Court Opinion

ID: 6944785
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:19:39.19435+00
Date Added: 2024-06-11T16:07:51.683848
License: Public Domain

FERGUSON, Circuit Judge,
dissenting.
Virginia Jones and her former husband, Brian Jones, bought a home in California in 1976. The home was encumbered by several deeds of trust. In November 1986, the Joneses recorded a declaration of homestead for the residence. This declaration entitled them to a $45,000 homestead exemption under CCCP § 704.730.
Before January 1987, Kelleher Lumber Company, Inc. (“Kelleher”) filed an action in state court against Brian Jones for a community obligation. Kelleher obtained a $29,-882.50 judgement against Brian Jones and recorded a judgment lien in that amount against the residence.
The Joneses divorced in 1989 and Brian Jones quitclaimed his community property interest in the residence to Virginia Jones. In January and June of 1987, the value of the residence was $250,000. In April 1988, the residence had appreciated to $275,000. In November 1990, its value was $325,000, senior consensual hens and the homestead exemption totaled $293,000 leaving an equity surplus of $32,000.
In November 1990, Ms. Jones filed a Chapter 7 voluntary petition for bankruptcy. The petition was later converted to a petition under Chapter 13 of the Bankruptcy Code. Ms. Jones filed a complaint with the Bankruptcy Court to determine the validity and extent of judgment hens recorded against the residence. The Bankruptcy Judge declared the KeUeher judgment hen vahd. The Bankruptcy Appellate Panel (“BAP”) affirmed. Both the bankruptcy court and BAP concluded the date Ms. Jones filed for bankruptcy was an appropriate date for determining whether there was equity surplus in the property for a hen to attach.
I.
The primary purpose of the declared homestead exemption is to grant debtors some rehef from the forced sale of their homes. In California, prior to 1982, a judgment hen could not attach to any of the real property subject to a prior homestead declaration. Engelman v. Gordon, 82 Cal.App.3d 174, 179,146 Cal.Rptr. 835 (1978). However, in 1982, the California legislature recodified and amended the homestead statutes. Among these additions was § 704.950.
Under § 704.950, attachment by a judgment creditor to a residence with a properly recorded homestead is subject to certain limitations. A judgment cannot attach if a declared homestead was (1) recorded prior to the time the abstract judgment was recorded to create the judgment hen, and (2) the declaration names the judgment debtor or spouse as a declared homestead owner. CCCP § 704.950(a). However, § 704.950(c) provides an exception:
(e) a judgment hen attaches to a declared homestead in the amount of any surplus over the total of the following
(1) All liens and encumbrances on the declared homestead at the time the abstract of judgment or certified copy of the recorded judgment is recorded to create the judgment hen. (Emphasis added).
(2) The homestead exemption set forth in section 704.730.
*928The homestead exemption in this ease was $45,000. It is now higher.
The interpretation of § 704.950(c) must come from the language of the statute. See United States v. James, 478 U.S. 597, 604, 106 S.Ct. 3116, 3120, 92 L.Ed.2d 483 (1986) (“The starting point in statutory interpretation is the language of the statute itself.”) (citations omitted). The phrase “at the time the abstract of judgment ... is recorded” modifies the phrase in the same section “[a]ll liens and encumbrances.” It does not modify the phrase “the amount of any surplus” which is contained in a different section. Therefore, a judicial lien attaches to a residence with a declaration of homestead once there is equity surplus in that residence during the existence of the lien, which in California is ten years pursuant to CCCP § 683.020.
§ 704.950(c) preserves the debtor’s homestead exemption, thereby enabling her to sell her home by limiting the total value of liens that a buyer would have to cover upon purchase. In the ease at hand, Ms. Jones’s homestead exemption of $45,000 is preserved even when the Kelleher judgment lien attaches. While Ms. Jones’s homestead exemption is protected under § 704.950(c), the holder of the judgment lien is entitled to recover from the equity surplus which existed at the time she filed for bankruptcy.
Calculating equity surplus at the time the bankruptcy petition is filed also preserves the priority of senior encumbrances.1 The rule announced by the majority cripples the California doctrine of priority of liens. Prior recorded liens have priority over those subsequently filed. However, under the majority decision in this case, if equity surplus was to be determined at the time the lien was filed, and no surplus existed at that time, then when a surplus did exist and a subsequent lien was recorded after that time, the subsequent lien would benefit from the surplus while the prior lien would not.
II.
The majority rule permits a property owner in California to sell his residence for a profit, occasioned by rising real estate values free and clear of a valid judgment lien against the property, if at the time of the filing of the judgment no surplus equity existed. The majority have erased the California statute which grants full force and credit to a judgment lien for a full ten years from the date it is recorded. In addition, the majority have turned around the California statute which grants priority to liens in the order of their recording.
Finally, the majority uses the term “homesteaded property” at the present time as it was prior to the enactment of § 704.950(c). The homestead exemption used to exclude the entire interest in the property from judgment liens. Today the California legislature has decreed in plain language that the declaration of homestead only excludes a specific monetary value (in this case $45,000) from attachment by the judgment lien.
The majority claims that it decides this case based upon public policy, but federal courts cannot create state public policy. The California legislature changed the law and the majority simply refuse to recognize the change. In Lezine v. Security Pacific Financial Services, 14 Cal.4th 56, 58 Cal.Rptr.2d 76, 925 P.2d 1002 (1996), the California Supreme Court recently set forth the public policy, in an action involving a judgment lien against property of a non-debtor spouse, that although the result reached appeared inequitable, it “nevertheless is dictated by existing legislation protecting the rights of creditors.” Id. 58 Cal.Rptr.2d at 88, 925 P.2d at 1014. That is exactly what was done by the passage of § 704.950(c). The majority should not brush it aside as a mere “afterthought.”
I therefore dissent, thankful that the majority opinion is not binding upon the state courts of California. Matter of McLinn, 739 F.2d 1395, 1401 (9th Cir.1984).

. California Civil Code § 2897 assures the priority of liens according to the date the underlying judgments are recorded. It provides:
Other things being equal, different liens upon the same property have priority according to the time of their creation....