Michael S. Dietz v. Terrance J. Becker ( 1998 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
_______________
No. 97-6082 MN
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In re: Terrance J. and Bernadette
* J.
Becker *
*
Debtors. *
*
Michael S. Dietz, * Appeal from the United States
* Bankruptcy Court for the
Appellant, * District of Minnesota
*
v. *
*
Terrance J. and Bernadette J. *Becker,
*
Appellees. *
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Submitted: December 16, 1997
Filed: January 16, 1998
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Before KOGER, Chief Judge, WILLIAM A. HILL, and SCOTT,
Bankruptcy Judges.
_______________
SCOTT, Bankruptcy Judge.
The chapter 7 trustee appeals a determination by the
bankruptcy court1 that the debtors, whose rural-use acreage is
abutted on two sides by suburban residential homes, are
entitled to a rural homestead exemption under Minnesota law.
We affirm.
The debtors filed a voluntary chapter 7 bankruptcy case on
October 7, 1997, at which time they claimed a rural homestead
exemption in the 58 acres upon which they live, pursuant to
Minn. Stat. §§ 510.01, 510-2. The debtors claim that since
their acreage is rural in nature they are entitled to exempt
the entire 58 acres. The trustee asserts that the nature of
the locale has sufficiently changed, in large part due to the
debtors’ own activities in developing the area, that they are
not entitled to a rural homestead exemption, but are instead
limited to the one-half acre allowed under section 510.02.
The debtors’ acreage, although not platted, is within the
city limits of Caledonia, Minnesota. When the debtors
purchased their home thirty-five years prior to the bankruptcy
case, the surrounding area was rural. The expansion of the
city, through the establishment of new businesses and
government activity, has changed the nature of the
neighborhood. From the debtors’ front door, the view is
suburban in nature, with residences abutting the property where
the dwelling is situated, to the north and east along both
sides of the adjoining streets. The city has zoned these
areas, including the area upon which the debtors’ house is
located, for suburban residential development. The debtors
developed the neighborhood to the east from a portion of their
farm.
1
The Honorable Gregory F. Kishel, United States Bankruptcy Judge for the
District of Minnesota.
2
From the back of the debtors’ dwelling, one views a rural
setting: The barn and outbuildings are in view, as is open land
which is used for growing an annual corn crop and for grazing
horses. The debtors’ acreage behind the house is zoned for
agricultural use. The debtors’ neighbors to the south and west
also use their land to grow corn and hay.
Minnesota statutes provide for a homestead exemption as
follows:
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The house owned and occupied by the debtor
as the debtor’s dwelling place, together
with the land upon which it is situated to
the amount of area and value hereinafter
limited and defined, shall constitute the
homestead of such debtor and the debtor’s
family, and be exempt from seizure or sale
under legal process on account of any debt
not lawfully charged thereon in writing....
Minn. Stat. § 510.01. The area of the homestead is limited as
follows:
The homestead may include any quantity of
land not exceeding 160 acres, and not
included in the laid out or platted portion
of any city. If the homestead is within
the laid out or platted portion of a city,
its area must not exceed one half of an
acre. The value of the homestead exemption,
whether the exemption is claimed jointly or
individually, may not exceed $100,000 or,
if the homestead is used primarily for
agricultural purposes, $500,000, exclusive
of the limitations set forth in section
510.05.
Minn. Stat. § 510.02. The language and application of this
statute has long vexed the Minnesota courts.2 The Minnesota
Supreme Court made its most recent in-depth pronouncement on
the construction of this statute in 1897, in National Bank of
the Republic of New York v. Banholzer, 69 Minn. 24, 71 N.W. 919
(1897), wherein it established a method of analysis for
determining the entitlement to the amount for the homestead.
The court determined that the “platted portion” of any city
2
Indeed, the statute has been characterized as “beyond any satisfactory
construction,” Mintzer v. St. Paul Trust co., 45 Minn. 323, 324, 47 N.W. 973, 974
(1891), and even “crude,” Smith’s Estate v. Schubert, 51 Minn. 316, 316, 53 N.W. 711,
711 (1892).
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included unplatted pieces within the city. “Platted portion”
was determined to mean “platted portion which is urban in
character.” Thus, the court scrutinized not only the
particular land in question, but also required examination of
the character of the surrounding area. See Banholzer, 69 Minn.
at 28, 71 N.W. at 920. The method of analysis is made clear
upon application of that court’s rule to the facts of
Banholzer.
5
In applying the principles to the facts, the Minnesota
Supreme Court first looked to the character of the land
surrounding the tract in question. It appears from the
analysis that, had an entire area in question been
conclusively urban in character, the homestead would have been
limited in that manner. See id. However, in Banholzer, as in
this case, the surrounding area was not conclusively urban in
character such that the court was compelled to make a further
inquiry. Since the the homestead claimed was “on the border
line between the rural and urban portions of the city,” the
court then looked to whether “the character of the homestead
[w]as rural or urban” to determine the amount of the allowable
exemption.3
Thus, in making the determination, the Minnesota Supreme
Court created a two-pronged test. If, as a factual matter, the
surrounding area is conclusively urban in character, the
claimants are limited to the one-half acre permitted under
section 510.01. If the surrounding area is conclusively rural,
the claimants are permitted to exempt up to 160 acres.
However, if the surrounding area is not conclusively rural or
urban, a second factual determination must be made as to the
character of the homestead itself. Despite the passage of time
since the pronouncement of this test, the Minnesota Supreme
Court has adhered to this test in subsequent cases and has
3
Neither the statute nor the case law supports the trustee’s assertion that the factual
analysis should include only the house and not the “incidental” pastureland. Indeed, the
homestead exemption found in section 510.01 provides that it incorporates up to 160
acres. In analyzing the entitlement to the homestead, we look to the entirety of the
property claimed, not merely the house and the limited amount of land upon which it is
situated. Stauning v. Crookston Mercantile Co., 134 Minn. 478, 159 N.W. 788 (1916);
Brixius v. Reimringer, 101 Minn. 347, 348, 112 N.W. 273, 273 (1907)(“The essential
thing to constitute a quantity of land within the homestead law is that it shall be occupied
and cultivated as one piece or parcel of land, on some part of which is located the
residence.” (emphasis added)).
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applied this analysis in the context of tax statutes containing
similar language. See, e.g., State ex rel. Chase v. Armson,
135 Minn. 205, 160 N.W. 498 (1916). See also In re De
Griselles, 185 Minn. 495, 241 N.W. 590 (1932); Mead v. Marsh,
74 Minn. 268, 77 N.W. 138 (1898).
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In this case, the trial court made virtually the same
findings as found in Banholzer.4 The bankruptcy court concluded
that the surrounding area is both urban and rural in character:
to the south and west, the land use is strictly agricultural;
to the east and north, it is residential and suburban. The
trial court also determined that the character of the debtors’
land is agricultural such that the debtors are entitled to
exempt the entire 58 acres. The record clearly supports these
factual findings such that the conclusions are not clearly
erroneous. As in Banholzer, “this disposes of the case.”
Banholzer, 69 Minn. at 29, 71 N.W. at 921.
This is not an inequitable result. The debtors in this
instance retain the homestead expressly afforded them by
Minnesota law, in the same manner as their neighbors to the
south and west who also use their land for agricultural
purposes. The fact that their neighbors to the east and north
reside on smaller, suburban lots and are thereby limited to a
one-half acre homestead is not, without more, unfair. The
potential for the “unequal and extraordinary” result appears
when, as discussed and resolved in Banholzer, the land is “in
the heart of the city,” whether used for urban or agricultural
purposes. Banholzer, 69 Minn. at 28, 71 N.W. at 920.
While it is true that the debtors contributed to the
increasingly urban quality of the area in which they live, they
did not do so to such an extent as to render the area
4
The trustee argues that the bankruptcy court erroneously looked only to the
subject property instead of the surrounding area. However, inasmuch as the bankruptcy
court made all of the appropriate factual findings, not merely findings as to the character
of the subject property, its result should be affirmed. Cf. Allstate Fin. Corp. v. United
States, 109 F.3d 1331, 1333 (8th Cir. 1997)(appellate court may affirm on any basis
supported by the record). The bankruptcy court first concluded that the subject parcel
was “between” urban and rural properties. Then, as in Banholzer, the bankruptcy court
determined that the particular parcel was used for agricultural purposes.
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irrefutably, or even predominantly, urban. They reside in an
area of mixed usage, both developed and agricultural, and,
indeed, significant agricultural usage of the surrounding lands
exists. The rural qualities which imbue the area have yet to
be erased from the locale. The fact that the debtors
contributed to the dilution of these rural qualities is beside
the point. The debtors’
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claim a homestead exemption under the generous provisions of
section 510.01 and, under Banholzer, their claim must be
sustained.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
EIGHTH CIRCUIT.
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