LLC, 184 Cal. App. 4th 931, 936
(2010)).
6 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, 887 F.3d at 965 (first citing In re Diaz, 547 B.R. at 335; and
then citing Ellsworth v. Marshall, 196 Cal. App. 2d 471, 474 (1961)).
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, 547 B.R. at 334; McBeth v. Karr (In re Karr), BAP No.
CC-06-1079-KMoSn, 2006 WL 6810996, at *4 (9th Cir. BAP Oct. 2, 2006), aff'd, 278
F. App'x 741 (9th Cir. 2008); In re Pham, 177 B.R. 914, 918 (Bankr. C.D. Cal. 1994); 7 In re Bruton, 167 B.R. 923, 926 (Bankr. S.D. Cal. 1994); In re Dodge, 138 B.R. 602,
607 (Bankr. E.D. Cal. 1992); In re Yau, 115 B.R. 245, 249 (Bankr. C.D. Cal. 1990);
Cal. Coastal Comm'n v. Allen, 167 Cal. App. 4th 322, 330-31 (2008). And prior to
the creation of the automatic homestead exemption in 1975, California courts
had long held that a lack of physical occupancy does not preclude a party from
establishing actual residency and claiming the homestead, if the claimant
intends to return. See In re Diaz, 547 B.R. at 335-36 (discussing pre-1975 cases
involving a declared homestead).
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, 2006 WL 6810996, at *4-5;
In re Pham, 177 B.R. at 918-19; In re Bruton, 167 B.R. at 926; In re Dodge, 138 B.R. at
607; In re Yau, 115 B.R. at 249. Inherent in that analysis is, did the debtor intend
to maintain the property as the debtor's principal dwelling continuously
throughout the absence? See In re Elliott, 523 B.R. at 196-97.
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
8 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 9 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. 167 Cal. App. 4th at 330. The lease
agreement was for two years, during which time the debtor left the country to
start a business in Australia. Although the debtor stated that the property was
his principal dwelling and made much of the fact that he still had use of some of
it, the court found that the debtor "was not 'temporarily absent' while retaining
the property as his principal dwelling." Id. at 331. The debtor "was not
temporarily absent from the property for work or vacation; he apparently
resided elsewhere while retaining the right to be temporarily present in a room
on the property when he was in the Malibu area[,]" which "does not meet the
continuous residence requirement for a principal dwelling under section
704.710." Id.
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. 10 In Dodge, the debtors claimed a homestead exemption for their home in
Sacramento. 138 B.R. at 604. The wife took a job in Salinas and rented a one-
bedroom apartment there, but returned to the Sacramento home on weekends
to see her spouse. Id. at 605. The court allowed the claimed homestead
exemption, finding that the absence of a few days at a time for employment
away from home fit within the definition of "temporary absence." Id. at 607.
In Pham, the debtors initially resided in Los Angeles. 177 B.R. at 916. Later,
they purchased a four-plex property in Bakersfield, which they rented to
tenants. After a tenant vacated one of the three-bedroom units, the debtors
moved into the Bakersfield property, but continued to commute daily to Los
Angeles for work. They rented out their Los Angeles home to tenants.
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 11 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, 2009 WL 9087842 (Bankr. E.D. Cal. Sept. 22, 2009). Until 2007, two
years before filing for bankruptcy, the debtors resided in the claimed homestead
– the Tracy Property. Id. at *1. At that point, they purchased and moved into the
Turlock Property (40 miles away) and rented out the Tracy Property. Prior to
filing their petition, the debtors' attorney advised them to move back into the
Tracy Property in order to save it from foreclosure. The debtors gave the tenant
at the Tracy Property 60 days to vacate. The debtors filed for bankruptcy in May
2009, at which time they still lived in the Turlock Property but claimed a
homestead exemption for the Tracy Property. Id. The debtors moved back into
the Tracy Property in August 2009, about three months after their bankruptcy
filing. Id. at *2.
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 12 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. 167 B.R. at 925. In November 1992,
the unemployed debtor took a job in Concord. He testified that he took the
position out of "desperation" but had no intention of permanently relocating to
Concord. He filed his bankruptcy case in February 1993. During the four month
period between November 1992 and the petition date, the debtor did not rent an
apartment in Concord, left behind his furniture and belongings in the San Diego
condo, and did not change his driver's license. He also returned to San Diego
for long weekends. Id. at 925-26. Because the debtor did not physically occupy
the homestead property on the petition date, the issue was whether his four-
month absence from it was temporary. Id. at 926. The Bruton court found that,
based on the evidence, the debtor's absence was temporary, noting that the case
was more like Dodge, where the debtor returned home every weekend, and less
like Anderson and Yau, where the debtors moved from their home without any
concrete evidence of their intention to return. Id.; see also In re Yau, 115 B.R. at
249 (court finding debtors' absence not temporary despite their claim of hoping
to return to the property someday, because they provided no evidence of how
much time might lapse before they would return to the property, if ever).
In Karr, this Panel noted the "useful analysis" set forth in Bruton for
resolving temporary absence issues. 2006 WL 6810996, at *5. The analysis
focuses on "'whether the debtors demonstrated, rather than merely claimed, 13 their intent to return to their home after the absence.'" Id. (quoting In re Bruton,
167 B.R. at 926). In other words, courts should focus on what objective evidence
showed an intent to return. That is the analysis the bankruptcy court engaged in
here.
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 14 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. 2006 WL 6810996, at *1-2. Here, unlike Karr, there was the
additional fact that the Wild Rogue Property was being rented out. The
15 evidence Creditors provided was sufficient to shift the burden of proof to
Bhangoo.
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.