Court Opinion

ID: 9691618
Source: CourtListenerOpinion
Date Created: 2023-08-24 20:44:25.605916+00
Date Added: 2024-06-11T18:19:23.750280
License: Public Domain

VOLINN, Bankruptcy Judge,
dissenting:
FACTS
The debtors filed their bankruptcy petition on November 21, 1988. They listed their home as an asset and claimed a homestead exemption in it. The home was stated to be valued at $415,000. They also calculated the selling costs of the home at eight percent of $415,000 or $33,200. The debtors listed encumbrances against the property of $278,107 and $69,503 for a total of $347,610. The foregoing total added to the debtors’ homestead exemption of $45,-000 comes to $425,810 which exceeds the stated value of the property, therefore, in the debtors’ view leaving no equity for creditors in the event of forced sale. How*350ever, if the selling costs of $33,200 (eight percent of $415,000) were not added to the foregoing total of encumbrances plus the exemption, then there would be an equity, presumably, of $22,390 available to creditors ($415,000 minus $392,610).
The bankruptcy, as indicated, was filed on November 21, 1988. On that date, the debtors’ homestead exemption schedule and claim were filed pursuant to 11 U.S.C. § 522(i)1 which provides as follows:
(l) The debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section. If the debtor does not file such a list, a dependent of the debtor may file such a list, or may claim property as exempt from property of the estate on behalf of the debtor. Unless a party in interest objects, the property claimed on such list is exempt.
The date set for the first meeting of creditors pursuant to Sec. 341(a) was December 27, 1988. The court in its Order For Meeting Of Creditors Combined With Notice Thereof And Of Automatic Stay, fixed certain time limits as to various events including a time limit for objection to exemptions. The order stated:
Unless the court extends the time, any objection to the debtors’ claim of exempt property (Schedule B-4) must be filed by THE TIME FIXED PURSUANT TO BANKRUPTCY RULE 4003(B) (sic).
Rule 4003(b) provides:
(b) Objections to Claim of Exemptions. The trustee or any creditor may file objections to the list of property claimed as exempt within 30 days after the conclusion of the meeting held pursuant to Rule 2003(a) or the filing of any amendment to the list unless, within such period, further time is granted by the court. Copies of the objections shall be delivered or mailed to the trustee and to the person filing the list and the attorney for such person.
Based on the foregoing, the trustee had until 30 days after December 27, 1988 within which to file an objection to the debtors’ claim of exempt property. That date would have been January 26, 1989. No such objection was filed by the trustee or any party in interest.
On March 24, 1989, the debtors filed a complaint for declaratory relief seeking to have their home declared as exempt. The trustee moved for summary judgment. The trustee alleged inter alia, that an order of the court authorizing him to employ a broker was entered on January 30, 1989; an affidavit from the real estate broker, Judith Barbour, stated the homestead property to be worth between $610,000 and $650,000, a market analysis being attached to the affidavit. The debtors responded, attaching a declaration by, Gary Bluman, an appraiser, valuing the property at between $405,000 and $440,000, concluding that $419,000 was a conservative estimate of value.2 Thus, there was a substantial dispute as to value. The court nevertheless granted the trustee’s motion for summary judgment holding, in effect, that the trustee was not precluded from objecting to the exemption claim after the time fixed by Rule 4003(b); that the debtors could not add expenses of sale to the encumbrances, and that the trustee was entitled to post-bankruptcy accretion in value to the home.
ISSUES
There are various issues which have been precipitated by virtue of the debtors’ declaratory judgment action and the trustee’s response thereto. These may be summarized as follows:
1. Whether the trustee is precluded from challenging the debtors’ homestead ex*351emption claim where neither he nor any party in interest failed to object in any way (as to the existence of exemption or the amount thereof) within the 30-day period established by Rule 4003(b).
2. In considering an exemption claim and whether the trustee is precluded from offering the property for sale by virtue of there being no equity in the estate, shall the costs commonly attributable to sale of real estate be added to the sum exempt by law.
3. Whether under the federal bankruptcy exemption statute or under California law, or both, the trustee is precluded from claiming postpetition appreciation in value of the property in which an exemption is claimed. To put it otherwise, are the rights of the estate, insofar as value is concerned, fixed as of the date of the filing of the bankruptcy petition.
DISCUSSION
A. The statutory homestead exemption is intended to allow an exemption claimant to retain possession of his home where no equity exists above the exemption amount.
Turning to the language of Cal. Code of Civil Procedure § 704.800,3 it is clear that whatever the nature of the debtor’s interest may be, given no value in excess of liens against the property plus statutory exemption, the property is exclusively that of the debtor’s beyond all reach by his creditors so long as that condition obtains. To consider the nature of the debtor’s interest in the property in this context is a gratuitous exercise.
The effect of a valid homestead exemption claim is the central issue of this appeal. The majority concludes that while the debtor derives his statutory homestead from the legislative policy of preserving “family life and preventing homelessness” this is not to be confused “with protection of a specific residence from creditors.” The majority would hold that the debtor’s exemption only entitles him to the money equivalent of his equity position at the time of filing, up to the maximum exemption amount; and that there is no protected interest in continued residence within specific property. Not only is this theory at odds with the language and spirit of the exemption statute, it is in conflict with a previous holding of this Panel. In Wei-man v. Stopher (In re Weiman), 22 B.R. 49 (9th Cir.BAP 1982), the Pánel held that § 544 does not endow the trustee with the continuing lien of a judgment creditor on the debtor’s property. In Weiman, the trial court had previously ruled that while the debtors’ home was exempt from property of the estate, it was nevertheless subject to a continuing lien under California law in favor of the trustee in the amount of the allowed unsecured claims in the estate. The trustee would have thus been able to execute on the lien at some later date, post-bankruptcy, in order to satisfy these claims. The Panel reversed, concluding that § 544 granted the trustee only the rights of one holding a judgment lien as of a particular point in time, the commencement date of the case, which rights did not include a continuing lien on the debtor’s exempt property. The concurring opinion stated:
There is an inherent contradiction in allowing discharged creditors, by virtue of invoking § 544, to have access to the debtor’s ... homestead itself should the debtor, years later, desire to leave it. The stay provisions of § 362, and the character of discharge as an injunction, [§ 524(a) ], in order to serve [as] a fresh start, would be subverted. The debtor, instead of having a fresh start, would have a homestead subject to doubt and uncertainty during the lifetime of the *352[state lien]. Moreover, such a result would violate the spirit, if not the letter, of [§ 522(c) ] which provides that property exempted under § 522 is not liable during or after the case for pre-bank-ruptcy debts.
Id. at 53.
Here, the trustee would use his ministerial claim of title in the same manner as the trustee attempted to use the lien claim of a judgment creditor under § 544. He should likewise not be permitted to do so.
B. The trustee may not sell the debtors’ residence unless its fair market value exceeds the amount necessary to pay the debtors their statutory exemption amount.
The relevant state statute, Cal.Civ.Proc. § 704.800, provides that the trustee may not sell the debtors’ homestead if he cannot obtain a sufficient price to satisfy all liens and pay the debtors their exemption. What the statute does not establish is when it must be determined whether sufficient value in the property exists to permit the sale. This state statute, one which applies to all forms of execution against the debtors’ property, must therefore be harmonized with the Code.
Because of the nature of the homestead, under state law and the Bankruptcy Code, operative facts are based on abstractions, that is, opinions as to value. .Real value based on market price does not enter into the equation. Further, market price and consequently, opinion as to value fluctuate over periods of time. It is therefore necessary to examine whether there is either a period or point in time when value must be considered.
Valuing property claimed exempt as of the petition date is consistent with § 522(a)(2), which states that “ ‘value’ means fair market value as of the date of the filing of the petition....” Likewise, § 541(a)(1) states that the estate is comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” These two Code sections indicate the intent of Congress to establish a point in time at which the rights of the parties in the debtors’ property shall be established. In the case of In re Tarrant, 19 B.R. 360 (Bankr.D.Alaska, 1982), the court in holding that the debtor was entitled to postpetition appreciation of the homestead stated:
The language of the code, particularly the definition of “value” contained in § 522(a)(2), and the history of the judicial interpretation, concerning the “date of cleavage” demonstrates that for purposes of determining exemptions Congress intended that valuation be made as of the date of filing of the petition. Such a rule assures consistency among the various Code Sections, provides for certainty for purposes of administration of the estate, and protects a debtor’s fresh start by fixing property rights as of the date of filing.
Id. at 366 (emphasis added). Tarrant has been cited as authority by: In re Dvoroznak, 38 B.R. 178 (Bankr.E.D.N.Y.1984); In re Duncan, 43 B.R. 833 (Bankr.D.Alaska 1984); In re Salamone, 46 B.R. 19 (Bankr.E.D.N.Y.1984); In re Sajkowski, 49 B.R. 37 (Bankr.D.R.I.1985) and In re Grosso, 51 B.R. 266 (Bankr.D.N.Mex.1984).
The majority nevertheless relies on § 541(a)(6) as standing for the proposition that the estate may benefit from post-petition appreciation of the debtors’ property. Section 541(a)(6) provides in part that the bankruptcy estate includes “[proceeds, product, offspring, rents, and or profits of or from property of the estate.... ” This argument begs the question since it assumes that the exempted property remains in the estate subject to the trustee’s right to sell the property in order to gain appreciation. Such an interpretation can render Rule 4003(b) meaningless because it disengages the trustee from the Rule’s time constraints in dealing with the debtor’s exempt property. The trustee does not have such unbridled discretion. His property interest and that of the debtor are fixed as of the date of bankruptcy. White v. Stump, 266 U.S. 310, 45 S.Ct. 103, 69 L.Ed. 301 (1924); In re Whitman, 106 B.R. 654 (Bankr.S.D.Cal.1989). If no realizable equity exists in the homestead on the date the *353petition is filed, subsequent appreciation is irrelevant.
C. The trustee is estopped to challenge the debtors’ valuation of their homestead because he failed to object to such valuation within the period established by Rule 4003(b).
It should be remembered that the trustee under the Code has no interest in exempt property other than to perform the ministerial act of recognizing the debtor’s paramount interest therein. Bankruptcy Rule 4003(b) implicitly recognizes that there may be a proclivity for inaction resulting in passive or calculated delay and has provided that acknowledgment of the exemption be accomplished by deadline. If the trustee does not take action within thirty days, the debtor’s exclusive interest in the property to the full extent of the exemption claim is established. This is not to say that the trustee may not contest the validity of the claim or ask for and receive additional time to do so if warranted; or even at a later date, assuming he discovers evidence of it, claim that the debtor’s claim to the exemption was based on fraud. In this case no objection was made. No extension was requested and therefore, none was authorized; nor is there any claim of fraud.
The debtors stated that the value of their homestead on the date of the petition was $415,000. The trustee did not object to this valuation within the 30-day period established by Rule 4003(b). Under § 522(Z), a debtor must make a list of property claimed as exempt under either federal or state exemption law. Rule 4003(b) provides that the trustee or any creditor has 30 days after the first creditors’ meeting is held (or after the debtor amends his list) to file objections to the debtor’s claimed exemptions. The rule further provides that the trustee/creditor may request an extension of this 30-day period, which the court in its discretion may grant, but only if such a request is granted within the original 30-day period. The court has no discretion to enlarge the 30-day objection deadline once it has expired. Rule 9006(b)(3).4 Thereafter the debtor’s right to its exemption cannot be collaterally attacked, unless the debtor’s claim of exemption was in bad faith and the exemption would not otherwise have been granted as a matter of law.
There is a substantial line of cases which hold that where neither the trustee nor a creditor objects to the debtor’s claimed exemption within the time established by Rule 4003(b), and that property is intrinsically exempt, the right to object is thereby deemed waived, and the property claimed as exempt is exempted from the bankruptcy estate. See, e.g., Munoz v. Dembs (In re Dembs), 757 F.2d 777 (6th Cir.1985); In re Keyworth, 47 B.R. 966 (D.C.Colo.1985); In re Caruthers, 87 B.R. 723 (Bankr.N.D.Ga.1988); In re Latimer, 82 B.R. 354 (Bankr.E.D.Pa.1988); In re Lattimore, 81 B.R. 18 (Bankr.E.D.Mo.1988); In re Grossman, 80 B.R. 311 (Bankr.E.D.Pa.1987); In re Hawn, 69 B.R. 567 (Bankr.E.D.Tenn.1987); In re Woerner, 66 B.R. 964 (Bankr.E.D.Pa.1986); In re Hahn, 60 B.R. 69 (Bankr.D.Minn.1986); In re Richards, 57 B.R. 662 (Bankr.D.Nev.1986); In re Thomas, 43 B.R. 201 (Bankr.M.D.Ga.1984); In re Gullickson, 39 B.R. 922 (Bankr.W.D.Wis.1984); In re Blum, 39 B.R. 897 (Bankr.S.D.Fla.1984).
COLLIER’S is also in accord with the holdings of the above cases: ■
Once the deadline for objections to exemptions has passed, no objection may be filed unless the claim of exemptions is later amended. Under Code section 522(1), if no party in interest has objected to the exemptions claimed, the property claimed as exempt on the debt- or’s list is exempt.
8 King, COLLIER ON BANKRUPTCY, ¶ 4003.04[3] at 4003-11 (15th ed. 1987).
In this case, it appears that the trustee did not file an objection to the debtors’ claimed exemption within the 30-day period under Rule 4003(b). There is no indication that the debtors amended their list of exemptions, which under Rule 4003(b) would have automatically extended the deadline *354for filing objections. Under these facts, and the line of cases noted above strictly construing Rule 4003(b), it would appear that the trustee’s failure to timely object constituted a waiver of his right to object, such that the debtors’ estimation of the value of their homestead cannot now be collaterally attacked.
A recent example of the strict construction given Rule 4003(b) is found in Brayshaw v. Clark (In re Brayshaw), 912 F.2d 1255 (10th Cir.1990). There the trustee filed a motion 30 days after the first creditors’ meeting was held, seeking a 60-day extension of time to file objections to the debtor’s exemptions. The bankruptcy court set the trustee’s motion for hearing after the expiration of the additional 60-day period requested. The trustee filed his objections within the 60-day period, and the bankruptcy court later granted the trustee’s motion nunc pro tunc.
The district court reversed, and that reversal was affirmed by the Tenth Circuit. The Tenth Circuit held:
The Rules are quite clear on their face, we believe, that a bankruptcy court can extend the period for objections to exemptions only by acting within the original time period.... There is simply no room in the wording for construing Rule 4003(b) or Rule 9006(b) to permit granting an extension of time to file objections outside the original thirty-day time limit.
Id. at 1257 (emphasis added).
Many cases have limited this broad rule, and have held that the debtor’s exemptions claim must be in good faith to be upheld, notwithstanding the absence of a timely objection. See e.g., Dembs, 157 F.2d at 780. In other words, property that would otherwise not be exempt as a matter of law does not.become exempt simply because no one timely objects to the claimed objection.5 On the facts provided by the record, there does not appear to be an issue as to the underlying validity of the claimed exemption. Under these circumstances, there is no need to address this exception to the generally strict interpretation of Rule 4003(b).
The majority relies on a distinction between objection to the existence of a claimed exemption and objection to the valuation of the property claimed exempt, for purposes of the objection deadline. In re Allen, 44 B.R. 38 (Bankr.D.N.M.1984). The Allen court held that while an objection to the existence of the exemption itself must be made within the 30-day period, a valuation objection need not be. Allen, 44 B.R. at 39-40. The court reasoned that the two objections serve two different purposes, and that a party should not be expected to obtain an appraisal of the debt- or’s property in such a short period of time. To follow such reasoning would weaken if not vitiate Rule 4003(b), by injecting into it a distinction among types of objections which the Rule itself does not make or imply. A party would need only couch an objection to the debtor’s claim of exemption in terms of a valuation in order to circumvent the Rule’s objection deadline. This is particularly so where value is integral to the exemption claim as in the case before us.
Second, the Allen court relied to a large extent on Fitzgerald v. Davis (In re Fitzgerald), 729 F.2d 306 (4th Cir.1984), which was inapposite. Fitzgerald does not address Rule 4003(b). In that case, the debtors sought to avoid the plaintiffs’ judgment liens against their homestead under § 522(f) by alleging that the liens impaired their homestead exemption. The trial court partially voided the liens and both parties appealed. While the appeal was pending, the debtors sold their home for “considerably in excess” of the value they estimated in their complaint. Id. at 308. There was no evidence that the property had appreciated between the date of the petition and the date of the sale. The Fitzgerald court held that, “in the absence of proof that the property has changed in *355value after the date of .the filing ...” the court could consider the sale price in its determination of whether the plaintiffs’ liens were avoidable under § 522(f). Id. at 308.
The Fitzgerald opinion provides little support for the proposition that the Allen case, and the majority, assert. Fitzgerald does not in any way address Rule 4003(b). It merely holds that “a [post-petition] sale price greatly in excess of an estimate is more reliable evidence of the ‘value’ defined in 522(a)(2).” Id. at 308. The Fitzgerald case in fact stands for a proposition contrary to that asserted by the majority. The Fitzgerald court permitted the consideration of the post-petition sale price of the debtors’ homestead because there was no evidence that the property had increased in value since the petition date. In other words, if it was shown that the property had appreciated post-petition, the subsequent sale price would be irrelevant, because it was only admissible as a challenge to the debtors’ original estimation; i.e., as a challenge to the value of the property on the date the debtors filed their petition.
In this case, the majority excuses the trustee’s failure to timely object to the debtors’ valuation of their residence by distinguishing between valuation objections and other sorts of objections. The principal case on which the majority relies for this distinction does not stand for the proposition it asserts. There is nothing in the Rule which indicates that courts should, or even are permitted to, make such a distinction among objections. On the contrary, Rule 9006(b)(3) and the relevant case law expressly provide that Rule 4003(b) time limits are to be strictly construed. Permitting a valuation objection to be made outside of the requirements of Rule 4003(b) is contrary to the trustee’s statutory duty to act expeditiously in administering the property of the estate. § 704(1). To read an exception into Rule 4003(b) such as does the majority injects an uncertainty into the debtors’ economic life and administration of the estate which the Rules were intended to prevent.
D. The expected costs of selling the debtors’ residence must be taken into account when computing whether there exists any realizable equity in the homestead on the date of the petition.
The majority concludes with regard to this issue that the costs of selling the debtors’ property need not be considered in determining whether “surplus value” in the property exists. The majority’s discussion appears to take the following line: Cal.Civ. Proc. § 704.800, the applicable state exemption statute, does not expressly provide that selling costs must be added to the sum of the exemption amount and encumbrances when determining whether sale of the debtors’ property is permissible under the state statute. Further, the Panel need not consider the “customary practices” of trustees (which may or may not provide for inclusion of selling costs). Moreover, if the debtors had wanted to keep their home they could have elected to file their petition under Chapter 13 (presuming they could have qualified thereunder). Finally, because the exemption applies to the debtors’ equity, and not to the physical property itself, selling costs cannot be added to effectively raise the debtors’ exempted interest: the statutory exemption amount represents the maximum amount the State permits a debtor to claim from his homestead as exempt.
The majority places great reliance on the absence of any provision in the relevant California statute whereby selling costs would be considered. However, the absence of such a provision under state law should not be dispositive of the issue of whether selling costs should be recognized as a relevant consideration in the context of a bankruptcy.
This Panel has previously recognized, albeit in dicta, that the cost of selling a debtor’s homestead is relevant to the determination of the amount of realizable equity. In In re Martin, 20 B.R. 235 (9th Cir.BAP 1982), the subject property was worth $75,000, and had encumbrances totaling $43,200; there was thus an “apparent equity” of $31,800. The debtor had an allowable exemption of $30,000, which *356seemed to leave an excess of $1,800. However, the Panel stated that, “[c]onsidering expenses of sale, there would presumably be no equity above the homestead.” Martin, 20 B.R. at 236. The Martin case does not further address the issue of selling costs.
At least facially, the majority’s disposition of the issue of selling costs ignores the practical matters of administering the bankruptcy sale of the debtors’ home. The majority contends that consideration of selling costs would effectively increase the debtors’ exemption. In the context of a forced sale, the debtor should not be required to suffer his home being sold out from under him when the result will be that he receives money amounting to his exemption or little more than that.
The trustee would incur costs in selling the property; whether eight percent is accurate, as the debtors argue, is subject to some question although common experience indicates that it is probable. But the actual amount of selling expenses is less important here than the fact that the trustee will certainly incur some level of expense in the sale. One can take judicial notice of various costs usually (if not necessarily) attending the sale of real estate in a bankruptcy. The major item is a real estate commission. It should be noted that the trustee has already retained a broker. There are also escrow fees, title insurance, appraisals, and tax or transfer charges. These expenses will certainly diminish the amount available to be distributed. Effectively, by withholding consideration of these expenses from the computation of realizable equity, the debtor in many cases would be financing the cost of the compulsory sale of his home. The court should not compel the debtor to bear these expenses, particularly when the exemption statutes allow the debtor to remain in his home, unless the creditors can have access to a distribution of surplus equity.
An example may serve to illustrate the point. Suppose it were undisputed that the fair market value of the debtors’ home was $400,000, a value which exceeded the total of the home’s encumbrances and the $45,-000 exemption by. $1,000. Under the majority’s conclusion, sufficient “surplus value” in the property would exist — here, $1,000 — to permit the sale of the debtors’ home. If it were also undisputed that the selling expenses would total no less than 5% of the value of the home, or $20,000, then, by the time selling costs and encumbrances were satisfied, there would be only $26,000 remaining to distribute on account of the exemption, considerably less than the $45,000 to which they are entitled under the exemption statute. The debtors would thus have financed the involuntary sale of their home, while unsecured creditors would have received nothing.
Assuming there were proof as to post-petition appreciation, the date of cleavage as to value was the date of bankruptcy. The debtor having the entire interest in the property as of that date, and the trustee having none, the appreciation should be that of the debtor. This would be consistent with the policy of the Code designed to give the debtor a fresh start after the petition date. See In re Galvan, 110 B.R. 446, 451 (9th Cir.BAP 1990), which in the course of invalidating a judicial lien on exempt property stated: “This concept of a fresh start includes reaping the fruits of post-petition appreciation of the debtor’s real estate.”
The time frames set by relevant provisions of the Bankruptcy Code and Rules do not preclude bankruptcy estates from having a fair opportunity to review false or overreaching exemption claims. The majority ruling attenuates specific standards relating to time and would undercut the fundamental policy of preservation of the debtors’ homestead and fresh start when the bankruptcy petition is filed.

. Section and chapter references herein refer to the Bankruptcy Code, 11 U.S.C. §§ 101-1330.

. Bankruptcy Rule 4003(c) provides:
(c) Burden of Proof. In any hearing under this rule, the objecting party has the burden of proving that the exemptions are not properly claimed. After hearing on notice, the court shall determine the issues presented by the objections.
The trial court appears to have accepted the debtors’ valuation. Appellee does not contest this valuation in his briefs. The $4,000 difference between the debtors' valuation and that of their appraiser is not large enough to affect appellants’ position.

. Section 704.800 of the Code of Civil Procedure provides:
(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 of judgment lien, the homestead shall not be sold and shall be released and is not subject to a court order for sale upon subsequent application by the same judgment creditor for a period of one year.

. In re Rhodes, 61 B.R. 626 (9th Cir.BAP 1986), and In re Hill, 811 F.2d 484 (9th Cir.1987), which dealt with the time limiting objection to discharge.

. The Dembs court stated that this is to avoid instances of "exemption by declaration.” Dembs, 757 F.2d at 780.