In re Gish , 32 F.2d 322 ( 1928 )

DAWSON, District Judge.

This matter is before me on petition of Charles M. Gish to review the action of the referee in entering the order of September 26, 1928, denying the petition of the bankrupt for a sale of the 300-acre tract of land subject to his homestead, and postponing the bankrupt’s homestead rights in the proceeds until all the scheduled creditors have been paid.

At the time of his adjudication, the bankrupt owned, and, with his wife, lived upon, a 300-acre tract of land, upon which the Federal Land Bank of Louisville, Ky., held a mortgage, duly executed by the bankrupt and his wife. There was a balance due on this mortgage of approximately $5,800. Tho bank proved its mortgage claim in the bankruptcy proceeding, and, while not specifically praying for the enforcement of its lien in said proceeding, the proof of its claim made it a party to the proceeding, and, if it appeared to the referee that there was any' equity in the land for the unsecured creditors, the bankrupt court undoubtedly had the right to sell the land, as it was asked to do by the trustee. It is true the bank in a letter suggested that the property he sold subject to its mortgage lien, hut the hank had no right to dictate the terms of the sale. ,

The referee ordered the land sold, subject to the lien of the bank, but made no provision relative to homestead or dower rights, although the bankrupt had claimed his homestead at the time he filed his schedule. The property was sold by tho trustee under the order of sale on July 23, 1928, and at the sale Gish and his wife appeared, through their attorney, and publicly announced that they expected to claim homestead and dower rights in the land. The trustee asked the court to sot aside this sale, on the theory that this announcement of Gish and his wife frightened prospective purchasers and beat down the sale price. The court sustained the motion, and ordered a resale of the property upon the same terms as those contained in the original order of sale, with the additional provision that it should be sold free of the bankrupt’s homestead interest therein and his wife’s interest therein, “except they are allowed their homestead interest out of the surplus funds, if any there be, after the payment of the debts against said estate as set out in the schedules in this matter.” It is this order of which the bankrupt complains, and he specifically complains because his homestead was not set aside to him in the land itself.

The order of the referee is clearly erroneous. It is thoroughly settled in Kentucky that general unsecured creditors of a debtor cannot sell his homestead to satisfy their claims. Section 6 of the Bankruptcy Act (11 USCA § 24) recognizes and gives full fdree to the exemption statutes of the several states. Therefore bankruptcy does not work any forfeiture of the bankrupt’s homestead rights nor of his wife’s dower rights under the state law;. Under the law of Kentucky (Ky. St. 1922, §§ 1706, 2135), the execution of a mortgage by husband and wife on the property in which a homestead right exists is a waiver of homestead rights, as well as the dower rights of the wife in the particular tract mortgaged. Under the well-settled law of Kentucky, however, this waiver operates only in favor of the mortgage creditor. In the enforcement of the mortgage, tho tract covered by the mortgage may be sold free of homestead rights and of the dower rights of the wife, but, if there are any proceeds of the sale left after satisfying the mortgage lien, a homestead of $1,000 should he paid to the husband out of the excess, and, if any proceeds are left after satisfying the mortgage lien and the homestead, the wife’s dower interest must be figured in the remainder. This does not mean, however, that she is entitled to have the value of her dower interest in the entire tract in such a case paid out of the remaining proceeds. She is entitled to her dower interest only in such remainder. See Mulligan v. Mulligan, 161 Ky. 628, 171 S. W. 420; Kentucky Statutes, § 1706; Nelson v. Dunn, 215 Ky. 292, 284 S. W. 1084.

The referee should enter an entirely new order of sale, and direct the 300-acre tract to be sold free of the bank’s mortgage lien, of the husband’s homestead rights, and of his wife’s dower rights. The order should provide that out of the proceeds of the sale the bank’s mortgage shall be first paid; that a homestead of $1,000 shall be paid to the husband out of any remaining proceeds, if there be any; and that if, after deducting the mortgage lien and the homestead of $1,000, there remain any proceeds of the sale, the wife shall be paid the present value of her dower interest in such remainder.