Monday, April 22, 2013

Bankruptcy Debtor Fails In Homestead Claim To Shield Home Equity From Creditors' Claws Where He Left Premises 15 Years Earlier, Rented It Out, Testifying To A Lack Of Intent To Return

From an Opinion Summary from Justia US

  • Debtor appealed from the bankruptcy court's order granting summary judgment in favor of the Chapter 7 Trustee on his objection to debtor's claimed homestead exemption

     The Bankruptcy Appellate Panel affirmed the bankruptcy court's conclusion that debtor had abandoned the property at issue as his homestead by removing himself from the property with no fixed or actual intent to return, and was not, therefore, permitted to claim a homestead exemption.(1)
Source: Opinion Summary - Paul v. Allred.

For the ruling, see Paul v. Allred, No.12-6068 (Bankr. App. 8th Cir. February 28, 2013).
(1) From the court ruling:
  • [The Chapter 7 Trustee] stated that the Debtor testified at the § 341 meeting that he has owned the Spark Street property since 1997 or 1998; that he did not live in the property on the date of filing; that he has not lived in the property for 14 or 15 years; and that he had no intent to live in the property.

    Further, the Debtor testified that the subject property was rented out, generating $550 per month of gross rental income, which, we note, was consistent with what was reported on Schedule I. The Debtor also testified he owns no other interests in real property.

    The Trustee asserted that entitlement to exemptions is determined on the date of filing and that, under South Dakota law, real property not actually occupied by the debtor on the date of filing can be claimed as an exempt homestead only if the debtor has, on the date of filing, an intention to occupy the property.

    Because the Debtor testified that he had no intent to occupy the property, the Trustee asserted that he was not entitled to the homestead exemption claimed in it.
  • While the Spark Street property may have once been the Debtor's homestead, the Trustee asserts that it no longer continues to possess the character of a homestead because he left the property and has no intent to return. In Yellowhair v. Pratt, the South Dakota Supreme Court stated the following standard regarding abandonment of a homestead:

    The main question in all cases of this nature is the intent of the party who has ceased to occupy the homestead.

    No general rule can be laid down as a guide for a court in determining intent, but each case must stand upon its own facts. Actual removal without intention to return is a forfeiture of the homestead right.

    If one removes from homestead property without any present intention of returning, but with a mere possible, or at most probable, future purpose to do so, contingent upon the happening or not happening of a particular event, the homestead is abandoned.

    Long absence, while not conclusive proof of intent to abandon, is a circumstance which may indicate such an intent in absence of a showing of intent to return.

    The real question is: Did the party have a fixed and actual purpose or intent to return and reside on the property, and did that purpose or intent continue to exist to the time in question?[16]
  • And, in Hewitt v. Carlson, the South Dakota Supreme Court said:

    While a party leaving a homestead must, in good faith, intend to return to it at some future date, such date need not be "fixed or definite" as to time; neither need such intent be an intent to return regardless of all possible contingencies; but, if there is an honest belief that at some time in the future the party will reoccupy the property as a home, and such party does no act inconsistent with such belief and intent, the homestead right is not forfeited.[17]
Editor's Note: It appears that the court didn't really seem concerned that the homeowner was gone from the home for 15 years, nor did it really seem concerned  that the premises was rented out.

The crucial issue here, as far as the court was concerned, was simply whether or not the Debtor had "an honest belief that at some time in the future the party will reoccupy the property as a home, and such party does no act inconsistent with such belief and intent, ...".

According to the Debtor's own testimony, the answer was no. So the court's ruling was quite predictable.

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