by California’s homestead exemption requires proof of intent to use the property as a residence rather than proof of actual occupancy, and a bankruptcy court must apply the state’s burden of proof when addressing a challenge to a state exemption. Diaz v. Kosmala (In re Diaz), No. 15-1219 (B.A.P. 9th Cir. March 11, 2016).
After Mr. Diaz was disabled by brain aneurysms he left his home where he lived with his then-wife and moved into his mother’s home. He and his wife divorced and Mr. Diaz filed for chapter 7 bankruptcy relief. In his petition he claimed a homestead exemption under Cal. Civ. Proc. Code § 740.730(a)(3). The trustee objected on the grounds that he was not living in the residence as required by the statute. The bankruptcy court considered evidence on the issue of Mr. Diaz’s actual occupancy of the residence. Mr. Diaz’s ex-wife and her mother testified that Mr. Diaz’s brother and sister-in-law were, in fact, living in the home as Mr. Diaz was physically incapable of living alone. He, on the other hand, testified that his physical condition was improving, that he received mail at the residence, that all utilities were in his name and that he spent time in the residence. The bankruptcy court found Mr. Diaz had failed to prove actual occupancy and sustained the trustee’s objection.
The BAP for the Ninth Circuit vacated and remanded.
Section 704.710(c) provides:
“Homestead” means the principal dwelling (1) in which
the judgment debtor or the judgment debtor’s spouse
resided on the date the judgment creditor’s lien
attached to the dwelling, and (2) in which the judgment
debtor or the judgment debtor’s spouse resided
continuously thereafter until the date of the court
determination that the dwelling is a homestead.
The date of the bankruptcy petition is the relevant date for purposes of applying the statute. The panel noted that a 1983 amendment to the exemption statute removed the word “actually” before the word “resided.” Thus, a temporary absence from the residence at the time of filing the petition will not deprive the debtor of the exemption. Where occupancy may be manipulated to gain an exemption to which the debtor may not be entitled, or may be misleading if the debtor is temporarily precluded from occupying the property, intent is the paramount consideration. The bankruptcy court applied the wrong legal standard when it based its decision on evidence going to the issue of actual occupancy and failed to examine Mr. Diaz’s intent with respect to occupying the property. The evidentiary record was insufficient to make a determination on appeal whether Mr. Diaz had the requisite intent to reside on the property. For that reason, the panel vacated and remanded.
Addressing the burden of proof, the panel, relying on Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15 (2000), found that on remand the bankruptcy court should apply the burden of proof as it would be applied under state law. The panel acknowledged that under federal law application of an exemption is presumptively valid and the objecting party retains the burden of persuasion to convince the court otherwise. California exemption law, however, places the burden of proving entitlement to an exemption on the debtor. Because the burden of proof is a substantive element of the claim the court concluded “that where a state law exemption statute specifically allocates the burden of proof to the debtor, Rule 4003(c) does not change that allocation.”