                       United States Court of Appeals
                              FOR THE EIGHTH CIRCUIT
                                       ___________

                                       No. 06-1373
                                       ___________

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In re Francis P. Takes; Mary L. Takes, *
                                               *
        Debtors                                *
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LaSalle Bank, N.A.; Valley Bank,      * Appeal from the United States
                                      * District Court for the
      Appellees,                      * Northern District of Iowa.
                                      *
      v.                              *
                                      *
Francis P. Takes; Mary L. Takes,      *
                                      *
      Appellants,                     *
                                 ___________

                                Submitted: September 25, 2006
                                   Filed: January 10, 2007
                                    ___________

Before LOKEN Chief Judge, SMITH and GRUENDER, Circuit Judges.
                             ___________

LOKEN, Chief Judge.

       In this Chapter 7 bankruptcy proceeding, debtors Frank and Mary Lu Takes
claimed a homestead exemption in Unit No. 4 of the Garnett Place Townhomes in
Cedar Rapids, Iowa, where they have lived since 1994 and which they purchased in
2004. Creditors LaSalle Bank and Valley Bank objected to the exemption, arguing
that under Iowa law -- which governs this issue by reason of 11 U.S.C. § 522(b) and
Iowa Code § 627.10 -- debtors’ homestead may be sold to satisfy debts to the banks
that were “contracted prior to [the homestead’s] acquisition” in 2004. Iowa Code
§ 561.21(1). The bankruptcy court upheld the exemption, but the district court1
reversed and remanded, concluding that the exemption is limited to the portion of the
purchase price paid with proceeds of the debtors’ prior leasehold interest in the
property. In re Takes, 334 B.R. 642 (N.D. Iowa 2005). Both sides appealed.2 The
banks have dismissed their appeal. The issue remaining is the debtors’ contention that
the district court erred in applying Iowa Code § 561.21(1). We affirm.

       In 1994, debtors entered into a Residency Agreement with Garnett Place
Townhomes, L.C. (GPT), granting them occupancy of Unit 4 “for the life of the
residents” in exchange for a $110,000 Residency Entrance Fee, refundable at least in
part upon termination of the agreement, and a non-refundable monthly fee of $300 per
month. The Agreement denied debtors the right to assign their interest or to sublet
Unit 4 and granted GPT complete discretion to enter into a residency arrangement
with another resident after termination. In 2004, debtors purchased Unit 4 as a
condominium for $177,300. GPT credited $125,773 of the purchase price against
debtors’ refundable Residency Entrance Fee (increased by an appreciation factor).

       It is undisputed that debtors presently own and occupy Unit 4 as their
homestead. They are therefore entitled to the homestead exemption in Iowa Code
§ 561.16, subject to the exceptions set forth in § 561.21. Their debt to the banks arose
in 1999. Thus, in applying the prior debts exception in Iowa Code § 561.21(1), the
critical question is whether debtors’ present homestead interest was acquired in 1994,

      1
        The HONORABLE LINDA R. READE, Chief Judge of the United States
District Court for the Northern District of Iowa.
      2
       Though the district court remanded for further Chapter 7 proceedings, it is
settled that a district court order resolving a significant exemption issue is
immediately appealable under 28 U.S.C. § 158(d). See In re Huebner, 986 F.2d 1222,
1223-24 (8th Cir. 1993).

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when they first occupied Unit 4 under the Residency Agreement, or in 2004, when
they purchased Unit 4 as a condominium.

       Under Iowa law, it is well-settled that “a leasehold interest which may be sold
on execution may constitute a homestead.” White v. Danforth, 98 N.W. 136, 137
(Iowa 1904). On the other hand, when a simple landlord/tenant relationship creates
no such property value, “occupancy as lessee [is] absolutely inconsistent with a claim
of homestead right.” Bradshaw v. Remick, 57 N.W. 897, 898 (Iowa 1894). Thus,
when a couple occupying their residence as lessees or tenants acquire full ownership,
for example by inheritance or purchase, numerous Iowa cases hold that the ownership
interest creates a new homestead for purposes of § 561.21(1) because the prior
“leasehold right was entirely independent of that now held.” Wertz v. Merritt, 39
N.W. 103, 105 (Iowa 1888); accord Reusch v. Shafer, 41 N.W.2d 651, 658 (Iowa
1950); Kramer v. Hofmann, 257 N.W. 361, 364 (Iowa 1934); Anderson v. Cosman,
72 N.W. 523, 525 (Iowa 1897). In cases of this sort, a debtor’s homestead right will
relate back to a prior transaction for purposes of § 561.21(1) only when the present
ownership interest is dependent upon or derived from an ownership interest (whether
legal or equitable) created by the prior transaction, as in Lennert v. Cross, 241 N.W.
787, 789 (Iowa 1932), and Foster v. Rice, 101 N.W. 771, 772 (Iowa 1904).

       Applying these precedents, correctly in our view, the district court undertook
a careful analysis of the Residency Agreement and concluded that it granted debtors
a leasehold interest distinct from and independent of the fee simple ownership interest
they acquired by purchase in 2004. The two interests were homesteads because of
debtors’ continuous occupancy. But because the two were independent of each other,
the court held that the debt to the banks was prior to the present homestead for
purposes of Iowa Code 561.21(1). However, recognizing that the substantial
refundable Residency Entrance Fee paid by debtors in 1994 created a leasehold
interest that could have been sold at execution, the court further concluded that
debtors should receive a partial exemption under Iowa Code § 561.20 to the extent

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that these proceeds of the first homestead ($125,773) were used to acquire their new
homestead, a full ownership interest in Unit 4 as a condominium. The banks
dismissed their appeal of this second ruling.

       After careful review of the record, we conclude for the reasons stated in the
district court’s thorough opinion that the court properly applied Iowa Code §§ 560.20
and .21 in limiting the debtors’ homestead exemption in Unit 4 to the proceeds of their
prior leasehold interest that were reinvested to purchase the property in 2004.
Accordingly, the order of the district court dated December 5, 2005, is affirmed.
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