Memorandum of Decision Re: Homestead Exemption

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re JAMES KRISTOFFERSON,                                       No. 1-90-01083      Debtor(s). ______________________________________/
Memorandum re Homestead Exemption
     While this case was in Chapter 11, debtor James Kristofferson entered into a court-approved contract to sell his real property at 2891 Bristol Road, Kenwood, to one Jane Gill. Pursuant to the agreement, Gill moved into the property before escrow closed. Before escrow could close, Gill was murdered. The escrow did not close and the property was lost to foreclosure. However, $194,000.00 was recovered from Gill's estate on account of her breach of the contract of sale. The case having been converted to Chapter 7, the trustee objects to Kristofferson's claim of a $45,000.00 homestead exemption in this money pursuant to California Code of Civil Procedure § 704.710 et seq.      While exemptions are generally fixed as of the date of the initial bankruptcy filing, state homestead law can make postpetition events relevant. See, e.g., In re Golden, 789 F.2d 698 (9th Cir.1985). This dispute is governed by California Code of Civil Procedure § 704.720(b), which provides, in pertinent part: If a homestead is sold under this division or is damaged or destroyed . . . the proceeds of sale or of insurance or other indemnification for damage or destruction of the homestead . . . are exempt . . . .      The factual record now before the court does not establish why the property was lost to foreclosure. If Gill was murdered in the property, and as a result the property could not be resold, then the money is clearly indemnification for damage and the exemption must be allowed. See Haaland v. Corporate Management, Inc., 172 B.R. 74 (S.D.Cal.1989)[proceeds of malpractice claim for loss of homestead may be exempted as indemnification for destruction of homestead]. Homestead laws are to be liberally interpreted in favor of the debtor. In re Pladson, 35 F.3d 462, 465 (9th Cir.1994).      The issue is a little more problematical if Gill's death did not cause the property to decrease in value. The trustee argues that there was no forced sale, so § 704.720 does not apply. However, a sale by a debtor in possession pursuant to the Bankruptcy Code is deemed to be the equivalent of a forced sale under state law. In re Cole, 93 B.R. 707, 709 (9th Cir.BAP 1988). The funds recovered from Gill's probate estate were proceeds of such a sale, and are accordingly exempt. Failure to honor the homestead would give the estate a windfall at the debtor's expense, since it would allow the estate to keep all of the money from the breach of contract claim when the debtor would have been entitled to the first $45,000.00 if the contract had been performed.      For the foregoing reasons, the trustee's objection will be overruled and the exemption allowed. Counsel for the debtor shall submit an appropriate form of order.
Dated: November 1, 1999                                                                         ____________________________                                                                                                                      Alan Jaroslovsky                                                                                                                      United States Bankruptcy