Wallace v. Rogers

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

January 4, 2008

No. 06-11263 Charles R. Fulbruge III

Clerk

In the matter of: SARAH K ROGERS

Debtor

------------------------------------------------------------------------

JACK C WALLACE

Appellant

v.

SARAH K ROGERS

Appellee

Appeal from the United States District Court

for the Northern District of Texas

USDC No. 3:06-CV-619

Before DeMOSS, DENNIS, and OWEN, Circuit Judges.

DeMOSS, Circuit Judge:

This case involves a question of first impression in this circuit: the

statutory interpretation of the newly enacted homestead exemption cap, 11

U.S.C. § 522(p)(1), found in the Bankruptcy Abuse Prevention and Consumer

Protection Act of 2005 (“BAPCPA”). The issue is whether the homestead

exemption cap applies to a homestead interest established within the 1,215-day

period preceding the filing of the bankruptcy petition despite the fact that the

No. 06-11263

debtor acquired title to the property before that statutory period. The

bankruptcy court answered this question in the negative, and the district court

affirmed. For the reasons discussed below, we affirm.

I. Factual & Procedural Background

On January 17, 1994, the Appellee, Sarah K. Rogers (“Rogers” or “debtor”),

inherited a 72.5 acre tract of real property known as 14849 Kelly Road, Forney,

Texas (“Forney Property”). Rogers was single when she inherited the Forney

Property from her mother. Subsequently, Rogers married George E. Rogers,

and they purchased a 5.1 acre tract of real property known as 8644 South F.M.

549, Rockwall, Texas (“Rockwall Property”). Rogers and her husband

constructed a residence on the Rockwall Property and claimed it as their

homestead. In January 2004, Rogers separated from her husband, moved into

a mobile home on the Forney Property, and claimed the Forney Property as her

homestead. On April 6, 2004, Rogers and her husband divorced. Pursuant to

the divorce decree, Rogers was divested of all right, title and interest in the

Rockwall Property, and no equity from the Rockwall Property was rolled-over

into the Forney Property. The divorce decree awarded the Forney Property to

Rogers, but this award simply affirmed the reality that the Forney Property was

her separate property because she inherited it from her mother before marriage.

Prior to 2004, Rogers and her husband had borrowed money from the

Appellant, Jack C. Wallace, to embark on an ultimately unsuccessful business

venture. Wallace eventually sued to recover the unpaid loan balance, and on

April 19, 2004, he obtained a state-court judgment against both the debtor and

her then ex-husband, for the total principal amount of $316,180.95, in addition

to court costs and post-judgment interest.

On September 28, 2005, the debtor filed for relief under Chapter 7 of the

Bankruptcy Code. The debtor elected state law exemptions in accordance with

the provisions of 11 U.S.C. § 522(b). In her Schedule C, the debtor claimed her

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homestead exemption on the Forney Property in the amount of $359,000.

Wallace filed a timely objection to the debtor’s claimed homestead exemption,

arguing that 11 U.S.C. § 522(p)(1) capped the debtor’s homestead exemption at

the federal statutory amount of $125,000 because the debtor acquired her

homestead interest in the Forney Property within the 1,215-day period

preceding the filing of her bankruptcy petition.

The bankruptcy court orally denied Wallace’s objection at a hearing held

on January 18, 2006, and this ruling was memorialized by written order dated

February 7, 2006. On October 16, 2006, the district court affirmed the

bankruptcy court’s order overruling Wallace’s objection to the claimed

homestead exemption. Wallace then perfected this timely appeal.

II. Analysis

A. Standard of Review

We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. “We

review the decision of the district court by applying the same standard to the

bankruptcy court’s findings of fact and conclusions of law as the district court

applied.” Total Minatome Corp. v. Jack/Wade Drilling, Inc. (In re Jack/Wade

Drilling, Inc.), 258 F.3d 385, 387 (5th Cir. 2001). The bankruptcy court’s

findings of fact are subject to clearly erroneous review, while its conclusions of

law are reviewed de novo. Id.

B. The debtor is entitled to her full homestead exemption.

1. 11 U.S.C. § 522(p)(1)

The bankruptcy estate is comprised of “all legal or equitable interests of

the debtor in property as of the commencement of the case.” 11 U.S.C. §

541(a)(1); Owen v. Owen, 500 U.S. 305, 308 (1991). Rogers elected to exempt the

Forney Property as her homestead under Texas state law. See 11 U.S.C. §

522(b); see also TEX. CONST. art. XVI, § 50; see also TEX. PROP. CODE §§

41.001–.002. “‘An exemption is an interest withdrawn from the estate (and

3

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hence from the creditors) for the benefit of the debtor.’” Norris v. Thomas (In re

Norris), 413 F.3d 526, 527 (5th Cir. 2005) (quoting Owen, 500 U.S. at 308).

Enacted as part of BAPCPA, 11 U.S.C. § 522(p)(1) limits the state law

homestead exemption under certain circumstances.1 Section 522(p)(1) prevents

the debtor from exempting certain interests from the bankruptcy estate if they

were acquired by the debtor during the statutory period and their aggregate

value exceeds a certain dollar threshold. The statute reads, in relevant part:

[A]s a result of electing . . . to exempt property under State or local

law, a debtor may not exempt any amount of interest that was

acquired by the debtor during the 1215-day period preceding the

date of the filing of the petition that exceeds in the aggregate

[$125,000]2 in value in—real or personal property that the debtor or

dependent of the debtor claims as a homestead.

11 U.S.C. § 522(p)(1)(D). The statute further states that “any amount of such

interest does not include any interest transferred from a debtor’s previous

principal residence (which was acquired prior to the beginning of such 1215-day

period) into the debtor’s current principal residence, if the debtor’s previous and

current residences are located in the same State.” Id. § 522(p)(2)(B).

2. The bankruptcy court held that the term “interest” refers to

title, and the district court held that the term “interest”

refers to equity.

Both the bankruptcy court and the district court held that Rogers was

entitled to her homestead exemption, but they gave different reasons for this

holding. The bankruptcy court predominantly focused on construing the

relationship between different phrases in § 522(p)(1)(D) while the district court

1

Unlike most other provisions of the statute, 11 U.S.C. § 522(p) became effective

immediately upon enactment of BAPCPA on April 20, 2005. See Pub. L. No. 109-8, §

1501(b)(2), 119 Stat. 23, 216 (2005).

2

In 2007, the Judicial Conference of the United States adjusted the dollar amount from

$125,000 to $136,875. See 72 Fed. Reg. 7082-01 (Feb. 14, 2007); 11 U.S.C. § 104(b). At the

time the bankruptcy petition was filed in this case, the relevant dollar amount was $125,000.

4

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focused on interpreting the meaning of the term “interest.” Ultimately, the two

courts interpreted the term “interest” differently: the bankruptcy court

interpreted it to mean an unquantifiable “property interest,” which presumably

refers to title or fee ownership, and the district court interpreted it to mean

“some legal or equitable interest that can be quantified by a monetary figure,”

which presumably refers to equity. Both courts reached the same conclusion

regarding the applicability of § 522(p)(1)(D) because a homestead interest is not

the equivalent of title or equity.

The bankruptcy court construed § 522(p)(1) to mean that a debtor “can’t

exempt any amount in excess of $125,000 if an interest in property was acquired

by the debtor during the 1,215 day period preceding the date of the filing of the

petition.” Thus, the bankruptcy court concluded that the phrase “any amount”

modifies the phrase “that exceeds in the aggregate $125,000.” In the words of

the bankruptcy court, “it’s got to be the interest that’s acquired, not an amount

of interest.” The bankruptcy court concluded that § 522(p)(1) was inapplicable

because Rogers acquired her “property interest” in the Forney Property in 1994,

which was outside the statutory period.

Although the Texas Supreme Court has characterized the homestead

interest as a “legal interest” created by the Texas Constitution, the bankruptcy

court held that this “legal interest” was not the type of “property interest”

covered by § 522(p)(1). Although it did not further define the term “property

interest,” the bankruptcy court’s conclusion that the phrase “any amount” does

not modify the term “interest” strongly suggests that it equated acquiring a

“property interest” with acquiring title to the property. Furthermore, the only

case cited by the bankruptcy court at the hearing held that the term “interest”

refers to title, not equity. See In re Blair, 334 B.R. 374, 376 (Bankr. N.D. Tex.

2005).

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No. 06-11263

Based on the legislative history, the bankruptcy court concluded that the

purpose of the statute was to close the “mansion loophole” and prevent debtors

from moving to states with more generous homestead exemptions on the eve of

bankruptcy in order to avail themselves of those exemptions. After observing

that Rogers did not move to Texas in anticipation of bankruptcy and that her

homestead designation of the Forney Property was precipitated by divorce, the

bankruptcy judge overruled Wallace’s objection and held that Rogers may

exempt the entirety of her homestead from the bankruptcy estate.

On appeal, the district court affirmed the bankruptcy court’s order.

Wallace v. Rogers (In re Rogers), 354 B.R. 792, 798 (N.D. Tex. 2006). Unlike the

bankruptcy court, the district court assumed that the phrase “any amount”

modifies the term “interest,” so the issue was whether “the characterization of

real property as a homestead qualif[ies] as an ‘interest’ within the phrase ‘debtor

may not exempt any amount of interest.’” Id. at 795. The district court held that

the statutory language of § 522(p)(1) was unambiguous and that the term

“‘interest’ refers to some legal or equitable interest that can be quantified by a

monetary figure.” Id. at 796. In support of its holding that “interest” refers to

a quantitative measure, the district court observed that (1) the term “interest”

is modified by the term “amount,” which is a quantitative term; (2) the statute

mandates that the “amount of interest” may not exceed in the aggregate a

specified dollar amount; and (3) § 522(p)(2)(B) allows for transfer of any amount

of interest from the debtor’s previous principal residence that was acquired

before the statutory period. Id. at 796-97. Regarding this third point, the

district court noted that both § 522(p)(1) and § 522(p)(2)(B) used the term

“interest,” and it reasoned that only equity, which has a quantitative value, can

be rolled-over into a new property, not a homestead interest. Id. at 797.

The district court observed that it is impossible “to have a ‘quantity’ of

classification as homestead.” Id. The district court disagreed with the

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No. 06-11263

bankruptcy court’s analysis in In re Greene, 346 B.R. 835, 843 (Bankr. D. Nev.

2006), which held that § 522(p)(1) applied to a homestead interest established

within the statutory period despite the fact that the debtor acquired title to the

property outside that period. Rogers, 354 B.R. at 797. The district court

criticized the Greene court for ignoring statutory language indicating that the

term “interest” refers to a quantitative measure. Id. The district court cited

approvingly to the bankruptcy court’s analysis in In re Rasmussen, 349 B.R. 747,

758 (Bankr. M.D. Fla. 2006), which held that the term “interest” referred to

equity in the property, not an ownership interest equivalent to a fee simple.

Rogers, 354 B.R. at 798. The district court refused to consider the legislative

history of § 522(p)(1) because it concluded that the statute was unambiguous,

and it declined to address the meaning of the term “acquired” because its

interpretation of the term “interest” was dispositive of the appeal. Id. Thus, the

district court affirmed the bankruptcy court, holding that “the term ‘interest’

does not encompass the classification of real property as a homestead.” Id.

3. Three other bankruptcy courts have addressed this same

legal issue.

Two bankruptcy courts have held that § 522(p)(1) does not apply to a

homestead interest established within the 1,215-day period if the debtor

acquired title the property before that period. See In re Lyons, 355 B.R. 387,

390-91 (Bankr. D. Mass. 2006); see also Venn v. Reinhard (In re Reinhard), 377

B.R. 315, 321 (Bankr. N.D. Fla. 2007). One bankruptcy court has held to the

contrary. See In re Greene, 346 B.R. 835, 843 (Bankr. D. Nev. 2006).3

In Lyons, the debtor purchased the property on April 26, 1977 and

recorded a homestead declaration on August 12, 2004. 355 B.R. at 389. Two

weeks after the debtor recorded the homestead designation, a creditor was

3

The bankruptcy court decision in Greene was affirmed by the district court in an

unpublished opinion, and the case is currently on appeal before the Ninth Circuit.

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No. 06-11263

granted an attachment on the property in the amount of $50,000. Id. Regarding

the applicability of § 522(p)(1)(D), the Lyons court held the following:

The plain language of Section 522(p) indicates that the debtor must

have acquired an interest in the property within 1,215 days of filing.

The term “interest” refers to some quantitative amount of legal or

equitable value. See In re Rogers, 354 B.R. 792, 796 (N.D. Tex.

2006) (discussing at length the statutory construction of Section

522(p)). The homestead is not a quantifiable interest; it is a

classification of property under state law. Id. Here, the Debtor did

not acquire his interest in the Property within 1,215 days; rather,

the Property “acquired” its classification as a homestead during that

time. Thus, the Court finds that [Section 522(p)(1)(D)] do[es] not

apply and that Debtor is entitled to the $500,000.00 homestead

exemption under Massachusetts law.

355 B.R. at 390-91. Thus, the Lyons court adopted the reasoning of the district

court in this case.

In Reinhard, the debtor and his wife (“the Reinhards”) acquired title to a

Florida property (the “Seaside Property”) on February 24, 1995. 377 B.R. at 317.

However, they resided in a different Florida property (the “Tallahassee

Property”) until June 30, 2005. Id. During the 1,215-day period before they filed

for bankruptcy, the Reinhards moved into the Seaside Property and designated

it as their homestead under Florida law. Id. No equity was transferred from the

Tallahassee Property to the Seaside Property. Id. The Reinhards filed for

bankruptcy on November 3, 2006. Id. According to the Reinhard court, the

issue was whether “the Debtor acquired any amount of interest in value in the

Seaside Property when it acquired homestead status under Florida law.” Id.

The Reinhard court asserted that the acquisition of an interest in property

and the acquisition of homestead status are distinct concepts because homestead

status attaches to protect the property after it is acquired by the debtor. Id. at

319. The Reinhard court stated the following:

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No. 06-11263

Homestead is simply a status, constitutionally defined, which

exempts certain property from execution and limits its alienability.

It is not a property interest. When a Florida resident’s property

acquires homestead status, the owner does not acquire any of the

rights traditionally associated with property interests: the right to

possession, the right to use, the right to transfer—the owner already

holds whatever of these he has. Accordingly, homestead status in

Florida is not properly conceptualized as a stick in the bundle;

rather, it is a protective safe in which the bundle is put.

Id. Thus, the Reinhard court concurred with the conclusion of Rogers and Lyons

that a homestead is a classification of property, not a “property interest” that

implicates § 522(p)(1).

Relying in part on the district court’s opinion in this case, the Reinhard

court held that the term “interest” refers to “a quantitative or monetary value

in property.” Id. at 320. The Reinhard court further elaborated on this concept

when it stated that “the debtor must acquire some amount of interest in the

value of one of the four types of property listed during the 1215-day period in

order for the cap to apply.” Id. According to the Reinhard court, § 522(p)(1)

refers to the acquisition of monetary value in property, not in an exemption. Id.

The debtor does not acquire additional monetary value in the property when she

designates it as her homestead; rather, the designation merely protects the

existing monetary value that the debtor acquired in the property before filing

for bankruptcy. See id. at 321 (“Homestead status simply exempts the

homesteader’s existing share in the property from forced sale and limits its

alienability. Therefore, the Debtor did not acquire any amount of interest in

value in the Seaside Property when it acquired homestead status.”).

To date, only one bankruptcy court has reached a conclusion contrary to

that of Rogers, Lyons, and Reinhard. In Greene, the debtor purchased a 67-acre

parcel of undeveloped land (the “Sparks Property”) in May 1994. 346 B.R. at

838. The debtor admitted that he lived with his girlfriend at another location

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No. 06-11263

until early August 2004. Id. On August 10, 2004, the debtor moved a travel

trailer onto the property, and on August 11, 2004, the debtor designated the

property and the travel trailer as his homestead. Id. The debtor filed his

Chapter 13 petition just 16 days later, on August 27, 2004. Id. After the debtor

voluntarily dismissed his Chapter 13 petition, the debtor filed his Chapter 7

petition on October 15, 2005. Id. A creditor filed a timely objection to the

debtor’s claimed homestead exemption, arguing that the exempted amount must

be reduced from $350,000 to $125,000 pursuant to § 522(p)(1) because the

homestead was an interest acquired within 1,215 days of the filing of the

petition.4 Id.

In Greene, the debtor argued that § 522(p)(1) does not apply because he

purchased the property more than 1,215 days before he filed the petition. Id. at

840. In rejecting this argument, the Greene court stated that the homestead

exemption is a “property interest” that “lies dormant and inactive until it is

acquired by the debtor.” Id. at 842. In the words of the Greene court, “[w]hat

must be acquired during the 1,215 day period is the homestead exemption, not

the real property. These are separate interests.” Id. at 842-43. Although the

Greene court recognized that the debtor’s interest in the property includes title

to the property, it insisted that the term “interest” refers to a broader concept.

See id. at 843 (“Whatever Debtor had in his bundle of rights and interests

pertaining to the Property, homestead protection was not one of them.”). Thus,

the Greene court concluded that the debtor’s homestead interest “is a property

interest acquired within 1,215 days of his bankruptcy petition and is limited to

$125,000 pursuant to Section 522(p).” Id.

4

In Nevada, the homestead exemption extends to the claimant’s equity in the

homestead property up to a maximum of $350,000. NEV. REV. STAT. § 115.010(2).

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No. 06-11263

4. Other courts have addressed the meaning of the term

“interest” in cases involving different facts.

For purposes of § 522(p)(1), other courts have generally defined “interest”

as either title5 or equity.6 Those courts adopting the equity definition have been

forced to address complex issues regarding passive and active equity

appreciation during the 1,215-day period. See In re Rasmussen, 349 B.R. at 757-

58 (distinguishing between active equity appreciation, which is subject to the

cap, and passive equity appreciation, which is not); see In re Chouinard, 358 B.R.

at 815 (holding that “passive market appreciation” resulting in increased equity

is not an interest that a debtor “acquires” during the statutory period). In

contrast, those courts adopting the title definition have crafted an easily-applied

5

See In re Anderson, 374 B.R. 848, 859 (Bankr. D. Kan. 2007) (holding that the phrase

“interest that was acquired” should be construed as “applying to the actual purchase or

acquisition of an ownership or fee interest in the homestead property”); see In re Sainlar, 344

B.R. 669, 673 (Bankr. M.D. Fla. 2006) (“The phrase ‘interest that was acquired’ as used in §

522(p)(1) means the acquisition of ownership of real property. Section 522(p), therefore, does

not apply to property to which a debtor acquired title more than 1,215 days before a

bankruptcy filing.”); see In re Blair, 334 B.R. 374, 376-77 (Bankr. N.D. Tex. 2005) (holding that

§ 522(p)(1) was inapplicable because the debtors “acquired title and fee to their home” before

the statutory period); see Khan v. Bankowski (In re Khan), 375 B.R. 5, 13-14 (B.A.P. 1st Cir.

2007) (holding that § 522(p)(1) applied because legal title to the property was transferred from

a trust to the debtor within the statutory period); see also 4 COLLIER ON BANKRUPTCY ¶

522.13[2] (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev. 2007) (“[T]he phrase

[“interest that was acquired”] should be construed as applying to the actual purchase or

acquisition of an ownership or fee interest in the homestead property.”)

6

See In re Rasmussen, 349 B.R. 747, 756 (Bankr. M.D. Fla. 2006) (concluding that the

term “interest” means “equity in the homestead acquired by a debtor during the 1,215-day

period,” not title or a fee simple ownership interest); see In re Chouinard, 358 B.R. 814, 815

(Bankr. M.D. Fla. 2006) (concurring with the Rasmussen court’s holding that the term

“interest” refers to equity); see In re Rogers, 354 B.R. at 798 (holding that interest refers to

some legal or equitable interest that can be quantified by a monetary figure and stating that

“[t]he court finds In re Rasmussen to [be] a better reasoned interpretation of § 522(p)”); see In

re Reinhard, 377 B.R. at 320 (citing Rogers, Lyons, and Rasmussen and holding that the term

“interest” refers to “a quantitative or monetary value in property”); see In re Presto, 376 B.R.

554, 577 (Bankr. S.D. Tex. 2007) (adopting the Rogers interpretation of the term “interest”);

see also Shaun Mulreed, Casenote, In re Blair Misses the Mark: An Alternative Interpretation

of the BAPCPA’s Homestead Exemption, 43 SAN DIEGO L. REV. 1071, 1087 (2006) (arguing that

the phrase “interest that was acquired” should apply “to all equity acquired within the 1,215

days preceding the filing of a bankruptcy petition”).

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No. 06-11263

rule that is arguably in conflict with the statutory language indicating that the

term “interest” refers to a quantitative or monetary value.7 See In re Sainlar,

344 B.R. at 669 (holding that § 522(p)(1) “has no applicability to property in

which a debtor obtained an ownership interest more than 1,215 days before the

petition date, even if the property’s equity increases [through market

appreciation or principal debt reduction] during the 1,215-day pre-petition

period”); see In re Blair, 334 B.R. at 375, 378 (same); see In re Anderson, 374 B.R.

at 859-60 (same).

5. A homestead interest is not the equivalent of title or equity.

We find it unnecessary at this time to pick a side in the title versus equity

debate. A homestead interest is not the equivalent of title or equity. In this

case, Rogers acquired title to the property when she inherited it from her mother

in 1994, which was outside the statutory period. Those courts adopting the title

definition of “interest” would conclude that § 522(p)(1) is inapplicable to Rogers.

See In re Anderson, 374 B.R. at 861. Rogers acquired most of her equity in the

Forney Property at the time she inherited it in 1994. Those courts adopting the

equity definition of “interest” would also conclude that § 522(p)(1) is inapplicable

to Rogers.8 She did not actively acquire equity through making a down payment

7

Those courts and commentators adopting the title definition of “interest” have

indicated that creditors could challenge fraudulent mortgage payments or capital

improvements made during the statutory period through another BAPCPA provision, 11

U.S.C. § 522(o). See In re Anderson, 374 B.R. at 858 (“The Court concludes that accumulation

of equity by early payoff or substantially paying down the mortgage against the homestead

property, such as debtor’s $240,000 one-time lump sum payment during the 1,215 day period

here, may be subject to challenge under § 522(o).”); see also 4 COLLIER ON BANKRUPTCY ¶

522.13[2] (same). Unlike §522(p)(1), §522(o) requires proof of “intent to hinder, delay, or

defraud a creditor.” See In re Anderson, 374 B.R. at 859-60.

8

The date of acquisition of title is irrelevant for purposes of the equity definition;

however, if title is acquired during the statutory period, any lump-sum down payment made

in connection with closing (i.e. the date of acquisition of title) would apply towards the

$125,000 equity cap. In this case, Rogers inherited the Forney Property in 1994, so she did

not make a down payment during the statutory period that would apply towards the cap.

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No. 06-11263

or monthly mortgage payments on the Forney Property during the statutory

period. See In re Rasmussen, 349 B.R. at 757. Rogers made capital

improvements to the Forney Property by spending less than $100,000 of her

retirement money to construct a permanent residence, but the aggregate value

of those improvements did not exceed $125,000. Rogers presumably benefitted

from market appreciation during the statutory period; however, those courts

adopting the equity definition of “interest” have concluded that passive equity

appreciation is not “acquired” by the debtor and not covered by § 522(p)(1). Id.

at 757-58.

Wallace argues that Rogers acquired an interest in the Forney Property

during the 1,215-day period because the divorce decree divested the debtor’s

husband of “all right, title, interest, and claim” in the Forney Property and

awarded it to the debtor. Recently, a bankruptcy court addressed the issue of

whether acquiring an ex-spouse’s community property interest in the homestead

property is a form of active equity appreciation that is subject to § 522(p)(1). If

the Forney Property had constituted the community property of the debtor and

her husband, then Wallace’s argument might have some merit. See In re Presto,

376 B.R. at 576. However, the Forney Property was the debtor’s separate

property because she inherited it from her mother before marriage. See TEX.

FAM. CODE § 3.001. A trial court in Texas has no discretion to divest title to

separate property and award that property to the other spouse in a divorce.

Cameron v. Cameron, 641 S.W.2d 210, 219-20 (Tex. 1982). In this case, the

divorce decree did not increase Rogers’s equity share in the Forney Property

because she owned it as her separate property. Rogers did not acquire “new

value in a homestead through a divorce decree.” See In re Presto, 376 B.R. at

580.

6. A homestead interest is not covered by § 522(p)(1) because it

does not constitute a vested economic interest in property.

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Wallace does not appear to quarrel with the proposition that the debtor’s

acquisition of title or equity during the 1,215-day period can implicate the

homestead exemption cap. He is simply advocating a more expansive definition

of “interest” that includes a “homestead interest.” Although other courts have

interpreted the term “interest” more narrowly, we must determine whether the

term refers to a broader concept that includes a homestead interest.9 “The

answer to this federal question, however, largely depends upon state law.”

United States v. Craft, 535 U.S. 274, 278 (2002). Thus, we look initially to state

law to determine what rights the debtor had in the Forney Property pursuant

to Texas homestead law, then to federal law to determine whether the debtor’s

“state-delineated rights” qualify as an “interest” within the compass of the

homestead exemption cap. Id. In Craft, which addressed whether property held

as a tenant by the entirety constituted “property and rights to property” for

purposes of the federal tax lien statute, the Supreme Court stated the following:

A common idiom describes property as a “bundle of sticks”—a

collection of individual rights which, in certain combinations,

constitute property. State law determines only which sticks are in

a person’s bundle. Whether those sticks qualify as “property” for

purposes of the federal tax lien statute is a question of federal law.

In looking to state law, we must be careful to consider the substance

9

We note the distinction between a homestead interest and a homestead designation.

“To establish homestead rights, the claimant must show a combination of both overt acts of

homestead usage and the intention on the part of the owner to claim the land as a homestead.”

Dominguez v. Castaneda, 163 S.W.3d 318, 330 (Tex. App.—El Paso 2005, pet. denied). Thus,

a homestead interest is established when those two elements are satisfied. In contrast, a

homestead designation refers to the ministerial act of recording a notice in the county deed

records. TEX. PROP. CODE § 41.005; see id. at § 41.021 (allowing judgment debtors to record

a homestead designation under § 41.005 after execution is issued). In this case, the debtor

established her homestead rights and recorded her homestead designation within the statutory

period. Cf. Laster v. First Huntsville Props. Co., 826 S.W.2d 125, 130-32 (Tex. 1991) (using the

term “homestead right” and “homestead interest” interchangeably). If the debtor had

established her homestead rights outside the statutory period and filed her homestead

designation within the statutory period, then § 522(p)(1) would also be inapplicable. Even

assuming that a homestead interest is “acquired” by the debtor, which we do not decide, we

conclude that it is not the type of “interest” covered by § 522(p)(1).

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of the rights state law provides, not merely the labels the State

gives these rights or the conclusions it draws from them. Such state

law labels are irrelevant to the federal question of which bundles of

rights constitute property that may be attached by a federal tax

lien.

Id. at 278-79 (internal citations omitted). In Craft, the Supreme Court held that

“the statutory language authorizing the tax lien is broad and reveals on its face

that Congress meant to reach every interest in property that a taxpayer might

have.” Id. at 283 (internal quotation marks omitted). Accordingly, the Supreme

Court held that the husband’s rights in the entireties property fall within this

broad statutory language: “all property and rights to property.” Id.; 26 U.S.C.

§ 6321. Based on the statutory language of 11 U.S.C. § 522(p)(1), we find that

Congress did not intend the scope of the term “interest” to sweep so broadly.

Under Texas law, “[t]he homestead interest is a legal interest created by

the constitution that provides prophylactic protection from all but [a few] types

of constitutionally permitted liens against homesteads. This interest . . . gives

protective legal security rather than vested economic rights.”10 Heggen v.

Pemelton, 836 S.W.2d 145, 148 (Tex. 1992). Although the Texas Supreme Court

referred to the homestead interest as a “legal interest” in Heggen, we must look

beyond that label and consider the substance of the right conferred by state law.

See Craft, 535 U.S. at 279. Based on our review of the statutory language, we

conclude that the term “interest” as used in § 522(p)(1) refers to vested economic

interests that the debtor acquires in the homestead property during the 1,215-

day period preceding the filing of the petition. Thus, a homestead interest

10

“Homesteads are protected from forced sale for the payment of debts, except for those

debts specifically enumerated in the constitution, including debts incurred for purchase money

on the homestead, taxes thereon, work or services performed thereon, certain extensions of

credit, and certain reverse mortgages.” Florey v. Estate of McConnell, 212 S.W.3d 439, 443

(Tex. App.—Austin 2006, no pet.).

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established within the statutory period, without more, does not fall within the

purview of § 522(p)(1).

Unlike a homestead interest, title and equity both constitute vested

economic interests in the homestead property that can be acquired during the

1,215-day period preceding the filing of the petition. These interests are vested

because they have an ascertainable economic value at the moment they are

acquired by the debtor. In contrast, for purposes of federal bankruptcy law, the

homestead exemption is valueless until it is claimed in bankruptcy, such that

any value attributable to the exemption is not realized by the debtor until after

the filing of the petition. Wallace essentially argues that “interest” refers to all

rights that enhance a debtor’s claimed exemption on Schedule C. However, we

believe that “interest” refers to property interests acquired within the statutory

period that the debtor “may not exempt” from the bankruptcy estate. “Value” as

used in § 522(p)(1) refers to the economic value of the property interests acquired

within the statutory period, not the value of the exemption claimed by the

debtor.

Although we decline to address whether the equity definition of “interest”

is correct, we concur with the Reinhard court’s conclusion that the debtor must

acquire vested economic interests in the homestead property during the 1,215-

day period. A debtor acquires an interest in property, not in an exemption. See

Owen, 500 U.S. at 311 n.4 (“[T]here would be no debtor’s interest in the property

to which a[n] . . . exemption could attach.”). “A fundamental canon of statutory

construction instructs that in the absence of a statutory definition, we give terms

their ordinary meaning.” Hamilton v. United Healthcare of La., Inc., 310 F.3d

385, 391 (5th Cir. 2002). BLACK’S LAW DICTIONARY 828 (8th ed. 2005) defines

“interest” as “a legal share in something; all or part of a legal or equitable claim

to or right in property <right, title, and interest>.” Similarly, WEBSTER’S THIRD

NEW INTERNATIONAL DICTIONARY 1178 (1971) defines “interest” as “right, title,

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or legal share in something” and “something in which one has a share of

ownership or control.” These definitions clearly indicate that one has “interests”

in the property itself, not in the exemption that protects those interests.

For purposes of federal bankruptcy law, the homestead exemption is not

a separate interest, but rather the status of a withdrawn interest in property

that was acquired prior to bankruptcy. See Norris v. Thomas, 215 S.W.3d 851,

856 (Tex. 2007) (“[W]e agree that the proper test for whether a residence attains

homestead status . . . .”); see also Owen, 500 U.S. at 308 (“An exemption is an

interest withdrawn from the estate”). The homestead interest simply gives

“protective legal security” to those vested economic interests in property that

were acquired by the debtor before the filing of the petition. Heggen, 836 S.W.2d

at 148; see Laster, 826 S.W.2d at 131 (“[The party’s] homestead interest protects

the portion of the property that she owns.”).

Our own precedent has recognized that a homestead interest is a legal

right vested in the individual to attach an exempt status to existing property

interests. See Perry v. Dearing (In re Perry), 345 F.3d 303, 314-15 (5th Cir. 2003)

(“According to the Texas Supreme Court, it is a well-recognized principle of law

that one’s homestead right in property can never rise any higher than the right,

title, or interest that he owns in the property attempted to be impressed with a

homestead right.”) (internal quotation marks and ellipsis omitted) (emphasis

added). The homestead exemption and the property interest impressed with

that exemption are discrete concepts: the former is the debtor’s legal right to

exempt certain property interests from the bankruptcy estate, the latter is the

debtor’s vested economic interests in the property itself.

Although the Texas Supreme Court has characterized the homestead

interest as “an estate in land” that is “analogous to a life tenancy,” this language

merely describes the scope of the protective legal security afforded by the

homestead interest. See Laster, 826 S.W.2d at 129-31 (discussing the analogy

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and concluding that one spouse’s homestead designation did not affect “any

property interest protected by [the other spouse’s] homestead right.”) (emphasis

added). The homestead interest does not increase the vested economic interests

that the debtor holds in the homestead property; rather, it simply protects those

vested economic interests in the property that the debtor acquired before the

filing of the petition.

Thus, we find that the Greene court construed the scope of the term

“interest” too broadly. What must be acquired during the statutory period is

vested economic interests in the homestead property.

7. Other sections of 11 U.S.C. § 522 indicate that the term

“interest” refers to a vested economic interest in property.

“The starting point in discerning congressional intent is the existing

statutory text.” Lamie v. United States Trustee, 540 U.S. 526, 534 (2004).

“[W]hen the statute’s language is plain, the sole function of the courts—at least

where the disposition required by the text is not absurd—is to enforce it

according to its terms.” Id. (internal quotation marks omitted). Only after

application of the principles of statutory construction, including the canons of

construction, and after a conclusion that the statute is ambiguous may the court

turn to the legislative history. Carrieri v. Jobs.com, Inc., 393 F.3d 508, 518-19

(5th Cir. 2004). For the language to be considered ambiguous, however, it must

be susceptible to more than one reasonable interpretation or more than one

accepted meaning. Id. at 519. However, a statute is not ambiguous simply

because it is inartfully drafted. See Lamie, 540 U.S. at 534 (“The statute is

awkward, and even ungrammatical; but that does not make it ambiguous on the

point at issue.”).

The statute is not ambiguous as to whether a homestead interest is

covered by § 522(p)(1). The term “interest” is used in several sections of 11

U.S.C. § 522 and consistently refers to some vested economic interest in

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property. For example, § 522(b)(3)(B), which addresses state exemptions,

characterizes “an interest as a tenant by the entirety or joint tenant” as an

“interest in property.” Section 522(d)(1), which addresses federal exemptions,

states that the debtor may exempt her “aggregate interest, not to exceed $20,200

in value, in real property . . . that the debtor . . . uses as a residence.” Section

522(p)(2)(B) states that “any amount of interest” does not include any interest

transferred from a debtor’s previous principal residence that was acquired

outside the statutory period. In contrast to “interests,” which refer to vested

economic interests in property, “exemptions” refer to those interests that are

withdrawn from the estate. See 11 U.S.C. § 522(b)(1) (“[A]n individual debtor

may exempt from property of the estate the property listed in either paragraph

(2) [federal exemptions] or, in the alternative, paragraph (3) [state

exemptions].”). Section 522(p)(1) prevents the debtor from withdrawing certain

vested economic interests in property from the bankruptcy estate if they were

acquired by the debtor during the statutory period and their aggregate value

exceeds a certain dollar threshold.

8. The legislative history indicates that the term “interest”

refers to a vested economic interest in property.

Even assuming that § 522(p)(1) is ambiguous, the legislative history

makes clear that the term “interest” refers to some vested economic interest in

property acquired during the statutory period, not a homestead interest.

“Extrinsic materials have a role in statutory interpretation only to the extent

they shed a reliable light on the enacting Legislature’s understanding of

otherwise ambiguous terms.” Exxon Mobil Corp. v. Allapattah Servs., Inc., 545

U.S. 546, 568 (2005). The House Report specifically addressed the meaning of

§ 522(p):

Sec. 322. Limitations on Homestead Exemption. Section 322(a)

amends section 522 of the Bankruptcy Code to impose an aggregate

monetary limitation of $125,000 . . . on the value of property that

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the debtor may claim as exempt under State or local law pursuant

to section 522(b)(3)(A) under certain circumstances. The monetary

cap applies if the debtor acquired such property within the

1,215-day period preceding the filing of the petition and the property

consists of any of the following: (1) real or personal property of the

debtor or that a dependent of the debtor uses as a residence . . . (4)

real or personal property that the debtor or dependent of the debtor

claims as a homestead . . . . In addition, the limitation does not

apply to any interest transferred from a debtor’s principal residence

(which was acquired prior to the beginning of the specified time

period) to the debtor’s current principal residence, if both the

previous and current residences are located in the same State.

H.R. Rep. No. 109-31(I) (2005), reprinted in 2005 U.S.C.C.A.N. 88, 148, 2005 WL

832198, *81. This piece of legislative history has been cited approvingly by those

courts adopting the title definition of interest. See, e.g., In re Sainlar, at 344

B.R. at 673-74. The legislative history indicates that Congress was concerned

with the acquisition of vested economic interests in property during the

statutory period.

On March 10, 2005, Senator Carper stated the following:

Today, under current law, a wealthy individual in a State such as

Florida or Texas can go out, if they are a millionaire, and take those

millions of dollars and invest that money in real estate, a huge

house, property, and land in the State, file for bankruptcy, and

basically protect all of their assets which they own because of a

provision in Florida and Texas law.

151 Cong. Rec. S2415-02 (daily ed. March 10, 2005), at *S2415-*S2416.

With the legislation we have before us, someone has to figure out

that 2 ½ years ahead of time people are going to want to file for

bankruptcy and be smart enough to put the money into a home, or

an estate, or into a trust—not something you can do today—and file

for bankruptcy tomorrow; or this year and file for bankruptcy next

year or the next 2 or 3 years, or 3 ½ years.

Id. at *S2416. Senator Carper’s statement has been cited approvingly by those

courts adopting the equity definition of interest. See, e.g., In re Rasmussen, 349

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B.R. at 758. Senator Carper’s statement is also supported by language in the

House Report, which states that “[t]he bill also restricts the so-called ‘mansion

loophole.’ Under current bankruptcy law, debtors living in certain states can

shield from their creditors virtually all of the equity in their homes. In light of

this, some debtors actually relocate to these states just to take advantage of their

‘mansion loophole’ laws.” H.R. Rep. No. 109-31(I) (2005), 2005 WL 832198, *15-

*16. In this case, it is undisputed that Rogers did not relocate to Texas to exploit

the so-called “mansion loophole.”

Wallace cites to the House Report, which states that “[t]he bill further

reduces the opportunity for abuse by requiring a debtor to own the homestead

for at least 40 months before he or she can use state exemption law.” Id. at *16.

Considering the fact that one “owns” property, not a homestead interest, we do

not find this piece of legislative history to be particularly probative of

congressional intent.

According to Wallace, BAPCPA was intended to address fraudulent

transfers in general, including conversions of non-exempt assets into exempt

assets within the statutory period. Cf. In re Kane, 336 B.R. 477, 481-82 (Bankr.

D. Nev. 2006). We concur with the Reinhard court’s observation that “Congress

could have defined all [the] debtors’ exemptions to be whatever they would have

been 1215 days before the filing of the petition. Instead, Congress defined the

cap more narrowly.” 377 B.R. at 321. We do not believe that Congress was

concerned with the timing of the establishment of the homestead when it

enacted § 522(p)(1). The statutory text and legislative history indicate that the

term “interest” refers to vested economic interests in the property that were

acquired by the debtor within the 1,215-day period preceding the filing of the

petition. “If Congress enacted into law something different from what it

intended, then it should amend the statute to conform it to its intent.” Lamie,

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540 U.S. at 542. We hold that Rogers is entitled to her full homestead exemption

under Texas state law.

AFFIRMED.

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