Case Title: Everett v. Pape Bros., Inc.

Citation: 525 P.2d 996

Docket Number: 

State: oregon

Court: Oregon Supreme Court

Date: 1974-09-06T00:00:00Z

Document:
525 P.2d 996 (1974)
Robert P. EVERETT, Appellant,
v.
PAPE BROS., INC., a Corporation, et al., Defendants,
James P. Heath and Industrial Supply Co., Respondents.

Supreme Court of Oregon, In Banc.
Submitted on Briefs May 23, 1974.
Decided September 6, 1974.
Edward M. Murphy, of Stults, Murphy & Anderson, Roseburg, for appellant.
John H. Horn, of Riddlesbarger, Pederson, Young & Horn, Eugene, for respondent Heath.
William C. Wolke, of Luoma, Kelley, Woodruff & Wolke, Roseburg, for respondent Industrial Supply Co.
HOWELL, Justice.
Plaintiff filed this suit to remove a cloud on the title to plaintiff's real property. The defendants were six creditors who held judgments against the plaintiff. Four defendants did not file appearances, and the other two defendants filed demurrers, alleging that the complaint did not state a cause of suit. The trial court sustained the demurrers, and a decree was entered dismissing the complaint. Plaintiff appeals.
Plaintiff's complaint alleged that plaintiff and his wife were owners of certain real property in Douglas County and that the property constituted plaintiff's homestead. The plaintiff was adjudicated a bankrupt, and the defendants were listed as creditors in the petition in bankruptcy and had knowledge of the bankruptcy proceeding. The complaint also alleged that plaintiff's property at the time of the bankruptcy had a value of $9,000 and was subject to a mortgage in the amount of $5,739.00, and that the mortgage antedated the various judgments. The complaint alleged also: "At the time the plaintiff was adjudicated *997 a bankrupt, there was no excess value in said real property over the homestead exemption to which the lien of the aforesaid judgments could attach" and that the judgments constituted clouds on the title to plaintiff's real property.
The plaintiff states his position as follows:
The homestead exemption statute, ORS 23.240, reads, in pertinent part:
Plaintiff contends that at the time he was discharged in bankruptcy, the property had a fair market value of $9,000, but that because it was encumbered with a mortgage of $5,739 there was no excess value in the real property over the homestead exemption to which the lien of the judgments could attach. Consequently, he asserts that the judgments are not liens on the property.
The usual rule is that in computing the value of property for the homestead exemption, encumbrances existing at the time the homestead is established are deducted from the value of the property in calculating value for purposes of the exemption.[1] In other words, the maximum homestead exemption will be measured against the value of the debtor's equity rather than against the value of the property. In the instant case, therefore, the mortgage of $5,739 is to be deducted from the alleged market value of $9,000, leaving $3,261 as plaintiff's equity which is within the $7,500 exemption allowed by the statute.
In Fleischhauer v. Bilstad et al, Gray et ux, 233 Or. 578, 379 P.2d 880 (1963), we held that a homestead is exempt from the lien of every judgment as well as exempt from sale on execution, and that the grantee of a homestead owner takes the property free of the lien of the judgment. The rule of Fleischhauer was, however, subsequently qualified in the later case of Clawson v. Anderson, 248 Or. 347, 434 P.2d 462 (1967), wherein it was held that the transfer of homestead property does not automatically destroy the lien of a judgment. The lien of a judgment cannot affect the transfer if the homestead falls within the statute as to quantity and value, but the lien will attach to any quantity and value in excess of the homestead allowance. Clawson v. Anderson, supra at 350, 434 P.2d 462.
This court has previously stated in Shepard & Morse Lbr. Co. v. Clawson, 259 Or. 154, 486 P.2d 542 (1971), that the value of the property is determined not at the time of the bankruptcy as in this case or at the time of transfer of the homestead in the case of a conveyance but at the time judgment creditors secure an execution sale. In Shepard & Morse this court, speaking through Chief Justice O'Connell, explained the rationale of the rule as follows:
And, more recently, in Smith v. Popham, 266 Or. 625, 513 P.2d 1172 (1973), we concluded:
As far as plaintiff's adjudication of bankruptcy is concerned, the general rule is that the adjudication has no effect on prior judgments and they remain liens on plaintiff's property, because the discharge in bankruptcy affects a debtor's personal obligations but it does not destroy liens against the debtor's property. Collier on Bankruptcy (14th ed.) 1742.7(3); see also 3 Remington on Bankruptcy 1908, § 1297 (1957 rev.ed.); Bush v. Shepherd, Adm'r., 186 Or. 105, 205 P.2d 842 (1949), overruled on other grounds in Fleischhauer v. Bilstad, supra.
As the defendants' liens are still extant and the value of plaintiff's property cannot be determined until defendants initiate proceedings for an execution sale, the plaintiff is not entitled to have the judgments removed as clouds on the title to his property.[2]
Affirmed.
[1]  Haskins, "Homestead Exemptions", 63 Harv.L.R. 1289, 1292 (1950); Lacy, "Homestead Exemptions  Oregon Law: Still More", 8 Will L.J. 327.
[2]  It may be that payment by plaintiff of the mortgage on the homestead would inure to the benefit of the creditors and against the plaintiff. It could also be argued that the value of the homestead property should be determined at a time other than the execution sale. However, as we stated in Smith v. Popham, 266 Or. 625, 640, 513 P.2d 1172 (1973), this may be a matter for legislative consideration.