United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 11-2449
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In re: Jody May Walters, *
*
Debtor. *
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Jody May Walters, *
* Appeal from the
Appellant. * Bankruptcy Appellate Panel
* for the Eighth Circuit.
v. *
*
Bank of the West, *
*
Appellee. *
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Submitted: January 10, 2012
Filed: April 9, 2012
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Before WOLLMAN, LOKEN, and GRUENDER, Circuit Judges.
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LOKEN, Circuit Judge.
In 2002 and 2004, Jody Walters and her husband David guaranteed loans by
Bank of the West involving David’s then-profitable home building enterprise,
Walters Homes Ltd. With the loans in default, Bank of the West obtained three Iowa
state court judgments in 2008 and 2009 against Mrs. Walters and others totaling well
in excess of the value of her present home. Mrs. Walters filed for Chapter 7
bankruptcy protection in January 2010, claimed a homestead exemption, and was
granted a discharge. In this core proceeding, see 28 U.S.C. § 157(b)(2)(B), she
appeals the Bankruptcy Appellate Panel’s (BAP) decision affirming a bankruptcy
court1 order that her homestead is not exempt from the Bank’s antecedent debts. A
core proceeding order “resolving a significant exemption issue is immediately
appealable under 28 U.S.C. § 158(d).” In re Takes, 478 F.3d 902, 903 n.2
(8th Cir. 2007); see Stern v. Marshall, 131 S. Ct. 2594, 2603-04 (2011). We affirm.
Iowa codified a homestead exemption in Chapter 561 of the Iowa Code. It is
applicable in federal bankruptcy proceedings. See 11 U.S.C. § 522(b); Iowa Code
§ 627.10. Iowa exempts every person’s homestead absent a “declaration of statute
to the contrary.” § 561.16. One such declaration appears in § 561.21(1):
The homestead may be sold to satisfy debts of each of the following
classes:
1. Those contracted prior to its acquisition, but then only to satisfy a
deficiency remaining after exhausting the other property of the debtor,
liable to execution.
Mrs. Walters moved into her present home in Pleasant Hill, Iowa (the “Lakeview
Drive” home) in July 2008. For purposes of this appeal, we assume this home
qualifies as a “homestead” under Iowa law. Conceding that her debts to the Bank
were contracted before July 2008, Mrs. Walters argues on appeal that she is
nonetheless entitled to the homestead exemption for two reasons. First, she argues
that she is entitled to the “new homestead exemption” provided by § 561.20:
1
The Honorable Anita L. Shodeen, United States Bankruptcy Judge for the
Southern District of Iowa.
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Where . . . a new homestead has been acquired with the proceeds of the
old, the new homestead, to the extent in value of the old, is exempt from
execution in all cases where the old or former one would have been.
Alternatively, she argues that § 561.21(1) does not apply “because Bank of the West
has not exhausted all non-exempt assets.” Like the BAP, we review the bankruptcy
court’s interpretation of these statutes de novo and its findings of fact for clear error.
In re Farmland Indus., Inc., 397 F.3d 647, 650 (8th Cir. 2005).
I. The § 561.20 Issue.
When Mr. and Mrs. Walters initially guaranteed the Bank’s loans, they lived
at 3437 Scenic Valley Drive in West Des Moines. Before moving into the Lakeview
Drive home, they also lived for different periods at 259 62nd Street in West Des
Moines, 5051 Cerromar Drive in Naples, Florida, and 3800 Fuller Road in Des
Moines. When Bank of the West objected to her claim of a homestead exemption for
the Lakeview Drive home, Mrs. Walters argued to the bankruptcy court that the
Cerromar Drive property in Florida was a homestead and presented some evidence
the Walters invested the proceeds from the sale of that home, $470,909.98, in
constructing the Lakeview Drive home. The bankruptcy court denied a new
homestead exemption under § 561.20 on two grounds: (i) Mrs. Walters failed to
prove the Cerromar Drive home was a homestead, not merely a residence; and (ii) she
failed to prove the Lakeview Drive home was “acquired with the proceeds of” the
Cerromar Drive home, as § 561.20 requires. The BAP upheld both of these fact-
intensive rulings.
On appeal, Mrs. Walters abandons her reliance on the Cerromar Drive home.
Instead, she argues (1) the evidence establishes a chain of Iowa homesteads beginning
before she contracted the Bank debts -- from the home on Scenic Valley Drive, whose
value exceeded the $350,200 homestead exemption claimed, to the homes on 62nd
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Street, Fuller Road, and Lakeview Drive; (2) the bankruptcy court and the BAP erred
in construing § 561.20 as requiring that proceeds of a prior homestead be traced to
the new homestead for which an exemption is claimed.
Bank of the West argues that we should not consider this chain-of-Iowa-
homesteads contention because Mrs. Walters did not raise it before the bankruptcy
court and the BAP. Without question, while the record contained evidence she lived
at the prior Iowa locations, Mrs. Walters argued only that the Cerromar Drive home
was the “old” homestead for § 561.20 purposes. We need not decide if this new
contention was adequately preserved for our review. We agree with the bankruptcy
court and the BAP that the plain language of § 561.20 limits the “new homestead”
exemption to cases where, in the words of the statute, “a new homestead has been
acquired with the proceeds of the old.” Mrs. Walters argues that we need to resolve
a conflict in the published bankruptcy court decisions of the Northern District and the
Southern District of Iowa on this issue. We have reviewed those decisions and, like
the bankruptcy court and the BAP, find no conflict. In any event, the plain language
of the statute as construed by the Supreme Court of Iowa is controlling. See Elliott
v. Till, 259 N.W. 460, 463 (Iowa 1935) (proceeds invested in a new homestead “are
exempt from execution”); accord In re Bargfrede, 117 F.3d 1078, 1081 (8th Cir.
1997). Mrs. Walters was properly denied a new homestead exemption.
II. The § 561.21(1) Issue.
For more than 150 years, the Iowa homestead laws have excepted antecedent
debts from the exemption. See Iowa Code § 2281 (1860), construed in Hale v.
Heaslip, 16 Iowa 451, 1864 WL 225 (Iowa 1864). However, this exception has
included the limitation now found in § 561.21(1): “The homestead may be sold to
satisfy . . . debts contracted prior to its acquisition, but then only to satisfy a
deficiency remaining after exhausting the other property of the debtor, liable to
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execution.” (Emphasis added.) The purpose of the limitation is “to protect the
homestead as far as possible, so that it will not be sold unless necessary to the
payment of debts for which it is pledged, or is made liable under the statute.”
Prudential Ins. Co. of Am. v. Westfall, 260 N.W. 344, 348 (Iowa 1935) (quotation
omitted). This limitation is the focus of the second issue raised by Mrs. Walters.
In her post-hearing brief to the bankruptcy court, Mrs. Walters argued that the
Bank’s objection should be denied because, “To prove that the exception even
applies, [Bank of the West] must first demonstrate that [it] exhausted all other
property of the Debtor liable to execution,” and the Bank failed to do so. The
bankruptcy court did not address this contention. On appeal, the BAP concluded:
that issue is not properly before us. The issue before the bankruptcy
court was whether Walters is entitled to her homestead exemption. The
bank will still have to exercise its rights under state law, and Walters
and her husband will be entitled to raise their other defenses at that time.
We agree that Mrs. Walters’s contention to the bankruptcy court was unsound for this
reason. In numerous cases, the Supreme Court of Iowa has held that a homestead “is
subject to judicial sale under the provisions of” § 561.21(1) without requiring the
antecedent creditor to show it had exhausted other property of the debtor that might
be liable to execution. In re Marriage of McMorrow, 342 N.W.2d 73, 77
(Iowa 1983); Westfall, 260 N.W. at 349; Foley v. Cooper, 43 Iowa 376, 1876 WL 550
(Iowa 1876); Barker v. Rollins, 30 Iowa 412, 1870 WL 437 (Iowa 1870); Hale, 1864
WL 225, at *2; see Kamerick v. Marion Cnty. State Bank, 2003 WL 23006949
(Iowa App. Dec. 24, 2003) (unpublished), and cases cited. These cases make it clear
that the limitation in § 561.21(1) is not a condition precedent to the antecedent
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judgment creditor’s right to petition for judicial sale of the homestead.2 Rather, it is
an equitable limitation on the sheriff’s authority to sell the homestead until he or she
is satisfied that sale of “the other property of the debtor, liable to execution,” will not
extinguish the antecedent creditor’s claim. See Westfall, 260 N.W. at 347-49.
On appeal, Mrs. Walters once again makes a different argument. We
understand this contention to be that the BAP’s decision unfairly prejudices Chapter
7 debtors because removal of the homestead from the bankruptcy estate for the
benefit of the Bank as secured creditor results in the debtor’s other assets being
distributed to unsecured creditors, whereas in a state court execution, those assets
would first be sold and distributed to the antecedent judgment creditor, a distribution
that could result in a reduced deficiency that preserves all or part of the homestead
exemption, consistent with the purpose underlying the § 561.21(1) limitation.
While Mrs. Walters presents this contention without citation to Iowa case law,
our research uncovered prior decisions suggesting that the hypothetical problem may
in some circumstances be very real. See In re Butterfield’s Estate, 195 N.W. 188,
188-89 (Iowa 1923); In re Norkus, 256 B.R. 298, 305 (Bankr. S.D. Iowa 2000);
Matter of Schuldt, 91 B.R. 501, 502-03 (Bankr. S.D. Iowa 1988); Matter of Nehring,
84 B.R. 571, 577-78 (Bankr. S.D. Iowa 1988). However, Mrs. Walters failed to lay
a factual predicate that the problem is real in this case. In the bankruptcy court, the
Chapter 7 trustee initially joined the Bank’s objection to the claimed homestead
exemption but then withdrew his objection because the Bank’s antecedent judgments
so far exceeded the value of the homestead the objection could provide “no interest
2
The only Iowa case Mrs. Walters cited to the bankruptcy court, or to this court,
is not to the contrary. In James v. Weisman, 143 N.W. 428, 429 (Iowa 1913), the
antecedent judgment creditor was not entitled to an execution sale of the homestead
because her judgment lien had expired, not because she failed to execute on the
debtor’s other property before petitioning for judicial sale of the homestead.
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for the benefit of the bankruptcy estate.” Likewise, Mrs. Walters presented no
evidence that distributing the bankruptcy estate’s other assets in any fashion could
conceivably reduce the Bank’s antecedent debts sufficiently to create a residual
homestead exemption. The ambiguous contention could be construed as claiming
that the Bank may recover a substantial portion of its antecedent debts by first
exhausting the assets of Mrs. Walters’s judgment co-obligors. But that issue would
not entitle her to relief in this Chapter 7 proceeding because assets of the co-obligors
are not part of the bankruptcy estate, and in any event this issue can be adequately
addressed by the state court and the sheriff that administer any future judicial sale of
the homestead. Thus, on this record, the bankruptcy court did not err in concluding
that the Lakeview Drive homestead was not exempt from the Bank’s antecedent debts
by reason of § 561.21(1) and in lifting the automatic stay in bankruptcy as to that
property. See 11 U.S.C. § 362(c).
We affirm the decision of the BAP filed June 2, 2011. We grant attorney David
A. Morse’s Motion to Withdraw.
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