Stanley Dowling

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For The Northern District Of California
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MEMORANDUM DECISION AND ORDER ON TRUSTEE’S OBJECTION TO HOMESTEAD EXEMPTION
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re:
STANLEY DOWLING,
Debtor.
Case No. 04-57297-MM
Chapter 7
MEMORANDUM DECISION AND
ORDER ON TRUSTEE’S OBJECTION
TO ENHANCED HOMESTEAD
EXEMPTION AND MOTION TO
SURCHARGE EXEMPTION
I NTRODUCTION
Before the court is the trustee’s objection to the enhanced homestead exemption claimed by the
debtor and the trustee’s motion to surcharge the debtor’s homestead exemption. For the reasons that
follow, the trustee’s objection is overruled, the enhanced homestead exemption in the amount of
$150,000 is allowed, and the exemption is surcharged in the amount of the fair market rental value of
the residence.
FACTUAL BACKGROUND
The debtor, Stanley Dowling, commenced this case by filing a voluntary petition under chapter
11 on December 1, 2004 to stop a foreclosure. 	At the time, he was over fifty-five years old and
unmarried. Dowling conducted a sole proprietorship accounting practice from condominium office
suites that he owned at 1260 41 st Avenue in Capitola, California; however, his license as a certified
The following constitutes
the order of the court. Signed January 05, 2009
Marilyn Morgan
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
January 05, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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MEMORANDUM DECISION AND ORDER ON TRUSTEE’S OBJECTION TO HOMESTEAD EXEMPTION
public accountant had been suspended since 2002. He also owned a residence located at 552 Bean
Creek Road, Scotts Valley, California and a residential four-plex located at 622 Pine Street, Santa Cruz,
California. 	Dowling earned income from his accounting practice and the rental of the residential
apartment units and one of the office suites. His Schedule I of current income filed around the time of
the petition reflects that his gross monthly business income totaled $17,305, and his gross monthly rental
income totaled $6,700. His Schedule J of current expenditures reflects that he had no net income after
the payment of all expenses.
Shortly after he filed the petition, Dowling claimed on his Schedule C of exemptions a $50,000
homestead exemption in his residence. Scheduled claims in the case total $1,175,662, while scheduled
assets total $2,497,750. Although he had been served shortly before the petition with notice of a hearing
on a motion by his former spouse to enforce a stipulated judgment for property division in their
dissolution proceeding, Dowling failed to list the former spouse, Phyllis Wagner, as a creditor in the
case. She filed a claim in excess of $620,916, which he disputed. Dowling also failed to list in his
Schedule B of personal property that he owned 1,430 shares of Coast Bancorp stock.
Upon motion by the United States Trustee, the case was converted to one under chapter 7 on
February 7, 2005 because Dowling was practicing without a license. John Richardson was appointed
as the chapter 7 trustee. Sometime after the case was converted, Dowling traded in the 1,430 shares of
Coast Bancorp for 1,812 shares of Greater Bay Bancorp, which had acquired Coast Bancorp. Between
January and April 2006, Dowling sold all the shares of Greater Bay Bancorp, retaining the $42,926.51
in sales proceeds. When the trustee repeatedly inquired in 2007 about the disposition of the shares,
Dowling concealed the sale and insisted that the shares had been sold pre-petition.
Richardson obtained court approval of the sale of the residential four-plex in May 2005. He also
obtained court approval of the sale of the office suites in September 2005. After these two properties
were liquidated, whether there would be sufficient funds to pay claims in full turned on whether the
claim of Dowling’s former spouse, Wagner, would be allowed or reduced. Believing he would realize
a surplus in the case, Dowling urged the trustee not to liquidate his residence but to allow him to remain
in physical possession unless it became apparent that a sale was absolutely necessary. He also requested
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MEMORANDUM DECISION AND ORDER ON TRUSTEE’S OBJECTION TO HOMESTEAD EXEMPTION
a $20,000 advance by the trustee from non-exempt assets to be credited against his claimed homestead
exemption of $50,000.
As a condition to paying the advance, the trustee required that Dowling first file his tax return
for 2004 in order to determine the amount of priority tax claims. 	He also required that Dowling
maintain the status quo on the residence for the benefit of the estate by paying its expenses, including
the mortgage, property taxes and insurance, from sources outside the estate. Dowling agreed to do so.
In December 2005, Dowling filed his 2004 income tax return, offsetting all losses against
income. He reported an adjusted gross income of negative $384,278, which included a substantial net
operating loss and depreciation. Based on gross business receipts of $143,065 and business expenses
of $198,057, he reported a net loss of $54,992, before deducting depreciation, in connection with his
accounting practice. 	Based on gross rental receipts of $97,375 and rental expenses of $116,714,
Dowling also reported a net loss of $19,339, before deducting depreciation, in connection with his rental
properties. Although his 2004 tax return showed a substantial loss for that year, Dowling did not assert
a right to the enhanced homestead exemption at that time.
Dowling and Wagner agreed that her claim would be liquidated in family court. The trustee,
Dowling, and Wagner entered into a stipulation for relief from the automatic stay so Wagner could
proceed in family court. In the stipulation, Dowling acknowledged that he was entitled to a $50,000
homestead exemption in his residence. The stipulation further provided that the trustee would advance
$20,000 to Dowling as an offset against his homestead exemption to finance the claims litigation against
his former spouse. Wagner would be entitled to an allowed claim in the amount as determined by the
family court. 	Finally, Dowling waived any appeal of the family court’s decision as well as any
objection to a sale of the residence if it later became necessary in order to pay all claims in full. The
court approved the stipulation on March 29, 2006.
In June 2006, the trustee learned that Dowling was delinquent on the post-petition residential
mortgage payments in violation of the terms of their agreement. 	Dowling had missed seven post-
petition payments. He explains that he has been unable to work full time since February 2005 in part
because of poor physical and mental health that required him to take pain medication and
antidepressants. The delinquency on the mortgage, real property taxes, and homeowners’ association
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dues totaled $31,445.47. After the secured creditor filed a motion for relief from the automatic stay, the
trustee, the secured creditor, and the debtor agreed that the trustee would commence making the
mortgage payments in October 2006 as further advances on the balance of the debtor’s $50,000
homestead exemption. The trustee listed the residence for sale and obtained court approval of a sale in
November 2007. From October 2006 through the close of sale in November 2007, the trustee advanced
an additional $29,250 to the secured lender from the debtor’s homestead exemption, nearly exhausting
the $50,000 exemption.
On July 5, 2007, the family court liquidated Wagner’s claim by awarding to her a judgment in
the amount of $200,000, plus attorneys’ fees and costs of $7,327. Almost immediately thereafter, on
July 10, 2007, Dowling filed an amended Schedule C increasing his claimed homestead exemption from
$50,000 to $150,000, asserting for the first time that he is entitled to the enhanced homestead exemption
in California Code of Civil Procedure § 704.730(a) because his gross annual income did not exceed
$15,000. The debtor’s and his counsel’s declarations indicate that they had not previously explored the
possibility that his annual income did not exceed $15,000. Deducting his business expenses and the
operating expenses of his rental properties from the gross income of the business and the gross rents,
Dowling’s net income for the twelve month period preceding the petition date was actually a loss of
$58,450.58. His declaration further shows that his annual income for the 2004 calendar year was a net
loss of $65,435.
The trustee objects to this claim of an enhanced exemption.
CONTENTIONS OF THE PARTIES
The trustee contends that the debtor is not entitled to the enhanced homestead exemption under
California law. He asserts that the debtor’s Schedules I and J are a better reflection than the debtor’s
tax return of actual income, showing an estimated average monthly net income of $3,627 from his
accounting practice and $2,550 from his rental properties. Combined, the debtor’s annual income of
$74,124 far exceeds the statutory threshold of $15,000 to qualify for the enhanced homestead
exemption. Relying on a provision in the Family Code, Richardson asserts that although the debtor may
deduct business expenses, he should not be entitled to deduct the operating expenses of his rental
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MEMORANDUM DECISION AND ORDER ON TRUSTEE’S OBJECTION TO HOMESTEAD EXEMPTION
properties in his calculation of gross annual income for homestead purposes. He argues that it would
be too broad an interpretation of gross annual income to permit the debtor to deduct depreciation and
a net operating loss carry-forward. Richardson further submits that the proximity in time of Dowling’s
amendment of exemptions to the family court judgment by his former spouse constitutes evidence of
a bad faith delay of over two years before asserting the enhanced exemption, intended to hinder a full
payment to creditors. 	He asserts that this bad faith is an alternate basis to deny allowance of the
enhanced exemption.
The trustee further requests authority to surcharge the debtor’s enhanced homestead exemption,
if allowed, in the amount of $42,926.51, plus $4,500 in attorneys’ fees, based on the debtor’s inequitable
conduct of misappropriating and then concealing the post-petition transfer of shares of bank stock.
Richardson further seeks to surcharge the homestead exemption an additional $31,445.47 to compensate
the estate for the diminution and erosion in equity caused by the debtor’s failure to honor his agreement
to pay the post-petition expenses of the residence. He contends that the economic loss to the estate
could have been mitigated had Dowling simply acknowledged his inability to perform under the parties’
agreement.
Dowling submits that the amounts set forth in his Schedules I and J merely reflect optimistic
projections of future income. He asserts that his tax returns are a better indicator than his schedules of
his actual income for the twelve month period immediately preceding the petition. His expenses for that
period exceeded his gross income, and his declaration reflects a loss of $58,450.58 during that period
or $65,435 for the calendar year. These figures do not include deductions for depreciation or a net
operating loss carry-forward. 	Dowling contends that by analogy to income from a business, the
operating expenses of his rental properties should be deducted from gross rents to determine his gross
annual income for homestead purposes. Since his net income did not exceed $15,000, Dowling asserts
that he is entitled to an enhanced homestead exemption of $150,000. 	He disputes that he has asserted
the enhanced homestead exemption in bad faith.
Dowling does not dispute a surcharge of his homestead exemption to the extent of the value of
the misappropriated bank shares. He does, however, dispute the requested surcharge in connection with
his failure to make the post-petition mortgage payments and real property taxes. He asserts that he
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failed to make the agreed payments because of his inability to earn sufficient income. The failure was
not the result of any abuse, fraud, or other intentional wrongdoing on his part, he submits. Dowling adds
that this case wound up insolvent as a matter of circumstances and not as a result of any misconduct or
intention to mislead on his part.
LEGAL DISCUSSION
A. Dowling is Entitled to the Enhanced Homestead Exemption.
1. Operating Expenses May Be Deducted From Rental Income.
The facts are largely undisputed, except that the trustee and the debtor dispute the debtor’s
motivations for asserting the enhanced exemption over two years after the petition was filed. 	The
parties also do not dispute that under In re Shelley, 184 B.R. 356 (B.A.P. 9th Cir. 1995), aff’d, 109 F.3d
639 (9th Cir. 1997), a debtor may offset business expenses against the income from a sole business
proprietorship. At issue is whether the operating expenses of the debtor’s rental properties may be
deducted from gross rental receipts to calculate the debtor’s gross annual income for purposes of
qualifying 	for 	the 	enhanced 	homestead 	exemption 	of 	California 	Code 	of 	Civil 	Procedure
§ 704.730(a)(3)(C).
The validity of the debtor’s claimed exemptions is controlled by applicable state law. In re
Been, 153 F.3d 1034, 1036 (9th Cir. 1998). California Code of Civil Procedure § 704.730(a) provides
in pertinent part:
(a) The amount of the homestead exemption is one of the following:
(1) Fifty thousand dollars ($50,000) unless the judgment debtor or spouse of the
judgment debtor who resides in the homestead is a person described in paragraph
(2) or (3).
* 	* 	*
(3) One hundred fifty thousand dollars ($150,000) if the judgment debtor who
resides in the homestead is at the time of the attempted sale of the homestead
. . .
(C) A person 55 years of age or older with a gross annual income of not
more than fifteen thousand dollars ($15,000) or, if the judgment debtor
is married, a gross annual income, including, the gross annual income of
the judgment debtor’s spouse, of not more than twenty thousand dollars
($20,000) and the sale is an involuntary sale.
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Cal. C.C.P. § 704.730(a) (West 1987 & Supp. 2009).
As the parties have noted, the statute itself does not define what constitutes “gross annual
income,” and no decision by a California court has directly addressed how to determine gross annual
income for purposes of qualifying for the enhanced homestead exemption. 	The only decisions
interpreting the phrase are federal court decisions in the bankruptcy context, which the trustee has cited.
In In re Shelley, the analysis of gross annual income by the Bankruptcy Appellate Panel for the Ninth
Circuit was limited to the income from a sole business proprietorship. However, Shelley did not address
what constitutes gross annual income with respect to rental income.
While it did not specifically address rents, Shelley did impart general principles that are
instructive in interpreting the meaning of gross income. The term is to be flexibly construed in view
of the context of the subject matter, and its meaning may adapt to varying circumstances, including the
substance of the transaction and the practical realities of the business. Shelley, 184 B.R. at 359.
Where there is no controlling state court authority, I may examine how California courts would
rule on the question. 	Shelley, 184 B.R. at 358. 	A statute cannot be read in isolation but must be
construed in the context of the statutory framework as a whole. Asfaw v. Woldberhan, 147 Cal. App.
4th 1407, 1421 (Cal. Ct. App. (2nd Dist.) 2007)(statutes in one code may be considered with those in
another code). 	One source is the Family Code, to which the court in Shelley looked for guidance.
Section 4058(a) of the Family Code defines “annual gross income” for purposes of awarding child
support, as follows:
(a) The annual gross income of each parent means income from whatever source derived
. . . and includes, but is not limited to, the following:
(1) 	Income such as commissions, salaries, royalties, wages, bonuses,
rents, dividends, pensions, interest, trust income, annuities, workers'
compensation benefits, unemployment insurance benefits, disability
insurance benefits, social security benefits, and spousal support actually
received from a person not a party to the proceeding to establish a child
support order under this article.
(2) Income from the proprietorship of a business, such as gross receipts
from the business reduced by expenditures required for the operation
of the business. . . .
Cal. Fam. Code § 4058(a)(emphasis added).
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The Court of Appeal for the Second District recently considered whether depreciation from a
parent’s rental properties was properly deductible from annual gross income in calculating child support.
Asfaw v. Woldberhan, 147 Cal. App. 4 th 1407 (Cal. Ct. App. (2nd Dist.) 2007). The Court examined de
novo whether depreciation of rental properties constitutes an “expenditure[ ] required for the operation
of the business” under § 4058(a)(2). Whether the other operating expenses of the rental properties were
properly deductible was not at issue in the appeal. Significantly, however, and relevant to the trustee’s
assertion that expenses cannot be excluded from income other than from a sole proprietorship business,
the Asfaw Court presumed that operating expenses are deductible from the income of any business,
including those sources of income set forth in § 4058(a)(1), such as rents.
The Court in Asfaw observed carefully the language in § 4058 allowing for the reduction of
business income for “expenditures required for the operation of the business.” 	It reasoned that an
expenditure involves paying out cash, while an expense constitutes the cost of doing business whether
an actual payment of money is involved. Asfaw, 147 Cal. App. 4 th at 1420. An expenditure reduces the
amount of funds available for the payment of support while the same is not necessarily true of an
expense. Id. at 1420. The Court noted that depreciating an asset does not reduce the cash available to
pay child support nor is it required for the operation of a business. It concluded that the “expenditures
required for the operation of the business” means those “ordinary and necessary business expenditures
directly related to or associated with the active, day-to-day conduct of a business.” Id. at 1425. On that
basis, it disallowed the reduction of annual gross income by depreciation. Under this analysis, however,
the expenses of a rental property, such as interest payments, maintenance, management fees, and
property taxes, clearly would be deductible from gross rental receipts to derive annual gross income as
they constitute expenditures that actually reduce the funds available for support payments. This reading
comports with the common law definition of “income,” which is the gain or recurrent benefit derived
from labor, business, or property or from any other investment of capital. In re Marriage of Rothrock,
159 Cal. App. 4 th 223, 230-31 (Cal. Ct. App. (2nd Dist.) 2008)(citing In re Marriage of Scheppers, 86
Cal. App. 4th 646, 650 (Cal. Ct. App. (4th Dist.) 2001).
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In addition to the California Family Code, another source of guidance to determine gross annual
income is the Internal Revenue Code. In fact, the definition of annual gross income in Family Code
§ 4058 is derived from “gross income” in the Internal Revenue Code. Rothrock, 159 Cal. App. 4th at
231. The Internal Revenue Code distinguishes between “gross income” and “gross receipts.” See Max
Sobel Wholesale Liquors v. Commissioner of Internal Revenue, 630 F.2d 670, 671 (9th Cir. 1980).
Gross income is defined as all income from whatever source derived, including rents. 26 U.S.C. § 61.
However, it is determined by subtracting from gross receipts all exclusions from income, or “above the
line” items. 	Id.; 26 U.S.C. §§ 61- 62. 	The exclusions from adjusted gross income include all the
ordinary and necessary expenses paid or incurred for the management, conservation, or maintenance
of property held for the production of income. §§ 62(a)(4); 212. Exclusions from income are distinct
from deductions, or “below the line” items, which are subtracted from gross income to derive taxable
income. Max Sobel Wholesale Liquors, 630 F.2d at 671; § 63.
That the expenses of a rental property are excluded from gross income is confirmed by an
examination of the caselaw dealing with income from rents. In Commissioner of Internal Revenue v.
Yaeger, 361 F.2d 417 (9th Cir. 1966), the Ninth Circuit addressed the tax treatment of rental income to
two former partners upon dissolution of their partnership. The partners owned several real properties
jointly. Upon dissolution of the partnership, some of the properties were liquidated to pay the debt on
the other properties, which were conveyed to one partner with an assignment to the other partner of a
life estate in an undivided one-half interest in the properties retained. At issue was whether the stream
of rental income should be treated as ordinary income or as a long-term capital gain from the liquidation
of property. The Ninth Circuit held that only the net rentals generated by the properties are included
in gross income. Yaeger, 361 F.2d at 421.
The Supreme Court definition of income in the tax context is also instructive. Income is defined
as “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete
dominion.” Commissioner of Internal Revenue v. Glenshaw Glass Co., 348 U.S 426, 431 (1955). This
definition is similar to the common law definition of income as the gain or recurrent benefit from labor,
business, property, or investment of capital. Rental income that is diverted to the actual payment of the
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expenses of the property does not constitute a realized accession to wealth that increases the income
available to the taxpayer.
While federal tax law is not conclusive on the interpretation of Family Code § 4058, it is
persuasive. 	Rothrock, 159 Cal. App. 4 th at 231. 	However, “gross annual income” for purposes of
determining entitlement to the homestead exemption is not simply the same as “adjusted gross income”
under the Internal Revenue Code. As suggested in Shelley, gross income must be determined on a case
by case basis depending on the particular circumstances. Viewing income as a gain or accession to
wealth, the operating expenses of rental properties should be excluded from gross income for purposes
of calculating child support under Family Code § 4058 because they are not available to the parent for
support payments. Similarly, the expenses paid from gross receipts actually reduce funds available to
the debtor. Based on the guidance from the California Family Code, the Internal Revenue Code, and
because less funds are actually available to the debtor, the operating expenses of the rental properties
should be deducted from the debtor’s gross rental receipts to determine “gross annual income” for
homestead purposes under Cal. C.C.P. § 704.730(a).
Turning now to the calculation of “gross annual income,” the Ninth Circuit has held that “gross
annual income” means the income in the calendar year in which the bankruptcy petition was filed, not
the income during the twelve-month period immediately preceding the filing of the petition. 	In re
Goldman, 70 F.3d 1028, 1029 (9th Cir. 1995). Gross income, as stated on a tax return, is presumptively
correct since the returns are enforced by criminal penalties. In re Marriage of Loh, 93 Cal. App. 4 th 325,
(Cal. Ct. App. (4th Dist.) 2001). For that reason, I will rely on the statement of gross income set forth
in the debtor’s 2004 tax return. The return and the debtor’s declaration show a loss of $54,992 from his
accounting business in the calendar year 2004. He also realized a loss of $19,339 in connection with
his rental properties that same year. Because his gross annual income for calendar year 2004 did not
exceed $15,000, Dowling is entitled to the enhanced homestead exemption available under Cal. C.C.P.
§ 704.730(a)(3)(C).
This construction is further informed by the policy underlying the California exemption statute.
Cal. C.C.P. § 704.730(a)(3)(C) was added in 1988 to increase the amount of the exemption for persons
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fifty-five years or older whose gross annual income is not more than $15,000, or if married, not more
than $20,000. 1988 Cal. Legis. Serv. 1168 (West 2008). The group defined by these limitations would
generally consist of senior citizens with modest incomes. Shelley, 184 B.R. at 362. Shelley points out
that the comments to the 1988 amendment in the 1987-88 California Legislative State Assembly File
Analysis sets forth the legislative history: “The laws exempting a judgment debtor’s dwelling from
execution are founded upon the public policy that the welfare of the state is best promoted by preserving
a home where a person may be sheltered and live beyond the reach of economic misfortune.” There is
also a strong policy underlying both California law and federal bankruptcy law to interpret exemptions
liberally in favor of the debtor. In re Arrol, 170 F.3d 934, 937 (9th Cir. 1999); In re Glass, 164 B.R. 759,
764 (BAP 9th Cir. 1994), aff’d, 60 F.3d 565 (9th Cir. 1995).
2. 	The Debtor Has Not Exhibited Bad Faith in Asserting the Enhanced Homestead
Exemption.
A debtor may amend the schedules as a matter of course at any time before the case is closed.
FED . R. BANKR . P. 1009(a). 	The Ninth Circuit recognizes a policy of liberally allowing debtors to
amend their exemption claims in order to enhance the fresh start. In re Michael, 163 F.3d 526, 529 (9th
Cir. 1998). I have no discretion to disallow an amended exemption unless the amendment was made
in bad faith or causes prejudice. In re Arnold, 252 B.R. 778, 784 (B.A.P. 9th Cir. 2000). Richardson has
not alleged any prejudice.
The typical case of bad faith amendment involves the debtor’s attempt to hide an asset by
omitting it from the schedules, then amending the schedules if the asset is later discovered. Id. at 785.
This case does not fall within that pattern. I would not anticipate that a layperson, even if sophisticated,
would necessarily be aware of the amount of the homestead exemption to which he is entitled.
Counsel’s declaration sets forth that he had not considered the possibility that his client’s annual income
did not exceed $15,000 until shortly before the debtor amended his exemption schedule to claim the
enhanced homestead. Consequently, counsel did not advise his client earlier that he may qualify for the
enhancement. By itself, claiming an exemption late is simply not bad faith. Id. at 786.
Case: 04-57297 Doc# 251 Filed: 01/05/09 Entered: 01/05/09 14:38:24 Page 11 of
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UNITED STATES BANKRUPTCY COURT
For The Northern District Of California
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MEMORANDUM DECISION AND ORDER ON TRUSTEE’S OBJECTION TO HOMESTEAD EXEMPTION
Further, Dowling’s acknowledgment in the stipulation with Richardson and Wagner for relief
from stay that he is entitled to a $50,000 homestead exemption does not, absent an express provision,
constitute a waiver of any greater exemption to which he may later learn that he is entitled. Moreover,
that he is entitled to the enhanced homestead dictates in favor of a finding that it was not asserted in bad
faith. As the objecting party, the trustee bears the burden of proof that the exemption is not properly
claimed. FED . R. B ANKR . P. 4003(c). The trustee has not met his burden. The debtor’s claim of an
enhanced exemption under Cal. C.C.P. § 704.730(a)(3)(C) is allowed.
B. The Estate is Entitled to Surcharge the Debtor’s Homestead Exemption to the Limited Extent
of the Fair Market Rental Value of the Residence.
Surcharging a debtor’s exemption is an equitable remedy that bankruptcy courts may apply in
exceptional circumstances to ensure that a debtor exempts an amount no greater than what is permitted
while protecting creditors’ interests in the excess. In re Latman, 366 F.3d 774, 786 (9th Cir. 2004). The
purpose served by surcharge is fairness to creditors, not punishment of the debtor. 	See id. at 783.
Dowling concedes that a surcharge of his enhanced homestead exemption for the value of the
misappropriated bank shares and associated attorneys’ fees is appropriate.
With respect to the diminution in value of the residence, I find that a surcharge of the enhanced
homestead is appropriate, but only to the limited extent of the fair market rental value of the residence
for the period during which the debtor retained physical possession. The record does not support a
finding that the debtor intentionally acted fraudulently or otherwise inequitably. He merely defaulted
on the terms of the stipulation to maintain the status quo of the residence because of his inability to earn
sufficient income. However, because creditors suffered an economic loss as a result of the debtor’s
default, it is appropriate to surcharge the debtor’s homestead exemption to the extent of the fair market
rental value of the residence for the time the debtor retained possession. The trustee and the debtor are
directed to meet and confer to determine the appropriate amount of the surcharge and to submit an
appropriate order. If the parties fail to reach an agreement, the matter may be restored to calendar.
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MEMORANDUM DECISION AND ORDER ON TRUSTEE’S OBJECTION TO HOMESTEAD EXEMPTION
CONCLUSION
For the reasons stated, the trustee’s objection is overruled, and the debtor’s claim to an enhanced
homestead exemption under Cal. C.C.P. § 704.730(a)(3)C) is allowed. Further, the debtor’s enhanced
homestead exemption is surcharged to the limited extent of the fair market rental value of the residence
for the period that the debtor remained in physical possession.
Good cause appearing, IT IS SO ORDERED.
* * * END OF ORDER * * *
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MEMORANDUM DECISION AND ORDER ON TRUSTEE’S OBJECTION TO HOMESTEAD EXEMPTION
Case. No. 04-57297-MM
SERVICE LIST
CHARLES P MAHER
LUCE FORWARD HAMILTON &
SCRIPPS LLP
121 SPEAR ST SUITE 200
SAN FRANCISCO CA 94105-1582
MICHAEL K MEHR
LAW OFFICE OF MICHAEL K MEHR
100 DOYLE ST SUITE A
SANTA CRUZ CA 95062
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