Court Opinion

ID: 4239804
Source: CourtListenerOpinion
Date Created: 2018-01-26 22:00:41.287611+00
Date Added: 2024-06-11T14:49:01.284515
License: Public Domain

FILED
                                                                               U.S. Bankruptcy Appellate Panel
                                                                                     of the Tenth Circuit
                               NOT FOR PUBLICATION *
                                                                                  January 26, 2018
              UNITED STATES BANKRUPTCY APPELLATE PANEL
                                                                                   Blaine F. Bates
                               OF THE TENTH CIRCUIT                                    Clerk
                          _________________________________

IN RE LARRY WAYNE PARR, aka Larry                          BAP No. CO-17-021
W. Parr and Larry Parr,

          Debtor.
__________________________________
                                                           Bankr. No. 15-14201
                                                                Chapter 7
LARRY WAYNE PARR, aka Larry W.
Parr and Larry Parr,

             Appellant,                                          OPINION

v.

SIMON E. RODRIGUEZ, Chapter 7
Trustee and UNITED STATES TRUSTEE,

             Appellees.
                          _________________________________

                     Appeal from the United States Bankruptcy Court
                               for the District of Colorado
                        _________________________________

Submitted on the briefs. **
                         _________________________________

*
        This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, and issue
preclusion. 10th Cir. BAP L.R. 8026-6.
**
        After examining the briefs and appellate record, the Court has determined
unanimously that oral argument would not materially assist in the determination of this
appeal, and therefore grants the parties’ request for a decision on the briefs without oral
argument. See Fed. R. Bankr. P. 8019(b). The case is therefore submitted without oral
argument.
Before CORNISH, NUGENT, and MOSIER, Bankruptcy Judges.
                  _________________________________

NUGENT, Bankruptcy Judge.
                   _________________________________

       Colorado citizens enjoy the right to exempt a dollar-limited portion of their

homesteads from execution. 1 The dollar limit is higher for elderly homeowners. 2 Across

the country, many individual homeowners convey their residences and other assets to

self-settled living trusts, for estate planning or other purposes. Other states’ laws provide

that these settlor-trustees retain an equitable interest in the homesteads they’ve conveyed

and allow those citizens to exempt those equitable interests. Debtor Larry W. Parr listed

2710 W. Union in Englewood, Colorado (the “Englewood Property”) as his address on

his petition, but he did not hold legal title to the Englewood Property. Years before, he

transferred his interest in the Englewood Property to his revocable living trust. After the

Chapter 7 Trustee revoked that trust, Parr claimed that the Englewood Property was his

homestead. The bankruptcy court sustained the Trustee’s objection to Parr’s exemption,

holding that interests held in a trust cannot be exempt homesteads as a matter of Colorado

law because only individual owners, and not trusts, can occupy a homestead. Parr

appealed. Because we conclude that a settlor’s interest in a homestead held in a self-

settled living revocable trust may be exempted under Colorado law, we reverse the

decision of the bankruptcy court and remand for the bankruptcy court to determine

whether Parr occupied the Englewood Property as his homestead and if so, the amount of

1
       COLO. REV. STAT. § 38-41-201(1)(a) (2017).
2
       COLO. REV. STAT. § 38-41-201(1)(b) (2017).
proceeds from the sale of the Englewood Property Parr should receive on account of his

homestead exemption.

       Appellate Jurisdiction

       A bankruptcy court order granting or denying a claim of exemption is a final

order. 3 We have jurisdiction over this appeal.

       Standard of Review

       Except for one point, Parr’s age on the date of the petition, there is very little

material factual dispute. 4 We review the bankruptcy court’s findings of fact for clear

error. 5 We review the bankruptcy court’s legal conclusions de novo. 6

       Facts

       Back in 2001, long before he filed this bankruptcy case, Larry Parr deeded the

Englewood Property that he sought to exempt to the Larry W. Parr Living Trust, dated

December 29, 2000 (the “Living Trust”). 7 The Englewood Property is unencumbered.

3
       In re Brayshaw, 912 F.2d 1255, 1256 (10th Cir. 1990); In re Duncan, 294 B.R.
339, 341-42 (10th Cir. BAP 2003).
4
       The Colorado homestead statute enhances the value of a homestead exemption for
elderly or disabled owners. See COLO. REV. STAT. § 38-41-201(1)(b) (2017). Claims of
exemption are determined as of the date of the petition. In re Hall, 441 B.R. 680, 685
(10th Cir. BAP 2009).
5
       In re Meridian Reserve, Inc., 87 F.3d 406, 409 (10th Cir. 1996).
6
       In re Borgman, 698 F.3d 1255, 1259 (10th Cir. 2012) (holding the validity of
claimed state law exemption is reviewed de novo without deferring to the bankruptcy
court’s interpretation of the exemption statute.).
7
       Trial Ex. B, General Warranty Deed, in Appellee’s App. at 11-12.
Under the terms of the Living Trust as it was revised in 2006, Parr conveyed his assets to

himself as trustee, retaining full rights to remove any property from the Living Trust at

any time. He could also revoke the Living Trust at any time. 8 Parr filed a Chapter 11 case

in the District of Colorado on April 21, 2015. After the case was converted to Chapter 7

on July 21, 2015, Simon E. Rodriguez was appointed Chapter 7 Trustee (“Trustee”).

Before that, in June, Parr amended his petition and Schedule A to reflect that he

personally did not own any real property. At the same time, he filed an amended

Schedule C, but did not claim an exempt interest in the Englewood Property he had

deeded to the Living Trust. Only after the Trustee revoked the Living Trust in August of

2016 9 did Parr amend his Schedule C again, this time claiming a homestead exemption in

the Englewood Property under the Colorado homestead statute, COLO. REV. STAT. § 38-

41-201. The Trustee objected to this exemption in January of 2017, 10 and, after an

evidentiary hearing on the objection in May, 11 the bankruptcy court sustained it in the

June 2017 order appealed here. 12

8
      The Amended and Restated Trust Agreement of the Larry W. Parr Living Trust, in
Appellant’s App. at 43-44.
9
      Trial Ex. D, Notice of Revocation of the Larry W. Parr Living Trust, in Appellee’s
App. at 13-16.
10
      Trustee’s Objection to Debtor’s Amended Claim of Exemption, in Appellee’s
App. at 1-3.
11
       Minutes of Electronically Recorded Proceeding, in Appellee’s App. at 7.
12
       Order on Trustee’s Objection to Exemption, in Appellant’s App. at 5-7.
       Meanwhile, in March of 2017, the Trustee filed and prosecuted a Colorado state

court unlawful detainer proceeding, seeking to evict Parr and obtain possession of the

Englewood Property so that he could sell it. 13 In the state court proceeding, the Trustee

maintained that Parr unlawfully inhabited one of the buildings on the Englewood

Property. The state court agreed, granting the Trustee’s request for possession, issuing a

writ of restitution, and evicting Parr from the Englewood Property. 14 The Trustee also

filed a motion in the bankruptcy court to sell the Englewood Property that the bankruptcy

court granted on May 24, 2017. 15 The Trustee has a contract for the sale of the property

for $1.4 million, much more than the $90,000 limit of the applicable Colorado homestead

exemption. 16 In the state court proceeding, the Trustee described the procedural

background, explaining that there was a pending contract for sale of the property subject

to the bankruptcy court’s approval and that the Trustee’s objection to Parr’s claimed

homestead exemption was also pending in the bankruptcy court. 17 The Trustee indicated

13
      See generally COLO. REV. STAT. § 13-40-101 et seq. (2017) (setting forth the
procedure to obtain possession of real property unlawfully detained).
14
      Trial Ex. E, Tr. of March 30, 2017 State Court Proceeding at 26-28, in Appellee’s
App. at 42-44.
15
       Order Granting Motion to (A) Sell Real and Personal Property Pursuant to 11
U.S.C. §§ 363(b) and (f); (B) Allow Administrative Expenses Incurred in Connection
with the Sales; and (C) Compromise Controvery [sic], in Appellant’s App. at 19-21.
16
      Trial Ex. E, Tr. of March 30, 2017 State Court Proceeding, in Appellee’s App. at
30; COLO. REV. STAT. § 38-41-201(1)(b) (2017).
17
      Trial Ex. E, Tr. of March 30, 2017 State Court Proceeding at 11-12, 14, in
Appellee’s App. at 27-28, 30.
that if Parr’s claimed homestead exemption was allowed in bankruptcy court, there would

be proceeds to pay Parr. The Trustee stated, “[t]he only remaining question on the

homestead, is Mr. Parr entitled to cash; i.e., . . . is there a homestead? And if so, what’s

the amount? But if he’s not entitled – there is no possessory right that is attendant to

that.” 18

        There was apparently no dispute that Parr occupied part of the Englewood

Property as his home in March of 2017 though the record is woefully incomplete on that

point. The appealed order suggests Parr lived at the Englewood Property on the date of

filing. 19 Much to the surprise of the Trustee, Parr claimed at the eviction hearing that he

occupied a building that was a business office on the Englewood Property, thus raising

for the first time the prospect that the Englewood Property is not a “house and lot” 20

eligible for the homestead exemption. 21 The Trustee did not raise this issue in his

objection and the bankruptcy court did not consider that issue in sustaining it. 22

18
      Trial Ex. E, Tr. of March 30, 2017 State Court Proceeding at 22, in Appellee’s
App. at 38.
19
       The bankruptcy court found that Parr “listed the address of the [Englewood]
Property as his street address on the bankruptcy petition,” a fact that the bankruptcy court
could take judicial notice of. Order on Trustee’s Objection to Exemption at 1, in
Appellant’s App. at 5.
20
       See COLO. REV. STAT. § 38-41-205 (2017) (describing what a homestead may
consist of).
21
      Trial Ex. E, Tr. of March 30, 2017 State Court Proceeding at 17-19, in Appellee’s
App. at 33-35.
22
      See Trustee’s Objection to Debtor’s Amended Claim of Exemption at 2-3, in
Appellee’s App. at 2-3. The bankruptcy court’s ruling focused on ownership of the
       Parr failed to include a transcript of the May 2, 2017 exemption hearing or the

bankruptcy court’s docket card in his appendix. While that alone might justify dismissal

of this appeal, there is a sufficient record to allow us to decide the legal issue of whether

Parr can claim a valid homestead interest in the trust property. Because we conclude that

Parr could legally exempt his equitable interest in an otherwise eligible homestead, what

remains to be determined is whether he occupied the Englewood Property as his

homestead on the date of the petition and if so, how much of the proceeds he should

receive when the Trustee’s sale is closed.

       Analysis

       Colorado opted out of the Bankruptcy Code’s exemptions under 11 U.S.C.

§ 522(b)(2). 23 Colorado’s state law exemptions apply to Colorado residents who file

bankruptcies there. The Colorado homestead exemption statute in effect on April 21,

2015, COLO. REV. STAT. § 38-41-201, exempted from execution and attachment “every

homestead” 24 not exceeding, in actual cash value exceeding any liens or encumbrances

on the homestead property, up to $60,000 “if the homestead is occupied as a home by an

owner thereof or the owner’s family,” 25 and up to $90,000 if the owner is disabled or

Englewood Property, not whether Parr occupied the property as his homestead. See Order
on Trustee’s Objection to Exemption at 2-3, in Appellant’s App. at 6-7.
23
       COLO. REV. STAT. § 13-54-107 (2017).
24
       See COLO. REV. STAT. § 38-41-201 (2017).
25
       Id.
elderly. 26 The homestead may consist of “a house and lot” 27 and must be occupied by the

owner or owner’s family. 28 The Colorado Supreme Court and lower appellate courts have

recognized that, to be exempt, an individual’s ownership is not necessarily limited to a

fee interest. 29

        As the bankruptcy court pointed out here, those courts have not directly addressed

whether the settlor of a self-settled revocable trust may claim a homestead interest in the

trust’s real property. The bankruptcy court agreed with the Trustee’s contention that

because the Living Trust, and not Parr, had legal title to the Englewood Property on the

petition date, Parr could not exempt it as his homestead. This holding disregards

26
        Effective July 1, 2015, the homestead exemption dollar limits were increased for
owners from $60,000 to $75,000, and increased for elderly or disabled owners from
$90,000 to $105,000. See Colo. Sess. Laws 2015, ch. 301, §§ 6, 7. Because Parr filed his
bankruptcy petition prior to the effective date of the amendments to the dollar limits, the
former amounts -- $60,000 and $90,000, respectively – are applicable. The exemption
statute in effect on the original petition date and not the conversion date controls the
availability of the exemption. In re Marcus, 1 F.3d 1050, 1052 (10th Cir. 1993).
27
        COLO. REV. STAT. § 38-41-205 (2017).
28
        COLO. REV. STAT. § 38-41-203 (2017).
29
         See Dallemand v. Mannon, 35 P. 679, 681 (Colo. App. 1894) (holding equitable
title, a lease for a term of years, or any title which may be subject to levy and sale, may
be claimed exempt as homestead); Brooks v. Black, 123 P. 131, 134 (Colo. App. 1912)
(holding possessor of land under an executory contract of purchase may claim homestead
exemption). See also In re Hellman, 474 F. Supp. 348, 350 (D. Colo. 1979) (holding
Colorado law allows husband and wife to exempt leasehold interest in home; fee interest
is not required); In re Wells, 29 B.R. 688, 690 (Bankr. D. Colo. 1983) (determining
debtor who occupied half of a duplex and rented other half out did not impair debtor’s
right to exempt the equity in the entire structure); In re Parrish, 19 B.R. 331, 333 (Bankr.
D. Colo. 1982) (homestead exemption available to homeowners and nonhomeowners
alike).
Colorado precedent concerning the ownership a settlor of a self-settled revocable trust

holds. It also ignores the many species of equitable ownership that Colorado courts have

allowed owners to exempt as a homestead.

       In Colorado, a self-settling trustee like Parr retains an ownership interest in the

assets of his trust. Recently, the Colorado Supreme Court determined that a settlor’s

creditors may execute on assets titled in the settlor’s revocable trust. 30 In Pandy v.

Independent Bank, 31 the Pandys conveyed Colorado real estate to themselves as

cotrustees of a revocable trust. A bank was granted two judgments against Mr. Pandy in

Michigan and domesticated those judgments in Grand County, Colorado. The bank then

sought to foreclose its judgment lien in the trust real estate. The Colorado Supreme Court

granted certiorari to review the issue of whether revocable trust property can be subjected

to a judgment lien filed against the judgment debtor who was a cosettlor of the trust. 32

The Colorado Supreme Court held that if the settlor of a revocable trust retains the right

to revoke it and reclaim the trust property, that amounts to the “functional equivalent of

ownership of the trust assets” 33 and is therefore subject to the claims of the settlor’s

creditors. In reaching this conclusion, the Colorado Supreme Court cited to, among other

30
       Pandy v. Indep. Bank, 372 P.3d 1047 (Colo. 2016).
31
       Id.
32
       Id. at 1048, n. 1.
33
      Id. at 1049 (quoting Austin Wakeman Scott, William Franklin Fratcher & Mark L.
Ascher, Scott & Ascher on Trusts § 15.4.2, at 960 (5th ed. 2007) and citing the
RESTATEMENT (THIRD) OF TRUSTS).
cases, our opinion in In re Kester 34 where we concluded that the general rule in Kansas is

that during a trust settlor’s lifetime, the property of a revocable trust is subject to the

claims of the settlor’s creditors. 35

       The Colorado Supreme Court not only looked to Kester and the law in other states,

but also two respected secondary trust law sources. One, the RESTATEMENT (THIRD) OF

TRUSTS, states that “property held in [a revocable] trust is subject to the claims of

creditors of the settlor . . . if the same property belonging to the settlor . . . would be

subject to the claims of the creditors. . . .” 36 Another treatise on trusts allows that “[t]he

courts, as well as the legislatures, have concluded, in a variety of contexts, that the assets

of a revocable trust are, in fact, subject to the claims of the settlor's creditors, both during

the settlor's lifetime and after the settlor’s death.” 37 The Colorado Supreme Court has

further held that as a matter of Colorado law the assets of a settlor’s revocable trust are

properly subject to claims of the settlor’s judgment creditor because the settlor

functionally owns them.

       Our holding in Kester informs our view of this case and though it interprets

Kansas’ homestead exemption law, the Kansas statute, like Colorado’s, allows the

34
       In re Kester, 339 B.R. 749, 755 (10th Cir. BAP 2006), aff’d 493 F.3d 1208 (10th
Cir. 2007).
35
       Pandy at 1050 (citing Kester, 339 B.R. at 755).
36
       Id. (quoting RESTATEMENT (THIRD) OF TRUSTS § 25 cmt. e (2016)).
37
       Id. (citing Austin Wakeman Scott, William Franklin Fratcher & Mark L. Ascher,
Scott & Ascher on Trusts § 15.4.2, at 960 (5th ed. 2007)).
“owner or [] the family of the owner” 38 a homestead exemption in certain property

occupied as a residence. 39 In Kester, the Chapter 7 debtors attempted to claim as exempt

their residence that had been transferred prepetition to a self-settled living revocable trust.

The Chapter 7 trustee objected, but the bankruptcy court overruled that objection, holding

that the debtors could exempt their equitable interest in the residence despite its being

legally titled in the trust, and the trustee appealed. Noting that the Kansas Supreme Court

has held that a trust beneficiary holds equitable title and a trustee holds legal title to

property held in trust, we concluded that the debtors retained an equitable interest in the

residence sufficient to make it property of the estate. 40 Regarding the debtors’ homestead

exemption, we concluded that—

       It is settled law in Kansas that equitable title can support a claim of
       homestead exemption. The Kansas Supreme Court has held that “[a]
       homestead right of occupancy may be established upon a cotenancy title, an
       equitable title, or an executory contract to purchase, a leasehold estate, or
       an estate for life, as against almost any class of claimants except
       cotenants.” Likewise,

              [a]n equitable owner of real estate may occupy and hold the
              same as his homestead, subject to all the rights, privileges,
              immunities and disabilities given and imposed by the
              homestead exemption laws. (Following Tarrant v. Swain, [15
Kan. 146 (1875)].) And being in the actual occupancy of the
              land, all persons must take notice of his homestead interests.

38
       KAN. STAT. ANN. § 60-2301 (2005).
39
       Kester, 339 B.R. at 755
40
       Id. at 752 (citing Gillespie v. Seymour, 823 P.2d 782 (Kan. 1991).
       Absent some authority or sound policy to the contrary, we conclude that the
       same rationale would be applied to the facts of this case. 41

We affirmed the bankruptcy court’s decision allowing the Kesters to claim their residence

exempt under the Kansas homestead exemption statute. On appeal to the Tenth Circuit

Court of Appeals, the Circuit certified to the Kansas Supreme Court the question whether

the Kesters could exempt their homestead despite it being titled in a revocable living

trust. The Kansas Supreme Court answered that they could and, conforming to the

Kansas court’s answer, the Tenth Circuit affirmed the bankruptcy court and the

Bankruptcy Appellate Panel. 42

       Colorado appellate courts have long held that individuals maintaining an equitable

ownership interest in their residence may, if they are otherwise qualified to do so, claim a

homestead exemption despite not holding legal title to their domicile. In Brooks v.

Black, 43 Black conveyed his residence to his wife who, in turn conveyed the property to a

corporation who gave her in return a “bond for deed” 44 by which it agreed to reconvey it

to her when she had repaid certain funds. She and Black continued to occupy the

residence. When Brooks obtained a judgment against Black, Brooks executed and Mrs.

Black promptly asserted that the property was her homestead. The Court of Appeals of

41
       Id. at 753.
42
       Redmond v. Kester, 159 P.3d 1004 (2007) (answering question of law certified by
the Tenth Circuit); In re Kester, 493 F.3d 1208, 1210 (10th Cir. 2007) (affirming the
bankruptcy court and the Bankruptcy Appellate Panel).
43
       Brooks v. Black, 123 P. 131 (Colo. App. 1912).
44
       Id. at 134.
Colorado held that neither fraudulent conveyance aspects of Black’s deed to Mrs. Black

nor the corporation’s legal title to the property was an obstacle to her claiming the

homestead exemption. 45 Answering whether Mrs. Black could claim a homestead in

property she was purchasing on a bond for deed, the court stated—

       The nature or extent of the estate or interest of the occupant that may be
       sheltered under the provisions of the act is not specified or limited. Any
       interest with possession is sufficient to support the homestead right. Nor is
       the character of the title limited in any other respect than that it shall be of
       record. 46

       In another early case, the same court held that a cotenant residing on property

could successfully assert a homestead in it. The court stated,

       It has been repeatedly, and, in so far as we know, uniformly, held that an
       ownership in fee is not essential; that an equitable title, a lease for a term of
       years, or any title which may be the subject of levy and sale may also be the
       subject of a homestead claim . . . . 47

More recently, in a case relied upon by the bankruptcy court here, the Colorado Court of

Appeals said that “the homestead exemption attaches automatically upon occupancy of

real property as a home by the owner or the owner’s family.” 48 In that case, the court

allowed the exemption to a widow who, as trustee of her trust, had caused the trust to

deed back to her its cotenant’s interest, held with her deceased husband’s trust’s interest,

in the couple’s house. Because the widow was the only cotenant capable of occupying the

45
       Id. at 133 (citing McPhee v. O’Rourke, 15 P. 420 (Colo. 1887)).
46
       Id. at 134.
47
       Dallemand v. Mannon, 35 P. 679, 681 (Colo. App. 1894).
48
       Univ. Nat. Bank v. Harsh, 833 P.2d 846, 847 (Colo. App. 1992).
homestead, she was permitted to exempt it to the full extent of the statutory homestead

allowance. 49

       These authorities are analogous to the Kansas cases we relied on in Kester. As we

said there, “[w]hen the federal courts are called upon to interpret state law, the federal

court must look to the rulings of the highest state court, and, if no such rulings exist, must

endeavor to predict how that high court would rule.” 50 Given long-standing Colorado

precedent that grants homestead status to individuals’ residences no matter how they are

legally held so long as those owners fulfill the homestead statute’s other requirements, we

may safely predict that a Colorado appellate court would find that a resident occupying

property that has been conveyed to a revocable self-settled trust has the “functional

equivalent of ownership” 51 and thus may claim that property as his homestead. Parr is

entitled to claim an exemption in the Englewood Property as a matter of law, if in fact it

was occupied as his homestead, up to the statutory dollar limit imposed by COLO. REV.

STAT. § 38-41-201.

       It appears that Parr lived in the Englewood Property during the pendency of his

bankruptcy. After the Trustee revoked the trust, he evicted Parr by means of a Colorado

state court unlawful detainer proceeding. In the course of that proceeding, the Trustee

recognized that if the debtor’s interest in the Englewood Property is determined to be the

49
       Id.
50
       In re Kester, 339 B.R. 749, 755 (10th Cir. BAP 2006), aff’d 493 F.3d 1208 (10th
Cir. 2007) (quoting Johnson v. Riddle, 305 F.3d 1107, 1118 (10th Cir. 2002)).
51
       Pandy v. Indep. Bank, 372 P.3d 1047 (Colo. 2016).
debtor’s exempt homestead, the estate will have to pay the debtor the value of the

homestead property up to the statutory limit to which Parr is entitled. Nothing in the

record before us substantiates Parr’s age on the date of the petition. Under the version of

the homestead statute then in effect, Parr could have exempted up to $60,000 unless he

qualified as an “elderly owner,” 52 in which event he could exempt up to $90,000.

Because the bankruptcy court denied the exemption as a matter of law on the basis of

Parr’s lack of ownership, it had no reason to make findings about his occupancy or age.

       We REVERSE the bankruptcy court’s order denying Parr a homestead exemption

because we hold that, as a matter of Colorado law, an otherwise qualified Colorado

debtor may exempt a homestead interest in property that is held in a self-settled revocable

living trust. We REMAND this case to the bankruptcy court to determine whether Parr

occupied the Englewood Property as his homestead on the date of the petition 53 and, if so,

whether he was an elderly owner within the meaning of COLO. REV. STAT. § 38-41-

201(2)(b), entitling him to the greater $90,000 exemption limit from the proceeds of the

sale of the Englewood Property.

52
      See supra note 26; COLO. REV. STAT. § 38-41-201(2)(b) (2017) (defining elderly
owner as an owner who is sixty years of age or older).
53
       COLO. REV. STAT. § 38-41-205 provides that a homestead may consist of “a house
and lot or lots.”