By Ryan C. Wood
There have been a number of recent cases regarding the California Homestead Exemption pursuant to CCP 704. The main issue is whether the California Homestead Exemption can be claimed when the person claiming does not physically live in the house.
First though there are a number of issues to discuss before claiming the large homestead exemption under CCP 704. You are protecting between $75,000 – $175,000 in equity in the home of the bankruptcy filer. If for any reason the exemption is not allowed you now have a asset Chapter 7 case and the Chapter 7 Trustee will sell the home or you will have to somehow settle with the Chapter 7 Trustee so they do not sell the house. The other option is to convert to Chapter 13. The Chapter 7 Trustee will have already incurred significant time administering the Chapter 7 case and most likely retained counsel to represent them in the fight over whether the CCP 704 homestead exemption can be claimed. If you successfully convert to Chapter 13 the Chapter 7 Trustee will file a proof of claim in the Chapter 13 case for their fees and costs. Depending upon the jurisdiction the court may or may not allow that claim. So, bankruptcy lawyers may want to consider just filing a Chapter 13 case instead.
Claiming the California Homestead Exemption When Not Living in the House
First off this is definitely possible but it is entirely fact based or circumstance based argument. In a recent 9th Circuit Bankruptcy Appellate Panel case, Andy Diaz v. Weneta M.A. Kosmala, Trustee; BAP No. CC-15-1219-GDKi, addressed this issue. Bankruptcy filer Andy Diaz unfortunately was in a coma and had to be placed in a another home to provide for his care. When he filed bankruptcy he claimed the California Homestead Exemption under CCP 704. The Chapter 7 Trustee, Weneta Kosmala objected. The lower bankruptcy court sided with the Chapter 7 Trustee and did not allow Mr. Diaz to claim the homestead exemption under CCP 704. The Chapter 7 Trustee and her bankruptcy attorneys objected to the claimed homestead exemption on the basis that Diaz did not reside in the property on the date of filing, and that his absence could not be considered temporary for the purposes of claiming the exemption under California Law. Specifically, the Chapter 7 Trustee argued that Diaz lacked a foreseeable prospect of having the ability to resume occupancy of the Property.
Facts In Support of Claiming California’s Homestead Exemption Under CCP 704
Mr. Diaz supported claiming the exemption with evidence of his continued improvement in recovery from the coma and resulting physical and mental challenges. Mr. Diaz has the property address on his California Driver’s License and voter registration. Mr. Diaz also receives all of this mail at the property in question. All of the utilities and mortgage are in Mr. Diaz’s name. Mr. Diaz’s personal property are at the property and he has a designated room at the house only for him.
Ninth Circuit Bankruptcy Appellate Panel Analysis
The automatic homestead exemption under CCP 704 protects a debtor from a forced sale and requires that the debtor reside in the homestead property at the time of a forced sale. Redwood Empire Prod. Credit Ass’n v. Anderson (In re Anderson), 824 F.2d 754, 757 (9th Cir. 1987); Cal. Civ. Proc. Code §§ 704.710(a)-(c), 704.720, 704.730, 704.740. When someone files for bankruptcy protection a hypothetical levy takes place or forced sale of the house in theory for purposes of the homestead exemption. Kelley v. Locke (In re Kelley), 300 B.R. 11, 21 (9th Cir. BAP 2003).
A major change took place in 1983 when CCP Section 704 was amended to remove the work “actually” that modified the word “resided.” So “actually resided” was removed and only “resided” remains. Previously a temporary absence from hospitalization or vacation could defeat a debtor’s right to claim the homestead exemptions. In the Diaz case the Chapter 7 Trustee argued that the debtor has to reside in the house at the time the bankruptcy case is filed.
California Law and Factors Whether Someone Resided in the House
Under California law, the relevant factors for determining if a debtor resides in a property are the physical fact of the occupancy of the property and the debtor’s intention to live there. Kelley v. Locke (In re Kelley), 300 B.R. 11, 21 (9th Cir. BAP 2003) (citing Ellsworth v. Marshall, 196 Cal.App.2d 471, 474 (1961)). California courts have 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, e.g., Michelman v. Frye, 238 Cal.App.2d 698, 703-04 (1965) (holding that a wife who was forced to leave the family dwelling could claim the homestead exemption despite not physically residing there, if she intended to return); Catsiftes v. Catsiftes, 29 Cal.App.2d 207, 210 (1938) (“residence can be changed only by the union of act and intent”); Guiod v. Guiod, 14 Cal. 506, 507-08 (1860) (holding that temporary removal for a specific purpose would not preclude a claim of homestead); Harper v. Forbes, 15 Cal. 202, 204 (1860) (“The necessities of the family, their maintenance, their health, or the education of the children, may often require a temporary change of residence.
Conversely, physical occupancy on the filing date without the requisite intent to live there, is not sufficient to establish residency. In Ellsworth v. Marshall, the court determined that the Ellsworths did not “actually reside” in the subject property despite their physical occupancy. 196 Cal.App.2d 471 (1961).
Ninth Circuit Bankruptcy Appellate Panels Decision
The 9th Cir. BAP held that there was not enough analysis of Mr. Diaz’s intent to remain in the property he claimed the homestead exemption for. The case was remanded back down to the Bankruptcy Court for further evidence of Mr. Diaz’s intent to occupy the house without consideration of the amount of the claimed exemption, without consideration of family members benefiting from the exemption.
