2009 Consumer Law Recent Developments (Part II)

Since Iowa's homestead law is silent as to its extraterritorial effect, the BAP looked to Iowa case law. Iowa's personal property exemption specifies that it is available only to residents of the state, but the homestead contains no such restriction. The old case law in the state did not interpret the current homestead statute, and the BAP applies the principle that the "legislature's inclusion of a residency requirement in its personal property exemption statute, while making no reference to residency in its homestead statute, is presumed to be intentional." Stephens v. Holbrook (In re Stephens), ___ B.R. ___, 2009 WL 582583 (B.A.P. 10th Cir. Mar. 9, 2009). Compare In re Gosnick, ___ B.R. ___, 2008 WL 5635885 (Bankr. W.D. Mich. Dec. 17, 2008) ("Michigan courts, for almost one hundred years, have held that its laws do not have extraterritorial application to real estate located in another state." Debtor may not claim exemption under Michigan law on real estate located in Alabama.).

Overpayment of taxes on exempt retirement fund remains exempt. After certification to the Utah Supreme Court and its answer, the BAP holds that under Utah law when the debtor overpays taxes due from an exempt retirement fund, the refund is exempt, because it is traceable to the exempt property. Smith

v. Mosier (In re Smith), ___ B.R. ___, 2009 WL 448188 (B.A.P. 10th Cir. Feb. 24, 2009).

Homestead is surcharged for trustee's expenses arising from debtor's fraud. Notwithstanding the BAP's prior reversal of an order surcharging the debtor's homestead, the BAP left open potential surcharge upon appropriate findings and conclusions, and the bankruptcy court makes such findings. Under Latman v. Burdette, 366 F.3d 774, 786 (9th Cir. 2004), the bankruptcy court has authority to surcharge an exemption "when reasonably necessary both to protect the integrity of the bankruptcy process and to ensure that a debtor exempts an amount no greater than what is permitted by the exemption scheme of the Bankruptcy Code." The Ninth Circuit BAP had held that a surcharge is permitted in instances of debtor misconduct amounting to fraud on the court and creditors. In re Onubah, 375 B.R. 549, 554 (B.A.P. 9th Cir. 2007). In a summary of findings, the bankruptcy court found that the debtor fabricated a secondmortgage loan "in an attempt to preserve equity in his residence and defeat the collection efforts of his judgment creditors." The Chapter 7 trustee expended 1,500 hours contesting this fictitious loan, with the trustee claiming $500,000 in attorney fees. Absent the trustee's expense, the estate would have paid the creditors and trustee in full. Without yet deciding on the amount of the trustee's attorney fees, the court found "reasonable costs of coping with the Debtor's deception far exceed $75,000, the exemption to which Debtor otherwise would be entitled." Without a surcharge of $75,000 against the homestead, the "financial consequences of Debtor's misconduct would fall most heavily upon Debtor's creditors, including Trustee and his attorneys." In re Law, ___ B.R. ___, 2009 WL 483821 (Bankr. C.D. Cal. Feb. 20, 2009). Compare Scrivner v. Mashburn (In re Scrivner), 535 F.3d 1258 (10th Cir. 2008), cert. denied, 2009 WL 735673 (Mar. 23, 2009) (Surcharge or debtor's exempt property is not

©2009 Hon. William Houston Brown