United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT

_______________ No. 97-6082 MN

______________
In re: Terrance J. and Bernadette J. * Becker * * Debtors. * * Michael S. Dietz, * Appeal from the United State s * Bankruptcy Court for the Appellant, * District of Minnesota * v. * * Terrance J. and Bernadette J. Becker, * * Appellees. *

_______________ Submitted: December 16, 1997 Filed: January 16, 1998

_______________ Before KOGER, Chief Judge, WILLIAM A. HILL, and SCOTT , Bankruptcy Judges.

_______________ 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 th e bankruptcy court th at the debtors, whose rural-use acreage is 1 abutte don two sides by suburban residential homes, ar e entitl edto a rural homestead exemption under Minnesota law
. We affirm. The debtors filed a voluntary chapter 7 bankruptcy case on Oc tober 7, 1997, at which time they claimed a rural homestead ex emptionin the 58 acres upon which they live, pursuant t o Mi nn. Stat. §§ 510.01, 510-2. The debtors claim that sinc e their acreage is rural in nature they are entitled to exemp t the enti re 58 acres. The trustee asserts that the nature o f th e locale has sufficiently changed, in large part due to the de btors’ own activities in developing the area, that they are not entitled to a rural homestead exemption, but are instea d limited to the one-half acre allowed under section 510.02. The debtors’ acreage, al though not platted, is within the cityl imits of Caledonia, Minnesota. When the debtor s purchased their home thirty-five y ears prior to the bankruptcy case, th e surrounding area was rural. The expansion of th e ci ty, through the establishment of new businesses an d government activity, has changed the nature of th e neigh borhood. From the debtors’ front door, the view i s suburbanin nature, with residences abutting the property wher e the dwelling is situated, to the north and east along bot h sides of the adjoining streets. The city has zoned thes e area s, including the area upon which the debtors’ house i s locate d, for suburban residential development. The debtor s developed the neighborhood to the east from a portion of their farm.3

From the back of the deb tors’ dwelling, one views a rural setting: The barn and outbuildings are in view, as is open land wh ich is used for growing an annual corn crop and for grazing ho rses. The debtors’ acreage behind the house is zoned fo r agricultural use. The debtors’ neighbors to the south and wes t also use their land to grow corn and hay.
Minne sota statutes provide for a homestead exemption a s 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, togethe r withthe land upon which it is situated to the amount of area and value hereinafte r lim itedand defined, shall constitute th e ho mesteadof 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 there on in writing.... Minn. Stat. § 510.01. The area of the homestead is limited as follows: Th e homestead may include any quantity o f

land not exceeding 160 acres, and no t included in the laid out o r platted portion of anycity. If the homestead is withi n the laid out or platted portion of a city, its ar ea must not exceed one half of a n acre. The value of the hom estead exemption, whether the exemption is c laimed jointly or ind ividually, may not exceed $100,000 or , if the homestead is used primarily fo r agricultural purposes, $500,000, exclusiv e of the limitations set forth in sectio n 510.05. Mi nn. Stat. § 510.02. The language and application of thi s statute has long vexed the Minnesota courts. The Minnesot a 2 Suprem e Court made its most recent in-depth pronouncement o n th e construction of this statute in 1897, in National Bank of the Republic of New York v. Banholzer , 69 Minn. 24, 71 N.W. 91 9 (1897) , wherein it established a method of analysis fo r determ iningthe entitlement to the amount for the homestead
. The cour t determined that the “platted portion” of any cit y5

in cluded unplatted pieces within the city. “Platted portion” was determined to mean “platted portion which is urban i n charac ter.” Thus, the court scrutinized not only th e pa rticular land in question, but also required examination of the character of the surrounding a rea. See Banholzer , 69 Minn. at 2 8, 71 N.W. at 920. The method of analysis is made clea r up onapplication of that court’s rule to the facts o f 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 Inapplying the principles to the facts, the Minnesot a Supreme Court first looked to the character of the lan d surrounding the tract in question. It appears from th e ana lysis that, had an entire area in question bee n conclusively urban in character, t he homestead would have been limited in that manner. See id. However, in Banholzer , as in this case, the surrounding area wa s not conclusively urban in ch aracter such that the court was compelled to make a further inquiry. Since the the homestead claimed was “on the borde r li ne between the rural and urban portions of the city,” th e co urt 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 Suprem e Court created a two-pronged test. If, as a factual matter, th e surr oundingarea is conclusively urban in character, th e claima nts are limited to the one-half acre permitted unde r section510.01. If the surrounding area is conclusively rural , the cl aimants are permitted to exempt up to 160 acres
. Ho wever, if the surrounding area is not conclusively rural or urban, a second factual determination must be made as to th e characterof the homestead itself. Despite the passage of tim e since the pronouncement of this test, the Minnesota Suprem e Cour t has adhered to this test in subsequent cases and ha s7

appliedthis analysis in the context of tax statutes containin g similar language. See, e.g. , State ex rel. Chase v. Armson , 135 Mi nn. 205, 160 N.W. 498 (1916). See also In re D e Gr iselles , 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 th is case, the trial court made virtually the sam e findings as found in Banholzer
. The bankruptcy cour t 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. Th e trial court also determined that t he character of the debtors’ land is agricultural such that the debtors are entitled t o exempt the entire 58 acres. The r ecord clearly supports these factua l findings such that the conclusions are not clearl y 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 thi s inst ance retain the homestead expressly afforded them by Mi nnesota law, in the same manner as their neighbors to th e south and west who also use their land for agricultura l purposes. The fact that their nei ghbors to the east and north re side on smaller, suburban lots and are thereby limited to a one- half acre homestead is not, without more, unfair. Th e po tential for the “unequal and extraordinary” result appear s wh en, as discussed and resolved in Banholzer , the land is “in the heart of the city,” whether us ed for urban or agricultural purposes. Banholzer , 69 Minn. at 28, 71 N.W. at 920.
While it is true that the debtors contributed to th e increasingly

urban quality of the area in which they live, the y di dnot do so to such an extent as to render the are a9

ir refutably, or even predominantly, urban. They reside in an area o f mixed usage, both developed and agricultural, and , indeed, significant agricultural usage of the surrounding land s ex ists. The rural qualities which imbue the area have yet to be e rased from the locale. The fact that the debtor s contributed to the dilution of the se rural qualities is beside the point. The debtors’10

claim a homestead exemption under the generous provisions o f sectio n510.01 and, under Banholzer , their claim must b e sustained.

A true copy.

Attest:
CLER K, U.S. BANKRUPTCY APPELLATE PANEL FOR TH E EIGHTH CIRCUIT.