[00:00:01] Speaker 00:
In Ray Ray, Christopher J Langley, counsel for appellant Maria Teresa Melendez-Ray, Thomas H Casey, counsel for appellee Peter Urquia.

[00:00:15] Speaker 04:
Thank you.

[00:00:16] Speaker 04:
Counsel, would you like to reserve time for reply?

[00:00:20] Speaker 04:
Yes, please.

[00:00:24] Speaker 04:
How much time?

[00:00:25] Speaker 03:
Five minutes.

[00:00:25] Speaker 03:
Five minutes?

[00:00:26] Speaker 03:
Certainly.

[00:00:27] Speaker 04:
You may begin.

[00:00:31] Speaker 03:
If it may please the court, Christopher Langley, appearing on behalf of appellant Teresa Melendez-Ray.

[00:00:38] Speaker 03:
This case is about a homestead exemption.

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Essentially, we first look at the statute.

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As mentioned in the briefs, the statute in question is 704, 710, and 780.

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Essentially, the debtor is trying to claim a homestead and a property.

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This property is the debtor's primary residence.

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There's no dispute.

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The issue, however, is there's a back unit to the property that's attached to the debtor's garage.

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This is one parcel, one lot, one property tax bill.

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The debtor has rented out the back unit of her property since she's occupied the property.

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There's no dispute as far as facts.

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It's really the legal application of the standard.

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Under the statute, the statute requires the definition of homestead.

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Well, the definition of dwelling.

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They start out with the homestead because essentially the homestead is a principal dwelling.

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The definition of dwelling simply means a place where a person resides, and the code then specifies multiple types of dwelling.

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It says included but not limited to.

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The subsection in play in this case is a house with the outbuildings and the land on which they are situated.

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in prior cases, and we've cited it, said, OK, when we look at the homestead, we simply look at use and we look at value.

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And this is the Jarrell case.

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Is the homestead, is this property being used by the debtor as a residence?

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And the homestead requires this to be the principal dwelling.

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And does it exceed the value that's allowed?

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In this case, the property as a whole is worth somewhere.

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It's disputed, and we have an evidentiary hearing with the court next week.

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But the value of the property as a whole is worth somewhere between $820

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$850,950.

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So there's a mortgage on the property for $570,000.

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That mortgage encompasses the entire property.

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And so the net equity is about $320,000.

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Under California Homestead, the amount allowed at the time of filing was about $625,000.

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Now, Appellee, the creditor,

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Brought this theory to the court based on very old law.

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That's all pretty much 150 years old or 130 years old still valid It's still valid.

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But again, it's our argument is there's there's a different understanding So what what this law does and I can kind of quote some of them some of the law and some of the statutes was If I were to attempt to exempt multiple parcels of land

[00:03:22] Speaker 03:
the court would obviously look and see, well, we can't abuse the homestead.

[00:03:28] Speaker 03:
So does this parcel of land, if we have two separate parcels and houses next to each other, but they're separate parcels, the court's going to obviously look at that and say, can we exempt both of these parcels?

[00:03:38] Speaker 05:
Go ahead.

[00:03:38] Speaker 05:
OK.

[00:03:38] Speaker 05:
I was going to ask, if this was two lots,

[00:03:41] Speaker 05:
I don't think this would be a question.

[00:03:42] Speaker 05:
We wouldn't have a problem.

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But we're in bankruptcy.

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Here's my question, is that can't you apportion value because you're in bankruptcy?

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You say, OK, what is the value of the land and the residence?

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And then separately, what is the value of the rental building?

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And in bankruptcy, you're dealing with apportionment of value.

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Can't we divide the value, even if we can't divide the lot, in a Chapter 13 plan?

[00:04:10] Speaker 03:
Well, we've mentioned that, and that's in the brief where it's required that essentially the court look at what, because under California law, under the exemption, before you can foreclose on a homestead, you have to look at what the fair market value of that homestead is.

[00:04:20] Speaker 04:
But nobody's foreclosing here.

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I mean, the requirement of a foresale has been satisfied by the bankruptcy, and nobody disputes that.

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So now it's just, what do you do?

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And the homestead doesn't exempt the property, it exempts the value of the property, which is inherently the issue here.

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Ultimately, how much is going to be

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in play in the chapter 13.

[00:04:43] Speaker 03:
But the homestead exempts a value up to, obviously the homestead is necessary to be associated with the property, even if you were to get that value it would be necessary to be reinvested within six months.

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But essentially it exempts a value up to a certain statutory amount.

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the debtor should get that statutory amount if this property is sold.

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To the extent that the homestead applies and that's what Judge Brandt decided.

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It applies to the residents and because they are separate physically, if not legally, she made that determination.

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Where is the error in that?

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All of the case law that's cited

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deals with large portions of land where the actual homestead is not disturbed.

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Let's talk about Greg V. Boswick, where the court says, and this is in 1867, there's a whole lot.

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There's four parcels that's essentially a city block, and they say, well, we're gonna limit your homestead.

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They specifically say, we're gonna limit your homestead and we are going to exempt from seizure and execution that portion of the lot that you use.

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Now, the way California law, and this is the Smeltz case, essentially, we may not be able to protect separate structures if you can divide or cut off or determine that to be excess land.

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When it's an indivisible parcel,

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The homestead protects a whole lot.

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Essentially, what the judge did here was say, in the vein of the judgment of Solomon, she split the baby.

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She said, OK, well, half the garage is protected, half the garage is not.

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There's no precedent for determining half a building is homestead and half the building is not.

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But it's not the building.

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It's the value.

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But what the statute says, and going back to the statute is,

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The dwelling, the homestead is the primary dwelling of the debtor.

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The homestead includes a house together with the outbuildings on the land on which they are situated.

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I don't think that is convenient and necessary for their use in the land situated there on.

[00:06:50] Speaker 03:
I don't see that as part of the definition in the homestead.

[00:06:53] Speaker 04:
We are not going to overturn, as Judge Brand said, 150 years of uninterrupted California precedent.

[00:07:01] Speaker 01:
But if you don't use it for residents, and she never has, right?

[00:07:05] Speaker 01:
Yes, that's correct.

[00:07:07] Speaker 01:
She's operating a business in another building on the same property she lives on.

[00:07:12] Speaker 01:
The indivisibility argument is the one that makes it difficult for valuation purposes.

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The fact that if she ran a casino on that property instead of renting it out, she doesn't live in it, she doesn't intend to live in it, she never lived in it.

[00:07:31] Speaker 01:
She lived in the house that's located on the same parcel.

[00:07:35] Speaker 01:
Isn't that the distinguishing feature that Judge Brand relied upon?

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To distinguish the cases that you're relying upon?

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Where the outbuildings were utilized by the individuals, even if they were a city block, they lived in all of the buildings, they used them.

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all for their use and enjoyment of their residence.

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She doesn't do that here.

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But I think what the distinguishing factor that the judge didn't see is they, when the court determined what excess land was, it did not interfere with the homestead of the debtor and it was reduced to a portion.

[00:08:04] Speaker 01:
If we affirm, she doesn't lose her homestead, right?

[00:08:08] Speaker 03:
But the property gets sold.

[00:08:10] Speaker 05:
Why does the property have to be sold?

[00:08:12] Speaker 05:
I mean, couldn't she, as I, in the docket shows that the Chapter 13 plan hasn't been confirmed, right?

[00:08:19] Speaker 05:
I mean, and the case is still pending.

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Can't she present a plan that deals with the apportionment of value?

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Say, okay, I have a homestead in my residence and the land, the lot on which it sits, but I don't have a homestead necessarily in the building that is used for rental purposes.

[00:08:40] Speaker 05:
Which and you'll portion the value and say now because the building wouldn't include the lot I mean it's basically on You know it's just the building and under the plan say you have a valuation hearing and say how much is that building worth?

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separate from the lot and the other residents and

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And that value has to be included in her Chapter 13 plan.

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So she gets to claim a homestead.

[00:09:03] Speaker 05:
She gets to keep the value, as Judge Spraker talked about, the value of her residence and the value of the lot.

[00:09:11] Speaker 05:
She can homestead that.

[00:09:12] Speaker 05:
But she doesn't get a homestead the extent that the value was increased by a rental structure on the point.

[00:09:20] Speaker 03:
Well, what the court ruled is they actually divided the lot as far as what was protected and what wasn't.

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The back unit that we're talking about is attached to the debtors garage and the court decided we're going to separate this lot out.

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We're not going to partition a lot because that's not what we can do, but we're going to separate this lot out.

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Now the problem with the current plan is

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It's a completely arbitrary, there's no mechanism in California law for saying, well, because again, we talked about fair value.

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The court is gonna say, and this is gonna come up, if this is upheld, it's gonna, another issue on appeal, it's gonna be, well, how do you apportion value?

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The court has said, we're just gonna look at true square footage.

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So we're gonna say, if the back is two thirds of square footage of the property, we're gonna declare,

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that two-thirds of the equity is not existed.

[00:10:09] Speaker 05:
The apportionment of value is not before us today.

[00:10:11] Speaker 03:
It's not.

[00:10:12] Speaker 03:
But again.

[00:10:12] Speaker 05:
But how would do it?

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One of the arguments could be that she gets the lot, and there's a lot of properties that people own the building, but they don't own the land underneath it.

[00:10:23] Speaker 05:
That that is a business structure that does exist.

[00:10:26] Speaker 05:
It's unique, but it I mean it's not unique it is Not common, but it does exist and you can value based on how much rent comes in in a portionate You know portion the mortgage to it and stuff, but you could still you could still do a division of the value I understand But that's not what California law in the homestead the homestead needs to be construed liberally in benefit of the debtor if I can just take a couple more minutes of The homestead it needs to be construed liberally in favor of the debtor

[00:10:53] Speaker 03:
The purpose of the homestead is to preserve from a sale this property.

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Basically what what the court ruled is what we're going to force this sale on this debtor.

[00:11:01] Speaker 03:
But that's not supported under California law.

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California law has very clear precedent going back, and we cited those cases, that if you have a duplex, if it's an attached building, they make this distinction.

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It's a distinction without difference now based on the way we can apportion lots.

[00:11:16] Speaker 03:
You could, when the court ruled under all of these cases, separate out the excess land, and it did not interfere with the debtor's homestead.

[00:11:23] Speaker 04:
When you couldn't do that as in the case of in Ray Smeltz the debtor was entitled to their entire but it smelts the Smeltz court was very clear and but for that stipulation and there was a stipulation The court went through a litany of cases that said a different result was required We don't know why it was indivisible.

[00:11:44] Speaker 03:
I'm not sure what indivisible means It right by understanding is it can't be severed.

[00:11:49] Speaker 03:
You can't you cannot what's the authority for that?

[00:11:53] Speaker 03:
That's the California law that says the parcel, I believe that's the understanding of the land to which the homestead is attached.

[00:12:02] Speaker 03:
If you cannot separate, if you cannot sell in port, if you cannot separate the property and maintain the homestead, the entire homestead is protected.

[00:12:11] Speaker 04:
What's the authority for that?

[00:12:12] Speaker 04:
Because at least in Wagner and Maloney,

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There is at least a strong inference in Wagner and Express in Maloney that with two houses on one lot, each was divisible and separate from the other.

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Only that portion, actually the residence of the homestead, was subject to the dedication of the homestead.

[00:12:33] Speaker 03:
I think the important part is that it was divisible.

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This lot is not divisible.

[00:12:36] Speaker 04:
How is it divisible in a single lot?

[00:12:38] Speaker 03:
Because before the Parcel Act, and this is mentioned, you could deed off portions of your property, or you can separate portions of your property.

[00:12:45] Speaker 03:
That's the importance of the Parcel Act.

[00:12:47] Speaker 04:
And where is that established?

[00:12:49] Speaker 04:
And you are cutting into your reply time.

[00:12:52] Speaker 04:
So I need to understand, where is that established as a matter of law?

[00:12:56] Speaker 04:
Because Wagner just deals with a case to effectively quiet title.

[00:13:02] Speaker 04:
right so it it divided and it maintained a portion for the better to live on and that seems to be a situation here is that nobody's complaining about the residents but the debtor cannot maintain

[00:13:15] Speaker 03:
They can't maintain the residence if two-thirds of the property is non-exempt.

[00:13:19] Speaker 03:
Why not?

[00:13:20] Speaker 03:
Because there's $300,000 of equity.

[00:13:22] Speaker 03:
The court's going to say the debtor's only entitled to $100,000 of equity.

[00:13:25] Speaker 03:
They need to propose a plan that's going to provide that.

[00:13:27] Speaker 05:
We don't know that the court's going to say that, because you're going to be able to argue.

[00:13:30] Speaker 03:
That's not an issue before us.

[00:13:31] Speaker 05:
Because in the apportionment, you're going to say that the homestead includes all of the land.

[00:13:35] Speaker 03:
Well, the courts already ruled that it doesn't include all of the land.

[00:13:38] Speaker 05:
Well, is that issue before us?

[00:13:40] Speaker 03:
Yes, because the order that the court ruled, the order of the court is, we're going to divide up this land.

[00:13:46] Speaker 03:
We're going to split the garage in half.

[00:13:48] Speaker 03:
There's one two-car garage.

[00:13:49] Speaker 04:
But that's the problem.

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Nobody's actually physically taking a saw to the garage.

[00:13:55] Speaker 04:
They're splitting the value of that.

[00:13:58] Speaker 03:
Yes, but the result of that in a Chapter 7 would be a forced sale.

[00:14:02] Speaker 04:
We're not in a 7.

[00:14:03] Speaker 03:
But this will go in a 7 if we cannot propose a feasible plan.

[00:14:07] Speaker 03:
Because this was initially filed as a seven.

[00:14:09] Speaker 03:
We converted to a 13 when there was additional income discovered.

[00:14:12] Speaker 03:
We proposed a 13 plan.

[00:14:13] Speaker 03:
The ruling of the court was this can't go back into, this can't be dismissed.

[00:14:16] Speaker 03:
It would have to go into a seven if you can't propose a feasible plan.

[00:14:19] Speaker 03:
So yes, if we cannot, if the court rules, you have to pay $200,000 into this case because you have this, two thirds of this homestead is not, two thirds of this property is not protected.

[00:14:30] Speaker 03:
I don't think there's any basis in law.

[00:14:31] Speaker 03:
The basis that was set.

[00:14:32] Speaker 04:
But even then, in a chapter seven, in that situation,

[00:14:36] Speaker 04:
There is evaluation.

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It goes into 7.

[00:14:38] Speaker 04:
Then Chapter 7 trustee, if he or she believes that it is economically appropriate within the financial institution, sells it.

[00:14:45] Speaker 04:
And that valuation is applied to the proceeds.

[00:14:49] Speaker 04:
And there's evaluation of the garage attached to each of that use.

[00:14:55] Speaker 04:
So I don't see the problem.

[00:14:56] Speaker 03:
The exclusive use standard is the problem.

[00:14:58] Speaker 03:
Because essentially, if you have a debtor,

[00:15:00] Speaker 03:
Traditionally, if someone rented out a room, that's still gonna be protected by the homestead.

[00:15:06] Speaker 03:
If you have a situation where a debtor doesn't use three bedrooms of her house, the same rule would apply here.

[00:15:12] Speaker 04:
And I think the courts have distinguished those cases.

[00:15:15] Speaker 03:
And the distinction is you can maintain the homestead by separating out the additional property.

[00:15:19] Speaker 03:
In this case, it's all or nothing.

[00:15:21] Speaker 03:
You can't keep the property without selling it.

[00:15:25] Speaker 03:
The only way to partition this property is to sell it and partition the proceeds, and that's not supported by California law.

[00:15:30] Speaker 04:
You've exhausted all of your time.

[00:15:32] Speaker 04:
We're going to give you some time for reply.

[00:15:34] Speaker 04:
We'll address it after we hear from Napoli.

[00:15:37] Speaker 04:
Thank you.

[00:15:38] Speaker 04:
Council?

[00:15:47] Speaker 02:
Good morning.

[00:15:47] Speaker 02:
My name is Tom Casey.

[00:15:49] Speaker 02:
I represent Appellee Creditor Pete Orquijo.

[00:15:53] Speaker 02:
A few moments ago, this panel asked the appellant, can't you simply apportion the value of the exempt versus the non-exempt value of the APN?

[00:16:02] Speaker 02:
And the answer is yes, of course.

[00:16:03] Speaker 02:
In the part of the reply papers filed in the lower court, we cited to California legal authority.

[00:16:11] Speaker 02:
An expert was a petition referee where it was shown California law allows you to apportion the sale proceeds.

[00:16:21] Speaker 02:
This panel appropriately questioned also, isn't this the issue of

[00:16:28] Speaker 02:
the amount of the homestead exemption being paid from the sale proceeds?

[00:16:34] Speaker 02:
The answer?

[00:16:34] Speaker 05:
Yeah, let me ask this, just make sure I understand it, is that your position is not that the debtor, the debtor is entitled to a homestead, but she's not entitled, she's entitled to a homestead for the residential property, the dirt underneath it, but not against the building that is used for commercial purposes or for rental purposes.

[00:16:58] Speaker 02:
Yes, and to clarify further and to put a finer point on that, yes, Creditor Aquillo has always agreed that the debtor has a homestead exemption in 1922 Bunker Avenue and one half of the garage.

[00:17:15] Speaker 02:
Everything in back of that, no, the debtor does not have a homestead exemption to it because the undisputed evidence shows for the applicable legal authorities, it's not necessary to reuse and enjoyment of her homestead at 1922 Bunger Avenue, Your Honor.

[00:17:35] Speaker 02:
To complete my argument on the apportionment, absolutely it can be apportioned per the applicable California legal authorities cited to the lower court.

[00:17:47] Speaker 04:
And those authorities, which ones dealt with multiple units on a single lot?

[00:17:55] Speaker 04:
Because a lot of the cases that are cited, and Judge Brand cited, deal with a property comprising of several lots.

[00:18:02] Speaker 02:
Your Honor, reference the Maloney v. Heffer case.

[00:18:06] Speaker 02:
I would suggest, Your Honor, that is on point.

[00:18:09] Speaker 02:
That's one.

[00:18:13] Speaker 02:
There's also the, let's see, in the Greg v. Bostowick case, the, in that case, the court... There were four separate lots in Greg.

[00:18:30] Speaker 02:
Correct.

[00:18:31] Speaker 02:
In that case, the court focused on the amount of the homestead being paid and focusing on the use of the homestead there.

[00:18:43] Speaker 04:
But that seems to be easy.

[00:18:44] Speaker 04:
I mean, if you have four lots and one lot was used for a residence, the court didn't then go in and say, well, you only get half of that one lot on the residence because maybe you don't.

[00:18:56] Speaker 04:
I understand that when you have separate lots, it is divisible by nature.

[00:19:00] Speaker 04:
So the question that the appellant's making is that this is a single lot.

[00:19:07] Speaker 04:
And how do you say that you can subdivide it?

[00:19:16] Speaker 04:
But why is that the focus here?

[00:19:19] Speaker 04:
Why isn't it just that lot is either used for residents or for business?

[00:19:25] Speaker 02:
The entire APM can be sold in the sale proceeds apportioned

[00:19:29] Speaker 02:
to the exempt portion where the value is entitled to the application of the homestead, and the other sale proceeds would go to the bankruptcy estate.

[00:19:39] Speaker 05:
And did the bankruptcy judge rule that the lot value would be apportioned?

[00:19:46] Speaker 01:
In other words, the dirt itself.

[00:19:47] Speaker 02:
Well, the lower courts ruling the last paragraph indicated that courts have long entertained causes of action to

[00:20:00] Speaker 02:
determine the value of excess land.

[00:20:04] Speaker 02:
Excess land.

[00:20:04] Speaker 05:
So here is there any excess land?

[00:20:06] Speaker 05:
I mean if the rental property was not on this land there'd be no question she'd get her residence and the entire lot because it's one lot.

[00:20:17] Speaker 05:
Okay in this case in looking at the apportionment what I'm wondering is did even if the debtor is only entitled to a portion of the total value of

[00:20:27] Speaker 05:
isn't the debtor entitled to the value of all of the dirt, not dividing up the value of the dirt, and her residence, and that what is not homesteadable is just the structure itself and the revenues that are associated with it?

[00:20:44] Speaker 02:
No.

[00:20:44] Speaker 02:
No, she's not, because the lower court found that

[00:20:48] Speaker 02:
The dirt, he's, Your Honor, saying, is not necessary to her use and enjoyment of her homestead.

[00:20:55] Speaker 02:
He passed that half of the garage and passed her 1922.

[00:20:59] Speaker 05:
Well, it's the structures, though.

[00:21:01] Speaker 05:
I mean, if the lot can't be divided, isn't the lot necessary for her small residence in the corner?

[00:21:07] Speaker 02:
No, Your Honor.

[00:21:10] Speaker 05:
So, well, is it possible that the bankruptcy judge was right on part of it and wrong on part of it?

[00:21:16] Speaker 02:
The lower court was right on all of it, Your Honor, because there's no evidence before the lower court that this debtor needed to use any of the dirt and back of her fence in one half of the garage.

[00:21:28] Speaker 02:
In fact, she was contractually barred from even entering into the rental building.

[00:21:32] Speaker 05:
Okay, but that's a contract.

[00:21:32] Speaker 05:
But now we're dividing it up.

[00:21:33] Speaker 05:
But if you look at California Homestead Law, without that other structure, she gets all of the dirt because the lot can't be divided.

[00:21:46] Speaker 02:
Probably.

[00:21:49] Speaker 02:
The test is whether, and the case law shows this, it is whether the property at issue is subject to, is necessary for the date of use and enjoyment of her homestead.

[00:22:02] Speaker 02:
Now, that, I don't mean to cut off, Your Honor.

[00:22:06] Speaker 05:
I didn't, I'm sorry.

[00:22:06] Speaker 05:
I didn't, go ahead, sir.

[00:22:09] Speaker 02:
There are many different factual hypotheticals that could be proposed, and we provided a list of them as to the different facts as to when the property at issue is necessary to the debtor's use and enjoyment of her home.

[00:22:25] Speaker 02:
Your Honor, as opposed to a hypothetical where the question would be whether the dirt and back of the debtor's home set is necessary to the debtor's use and enjoyment, there may be facts and evidence, Your Honor, that could show that perhaps not.

[00:22:39] Speaker 02:
Hypothetically speaking, assume there's 100 acres in back of the debtor on a single lot.

[00:22:44] Speaker 05:
I understand the argument, but I guess the other counter is that if she was to enjoy where her house is under the law, she needs the whole lot.

[00:22:54] Speaker 05:
I mean, she couldn't build anywhere on that property because the lot can't be divided.

[00:23:00] Speaker 02:
But there's no evidence of that in the lower court.

[00:23:06] Speaker 02:
Your Honor just touched on one point that I'd like to address also, if I may, which is a whole new argument that was raised on appeal, the data needs

[00:23:15] Speaker 02:
the rental income from this duplex, which is what Your Honor may be referring to just now with that question.

[00:23:23] Speaker 02:
There's a whole new argument raised on appeal for the first time.

[00:23:26] Speaker 02:
That wasn't raised in the lower court.

[00:23:29] Speaker 02:
That should be deemed waived.

[00:23:31] Speaker 02:
There's also no legal authority cited by the appellant that where there is zero physical use of the property at issue, zero, which is the case before Your Honors.

[00:23:45] Speaker 02:
It is undisputed that the real property at issue was not necessary for her use and enjoyment.

[00:23:53] Speaker 02:
There's no legal authority cited in the lower court in this newly created argument that all the data needs is to collect the rent from it, a business use from it, and that entitles her to the homestead.

[00:24:07] Speaker 02:
I respectfully request that argument by the appellant be denied.

[00:24:14] Speaker 02:
I have other points that I'd like to make, but I know what's most important is what the court thinks is most important.

[00:24:19] Speaker 02:
Are there any further questions from the court?

[00:24:25] Speaker 04:
At the core, you believe this to be a factual question?

[00:24:34] Speaker 02:
In my brief, I cite the legal authorities as the type of review.

[00:24:39] Speaker 02:
de novo review, I believe the court initially, on de novo review, identified the correct legal standard and the correct law to apply.

[00:24:49] Speaker 02:
The court then applied the evidence, which was not disputed at all in the lower court, to that legal standard.

[00:25:00] Speaker 02:
I argued in my brief that to overturn those findings of fact would require an abuse of discretion standard, and there's been no evidence of, there's no argument here.

[00:25:13] Speaker 02:
I believe a mistake made by the lower court because the evidence simply wasn't disputed in the lower court.

[00:25:20] Speaker 04:
Now... It gets to, the reason I raise this is...

[00:25:25] Speaker 04:
It gets to a question of use and enjoyment under your standard and as articulated in the focus.

[00:25:35] Speaker 04:
Whereas Ms.

[00:25:36] Speaker 04:
Ray is arguing, look, it's indivisible and that indivisibility is a matter of law.

[00:25:41] Speaker 04:
Makes it either a yes, no as to the use and enjoyment, right?

[00:25:49] Speaker 02:
Whether the property is indivisible,

[00:25:54] Speaker 02:
in a sense, isn't relevant to the key issue the court needs to decide, and the court decided in the lower court, and I respectfully suggest the court should consider today.

[00:26:02] Speaker 02:
The legal authority's providers to whether it's the property at issue is necessary to the use and enjoyment.

[00:26:09] Speaker 04:
How do you deal with Schmelzen?

[00:26:13] Speaker 04:
Schmelzen.

[00:26:13] Speaker 04:
Because that was the deciding factor in that case.

[00:26:18] Speaker 04:
easily.

[00:26:19] Speaker 02:
First, the Schmelz Court itself, the Court of Appeals said, this case should not be cited for our ruling today.

[00:26:30] Speaker 02:
And that's exactly what Ms.

[00:26:31] Speaker 02:
Ray then did.

[00:26:33] Speaker 02:
Even though the ruling itself says, essentially, don't use this for presidential value, the Schmelz Court also took four paragraphs to respect

[00:26:45] Speaker 02:
in a poll to make sure they were not affecting the sound California case law.

[00:26:51] Speaker 04:
Except that its holding was that the invisibility controlled.

[00:26:57] Speaker 02:
Yes, it did.

[00:26:58] Speaker 04:
So why is that?

[00:27:01] Speaker 02:
because the court gave deference to the lower court on an abuse of discretion.

[00:27:07] Speaker 04:
It was a stipulated fact.

[00:27:08] Speaker 04:
There was nothing really to dispute.

[00:27:13] Speaker 04:
I understand your point that the indivisibility was established and not disputed on appeal, therefore taken.

[00:27:23] Speaker 04:
You know, here, Ms.

[00:27:23] Speaker 04:
Ray is saying this is indivisible.

[00:27:25] Speaker 04:
And if it is indivisible, why doesn't Schmelz say that that then means that totality is either business or residential?

[00:27:34] Speaker 02:
Because the Schmelz Court has no presidential value.

[00:27:38] Speaker 02:
The Schmelz Court recognized that it should not affect 150 years of case law.

[00:27:44] Speaker 02:
And to directly answer Your Honor's question,

[00:27:48] Speaker 02:
whether the property's divisible is not the governing legal standard here.

[00:27:54] Speaker 02:
It is whether the property is necessary to the use and convenience.

[00:27:58] Speaker 04:
And also, I guess, and that's why the question about fact.

[00:28:04] Speaker 04:
I mean, if it's a single lot, then why isn't it necessary?

[00:28:09] Speaker 04:
I mean, that is your lot.

[00:28:15] Speaker 04:
She chose to fund it.

[00:28:18] Speaker 02:
I understand your comments about what was raised and she chose to fund it by by renting out by having another building that she rented and there's no legal authority that supports that your honor that if there's no physical use in enjoyment of the property at issue that that's sufficient for her and But haven't haven't at least two California cases considered that I

[00:28:46] Speaker 02:
Courts consider all factors, Your Honor, in determining whether the property is necessary to the use and enjoyment.

[00:28:52] Speaker 02:
In fact, you'll see language about what is the predominant use in a single building.

[00:28:57] Speaker 02:
And so the statute is structured where the statute says may include the buildings in a pertinent land thereon.

[00:29:05] Speaker 02:
The wisdom in what the legislature did there was to provide the lower courts the discretion to weigh all the factors and determine what is necessary

[00:29:14] Speaker 02:
for the use and enjoyment, because that respectfully is the standard.

[00:29:20] Speaker 02:
The court also questioned as to whether, in the context of a Chapter 13 case, why can't the debtor simply propose a plan that would provide the value of the non-exempt part of the APN?

[00:29:35] Speaker 02:
Exactly.

[00:29:37] Speaker 02:
That's exactly what we want to see in this context of this Chapter 13 case.

[00:29:43] Speaker 02:
And if that is proposed, if such a plan is proposed, the creditor would be happy.

[00:29:48] Speaker 02:
We'd be done.

[00:29:49] Speaker 02:
That's all we want, is to have the value of the non-exempt portion of the APN distributed.

[00:29:55] Speaker 02:
Whether it's through our Chapter 13 plan, that's fine.

[00:29:58] Speaker 02:
the case is converted to a chapter 7, the chapter 7 trustee will perform their statutory duty and realize the value of the non-exempt portion of that land.

[00:30:09] Speaker 04:
And that sounds like it may be easier said than done.

[00:30:12] Speaker 02:
Your honor, I think

[00:30:17] Speaker 02:
I think it would be actually under the California case law that I've cited.

[00:30:21] Speaker 02:
I have an expert, Matthew Taylor, who's a petition referee who's done this for many years under California law, an easy, quiet title, declaratory relief cause of action to sell, citing also section 363.

[00:30:35] Speaker 02:
Respectfully, I think it is easy.

[00:30:38] Speaker 02:
I think it's summary judgment material for me on those points.

[00:30:41] Speaker 02:
I think I'd prevail on summary judgment that adversary proceeding that would be brought by a hypothetical chapter 7 trustee.

[00:30:51] Speaker 04:
Thank you very much.

[00:30:51] Speaker 04:
Any other questions?

[00:30:54] Speaker 04:
Thank you very much.

[00:30:56] Speaker 04:
Thank you.

[00:30:56] Speaker 04:
All right.

[00:30:57] Speaker 04:
Reply.

[00:30:58] Speaker 04:
Since we ran counsel over, I was going to give him his five minutes.

[00:31:03] Speaker 04:
Any objection?

[00:31:05] Speaker 04:
No.

[00:31:05] Speaker 04:
Madam Clerk, could we give five minutes for reply?

[00:31:07] Speaker 04:
Thank you.

[00:31:11] Speaker 03:
I think the court brought up some interesting points.

[00:31:13] Speaker 03:
The only way the debtor can actually enjoy this property is if the property remains intact.

[00:31:17] Speaker 03:
I think that's undisputed.

[00:31:20] Speaker 04:
I don't know because she has separated it.

[00:31:23] Speaker 04:
That's the interesting thing about this fact pattern.

[00:31:27] Speaker 04:
She has in all aspects apparently separated this property with the possible exception of the garage.

[00:31:35] Speaker 03:
She built a unit and I mean this is a standard duplex in the neighborhood this is really what standard in that neighborhood it's a long narrow lot you have a unit in the back a unit in the front it's rented to and again this is going to become the norm in California this case is so much far reach more reaching than this is the individual facts there's three hundred fifty there's three hundred twenty thousand dollars of equity here we're basic I mean it's it's not that much relatively speaking we're where below the exemption

[00:32:00] Speaker 03:
In Washington, the number I read in Washington state, 50% of new permits is for multifamily housing.

[00:32:06] Speaker 03:
And last year, California, 46% of permits that were pulled for new housing is multifamily housing.

[00:32:13] Speaker 03:
This is going to become the norm.

[00:32:15] Speaker 03:
And then all the new auxiliary unit dwelling properties.

[00:32:17] Speaker 03:
Exactly.

[00:32:18] Speaker 03:
So then the question then becomes, if this was two separate parcels, I have a rental property, I have a small rental property with a very small house that has two separate parcels that send me two tax bills every year.

[00:32:29] Speaker 03:
If I filed bankruptcy, I would assume, I'm worried to live there, that that second parcel, the court would employ the use, necessary use and requirement.

[00:32:37] Speaker 03:
They would leave my first parcel alone, but the second parcel, they would employ this test.

[00:32:43] Speaker 03:
Now, the benefit of it being two parcels is the mortgage would cross-collateralize both of these parcels.

[00:32:49] Speaker 03:
So if this property could actually be subdivided, the mortgage would attach to both sides.

[00:32:55] Speaker 03:
So now,

[00:32:56] Speaker 03:
The debtor doesn't have that benefit because the mortgage, you can't attach a mortgage to 50% of this property.

[00:33:02] Speaker 03:
The mortgage attaches to the entire property.

[00:33:04] Speaker 03:
Now, California Appeals Court, VLT versus YAMI, this is 1964, says, look, if you used a building partially or even chiefly for business purposes or renting out part of it, it's not inconsistent with the right of the homestead.

[00:33:20] Speaker 03:
The requirement is just that the debtor use it for homestead.

[00:33:24] Speaker 03:
Some other uses are irrelevant.

[00:33:26] Speaker 04:
But the building is not being used for the residents.

[00:33:30] Speaker 04:
It's being used for a rental.

[00:33:31] Speaker 04:
There's another building being used for a residence.

[00:33:34] Speaker 03:
So then the question is, what is the distinction?

[00:33:37] Speaker 03:
Our contention is it's a distinction without a difference based on the way California property law developed.

[00:33:42] Speaker 03:
And the distinction, the real reason for it is, look, if the court can divide off a portion and maintain your property, your homestead intact, it will.

[00:33:50] Speaker 03:
If it can't, it won't, you get the whole homestead.

[00:33:53] Speaker 03:
This leads to so many issues, this use requirement where there's no exclusive use requirement.

[00:33:59] Speaker 03:
The court is not, there's no restrictions on what you do with your homestead other than it be your homestead.

[00:34:05] Speaker 03:
Now there are restrictions on valuation and that it has to be your primary dwelling.

[00:34:10] Speaker 03:
But if you wanna do some other type of business on your homestead, that's allowed and the case law supports it.

[00:34:17] Speaker 03:
The distinction is,

[00:34:18] Speaker 03:
if you have a separate unit, again, in my situation, if you had two separate parcels, which a lot of the cases are based on multiple lots, I don't think anyone, debtors are overreaching.

[00:34:28] Speaker 03:
If I came in and tried to claim two parcels that are next door to each other and say, well, I took the wall down so they're both mine, no, I don't think that would even be a legitimate argument, it wouldn't even be considered.

[00:34:37] Speaker 03:
That's really what the difference is, the distinction between the cases.

[00:34:40] Speaker 03:
Because when the court looks at, in Ray Jarrell, for instance,

[00:34:43] Speaker 03:
The homestead rights in a property based on a city lot as a residence, it's immaterial.

[00:34:48] Speaker 03:
As long as it's a residence, immaterial how the other smaller buildings are used for the purposes on that same property.

[00:34:53] Speaker 03:
So the court has already said, if it's a lot, same with Sheppardson.

[00:34:57] Speaker 03:
If it's, the debtor's not using those properties.

[00:35:00] Speaker 05:
I missed you, the first case you mentioned again.

[00:35:03] Speaker 03:
This is Enraged Gerald.

[00:35:04] Speaker 03:
Okay.

[00:35:04] Speaker 03:
And this is a,

[00:35:06] Speaker 03:
district case, it's at a southern district.

[00:35:12] Speaker 03:
But so the court has routinely said, so we have this distinction, we have, you can use your homestead for whatever you want as long as you're homestead, but then we have this distinction.

[00:35:22] Speaker 03:
But if we can separate off portions of this property, we will, as long as we don't interfere with your homestead.

[00:35:27] Speaker 03:
I believe that's the law in California.

[00:35:30] Speaker 03:
every if if the court were adopted ruling every single homestead case would require an evidentiary hearing is how much of this land you actually use oh you don't go to your backyard you haven't been your backyard in four years because you're a paraplegic and you can't get out of your house well then your backyard's not protected well doesn't that force to sell the house yes but the backyard isn't protected every single case is going to be subject to these type of objections this is a far-reaching consequence I ask the court I don't believe that this this

[00:35:56] Speaker 03:
this ruling is supported by California law.

[00:35:59] Speaker 03:
Thank you.

[00:35:59] Speaker 03:
Thank you very much.

[00:36:00] Speaker 03:
Any other questions?

[00:36:02] Speaker 04:
No.

[00:36:02] Speaker 04:
Thank you for a very interesting argument.

[00:36:04] Speaker 04:
The matter will be submitted.

[00:36:05] Speaker 03:
Thank you.