Peoples' State Bank v. Quentin B. Stenzel

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 01-2003
___________
In Re: Quentin B. Stenzel, *
*
Debtor. *
------------------------------------------------ *
Peoples' State Bank of Wells, *
* Appeal from the United States
Appellee, * Bankruptcy Appellate Panel
* for the Eighth Circuit
v. *
*
Quentin B. Stenzel, *
*
Appellant. *
___________
Submitted: February 14, 2002
Filed: August 30, 2002
___________
Before LOKEN and RILEY, Circuit Judges, and KORNMANN,* District Judge.
___________
LOKEN, Circuit Judge.
When Minnesota farmer Quentin B. Stenzel petitioned for Chapter 7
bankruptcy relief, he claimed a homestead exemption for the five acres he owned and
occupied as his residence. Creditor Peoples’ State Bank of Wells discovered that
*
The HONORABLE CHARLES B. KORNMANN, United States District Judge
for the District of South Dakota, sitting by designation.
Stenzel also owned an undivided one-third remainder interest in the nearby parcel
where his mother resided as a life tenant. Stenzel then amended his bankruptcy
schedules to claim an additional homestead exemption for 155 acres of that parcel.
The Bank objected to the additional 155-acre claim. The Bankruptcy Court allowed
the amended claim, concluding that Stenzel owned and occupied the 155 acres for
purposes of the homestead exemption under Minnesota law. The Bankruptcy
Appellate Panel (BAP) reversed, and Stenzel appeals. We have jurisdiction over a
final order denying a bankruptcy exemption. In re Huebner, 986 F.2d 1222, 1223-24
(8th Cir. 1993). We reverse and remand.
I.
Stenzel grew up on the 155-acre parcel1 and began helping his father farm the
property when he was ten years old. Stenzel bought the adjacent five-acre parcel
from his grandparents when he married in 1963. He and his wife have lived there
ever since. The five-acre parcel lies across county highway 29 from the 155-acre
parcel. Stenzel’s father quit farming the larger parcel in the mid-1980's. Stenzel
farmed the tillable acreage until 1989, when he quit planting crops because of
operating losses. Unknown to Stenzel, his parents conveyed undivided one-third
remainder interests in the 155-acre parcel to Stenzel and his two sisters in 1990, with
their mother retaining a life estate in the property.
Stenzel conducted a hog farming operation until he sold his livestock shortly
before filing the Chapter 7 petition. He used outbuildings on the five-acre parcel for
this purpose, as well as barns and farrowing sheds on the 155-acre parcel. He did not
pay rent to his mother for use of those buildings, but he paid the water and electric
bills and was responsible for their upkeep. After 1989, his mother cash rented the
1
The exact size of this parcel has not been determined. Because the homestead
exemption is limited to 160 acres, we will call it the 155-acre parcel.
-2-
148 acres of tillable land and used the rental income to pay taxes and living expenses.
Although Stenzel stopped farming before filing the Chapter 7 petition, he has
resumed his hog farming operation and intends to resume farming the tillable acreage
when crop prices improve. His mother expects Stenzel to farm the 155-acre parcel
after her children inherit it.
A debtor may exempt from his bankruptcy estate property that is exempt under
state law on the date the petition is filed. See 11 U.S.C. § 522(b)(2)(A). The party
objecting to a claimed exemption, here the Bank, has the burden of proving the debtor
is not entitled to the exemption. See Bankruptcy Rule 4003(c). In this case, the
parties agree that Stenzel may exempt his ownership interest in the five-acre parcel.
The issue is whether the 155-acre parcel is also included in his homestead exemption
under Minnesota law so that his one-third remainder interest in that parcel is exempt
from his bankruptcy estate.
II.
Subject to exceptions not relevant here, Minnesota law exempts “[t]he house
owned and occupied by a debtor as the debtor’s dwelling place, together with the land
upon which it is situated [from] seizure or sale under legal process on account of any
debt.” Minn. Stat. § 510.01. For agricultural property, this homestead exemption is
limited to 160 acres. See § 510.02. The ownership requirement for a homestead
exemption is liberally defined. “Any interest in the land, whether legal or equitable,
shall constitute ownership, within the meaning of this chapter.” Minn. Stat. § 510.04.
Here, the parties agree Stenzel’s undivided one-third remainder interest constituted
a present ownership interest in the 155-acre parcel. The issue is whether Stenzel
occupied the 155-acre parcel within the meaning of Minn. Stat. § 510.01 when he
petitioned for Chapter 7 relief.
-3-
The Bank argues that Stenzel did not occupy the 155-acre parcel as a matter of
law because his remainder interest conferred no present right of possession, and the
homestead exemption requires “a concurrence of ownership and occupancy, the
former sustaining the latter.” Kaser v. Haas, 7 N.W. 824, 825 (Minn. 1881). We
agree with Stenzel the Minnesota Supreme Court rejected this contention in Denzer
v. Prendergast, 126 N.W.2d 440, 442-43 (Minn. 1964). In Denzer, the debtor, like
Stenzel, owned a residual interest in a family farm that was subject to his mother’s
life estate. Though this future interest did not entitle him to possession or occupancy
while the life tenant was alive, the debtor in fact lived with his mother. The Court
concluded that an oral agreement between the debtor and his mother provided a
sufficient right of occupancy, specifically rejecting the above-quoted passage from
Kaser and focusing instead on “whether the ownership and occupancy affords a
community connection of such significance as to give reason to believe that the
preservation of that connection will in the long run make the debtor and his family
better able to fulfill their social obligation to be self-sustaining.” 126 N.W.2d at 444.
Stenzel argues that any agricultural property in which the debtor has an
ownership interest and actual possession qualifies for the Minnesota homestead
exemption. But that states the exemption too broadly, because it disregards the
homestead basis for the exemption. The statute exempts “[t]he house owned and
occupied by a debtor . . . together with the land upon which it is situated.” The
italicized language precludes the exemption of land that is not contiguous with the
land on which the debtor’s home is located, whether or not the debtor has an
ownership interest in the non-contiguous parcel and occupies it for farming. See
Michels v. Kozitza, 610 N.W.2d 368, 371 (Minn. App. 2000).
As we read the numerous cases, Minnesota courts have been pragmatic in
determining the extent to which contiguous farmland qualifies for the homestead
exemption, seeking to decide each case in a manner consistent with the purposes
underlying the exemption. For example, though “a debtor may claim only one
-4-
homestead,” Hommerding v. Travelers Ins. Co., 393 N.W.2d 389, 391 (Minn. App.
1986), exempt land may “consist of two or more separate descriptions, or tracts, of
land, provided the same are so situated that they may be occupied and cultivated as
one body of land.” Brixius v. Reimringer, 112 N.W. 273, 273 (Minn. 1907).
Moreover, it is settled that two persons may each claim a homestead exemption in the
same land, provided they each reside on the land and have the requisite ownership
interest. See Eberhart v. Nat’l Citizens’ Bank, 214 N.W. 793, 794 (Minn. 1927) (two
brothers occupying separate portions of one farmhouse); Matter of Guardianship of
Huesman, 381 N.W.2d 73, 77 (Minn. App. 1986) (two brothers having undivided
one-half interests in a farm as tenants-in-common). Similarly, an owner who lives in
a building may exempt the entire building even if he leases portions of the premises
to others. See, e.g., Winland v. Holcomb, 3 N.W. 341 (Minn. 1879).
In this case, the 155-acre and the five-acre parcels are contiguous, so they are
eligible for a combined homestead exemption under Brixius. If Stenzel had
purchased the contiguous 155-acre parcel from his parents with the intent of
expanding his five-acre family farm, we have no doubt the entire 160 acres would
qualify for the homestead exemption. Likewise, if Stenzel’s parents had built a
second house on the larger parcel for Stenzel’s family and conveyed a one-half
ownership interest to him, both Stenzel and his mother could claim the entire parcel
as a homestead exemption. Instead, Stenzel has only a future ownership interest in
the 155-acre parcel; that parcel has historically been his parents’ homestead, not part
of his five-acre homestead; and Stenzel uses a portion of that parcel only for farming,
with the permission of his mother, the life tenant. In these circumstances, did he
occupy the 155-acre parcel in such a manner that it became, in the words of the
statute, “land upon which [his dwelling place] is situated”? This question is not
answered by Denzer, where the debtor lived on a single farm with his mother, nor by
Brixius, where only the debtor resided on one of two contiguous parcels of farmland
that were found to comprise a single farm.
-5-
Suppose two farmers live across the road from each other. The older has no
children and wishes to quit farming but remain on his property. The two farmers
enter into an agreement whereby the older conveys the remainder interest in his
homestead to his young neighbor, retaining a life estate, and the neighbor promises
to farm the property for their mutual benefit until the life tenant dies. At least if the
younger farmer intends by this arrangement to create a single farm out of the two
properties, the agreement establishes an ownership interest, actual present occupancy,
and the significant “community connection” referred to in Denzer. That is sufficient
to entitle the younger farmer to a homestead exemption in both properties, assuming
they do not exceed the 160-acre limitation.
In contrast to the above hypothetical, which included a formal agreement
between unrelated neighbors, the BAP concluded in this case that Stenzel’s
homestead exemption does not include the 155-acre parcel as a matter of law because
he had no “legally valid present possessory interest” in that parcel. We reject this as
the controlling legal standard, at least in family farm situations. The debtor in Denzer
had no “legally valid” right of occupancy other than “an oral agreement . . . for the
support and maintenance of the life tenant,” his mother. 126 N.W.2d at 441. Here,
Stenzel had express permission from his mother to occupy the 155-acre parcel for
farming purposes. In this kind of family relationship, is that any less of a “legally
valid” right of occupancy than the oral agreement in Denzer? We think not, at least
not as a matter of law. The Bankruptcy Court found that Stenzel, like the debtor in
Denzer, occupied a portion of the 155-acre parcel with the permission of the life
tenant. If the BAP concluded this finding was inadequate because it is necessary to
determine whether Stenzel and his mother had a “legally valid” contractual
relationship, express or implied, it should have remanded, not decided the issue as a
matter of law.
In our view, the relevant difference between this case and Denzer, as the BAP
recognized later in its opinion, is that Stenzel did not live with his mother on the 155-
-6-
acre parcel. But the BAP’s analysis failed to consider that two persons may claim a
homestead exemption for the same property. No doubt Stenzel’s mother as life tenant
could claim a homestead exemption on the 155-acre parcel. But Stenzel is not
claiming that exemption, which would run afoul of the principle that a debtor may
have but one homestead. Rather, Stenzel claims that his common farming of the two
parcels permits him to add the 155-acre parcel to his homestead exemption.
We agree with the Bankruptcy Court that this is a question of fact, not law. But
the relevant question of fact is one the Bankruptcy Court did not answer -- whether
the 155-acre parcel is part of the “land upon which [Stenzel’s house] is situated.” To
answer that question, the Minnesota cases require a fact-based determination of
whether Stenzel used the 155-acre parcel for farming purposes in such a way that the
two parcels were “occupied and cultivated as one piece or parcel of land, on some
part of which is located the [debtor’s] residence.” Brixius, 112 N.W. at 273; see
Denzer, 126 N.W.2d at 444-45. The Bankruptcy Court looked at many of the relevant
factors in finding that Stenzel occupied the 155-acre parcel with the life tenant’s
permission. But the court did not make the crucial finding that his limited occupancy
and his future ownership interest were enough to make the 155-acre parcel part of the
“land upon which [his house] is situated.” In addition, the Bankruptcy Court
erroneously concluded that Stenzel’s ignorance of his ownership interest in the 155-
acre parcel is irrelevant. While this fact is hardly dispositive, a debtor’s intent is
relevant in determining whether he has occupied two contiguous parcels as a single
farm. Cf. Clark v. Dewey, 73 N.W. 639, 640 (Minn. 1898) (debtor must have “bona
fide intention of occupying [the property] as his home”). For example, a farmer who
leases additional acreage each crop season would doubtless not add to his homestead
exemption the one year he happened to rent a parcel immediately across the road from
his homestead.
-7-
For the foregoing reasons, the judgment of the Bankruptcy Appellate Panel is
reversed and the case is remanded with instructions to remand to the Bankruptcy
Court for further proceedings not inconsistent with this opinion.
KORNMANN, District Judge, concurring.
I concur in the result of this case. I agree that one of the issues is whether Mr.
Stenzel occupied any portion of the 155 acres in question. As the majority opinion
notes, the exact size of this parcel has not been determined. In accordance with the
majority opinion, I will also call it the 155-acre parcel. On remand, the exact size of
this parcel should be determined.
A separate parcel has been identified as a five acre parcel. I believe that is
incorrect. It may become important because a debtor in Minnesota may not claim
more than 160 acres as a homestead. The legal description on the deed conveying the
small parcel where Stenzel’s home is located is: “31 rods off from the West side of
the South half of the Northwest Quarter of Section 31 . . .” No mention is made in the
deed of any number of acres. Nothing was platted. This, of course, is not a metes and
bounds description. If you multiply 31 rods (i.e. 511.5 feet) by 1,320 feet (the length
of the South half of the Northwest Quarter) you have 675,180 square feet. Since there
are 43,560 square feet in one acre the parcel is obviously, as a simple matter of
mathematics, 15.5 acres, not five acres. The bankruptcy court and the parties failed
to look at or explain this matter of mathematics. Thus, we could not be talking about
combining the 155 acres with a five acre parcel. Subtracting 15.5 acres from 160
acres leaves only 144.5 acres possibly available from the possible 155 acres as part
of Stenzel’s entire homestead.
I believe we should not state that Stenzel “uses a portion” of the 155-acre
parcel for farming. Apparently, sometime prior to and at the time of the bankruptcy
filing, Mr. Stenzel was using no portion of the 155-acre parcel for anything. The 148
-8-
tillable acres had been leased by Stenzel’s mother to a third party; certainly Stenzel
had no right to be interfering with the tillable acres and the leasehold rights. As a
remainderman, Mr. Stenzel would have had no right to interfere with the use by the
life tenant as well (unless, of course, waste was being committed). Mr. Stenzel had
not farmed the tillable acres or used them for anything else since the late 1980's.
Stenzel had ceased using, prior to filing for bankruptcy, even the small area (part of
the 155-acre parcel) on which sheds had been used by Stenzel earlier to raise hogs.
I agree with the conclusion of the BAP that Stenzel had no “legally valid present
possessory interest” in the 155-acre parcel. Nevertheless, as the majority opinion
states, this is apparently not the controlling legal standard under Minnesota law.
I do not think we should state that Stenzel “had express permission from his
mother to occupy the 155-acre parcel for farming purposes.” Stenzel’s mother had
already executed and recorded a deed reserving only a life estate to herself and
naming Stenzel and his sisters as the “remainder-people”. The two sisters held 2/3
of the total remainder interest. For all we know, the two sisters did not want to
ultimately have Mr. Stenzel farming the land. At a minimum, all these issues are
factual issues to be determined on remand. I frankly do not understand how Stenzel’s
mother could legally grant permission for Mr. Stenzel to occupy or use any of the
tillable acres after she had leased that land to a third party who was paying the rent
to her and after she had conveyed a remainder interest to three people. There is
nothing in the record as to any oral or written agreement between Stenzel and his
mother. I do not understand how the bankruptcy court could possibly have found that
Stenzel “occupied” the tillable acres “with the permission of the life tenant.” I agree
with the majority opinion that the bankruptcy court did not answer the question
whether the 155-acre parcel is part of the “land upon which [Stenzel’s house] is
situated” and the question should first be addressed there. I also agree with the
majority opinion that the bankruptcy court erroneously came to the conclusion that
Stenzel’s ignorance of his 1/3 remainder ownership interest in the 155-acre parcel is
irrelevant. I do not agree with language in the majority opinion that this fact is
-9-
“hardly dispositive.” I believe it may well be entirely dispositive. Minnesota law is
clear that a debtor’s intent is relevant and that there must be a bona fide intention of
occupying the 155-acre parcel as part of the homestead. See Clark v. Dewey, 73 N.W.
639, 640 (Minn. 1898). I have great difficulty understanding how Stenzel, a person
who was not using or living on the 155-acre parcel when he filed for bankruptcy, a
person who apparently had no knowledge of any remainder interest that he or his
sisters had in the parcel, and a person who apparently thought he had no ownership
or occupancy interest of any kind, can claim retroactively (after a creditor has
discovered the interest), that he did have a homestead covering such real estate and
so intended. If anything, it seems to me that Mr. Stenzel intended to not have any
interest of any kind in the 155-acre parcel. Otherwise, he would have reported it as
an asset in his bankruptcy filing and he did not do so. I do not believe that, in this
context, intent can exist in the presence of ignorance.
I am troubled by some of the concepts employed by the bankruptcy court.
Reference was made to Stenzel’s “intentions” for the land. Reference is made to a
possible “resumption and continuation.” I fail to understand how Mr. Stenzel could
have intended any future use of the 155-acre parcel when he obviously would have
known the tillable acres were leased to a third party and Stenzel had no information
about his 1/3 remainder interest. I agree with the remand since the bankruptcy court
should determine in the first instance exactly what Stenzel’s intentions were and the
factual basis for any such intentions. I would be surprised if a person may legally
claim a homestead interest based upon some aspiration (however unrealistic it may
be) to later (on some unknown date) occupy and use a parcel. I have not heard of any
legal concept that homestead rights as of the date of filing may be based on “future
intentions”, “wishes”, “hopes” or “aspirations.” The bankruptcy court found that it
was “undisputed” that Stenzel was “even then (I assume the bankruptcy court was
referring to the time of filing) maintaining its physical integrity (I do not understand
this at all as to Mr. Stenzel or as to any of this real estate) for the resumption of his
past patterns of usage as soon as it was economically feasible . . .” These are, very
-10-
frankly, legal concepts that I have not previously encountered. If Mr. Stenzel hoped
to sometime resume the occupancy, this would seem to me to rule out “present
occupancy.” I do not understand what standards could be used to judge whether and
when future use and occupancy might become “economically feasible”, especially
given the dire economic conditions farmers and ranchers now face in our country.
This is a difficult case. Our task as federal judges, whether Article III or
bankruptcy judges, is made difficult by what the majority opinion in a kindly manner
refers to as a “pragmatic” approach by Minnesota state courts in determining the
extent to which contiguous farmland qualifies for a homestead exemption.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
-11-