In re Lua

529 B.R. 766

In re : Rosalva Lua, Debtor.

Case No.: 2:11–bk–41173–DS

United States Bankruptcy Court, C.D. California, Los Angeles Division .

Signed May 1, 2015

Bruce R. Fink, Law Offices of Bruce R. Fink, Santa Ana, CA, for Debtor.

MEMORANDUM DECISION ON TRUSTEE'S OBJECTION TO DEBTOR'S AMENDED HOMESTEAD EXEMPTION

Deborah J. Saltzman, United States Bankruptcy Judge

Elissa Miller, chapter 7 trustee, objects to the amended homestead exemption claimed by the debtor Rosalva Lua. Having considered the papers, the evidentiary record, and arguments of counsel, the court sustains the trustee's objection based upon the following findings of fact and conclusions of law made pursuant to Federal Rule of Civil Procedure 52(a), as incorporated into Federal Rule of Bankruptcy Procedure 7052 and applied to contested matters by Federal Rule of Bankruptcy Procedure 9014(c).¹

I. BACKGROUND

The parties agree that the facts in this case are not in dispute. Rosalva Lua (the “Debtor”) filed a voluntary chapter 7 petition on July 21, 2011. Elissa Miller (the “Trustee”) is the duly appointed chapter 7 trustee. The Debtor's original schedules reflected that the Debtor was married to her non-filing spouse, Rigoberto Lua (the “Husband”), and that they resided at the real property located at 2044 Pennywood Pl., Pomona, CA 91767 (the “Property”). Schedule A listed a 30% interest in the Property, describing the Property as the Husband's property prior to marriage. (Docket No. 1, Schedule A). On her original Schedule C, the Debtor claimed a $75,000 exemption in the Property under California Civil Procedure Code section 704.730(a)(1). (Docket No. 1, Schedule C).

The first section 341(a) meeting of creditors was scheduled for August 30, 2011. The Debtor did not appear, and the meeting was continued to September 30, 2011. At the continued 341(a) meeting, the Debtor appeared and testified that she did not have a prenuptial agreement with her Husband and that earnings were used to pay all of the mortgage payments on the Property. Based on this information and other testimony, the Trustee concluded that the Debtor had undisclosed assets, including a tax refund. (Trustee's Objection to Debtor's Amended Homestead Exemption (“Objection”), Docket No. 58, at 2:20–25). The Trustee continued the 341(a) meeting to October 26, 2011, to allow the Debtor to amend her schedules to properly disclose the tax refund received, turn the refund over to the estate, and provide additional information regarding her bank accounts and worker's compensation funds. (Objection, Docket No. 58, at 3:1–4).

On October 13, 2011, the Debtor filed amended schedules (the “First Amended Schedules”) indicating that the Debtor had no interest in the Property other than “such community interest as may exist for the purposes of a divorce action.” (Docket No. 17, Amended Schedule A). Amended Schedule A also stated that the Property was “owned by Husband along with two of his family members.” (Docket No. 17, Amended Schedule A). The Debtor removed her claim of exemption in the Property from her amended Schedule C and instead asserted exemptions in additional personal property assets, including a $12,500 receivable from the Husband's employer, pursuant to the “wild card” exemption provision of California Civil Procedure Code section 702.140. (Docket No. 17, Amended Schedule C).²

The Trustee's investigation of the Property revealed that the chain of title was as follows:

1. Before his marriage to the Debtor, the Husband acquired the Property on August 18, 1989, with Francisco Granados and Jose L. Granados.

2. On December 7, 1992, the two other owners transferred their interests in the Property by gift deed to the Husband as a single man (contradicting the assertion in the Debtor's amended Schedule A that the Property was “owned by Husband along with two of his family members”).

3. On April 19, 1999, the Husband and the Debtor executed a gift deed purportedly transferring the Debtor's interest in the Property to the Husband as his sole and separate property.

(Objection, Declaration of Elissa Miller (“Trustee Decl.”), Docket No. 58, at 11, ¶ 10(a)–(c)).

After the Trustee investigated the Property and after the Debtor deleted her homestead exemption, the Trustee concluded that the Debtor's interest in the Property could be monetized, through either a sale or an agreement with the Debtor and the Husband, to pay in full the unsecured claims against the estate, which totaled approximately $10,000. (Trustee Decl., Docket No. 58, at 11, ¶ 11). On March 30, 2012, the court entered an order granting the Trustee's application to employ counsel to assist with these efforts. (Docket No. 28).

The Trustee was unable to negotiate a settlement with the Debtor and the Husband, and on June 6, 2012, the Trustee filed an adversary proceeding (Case No. 2:12–ap–01769) against the Husband to establish the estate's interest in the Property. On July 24, 2012, default was entered against the Husband. (Adv. Docket No. 8). On September 25, 2012, the court entered a default judgment against the Husband, finding that the Debtor had a community property interest of undetermined amount in the Property, and ordering the Husband to provide an accounting pursuant to section 524(a). (Adv. Docket No. 16). The Husband did not comply with the judgment. (Trustee Decl., Docket No. 58, at 12, ¶ 15). Without an accounting to determine the extent of the estate's interest in the Property, on December 18, 2013, the Trustee filed a motion for modification of default judgment to declare the entire Property community property and order turnover of the Property to the Trustee. (Adv. Docket No. 19). The motion was unopposed. On June 2, 2014, the court entered an order in the adversary proceeding modifying the default judgment, finding that the community owns 100% of the Property, and ordering turnover of the Property to the Trustee. (Adv. Docket No. 28).

More than two years after the case was filed, the Trustee retained and filed an application to employ Coldwell Banker (the “Broker”) to market and sell the Property. (Docket No. 41). Service of the application to employ the Broker was proper on the Debtor and Debtor's counsel. The Debtor did not file an opposition. On May 27, 2014, the court entered an order authorizing employment of the Broker. (Docket No. 50).

As the Trustee was retaining the Broker, the Husband contacted the Trustee and the parties began negotiating. (Trustee Decl., Docket No. 58, at 12, ¶ 17). On April 22, 2014, the Trustee filed a motion to approve compromise with the Husband in the main case (the “Settlement Motion,” Docket No. 39). In the agreement between the Trustee and the Husband (the “Settlement”), the Husband stipulated to a sale of the Property, with proceeds to pay the costs of sale, property taxes, and liens. The remaining proceeds would be divided equally between the Husband and the estate. Service of the Settlement Motion was proper on the Debtor and Debtor's counsel. The Debtor did not file an opposition. The court entered an order granting the Settlement Motion on May 13, 2014. (Docket No. 48).

Thereafter, the Trustee instructed the Broker to move forward with the sale of the Property. (Objection, Docket No. 58, at 5:9–10; see also Declaration of Thomas Bluemel (“Broker Decl.”), Docket No. 58, at 15, ¶ 4). The Debtor, who continued to occupy the Property, refused to cooperate with the marketing efforts and interfered with the actions of the Broker. The Broker contacted the Debtor to give notice of appointments to show the Property 24 hours in advance. (Broker Decl., Docket No. 58, at 15, ¶ 10). After answering an initial call from the Broker, the Debtor never answered additional calls from the Broker's office and thwarted appointments to show the Property on at least nine occasions by denying access to the Property. (Broker Decl., Docket No. 58, at 15, ¶ 12–14).

On June 6, 2014, the Trustee filed a motion to compel the Debtor to turn over the Property. (The “Turnover Motion,” Docket No. 52). Service of the Turnover Motion was proper on the Debtor and Debtor's counsel. The Debtor did not file an opposition. The court granted the Turnover Motion on July 7, 2014. (Docket No. 54). Around this time, the Debtor vacated the Property without notice to the Trustee or the Broker and left the front door dangling from the hinges. (Broker Decl., Docket No. 58, at 17, ¶ 18). To secure the Property, the Broker advanced the costs of repairing the door. (Broker Decl., Docket No. 58, at 17, ¶ 19).³

On July 21, 2014—three years after the case was filed, 33 months after the First Amended Schedules were filed, after the Trustee's investigation of the Property, after litigation to establish the estate's interest in and obtain orders for turnover of the Property, after retention of counsel and the Broker to sell the Property, and after the settlement with the Husband to sell the Property to pay all unsecured creditors in full⁴ —the Debtor again amended her Schedules A and C (the “Second Amended Schedules,” Docket No. 56). Schedule A was amended to state that the Debtor had a community property interest in the Property. Schedule C was amended to claim a $100,000 exemption in the Property under California Civil Procedure Code section 704.730.

The Debtor's behavior has ensured that no funds will be available for unsecured creditors. In filing the First Amended Schedules, the Debtor deleted her homestead exemption and used the “wild card” exemption to protect personal property assets, including $9,000 in cash and a $12,500 receivable. (Docket No. 56, Schedule C). In reliance on the First Amended Schedules, the Trustee did not pursue the protected cash and receivable, and instead pursued the sale of the Property and settlement with the Husband to generate proceeds for distribution to creditors. Now that the Debtor has again amended her schedules to include the homestead exemption, the Debtor's creditors stand to recover nothing from the sale of...