UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
JAMES DARRELL SERGENT
PAULA DAWN SERGENT
DEBTORS CASE N0. 93-10345
This matter is before the Court on the Motion to Compel the Trustee to Sell Property filed by creditor Ashland Armco Employees Credit Union ("AAECU") on January 18, 1994. A briefing schedule was set at a hearing conducted on February 3, 1994. AAECU filed a Memorandum on February 28, 1994. On March 3, 1994, a Response was filed by Gaylena Sergent, former wife of the debtor James Darrell Sergent. James and Gaylena are joint owners of the property AAECU seeks to have sold.
AAECU's Motion is based on 11 U.S.C.'363(h) which provides in pertinent part that
the trustee may sell both the estate's interest, ..., and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if--
(1) partition in kind of such property among the estate and such co-owners is impracticable;
(2) sale of the estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners;
The thrust of AAECU's argument is that Gaylena Sergent has no interest that must be taken into account in the sale of the subject property because she is a joint tenant with only a "possessory" interest.
Property interests are determined according to state law. Recently the Supreme Court of Kentucky defined a joint tenancy in Sanderson v. Saxon, 834 S.W.2d 676. The court stated:
A joint tenancy, as distinguished from the tenancy by the entirety, is an estate held by two or more people who (in the case where the estate is held by only two) are not husband and wife. Each is jointly entitled to the enjoyment of the estate as long as all live; however, the interest of a joint tenant, at his or her death, passes to the survivor. (Cites omitted.)
At page 678. In discussing a deed which conveyed a joint interest with survivorship, the court stated that "[t]he nature of the estates taken by the grantees was ... measured by the relative lifetimes of the initial grantees." Id., at page 680. This contradicts AAECU's assertion that Gaylena does not have a life estate in the property.
The basis of AAECU's position on this issue appears to be the premise that Gaylena's interest in the property is defined solely by the Decree of Dissolution of Marriage. In In re Nelson, 129 B.R. 427 (Bkrtcy.W.D.Pa. 1991), the debtor had entered into a separation agreement with his former wife which allowed her possession of the home which they had owned by the entireties during their marriage. The trustee sought to sell the home free and clear of her interest. In analyzing whether the trustee could meet the requirement of'363(h)(3), the bankruptcy court identified her interest as
...an undivided one-half interest in the Property and occupancy rights to 100% of the Property for the duration of her life. ... From the proceeds of sale, [she] is entitled to receive 50% for her undivided one-half interest, plus an additional amount for the value of her occupancy right to the other half.
At page 429.
Gaylena is similarly situated, and any sale of the subject property herein must take her interest into account. She has calculated her interest as $65,454.00, using the United States life mortality tables required by KRS 140.100(2), based on $100,000.00 as the present value of the property. She has stated that there is a first mortgage against the property in the amount of $20,193.50 and a second mortgage in the amount of $8,593.58. When these are added to her interest, the total equity interest left in the property is $5,758.92. Her 50% interest in that equity is $2,879.00. Except for the argument set out above, AAECU has not contradicted any of these figures.
Based on the previous calculations, the trustee would not be able to meet his burden under'363(h), and Gaylena's offer to buy the property for $3,000.00 is fair. It is therefore the opinion of this Court that Ashland Armco Employees Credit Union's Motion to Compel the Trustee to Sell Property should be overruled, and Gaylena Sergent should be allowed to purchase James Sergent's interest for $3,000.00. An order in conformity with this opinion will be entered separately.
By the Court -
William P. Emrick, Esq.
Brian P. Conaty, Esq.
Donald L. Frailie, Esq., Trustee