Bhangoo v. Engs Commercial Fin. Co. (In re Bhangoo)

634 B.R. 80

IN RE: Jaswinder Singh BHANGOO, Debtor.

Jaswinder Singh Bhangoo, Appellant,

v.Engs Commercial Finance Co.; Ascentium Capital, LLC, Appellees.

BAP No. EC-21-1158-BSL

Bk. No. 21-10035

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Filed December 22, 2021

David Max Gardner argued for appellant;

Andrew K. Alper of Frandzel Robins Bloom & Csato, L.C., Los Angeles, argued for appellee Ascentium Capital, LLC.

Before: BRAND, SPRAKER, and LAFFERTY, Bankruptcy Judges.

BRAND, Bankruptcy Judge

INTRODUCTION

Appellant, chapter 7¹ debtor Jaswinder Singh Bhangoo, appeals an order sustaining an objection to his claimed automatic homestead exemption under 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 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.

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.

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 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, 120 S.Ct. 1951, 147 L.Ed.2d 13 (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, 109 Cal.Rptr.3d 319 (2010) ).

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, 16 Cal.Rptr. 588 (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...