United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

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No. 97-6082 MN

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In re: Terrance J. and Bernadette J. *

Becker *

*

Debtors. *

*

Michael S. Dietz, * Appeal from the United States

* Bankruptcy Court for the 

Appellant, * District of Minnesota

*

v. *

*

Terrance J. and Bernadette J. Becker, *

*

Appellees. *

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Submitted: December 16, 1997

Filed: January 16, 1998

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Before KOGER, Chief Judge, WILLIAM A. HILL, and SCOTT,

Bankruptcy Judges.

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SCOTT, Bankruptcy Judge.
The Honorable Gregory F. Kishel, United States Bankruptcy Judge for the 1

District of Minnesota.

2

The chapter 7 trustee appeals a determination by the

bankruptcy court that the debtors, whose rural-use acreage is 1

abutted on two sides by suburban residential homes, are

entitled to a rural homestead exemption under Minnesota law.

We affirm.

The debtors filed a voluntary chapter 7 bankruptcy case on

October 7, 1997, at which time they claimed a rural homestead

exemption in the 58 acres upon which they live, pursuant to

Minn. Stat. §§ 510.01, 510-2. The debtors claim that since

their acreage is rural in nature they are entitled to exempt

the entire 58 acres. The trustee asserts that the nature of

the locale has sufficiently changed, in large part due to the

debtors’ own activities in developing the area, that they are

not entitled to a rural homestead exemption, but are instead

limited to the one-half acre allowed under section 510.02. 

The debtors’ acreage, although not platted, is within the

city limits of Caledonia, Minnesota. When the debtors

purchased their home thirty-five years prior to the bankruptcy

case, the surrounding area was rural. The expansion of the

city, through the establishment of new businesses and

government activity, has changed the nature of the

neighborhood. From the debtors’ front door, the view is

suburban in nature, with residences abutting the property where

the dwelling is situated, to the north and east along both

sides of the adjoining streets. The city has zoned these

areas, including the area upon which the debtors’ house is

located, for suburban residential development. The debtors

developed the neighborhood to the east from a portion of their

farm. 
3

From the back of the debtors’ dwelling, one views a rural

setting: The barn and outbuildings are in view, as is open land

which is used for growing an annual corn crop and for grazing

horses. The debtors’ acreage behind the house is zoned for

agricultural use. The debtors’ neighbors to the south and west

also use their land to grow corn and hay.

Minnesota statutes provide for a homestead exemption as

follows:
Indeed, the statute has been characterized as “beyond any satisfactory 2

construction,” Mintzer v. St. Paul Trust co., 45 Minn. 323, 324, 47 N.W. 973, 974

(1891), and even “crude,” Smith’s Estate v. Schubert, 51 Minn. 316, 316, 53 N.W. 711,

711 (1892).

4

The house owned and occupied by the debtor

as the debtor’s dwelling place, together

with the land upon which it is situated to

the amount of area and value hereinafter

limited and defined, shall constitute the

homestead of such debtor and the debtor’s

family, and be exempt from seizure or sale

under legal process on account of any debt

not lawfully charged thereon in writing....

Minn. Stat. § 510.01. The area of the homestead is limited as

follows:

The homestead may include any quantity of

land not exceeding 160 acres, and not

included in the laid out or platted portion

of any city. If the homestead is within

the laid out or platted portion of a city,

its area must not exceed one half of an

acre. The value of the homestead exemption,

whether the exemption is claimed jointly or

individually, may not exceed $100,000 or,

if the homestead is used primarily for

agricultural purposes, $500,000, exclusive

of the limitations set forth in section

510.05.

Minn. Stat. § 510.02. The language and application of this

statute has long vexed the Minnesota courts. The Minnesota

2

Supreme Court made its most recent in-depth pronouncement on

the construction of this statute in 1897, in National Bank of

the Republic of New York v. Banholzer, 69 Minn. 24, 71 N.W. 919

(1897), wherein it established a method of analysis for

determining the entitlement to the amount for the homestead.

The court determined that the “platted portion” of any city
5

included unplatted pieces within the city. “Platted portion”

was determined to mean “platted portion which is urban in

character.” Thus, the court scrutinized not only the

particular land in question, but also required examination of

the character of the surrounding area. See Banholzer, 69 Minn.

at 28, 71 N.W. at 920. The method of analysis is made clear

upon application of that court’s rule to the facts of

Banholzer.
Neither the statute nor the case law supports the trustee’s assertion that the factual 3

analysis should include only the house and not the “incidental” pastureland. Indeed, the

homestead exemption found in section 510.01 provides that it incorporates up to 160

acres. In analyzing the entitlement to the homestead, we look to the entirety of the 

property claimed, not merely the house and the limited amount of land upon which it is

situated. Stauning v. Crookston Mercantile Co., 134 Minn. 478, 159 N.W. 788 (1916); 

Brixius v. Reimringer, 101 Minn. 347, 348, 112 N.W. 273, 273 (1907)(“The essential

thing to constitute a quantity of land within the homestead law is that it shall be occupied

and cultivated as one piece or parcel of land, on some part of which is located the

residence.” (emphasis added)).

6

In applying the principles to the facts, the Minnesota

Supreme Court first looked to the character of the land

surrounding the tract in question. It appears from the

analysis that, had an entire area in question been

conclusively urban in character, the homestead would have been

limited in that manner. See id. However, in Banholzer, as in

this case, the surrounding area was not conclusively urban in

character such that the court was compelled to make a further

inquiry. Since the the homestead claimed was “on the border

line between the rural and urban portions of the city,” the

court then looked to whether “the character of the homestead

[w]as rural or urban” to determine the amount of the allowable

exemption.3

Thus, in making the determination, the Minnesota Supreme

Court created a two-pronged test. If, as a factual matter, the

surrounding area is conclusively urban in character, the

claimants are limited to the one-half acre permitted under

section 510.01. If the surrounding area is conclusively rural,

the claimants are permitted to exempt up to 160 acres.

However, if the surrounding area is not conclusively rural or

urban, a second factual determination must be made as to the

character of the homestead itself. Despite the passage of time

since the pronouncement of this test, the Minnesota Supreme

Court has adhered to this test in subsequent cases and has
7

applied this analysis in the context of tax statutes containing

similar language. See, e.g., State ex rel. Chase v. Armson,

135 Minn. 205, 160 N.W. 498 (1916). See also In re De

Griselles, 185 Minn. 495, 241 N.W. 590 (1932); Mead v. Marsh,

74 Minn. 268, 77 N.W. 138 (1898).
The trustee argues that the bankruptcy court erroneously looked only to the 4

subject property instead of the surrounding area. However, inasmuch as the bankruptcy

court made all of the appropriate factual findings, not merely findings as to the character

of the subject property, its result should be affirmed. Cf. Allstate Fin. Corp. v. United

States, 109 F.3d 1331, 1333 (8 Cir. 1997)(appellate court may affirm on any basis th

supported by the record). The bankruptcy court first concluded that the subject parcel

was “between” urban and rural properties. Then, as in Banholzer, the bankruptcy court

determined that the particular parcel was used for agricultural purposes.

8

In this case, the trial court made virtually the same

findings as found in Banholzer. The bankruptcy court concluded 4

that the surrounding area is both urban and rural in character:

to the south and west, the land use is strictly agricultural;

to the east and north, it is residential and suburban. The

trial court also determined that the character of the debtors’

land is agricultural such that the debtors are entitled to

exempt the entire 58 acres. The record clearly supports these

factual findings such that the conclusions are not clearly

erroneous. As in Banholzer, “this disposes of the case.”

Banholzer, 69 Minn. at 29, 71 N.W. at 921.

This is not an inequitable result. The debtors in this

instance retain the homestead expressly afforded them by

Minnesota law, in the same manner as their neighbors to the

south and west who also use their land for agricultural

purposes. The fact that their neighbors to the east and north

reside on smaller, suburban lots and are thereby limited to a

one-half acre homestead is not, without more, unfair. The

potential for the “unequal and extraordinary” result appears

when, as discussed and resolved in Banholzer, the land is “in

the heart of the city,” whether used for urban or agricultural

purposes. Banholzer, 69 Minn. at 28, 71 N.W. at 920. 

While it is true that the debtors contributed to the

increasingly urban quality of the area in which they live, they

did not do so to such an extent as to render the area
9

irrefutably, or even predominantly, urban. They reside in an

area of mixed usage, both developed and agricultural, and,

indeed, significant agricultural usage of the surrounding lands

exists. The rural qualities which imbue the area have yet to

be erased from the locale. The fact that the debtors

contributed to the dilution of these rural qualities is beside

the point. The debtors’
10

claim a homestead exemption under the generous provisions of

section 510.01 and, under Banholzer, their claim must be

sustained.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE

EIGHTH CIRCUIT.