Source: http://stevesathersbankruptcynews.blogspot.com/2016/02/current-developments-in-texas-homestead.html
Timestamp: 2018-07-21 01:53:24
Document Index: 589543703

Matched Legal Cases: ['§522', '§522', '§522', '§522', '§522', '§522', '§ 50', '§ 41', '§ 41', '§ 41', '§ 41', '§ 541', '§ 302', '§ 301', '§ 544', '§ 3156', '§ 78', '§ 78', '§ 77']

A Texas Bankruptcy Lawyer's Blog: Current Developments in Texas Homestead Law
For this post, I attempted to find every Texas case dealing with a homestead exemption during the period between 2010 and 2015. Many more cases interpreting the Texas constitutional and statutory laws on homesteads are decided in bankruptcy courts than in reported state court opinions.
I. Issues Under Texas Law
The primary Texas constitutional and statutory provisions governing homesteads are included in Appendix A. For purposes of brevity, I have only included the provisions relevant to the cases discussed in this article.
A. What Property Can Be Claimed As a Texas Homestead?
1. Homestead Allowed
Where debtor’s leasehold interest and option to purchase were part of the same transaction, the debtor could claim a homestead interest in the option even though it was a non-possessory interest. In re See, 2015 Bankr. LEXIS 2323 (Bankr. W.D. Tex. 2015). However, where debtor leased property from holder of a life estate and Debtor also held remainder interest, lease was exempt but remainder interest was not. In re Brunson, 498 B.R. 160 (Bankr. W.D. Tex. 2013). (Note: Both cases are from Judge Tony Davis. In the Brunson case, the debtors were living in property owned by a family member under an informal agreement. In the See case, both the present possessory interest and the option to purchase were tied together in a formal written agreement. This likely explains the difference in result).
Debtor who lived with girlfriend much of the time but kept his own home in case things didn’t work out and who kept his possessions at home showed sufficient overt acts to claim property as homestead. In re Edwards, 2015 Bankr. LEXIS 132 (Bankr. N.D. Tex. 2015).
Debtors could claim property as Texas homestead even though they did not possess equity in it. In re Parsons, 530 B.R. 411 (Bankr. W.D. Tex. 2014).
Debtors could claim multiple tracts as homestead. Tracts were contiguous where debtors owned land under county road which would otherwise have separated two tracts. Additionally, debtors used each tract as homestead. In re Ling, 511 B.R. 83 (Bankr. S.D. Tex. 2014).
Debtor who lived in a trailer that was attached to real estate through water, electricity and sewage connections could claim trailer and property as homestead. In re Cox, 2014 Bankr. LEXIS 1993 (Bankr. S.D. Tex. 2014).
Debtor’s suit against insurance company for wrongful failure to pay claim for loss of homestead was exempt. In re Carlew, 469 B.R. 666 (Bankr. S.D. Tex. 2012); In re Hill, 2011 Bankr. LEXIS 5186 (Bankr. S.D. Tex. 2011).
Debtor could claim homestead exemption in property titled in deceased father’s name that was left to him under will. Although it was a close call, debtor showed sufficient use of inherited property for it to qualify as homestead as opposed to previous residence which was also used. In re Tinsley, 2010 Bankr. LEXIS 4156 (Bankr. N.D. Tex. 2010).
2. Homestead Partially Allowed
Debtor was allowed to claim portion of golf course containing club house where he resided as his homestead. Debtor could not claim portion that was separated by road and which was not used in connection with residence. In re Schott, 449 B.R. 697 (Bankr. W.D. Tex. 2011). The result in this case is different from In re Tinsley discussed above for the reason that the county owned the road here, whereas the county merely had an easement to cross the debtor’s property in Tinsley.
Debtor could only claim non-contiguous tracts under rural homestead exemption. Where one tract was located in platted subdivision outside of city limits which was served by volunteer fire department, it qualified as rural. Debtor could claim non-contiguous tracts as homestead so long as they were used for purposes of a homestead. Non-contiguous tract used for recreation and for timber sales was not used for purposes of a homestead. In re Dietz, 2011 Bankr. 522 (Bankr. E. D. Tex. 2011).
3. Homestead Not Allowed
Debtor who owned one Texas homestead and purchased another property could not claim the second property as homestead where he did not move out of the first property. Moser v. Schachar (Matter of Thaw), 2015 U.S. App. LEXIS 17385 (5th Cir. 9/30/15); In re Pendley, 2013 Bankr. LEXIS 207 (Bankr. W.D. Tex. 2013).
Debtor who operated a sand pit on property could not claim it as a rural homestead. Act of destroying the surface to mine sand precluded use as a rural homestead. Fact that debtor was a convicted criminal who had previously claimed a homestead in Oklahoma didn’t help either. Mitchell v. Stringfellow, 2010 U.S. Dist. LEXIS 124159 (N.D. Tex. 2010).
Debtor could not claim homestead on property which had been foreclosed upon. In re Morris, 2014 Bankr. LEXIS 1534 (Bankr. S.D. Tex. 2014).
Debtor could not claim excess funds in escrow account as exempt after homestead loan was paid off. In re Young, 2013 Bankr. LEXIS 1656 (Bankr. W.D. Tex. 2013).
Debtor could not claim property as residential homestead where he used it for business purposes and only occasionally slept there on the weekends. Use of property as a weekend home “does not a homestead make.” Texas no longer allows a business homestead unless the property is also used as a residence. In re Marshal, 481 B.R. 862 (Bankr. N.D. Tex. 2012).
A yacht could not be claimed as a Texas homestead even if it was used as a residence. Norris v. Thomas, 215 S.W.3d 851 (Tex. 2007).
Homestead could not be claimed on property acquired with stolen funds. In re Estate of Byrom, 2013 Tex. App. LEXIS 9494 (Tex. App.—Tyler, 2013, pet. den.).
B. Abandonment of Homestead
Once property becomes homestead, it remains homestead until property is alienated or abandoned. Homestead is abandoned where person leaves property with intent not to return.
1. Homestead Not Abandoned
Mother did not abandon homestead even though she lived with daughter for prior nine years. Court found that mother resided with daughter because she had gone through a series of personal trials and did not intend to abandon homestead. Matter of McKeithan, 486 Fed. Appx. 482 (5th Cir. 2012).
Homestead was not abandoned by conveyance to living revocable trust. Lowe v. Vazquez (In re Vazquez), 2013 U.S. Dist. LEXIS 44271 (W.D. Tex. 2013).
Debtors’ lease of approximately four acres of their property for a saltwater disposal well was sufficiently permanent as to cause an abandonment of that portion of the property as part of their rural homestead. The debtors’ agricultural lease as to the remainder of the tract was not sufficient to constitute an abandonment because it was temporary. In re Crump, 533 B.R. 567 (Bankr. N.D. Tex. 2015).
Debtor who accepted job in Louisiana but still intended to return to Texas property had not abandoned homestead. In re McDonald, 486 B.R. 843 (Bankr. S.D. Tex. 2013).
To prove abandonment, the creditor must offer competent evidence that clearly, conclusively, and undeniably shows that the homestead claimant moved with the intention of not returning to the property. Marincasiu v. Drilling, 441 S.W.3d 551 (Tex. App.—El Paso, 2014, pet. den.)
Where debtor leased a portion of her property separated by a fence with a rent house on it, creditor failed to prove abandonment of leased portion of property when it failed to establish what property was leased. In re Estate of Cantu, 2012 Tex. App. LEXIS 4860 (Tex. App.—San Antonio, 2012, no pet).
Homestead was not abandoned due to long-term imprisonment since debtor could still intend to return to property. Driver v. Conley, 320 S.W.3d 516 (Tex. App.—Texarkana, 2010, pet. den.).
2. Homestead Abandoned
Change of residence together with non-homestead affidavit could create abandonment of homestead by estoppel. Thomas v. Graham Mortgage Corporation, 408 S.W.3d 581 (Tex. App.—Austin, 2013, pet. den.).
C. Exemption of Proceeds
Debtor was required to pay estate back for funds spent on purposes other than investing in new homestead. Matter of Frost, 744 F.3d 384 (5th Cir. 2014).
Trustee could recover proceeds where homestead was sold post-petition and proceeds were not reinvested in chapter 7 case. In re Smith, 514 B.R. 838 (Bankr. S.D. Tex. 2014). However, the contrary position was reached by Judges Craig Gargotta and Tony Davis. Lowe v. DeBerry (In re DeBerry), 2015 Bankr. LEXIS 3694 (Bankr. W.D. Tex. 2015); In re D’Avila, 498 B.R. 150 (Bankr. W.D. Tex. 2013).
Failure to reinvest insurance proceeds from loss of home did not result from a sale of the home. As a result, insurance proceeds were not required to be reinvested within six months to preserve exemption. In re Carlew, 469 B.R. 666 (Bankr. S.D. Tex. 2012).
Debtor’s use of portion of sale proceeds to voluntarily pay creditors did not waive exemption in remainder of proceeds. Where proceeds were improperly ordered turned over, six month period was tolled. London v. London, 342 S.W.3d 768 (Tex. App.—Houston [14th Dist.], 2011, orig. proc.). While this state court case is arguably contrary to Frost, they arose in very different contexts.
II. Issues Under Bankruptcy Code
The Bankruptcy Code provisions discussed below are included in Appendix B.
A. Applicable Law (11 U.S.C. §522(b)(3))
Chapter 11 debtor who was domiciled in Florida died during pendency of the case. Court converted case to Chapter 7 and appointed a personal representative to represent the interest of the debtor. The personal representative asserted an exemption under the Texas Estates Code and spouse asserted her own allowance under the Texas Estates Code. Although debtor was domiciled in Florida at time of his filing, he had not lived there during the preceding two years. Because he had lived in Texas for the 180 days preceding two years before the filing date, his exemptions were determined by Texas law. However, personal representative could not claim allowance under Texas Estates Code because debtor was alive on the petition date and snapshot rule applied. Court held that Frost and Zibman did not abrogate the snapshot rule but instead operated to limit exemption based on subsequent events. Brown v. Sommers (Matter of Brown), 2015 U.S. App. LEXIS 20457 (5th Cir. 2015).
B. Cap on Exemption
1. Fraudulent Enhancement (11 U.S.C. §522(o))
Court used badges of fraud analysis to deny homestead exemption. Debtor encumbered non-exempt property in one state to acquire exempt homestead in Texas while incurring substantial unsecured debt. Court found that four badges of fraud were present: transfer of substantially all assets, to an insider, while retaining control and while incurring substantial debt. Matter of Cipolla, 541 Fed. Appx. 473 (5th Cir. 2013).
Debtor inherited property from his father. He used $195,000 in non-exempt property and $110,000 in exempt property to buy a lot and build a house. Debtor admitted that he intended to hinder, delay or defraud creditors. The court found that alcohol impairment was not sufficient to defeat fraudulent intent. Court ordered that property be sold and that 63.9% of proceeds would be non-exempt and 36.1% would be exempt based on the character of the funds invested in the homestead. In re Enloe, 2015 Bankr. LEXIS 4067 (Bankr. S.D. Tex. 2015).
To prevail under §522(o), four elements must be established:
a) The debtor disposed of property within ten years preceding the bankruptcy filing;
b) The disposed property was non-exempt;
c) Some or all of the proceeds from the disposition of this nonexempt property were used to buy a new homestead, to improve existing homestead, or reduce the debt associated with an existing homestead; and
d) The debtor disposed of the nonexempt property with intent to hinder, delay or defraud a creditor.
Douglass v. Douglass (In re Douglass), 2015 Bankr. LEXIS 3596 (Bankr. E.D. Tex. 2015).
Although several badges of fraud were present, court found that on balance, debtors had not transferred property with intent to hinder, delay or defraud a creditor. Debtor had received a large signing bonus which he would be obligated to repay if he left his employment in less than three years. Debtor left after approximately one year because he felt employer had made misrepresentations. Debtor moved to Texas where he made a 20% down payment on a home to avoid having to purchase mortgage insurance. Debtor purchased home after repayment clause had been triggered but before he was sued. Court found that moving to Texas did not constitute absconding. In re Erem, 2015 Bankr. LEXIS 876 (Bankr. S.D. Tex. 2015).
Where Debtor transferred note in return for acquiring homestead property, homestead was acquired with intent to hinder, delay or defraud a creditor. Court found that nine out of thirteen badges of fraud were present. In re Cowin, 2014 Bankr. LEXIS 1119 (Bankr. S.D. Tex. 2014).
Fact that debtor incurred debts which were not paid did not establish intent to hinder, delay or defraud. In re Smith, 2013 Bankr. LEXIS 1585 (Bankr. S. D. Tex. 2013).
2. 1,215 Day Acquisition (11 U.S.C. §522(p)
Where debtor’s homestead exemption was capped at $125,000[1], creditor’s pre-petition judgment lien did not attach to the excess value. Section 522(p) operated for benefit of bankruptcy estate, not judgment lien creditor. Smith v. H.D. Smith Wholesale Drug Co. (Matter of McCombs), 659 F.3d 503 (5th Cir. 2011).
Where Debtors purchased property within 1,215 days and increased their equity through mortgage payments and improvements, they actively acquired equity and their homestead exemption was capped. Court did not reach the issue of whether passive appreciation constituted equity “acquired” during the relevant period. Union State Bank v. Fehmel (Matter of Fehmel), 372 Fed. Appx. 507 (5th Cir. 2010).
Where debtor acquired property through will, 1,215 day period began to run on date of death rather than when debtor reached settlement with probate estate. In re Smith, 2013 Bankr. LEXIS 1585 (Bankr. S. D. Tex. 2013).
Although property was acquired within 1,215 days, cap did not apply because debtor was a family farmer. In re Tinsley, 2010 Bankr. LEXIS 4156 (Bankr. N.D. Tex. 2010)
3. Securities Violations/Criminal Conviction (11 U.S.C. §522(q))
Where Debtor was convicted of money laundering, perjury and bankruptcy fraud during bankruptcy proceeding, homestead exemption was capped at $146,750. Prince v. American Bank of Texas, 2012 U.S. Dist. LEXIS 127743 (E. D. Tex. 2012).
Objection under §522(q) could be brought any time before closing of case. Yeckel v. Cunningham, 2011 U.S. Dist. LEXIS 97346 (N.D. Tex. 2011).
Debtor who had judgment taken against him for securities fraud had his homestead exemption capped. The Court refused to determine whether value of homestead was above or below the cap, finding that the trustee could sell the property and pay the debtor his equity. The Court also refused to find that a greater homestead interest was necessary for the support of the family or that the non-filing spouse had a separate homestead interest. In re Bounds, 491 B.R. 440 (Bankr. W.D. Tex. 2013). (Note: The case was settled while the homestead determination was on appeal and the order was reversed by agreement.)
Debtor who was convicted of bankruptcy fraud was subject to cap on homestead exemption. In re Prince, 2011 Bankr. LEXIS 5511 (Bankr. E.D. Tex. 2011).
C. Interest of Non-Filing Spouse
Non-filing spouse did not have a separate homestead interest from that of the bankruptcy estate. When one spouse filed bankruptcy, the entire jointly owned homestead became property of the estate and could be sold without compensation to the non-filing spouse. Debtor received equity up to amount of allowed exemption and estate received the excess. Thaw v. Moser, 769 F.3d 366 (5th Cir. 2015); Kim v. Dome Entertainment Center, Inc. (Matter of Kim), 748 F.3d 647 (5th Cir. 2014); Wiggains v. Reed (In re Wiggains), 535 B.R. 700 (Bankr. N.D. Tex. 2015); In re Bounds, 491 B.R. 440 (Bankr. W.D. Tex. 2013).
D. Extra-Territorial Application
Debtor who was required to use Nevada exemptions could claim Texas homestead under Nevada law. Fernandez v. Miller, 2011 U.S. Dist. LEXIS 86528 (W.D. Tex. 2011).
Where Debtors did not reside within any single state during the 730 days before bankruptcy, exemptions were determined under law of state where they lived for majority of the 180 days prior to 730 days which was Louisiana. Under Louisiana law, Debtors’ homestead exemption on Texas property was limited to $25,000. Smith v. Winnsboro Equipment, Inc., 2011 U.S. Dist. LEXIS 49758 (S.D. Tex. 2011).
Where debtors’ exemptions were determined by North Carolina law, they could claim Texas property as homestead, but exemption was limited to $70,000 under North Carolina law. In re Garrett, 435 B.R. 434 (Banrk. S.D. Tex. 2010).
Where debtor’s exemptions were determined by California law, she could have claimed a Texas property as homestead. However, she was still married to her husband and under California law, couple could only have one homestead. Since she had previously abandoned her Texas homestead to move to California, California property owned by her husband was the only homestead the couple could claim. In re Arredondo-Smith, 436 B.R. 412 (Bankr. W.D. Tex. 2010).
E. Federal Exemption
Where debtor and his non-filing spouse owned homestead, debtor’s aggregate interest in the property which he could claim as exempt was valued at one-half of total value of property. Debtor could not claim interest of non-filing spouse as exempt. In re Wald, 2012 Bankr. LEXIS 2552 (Bankr. W.D. Tex. 2012). Court granted debtor leave to amend his exemptions to claim Texas state exemptions.
Debtor could claim proceeds from suit for damage to homestead under federal wild card exemption. In re Okwonna-Felix, 2011 Bankr. LEXIS 3028 (Bankr. S.D. Tex. 2011).
Primary Constitutional and Statutory Provisions Regarding Homesteads
§ 50. Homestead; Protection from Forced Sale; Mortgages, Trust Deeds, and Liens
(6) (a valid home equity loan);
(7) a reverse mortgage that meets the requirements of Sections 50(k)--(p), Article XVI, Texas Constitution.
§ 41.002. Definition of Homestead
§ 41.0021. Homestead in Qualifying Trust
§ 41.003. Temporary Renting of a Homestead
§ 41.004. Abandonment of a Homestead
Primary Bankruptcy Code Provisions Affecting Homesteads
(b) (1) Notwithstanding section 541 of this title [11 USCS § 541], an individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. In joint cases filed under section 302 of this title [11 USCS § 302] and individual cases filed under section 301 or 303 of this title [11 USCS § 301 or 303] by or against debtors who are husband and wife, and whose estates are ordered to be jointly administered under Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, one debtor may not elect to exempt property listed in paragraph (2) and the other debtor elect to exempt property listed in paragraph (3) of this subsection. If the parties cannot agree on the alternative to be elected, they shall be deemed to elect paragraph (2), where such election is permitted under the law of the jurisdiction where the case is filed.
(3) Property listed in this paragraph is--
(1) The debtor's aggregate interest, not to exceed $ 22,975 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.
(5) The debtor's aggregate interest in any property, not to exceed in value $ 1,225 plus up to $ 11,500 of any unused amount of the exemption provided under paragraph (1) of this subsection.
(o) For purposes of subsection (b)(3)(A), and notwithstanding subsection (a), the value of an interest in--
(p) (1) Except as provided in paragraph (2) of this subsection and sections 544 and 548 [11 USCS §§ 544 and 548], as a result of electing under subsection (b)(3)(A) 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 $ 155,675 in value in--
(q) (1) As a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) which exceeds in the aggregate $ 155,675 if--
(A) the court determines, after notice and a hearing, that the debtor has been convicted of a felony (as defined in section 3156 of title 18 [18 USCS § 3156]), which under the circumstances, demonstrates that the filing of the case was an abuse of the provisions of this title; or
(B) the debtor owes a debt arising from--
(i) any violation of the Federal securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 [15 USCS § 78c(a)(47)]), any State securities laws, or any regulation or order issued under Federal securities laws or State securities laws;
(ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 [15 USCS § 78l or 78o(d)] or under section 6 of the Securities Act of 1933 [15 USCS § 77f];
[1] The cap was originally set at $125,000 in 2005 and is adjusted every three years. Most recently, the cap was increased to $155,675 in 2013. Because of the periodic adjustments, the cases reflect different caps depending on the year when the case was filed.
Posted by Steve Sather at 9:37 PM
John heffner said...
Florence Davidsen said...
If you want to move to Texas, but have an old judgement out of state can you get a house or not? Gotta live somewhere, don't you? What is the ordinary course of business exception to the exception? In Florida they can't pull this conveyance on you. Does this all only matter in bankruptcy court?
There is nothing prohibiting you from buying a house in Texas. However, if the creditor domesticates the judgment in Texas before you purchase the house, they could argue that their lien attaches to the property although I think that would be a losing argument.
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