Opinion
Civil File No. A3-03-136, Docket Number: 08
April 22, 2004
OPINION AND ORDER
Summary: In order to claim a homestead exemption, the parties living on the property must have some type of ownership interest in that property. In this case, the property at issue was owned by a partnership and the parties were tenants. Since they did not have any type of ownership interest, they could not claim the property as their homestead for purposes of voiding a mortgage.
This matter is before the Court on an appeal from the Bankruptcy Court. The appellant, Security State Bank, objects to the court's determination that its mortgage, executed by the partners in Hoggarth Brothers, was invalid.
FACTS
Duane Hoggarth and his brothers Thomas, Gerald, and Kenneth are general partners of a North Dakota partnership called Hoggarth Bros. On September 14, 1998, Hoggarth Bros. executed and delivered a promissory note for $500,000 to Wimbledon Grain. As security for the loan, the Hoggarth Bros. executed and delivered a real estate mortgage on property it owned to Wimbledon Grain. On that same day, the mortgage was assigned to Security State Bank through a third-party pledge agreement. Security State Bank recorded the mortgage on September 17, 1998.
Part of the property encumbered by the real estate mortgage was two houses. Thomas and Patricia Hoggarth have lived in one of these houses since 1978. Duane and Cheryl Hoggarth have lived in the other house since 1993.
On December 14, 1998, Hoggarth Bros. quitclaimed the property on which Thomas and Patricia lived to Thomas and quitclaimed the property on which Duane and Cheryl lived to Duane. Then on May 17, 2002, Thomas conveyed his property to himself and Patricia as joint tenants through a quitclaim deed. On May 21, 2002, Duane conveyed his property to himself and Cheryl as joint tenants through a quitclaim deed. The Hoggarths recorded the May quitclaim deeds on May 22, 2002.
On June 28, 2002, Duane and Thomas filed individual bankruptcy petitions. Duane claimed as exempt his half interest in the property on which he and Cheryl live. Thomas also claimed as exempt his half interest in the property on which he and Patricia live.
On November 1, 2002, a North Dakota state court entered a $2,475, 557.73 judgment against Wimbledon Grain, and the court also granted Security State Bank judgment for a foreclosure of its security interest to satisfy the amount owing. The court decreed a lien upon the mortgage.
The Bankruptcy Court relied on section 47-18-05 of the North Dakota Century Code to void the mortgage held by Security State Bank. That statute states that a homestead of a married person cannot be conveyed or encumbered unless both the husband and wife execute and acknowledge the instrument conveying or encumbering the homestead. N.D. Cent. Code § 47-18-05. The Bankruptcy Court found that the respective property where Cheryl and Patricia lived was their homestead because they lived there and intended it as their home and permanent place of abode.
ISSUE
Whether Patricia Hoggarth or Cheryl Hoggarth had a homestead in the property where they lived.
ANALYSIS
This Court reviews a Bankruptcy Court's conclusions of law de novo. In re Popkin Stern, 346 F.3d 804, 806 (8th Cir. 2003). Since the interpretation of a statute is a conclusion of law, the Court will review the Bankruptcy Court's decision de novo.
A court's primary objective when interpreting a statute is to ascertain the legislative intent. Ralston v. Ralston, 670 N.W.2d 334, 335 (N.D. 2003). If the language of the statute is clear and unambiguous, the legislative intent is presumed clear from the face of the statute. State v. Norman, 660 N.W.2d 549, 554 (N.D. 2003) (quoting Overboe v. Farm Credit Servs., 623 N.W.2d 372, 375 (N.D. 2001)). When interpreting the language of a statute, the words used are to be understood in their ordinary sense. Ralston, 670 N.W.2d at 335 (citing N.D. Cent. Code § 1-02-02). If a legal or technical term is used in the statute, it is to be understood according to the "peculiar and appropriate meaning acquired in the law." Broderson v. Boehm, 253 N.W.2d 864, 867 (N.D. 1977) (citing N.D. Cent. Code § 1-02-03)).
The term at issue in section 47-18-05 is the legal term "homestead." Section 47-18-05 does not contain a definition for homestead nor does Chapter 47-18. A court must look to case law to determine the meaning of a legal term when the legislature does not define it. See Broderson, 253 N.W.2d at 867-68 (reviewing case law to determine the meaning of "heirs at law").
While section 47-18-01 of the North Dakota Century Code contains language that might suggest a definition for "homestead," the North Dakota Supreme Court has held that this statute does not define the word homestead. Calmer v. Calmer, 106 N.W. 684, 686 (N.D. 1906). Section 47-18-01 merely recognizes the right to a homestead exemption and fixes the amount in area and value of the homestead property that could be held exempt. Id.
In Lake Region Credit Union v. Crystal Pure Water, Inc., 502 N.W.2d 524, 526 (N.D. 1993), the court stated that a homestead must be based in "some estate in the land." The Bankruptcy Court looked to older North Dakota cases for further detail of the definition given in Lake Region. In First National Bank of Van Hook v. Zook, 196 N.W. 507, 508 (N.D. 1923), the defendants who were claiming a homestead had a patent from the United States to the land in question. The court stated that individuals may claim a homestead when they hold title to the property, but the quality of that title is immaterial. Id. at 509. Claimants are entitled to their homestead rights if they own the property in fee or if they own a possessory right to the land through a United States patent. Id.
In the other case relied on by the Bankruptcy Court, Helgebye v. Dammen, 100 N.W. 245, 245 (N.D. 1904), the homestead claimant purchased the land in a contract-for-deed arrangement. The court also stated in this case that it was not concerned with what kind of title or ownership of land was necessary to support a homestead claim. Id. at 246. The contract for deed was sufficient to establish a homestead. Id.
The courts in Zook and Helgebye both first addressed the nature and quality of the claimant's ownership interest in the property before determining whether the claimant had a homestead in that property. 196 N.W. at 509; 100 N.W. at 246. Once the claimant demonstrates some interest in the land, then the court analyzes whether the claimant actually or constructively resided on the property with the intent to make it his home. Brokken v. Baumann, 88 N.W. 84, 86 (N.D. 1901).
The requirement of an "estate" in Lake Region is supported by Zook andHelgebye. "Estate" is defined as "1. the amount, degree, nature, and quality of a person's interest in land or other property. 2. All that a person or entity owns, including both real and personal property." Black's Law Dictionary 567 (7th ed. 1999). "Interest" is defined as "[a] legal share in something; all or part of a legal or equitable claim to or right in property." Id. at 816. Therefore, to establish a homestead, the claimant must demonstrate that she has some type of legal or equitable claim to or right in the property. In other words, the claimant must show that she has some kind of ownership in the real property. Black's Law Dictionary 567. In both Zook and Helgebye, the courts found that the claimants had a legal or equitable claim to or right in the property by virtue of a land patent or a contract for deed. 196 N.W. at 509; 100 N.W. at 246.
It is undisputed that the Hoggarth Bros. partnership held legal title to the property at issue when it executed and delivered the mortgage. The Hoggarths allege that they possessed a tenancy at will in the property, and they argue that a tenancy at will is a legal or equitable claim to or right in the property. They do not provide any case law to support this proposition.
Assuming they were tenants at will, section 47-16-27 of the North Dakota Century Code defines their legal relationship to the property. As a tenant at will, they may occupy the buildings, take the annual products of the soil, work open mines and quarries, and cultivate and harvest certain crops. N.D. Cent. Code § 47-16-27. Tenants have no other rights to the property unless the agreement with the owner grants them. Id. As tenants at will, the Hoggarths did not have a legal or equitable claim to or right in the property. Id. They could only occupy the property and perform certain actions on it. Id. Therefore, a tenancy at will is insufficient to create a homestead.
The Hoggarths also raise two additional arguments that they have a legal or equitable claim to or right in the property by virtue of Thomas' and Duane's legal status as partners in Hoggarth Bros. at the time Hoggarth Bros. owned this property. However, neither of these arguments provide a basis for ownership in the properties either.
The Hoggarths first argue that because Thomas and Duane have a right to the profits of the partnership, they have an interest in the property. "A partnership is an entity distinct from the partnership's partners." N.D. Cent. Code § 45-14-01. Any property acquired by the partnership belongs to the partnership and not to the partners. N.D. Cent. Code § 45-14-03. Property belongs to the partnership if it is acquired in the name of the partnership or transferred to the partnership in its name. N.D. Cent. Code § 45-14-04.
It is undisputed that at the time the mortgage was executed, the property was owned by the Hoggarth Bros. in its name. Whether it was acquired by the partnership or transferred to it, at the relevant time period, it was held in its name and is therefore partnership property.Id. Since it is partnership property, it is owned by the partnership and not Thomas or Duane individually. N.D. Cent. Code § 45-14-03.
Second, the Hoggarths argue that Thomas and Duane have a remainder interests in these properties because they would receive them upon dissolution of the partnership. Under section 45-20-07 of the North Dakota Century Code, when winding up a partnership's business, the assets of the partnership are applied first to pay its obligations to creditors. If there is any surplus, it "must be applied to pay in cash the net amount distributable to partners in accordance with their right to distributions. . . ." N.D. Cent. Code § 45-20-07(1). This statute is an adoption of the Revised Uniform Partnership Act. In the official comments to this Act, the authors state that a partner has no right to receive an in-kind distribution at dissolution. Revised Uniform Partnership Act § 807 cmt. 2. Therefore, upon dissolution, Thomas and Duane would not receive this property. See N.D. Cent. Code § 45-20-07(1) (stating that the partners will receive cash at dissolution); Revised Uniform Partnership Act § 807 cmt. 2.
North Dakota case law requires some form of ownership beyond an occupancy right before one may claim the property as his or her homestead. Without this rule, any apartment tenant would be able to claim a homestead in their apartment. This requirement also provides notice to lenders that they may safely rely on the record of title held by the county recorder. The Hoggarths had no legal or equitable claim to or right in the property at issue, so they may not rely on section 47-18-05 to void this mortgage.
DECISION
The Bankruptcy Court's decision is REVERSED and REMANDED for proceedings consistent with this opinion.
IT IS SO ORDERED.