Case Name: In re Irwin HYMAN and Janice Hyman, Debtors. Irwin HYMAN and Janice Hyman, Appellants, v. Gary PLOTKIN, Chapter 7 Trustee, Appellee
Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1991-02-12
Citations: 123 B.R. 342
Docket Number: BAP No. CC-89-1651-MeVP; Bankruptcy No. LA 88-24553; Adv. No. 89-00544-GM
Parties: In re Irwin HYMAN and Janice Hyman, Debtors. Irwin HYMAN and Janice Hyman, Appellants, v. Gary PLOTKIN, Chapter 7 Trustee, Appellee.
Judges: Before MEYERS, VOLINN and PERRIS, Bankruptcy Judges.
Reporter: West's Bankruptcy Reporter
Volume: 123
Pages: 342–356

Head Matter:
In re Irwin HYMAN and Janice Hyman, Debtors. Irwin HYMAN and Janice Hyman, Appellants, v. Gary PLOTKIN, Chapter 7 Trustee, Appellee.
BAP No. CC-89-1651-MeVP.
Bankruptcy No. LA 88-24553.
Adv. No. 89-00544-GM.
United States Bankruptcy Appellate Panel of the Ninth Circuit.
Argued and Submitted Jan. 17, 1990.
Decided Feb. 12, 1991.
Richard M. Moneymaker, Los Angeles, Cal., for appellants.
Amy L. Goldman, Los Angeles, Cal., for appellee.
Before MEYERS, VOLINN and PERRIS, Bankruptcy Judges.

Opinion:
OPINION
MEYERS, Bankruptcy Judge:
I
Joint debtors under Chapter 7 of the Bankruptcy Code ("Code") brought this action against their estate trustee seeking a declaratory judgment that the debtors' principal residence was an exempt asset and no longer property of the estate. From an Order of the trial court granting summary judgment in favor of the Trustee, this appeal ensues. We AFFIRM.
II
FACTS
Irwin and Janice Hyman ("Hymans") filed a voluntary petition under Chapter 7 of the Code on November 21, 1988. They listed their principal residence as an asset, stating its value to be $415,000 and claiming a $45,000 homestead exemption. Gary Plotkin, the trustee ("Trustee"), did not object within 30 days either to the debtors' asset valuation or to the homestead claim. The Trustee later sought to sell the residence and presumably retain for the estate any proceeds from the sale above the sum of the encumbrances and the homestead exemption.
The Hymans initiated this adversary proceeding against the Trustee for a judgment declaring the residence to be an exempt asset no longer within the estate, or in the alternative, declaring that all postpetition appreciation accrues for the benefit of the debtors. The Trustee moved for summary judgment and that motion was granted following a hearing, with the judgment being entered July 12, 1989.
III
STANDARD OF REVIEW
The Panel reviews summary judgments de novo. In re Two S Corp., 875 F.2d 240, 242 (9th Cir.1989); In re Softalk Publishing Co., 856 F.2d 1328, 1330 (9th Cir.1988); In re Orosco, 93 B.R. 203, 207 (9th Cir.BAP 1988). A summary judgment may be affirmed only if it appears, after reviewing all evidence and factual inferences in the light most favorable to the opposing party, that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. In re Seaway Express Corp., 105 B.R. 28, 30 (9th Cir.BAP 1989), aff'd 912 F.2d 1125 (9th Cir.1990). California state law controls substantive questions involving homestead exemption rights. See In re Peters, 91 B.R. 401, 408 (W.D.Tex.1988); In re Schneider, 9 B.R. 488, 491-92 (N.D.Cal.1981). See also In re Anderson, 824 F.2d 754, 756 (9th Cir.1987).
IV
DISCUSSION
The Hymans do not argue that any material fact is at issue. Rather, the Appellants make a series of legal arguments that build on one another to their urged conclusion that the Trustee may not now sell the Hyman residence because it is no longer part of the estate.
The Appellants argue that since the Trustee did not object within 30 days to the valuation of their residence stated on the original schedules filed, that value may not now be disputed. They further contend that the physical dwelling itself was a validly claimed exempt asset and since there was no surplus value in the asset at the time of the petition it reverted from the estate to the debtors. Hence the Appellants conclude that the property is no longer the Trustee's to sell or at least that any postpetition appreciation in value belongs to them. Four legal questions are thus raised by this appeal: first, whether the debtor is correct in assuming that no surplus value existed in the property; second, whether the $45,000 California homestead exemption refers to a physical asset or to a debtor's equity in such asset; third, whether an asset with both exempt and nonexempt equity reverts to a debtor or rather whether postpetition appreciation is part of the "proceeds" of estate property; and fourth, whether the Trustee is now es-topped from challenging the stated value of the Hyman property.
A. Surplus Value May Exist in the Property
Without the benefit of a formal appraisal, the Appellants stated the value of their residence to be $415,000. They maintain that consequently, no surplus value exists for the estate because the sum of the encumbrances, homestead exemption and selling costs is $425,811.01. The debtors' position is predicated on the listed encumbrances of $278,107.20 and $69,503.81, being added to the $45,000 homestead exemption and selling costs of $33,200, calculated at eight percent of the $45,000 value attributed to the property. The selling costs must be added in, say the debtors, because only after payment of such costs would the estate realize any value from the sale. Further, the debtors assert, without statutory or case authority, that "in California, Trustees . subtract eight (8%) percent for costs of sale."
If the selling costs are not added in, however, the equity available for the estate would be any amount exceeding $392,-611.01 (encumbrances totalling $347,611.01 plus the homestead exemption of $45,000). Even by the Appellants' own valuation of $415,000, therefore, equity would exist in the property. The Trustee would thus have the right to administer the property to assure payment to secured creditors and at sale the Trustee would retain any surplus for the estate above the $45,000 to be paid to the debtors.
The debtors' assertions about the eight percent selling costs are not supported by the California statute governing sale of a homestead. Section 704.800 of the Code of Civil Procedure (West 1989) provides in pertinent part:
(a) If no bid is received at a sale of a homestead pursuant to a court order for sale that exceeds the amount of the homestead exemption plus any additional amount necessary to satisfy all liens and encumbrances on the property, including but not limited to any attachment or judgment lien, the homestead shall not be sold and shall be released and is not thereafter subject to a court order for sale upon subsequent application by the same judgment creditor for a period of one year.
No mention is made of any requirement that the selling costs also be exceeded for a bid to be accepted; only the encumbrances and homestead exemption are counted. Based solely on the figures scheduled by the Appellants, which valued the residence at $415,000 with secured liens of $347,611 and a homestead exemption of $45,000, the conceded equity in excess of all secured claims and exemptions is approximately $22,389. The Trustee had a duty to attempt to "collect and reduce to money" this property of the estate and would be remiss if he failed to do so. See 11 U.S.C. § 704(1).
Further, this Panel is not bound by the assertions of customary practices of Trustees. It may well be that the property can be sold at far less administrative cost than $33,200. We are not persuaded that California law either requires the Trustee to withhold eight percent selling costs or that selling costs are included in the sum that must be exceeded under California Civil Procedure Code Section 704.800. Placing such a restriction on the Trustee in this case would in practical effect raise the debtors' exemption by an additional $33,-200, an effect not contemplated by the California homestead provisions. We focus on this aspect of the appeal in order to demonstrate that in the context of a grant of summary judgment, even accepting the facts on valuation in the light most favorable to the debtors, they would not be entitled to prevail. Of course, if summary judgment in favor of the Trustee was not appropriate and this was tried on the merits, the discussion regarding the use of costs of sale figures would undoubtedly lose its significance if the Trustee is able to prove that the valuation of the property is anywhere near the $650,000 his evidence suggested.
The debtors chose to proceed under the liquidation provisions of Chapter 7; as stated recently, "liquidation of the estate means sale of the real estate.... If [the debtors] wanted to hold on to their property they should have sought reorganization under Chapter 13." Matter of Lindsey, 823 F.2d 189, 191 (7th Cir.1987).
B. The California Homestead Exemption Refers to Equity Rather than a Physical Asset
Appellants' suggestion that homestead protection attaches to physical property rather than to a debtor's economic interest in the property is undermined by the California Constitution, California homestead statutes and interpreting case law.
The concept that some interests are immune from the reach of creditors is enshrined in the California Constitution: "The Legislature shall protect, by law, from forced sale a certain portion of the homestead and other property of all heads of families." (emphasis added) Cal. Const. Art. XX, Section 1.5. The statutory scheme implementing this provision appears at Cal.Civ.Proc.Code § 704.710-.850 (West 1989) and is said to "[provide] protection for a portion of the equity in the debtor's home against creditors who seek satisfaction by forced sale of the home." (emphasis added). Note, Exemptions Under the Bankruptcy Code: Using California's New Homestead Law as a Medium for Analysis, 72 Calif.L.Rev. 922, 938 (1984). See also R. Aaron, Bankruptcy Law Fundamentals § 7.03 (1989).
The portion of the Hymans' homestead entitled to protection is $45,000. Cal.Civ. Proc.Code § 704.730. The California legislative ceiling on the value of an exemption contrasts with statutes like those of Minnesota and Texas which place acreage rather than value limitations on homestead exemptions. See Minn.Stat. § 510.02 (1990); Tex. Prop.Code Ann. § 41.001-002 (1989) (value limits in certain instances).
The "excess value" in a California homestead, the value above encumbrances and the exemption amount, has always been available to creditors. In Payne v. Cummings, 146 Cal. 426, 80 P. 620 (1905), for example, the court stated: "The homestead declared upon may embrace an area even greater in value than the five-thousand-dollar homestead exemption allowed.... In such a case the homestead is not void, but proceedings must be had . for the ap-praisement and division or sale of the property." 146 Cal. at 429, 80 P. 620. See also Kahn v. Berman, 198 Cal.App.3d 1499, 244 Cal.Rptr. 575 (1988) (courts should assess excess value of property prior to ordering sale); Cal.Code Civ.Proc. § 704.740-.850 (containing procedures for executing on excess value above homestead exemption and encumbrances); H.R. No. 595, 95th Congress, 1st Sess. 360-61 (1977), U.S. Code & Cong. Admin.News 1978, pp. 5787, 6315-6317, (intention of Congress for the federal exemptions was that "property may be exempted even if it is subject to a lien, but only the unencumbered portion of the property is to be- counted in computing the 'value' of the property for the purposes of exemption.")
The cases could not come to any other conclusion. It is not logically possible to reconcile the explicit limitation on exemption value with a notion that the property itself is exempt except by requiring the debtor to reimburse the estate for the excess value of a retained homestead dwelling. No California case suggests such a solution. Rather, by setting a maximum on what can be claimed the legislature recognized that the property may be subjected to a forced sale. The procedure for such forced sales is set forth in the exemption statutes at Cal.Code Civ.Proc. § 704.-740-.850.
Appellants' error is to confuse the policy of preserving family life and preventing homelessness with protection of a specific residence from creditors. This distinction is underscored by related statutory provisions. Where a forced sale has occurred, the proceeds of the exemption, in this case $45,000, may not be reached by creditors for a period of six months. Cal.Civ.Proc. Code § 704.720(b), 704.960. This permits the debtor time to settle into a substitute dwelling. See Ortale v. Mulhern, 58 Cal.App.3d 861, 864, 130 Cal.Rptr. 277 (1976); Thorsby v. Babcock, 36 Cal.2d 202, 205, 222 P.2d 863 (1950).
C. Postpetition Appreciation of Assets With Non-Exempt Equity Accrues to the Benefit of the Estate
Postpetition appreciation accrues to the benefit of the estate. Section 541(a)(1) of the Code provides that a debt- or's estate is comprised of all legal or equitable interests owned by the debtor as of the commencement of the case. When such assets become productive after the filing, the estate is supplemented by all "proceeds, product, offspring, rents, and or profits of or from property of the estate ." Section 541(a)(6). Hence, where an asset of the estate is sold by the trustee the estate is entitled to the proceeds of that sale. In re Calder, 94 B.R. 200, 201 (Utah 1988), aff'd 912 F.2d 454 (10th Cir.1990); In re Paolella, 85 B.R. 974, 977 (E.D.Pa.1988). According to the legislative history of this section, "proceeds" is not to be defined as narrowly as in the Uniform Commercial Code. S.Rep. No. 989, 95th Cong.2d Sess. 82, (1978); H.R.Rep. No. 595, 95th Cong. 1st Sess. 368 (1977), U.S. Code Cong. & Admin.News 1978, pp. 5868, 6323. The result is a meaning that is "exceedingly broad." Calder, supra, 94 B.R. at 201.
Some cases evidence a tension between Section 541(a)(6) and the provisions of Section 522(f)(1) which prohibits a judicial lien from impairing an exemption to which the debtor otherwise would be entitled. Where a discharge has occurred, for example, and a judicial lienor seeks execution on exempted property courts have held that the exempt asset is valued as of the filing of the petition and any appreciation may be retained by the debtor. Such a holding has the effect of protecting an appreciating asset against foreclosure and thereby enhancing the "fresh start" policy of bankruptcy law. See e.g., In re Dvoroznak, 38 B.R. 178, 182 (E.D.N.Y.1984); In re Rappaport, 19 B.R. 971 (E.D.Pa.1982); In re Walters, 14 B.R. 92 (S.D.W.Va.1981), aff'd sub. nom BancOhio Nat. Bank v. Walters, 724 F.2d 1081 (4th Cir.1984). See also In re Galvan, 110 B.R. 446 (9th Cir.BAP 1990) (avoidance of both secured and unsecured portion of judicial lien); In re Herman, 120 B.R. 127 (9th Cir.BAP 1990). Any such fresh start policy is much reduced in importance, however, where the bankruptcy is still being actively administered. Moreover, in California the debtor has the protection described above of the six months "proceeds exemption" of Cal. Civ.Proc.Code § 704.720(b) and 704.960. Finally, the "reversion" argument raised by the Appellant cannot be accepted under a statute like California's which requires an appraisal to be made of the equity. At first glance the contention has much appeal. Section 522(Z) states unequivocally that "unless a party in interest objects, the property claimed as exempt on such list is exempt." It is also undoubtedly true that exempted property must ultimately "re-vest" in the debtor; but this is inherent in a statutory structure that vests "all legal or equitable interests of the debtor in property" in the estate at the commencement of the case. Code Section 541(a)(1). Hence several cases state that property claimed as exempt revests in the debtor upon the failure of any party to object within a specified period. See e.g., In re Kretzer, 48 B.R. 585, 587 (Nev.1985); Matter of Wiesner, 39 B.R. 963 (W.D.Wis.1984); In re Berry, 11 B.R. 886, 890 (W.D.Pa.1981).
These eases, however, should be interpreted as simply accurately describing two rules in one sentence. In other words, the 30-day period fixes the right to an exemption and the statute as a whole requires that the property somehow revest. The timing of the reversion, however, is not apparent by the interplay of these two rules; it is not necessarily prior to abandonment by the trustee or immediately following the 30-day period.
The dissent appears to be concerned that trustees will hold property, which does not have any realizable equity on the date the petition is filed, hoping to gain advantage of post-petition appreciation. This concern is certainly unwarranted in this case where the Appellants' own figures reveal a not inconsiderable equity which might be gained for the estate. Also, a trustee has an affirmative duty to collect and reduce to money the property of the estate and to close the estate as expeditiously as is compatible with the best interest of parties in interest. See 11 U.S.C. § 704(1); In re Riverside-Linden Inv. Co., 85 B.R. 107, 111 (S.D.Cal.1988), aff'd 99 B.R. 439 (9th Cir.BAP 1989); In re Afco Dev. Corp., 65 B.R. 781, 787 (Utah 1986). Therefore, a trustee is not in a position to unnecessarily delay the liquidation of estate property.
Further, if a debtor does become concerned that a trustee may act in dereliction of duty and not liquidate particular property within a reasonable time, the debtor may force the issue by requesting that the trustee abandon the property pursuant to 11 U.S.C. § 554(b). See B.R. 6007(b). In In re Pauline, 119 B.R. 727 (9th Cir.BAP 1990), the Panel recently upheld a trial court order requiring a Chapter 7 trustee to market the homesteaded realty within a defined period of time or it would be deemed abandoned. In that case, as in the instant case, the trustee never filed an objection to the homestead exemption claim. When the debtor in Pauline became concerned over the apparently inconsistent postures of the trustee as to further administration of the homesteaded property, he petitioned the trial court and received an order providing a deadline for the trustee to market the property. 119 B.R. at 727-28. If the trustee does not expeditiously market the property, the debtors can always file a motion to force a sale or abandonment. At the time the trustee presents a sale for approval, the trial court can then consider if the benefits for the estate are de minimis and should be balanced against the disadvantage to be suffered by the debtors having to vacate their residence.
In the context of a motion seeking abandonment, evidence that no potential sale within a reasonable period of time could provide any benefit for the estate, after paying costs of sale, the payoff of encumbrances and satisfaction of the allowed homestead exemption, will no doubt determine the final outcome.
D. The Trustee May Challenge the Value of the Property
The Hymans apparently never sought the closing of their bankruptcy or moved to have the Trustee abandon the property. Also, the debtors do not dispute the representations of the Trustee that he acted "expeditiously" after the Section 341(a) hearing to obtain an appraisal of the property. Nonetheless, the Hymans claim that the failure of the Trustee to object to the property valuation within 30 days of the filing estops the Trustee either from retaining administrative control over the residence or from seeking to take advantage of any post-filing appreciation. The Appellants' argument fails for both legal and logical reasons.
The legal grounds are two-fold: first, that the entire value of the residence initially came into the debtor's estate and was not "impliedly abandoned" by the Trustee; and second, that objections to the existence of an exemption differ from objections to the valuation of property subject to an exemption claim limited in dollar amount.
Under Section 541(a) of the Code, all legal and equitable interests of the debtor belong to the estate at the commencement of the case. Thereafter, the debtor may remove some of the property by claiming exemptions under Section 522(b). In re Woodson, 839 F.2d 610, 616 n. 8 (9th Cir.1988); Sierra Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 708-09 (9th Cir.1986). Title is therefore in the trustee- from the beginning and "[ujnless property is abandoned or intentionally re-vested, title generally remains in the trustee. Abandonment requires affirmative action or some other evidence of intent by the trustee." In re Berg, 45 B.R. 899, 903 (9th Cir.BAP 1984). During the pendency of the case, the notice and hearing requirements of Section 554 must be observed for an "abandonment" to occur. Sierra Switchboard, supra 789 F.2d at 709 ("... there is no abandonment without notice to creditors").
The second ground preventing an estoppel of the Trustee in the instant case is the distinction between an objection to the existence of an exemption and an objection to the valuation of the property in which debtors claim an exemption. Only the former objection must be made within the Bankruptcy Rule 4003(b) 30-day period following the meeting of creditors. In re Allen, 44 B.R. 38 (N.M.1984). The two types of objections serve competing interests: one gives a debtor a prompt determination of his right to exemptions and the other allows creditors to obtain a fair valuation of the property. Allen, supra, 44 B.R. at 40. Although objections to the exemptions themselves should be made as quickly as possible, the "[objections to valuation, on the other hand, need not be completed with such expediency, nor should the creditor be required to rush out and value the debtor's property in order to protect his interests in that property." Allen, supra, 44 B.R. at 40. See In re Pauline, supra, 119 B.R. 727. But see In re Tarrant, 19 B.R. 360, 366 (Alaska 1982); 3 Collier on Bankruptcy II 506.04[2] (15th ed. 1990).
Logic also defeats any argument founded on a claim of estoppel or equitable considerations. There was no reason for the Trustee to object to the valid claim of a homestead exemption by the Appellants. Hence the Trustee's failure to speak was not a misleading communication on which the Hymans were entitled to rely and therefore the Trustee is not estopped. This conclusion is supported by the case of In re Golden, 789 F.2d 698 (9th Cir.1986). Golden sold his residence and thereafter filed for bankruptcy, claiming a homestead exemption in the proceeds of the house sale. Under the California six-month reinvestment statute the debtor could validly claim such a homestead exemption if the proceeds were used to purchase a substitute dwelling. Cal.Civ.Proc.Code § 704.720(b), 704.960. Since the last day for filing objections to the debtor's homestead claim fell within the six-month reinvestment period, the trustee did not object to the debtor's homestead claim.
When the debtor did not reinvest the money from his house sale, the trustee argued that the proceeds had lost their exempt status and therefore should be returned to the estate. Golden responded that the trustee was estopped for failing to object to the homestead claim within the six-month period. In ruling for the trustee, the court stated:
Because the exemption remained in effect during the six-month period, and the trustee had no right to claim the proceeds during that period, we see no reason for requiring that he notify the debt- or of a claim not yet in existence. Given the clarity of provisions requiring reinvestment, Golden could not have reasonably relied upon the trustee's silence as an indication of a permanent exemption.
789 F.2d at 701.
The dissent suggests that the grant of summary judgment "in effect" allows the trustee to object to the exemption claim in an untimely manner. This misconstrues the ruling on appeal. The debtors filed a complaint to have their "home" declared exempt based on the failure of the trustee to file any objection to their exemption claim. Their goal "in effect" is not only to have judicial recognition of their exemption, but also to force the trustee to abandon the entire property even though he would like to administer the asset in order to realize equity for the benefit of the estate. The dissent would have us rule that abandonment is mandated by a failure of the trustee to timely object to an exemption claim he has no cause to challenge. By simply agreeing to a valid claim of exemption, an estate is not forced to abandon a valuable asset.
This, then, is the crux of our decision. We reject the debtors' attempt to use the concession made by the trustee in regard to their claim of a homestead exemption, to then force the trustee to abandon valuable estate property. There may be time limits on filing objections to exemption claims under Bankruptcy Rule 4003(b), but aban-donments are governed by Section 554 of the Code and Bankruptcy Rule 6007, which contain no specific time restraints on the trustee's ability to fully administer estate property. The burden is on the party seeking to force an abandonment of specific property to take the initiative. Here the debtors have brought an action which is actually directed toward an early abandonment of their residence and have failed to demonstrate that the facts would justify such an order.
V
CONCLUSION
The Appellants' arguments fall before the central fact that in California the Hy-mans' homestead exemption is limited to $45,000. Their entitlement to this exemption is not disputed. Even on the debtors' own valuation surplus value exists in the property if selling costs are disregarded. The Trustee should be allowed to make appropriate arrangements for sale within a reasonable period of time; any resulting proceeds that exceed the encumbrances plus $45,000 belong to the estate.
AFFIRMED.