Opinion ID: 32608
Heading Depth: 3
Heading Rank: 4

Heading: Operation of a Business on a Rural Homestead

Text: 37 The bankruptcy court held that regardless of his interest in the 26-acre and 59-acre tract, Perry could not claim either as exempt homestead (except for the 1.34 acres on which he resides) because he forfeited homestead protection by operating a business on the property. The district court did not dispute that Perry's mobile home and RV park constitute a business, but reversed the bankruptcy court's decision on the grounds that Texas permits the operation of a business on a rural homestead. 38 The bankruptcy court based its holding upon the broad premise that a business can never be part of a rural homestead. After a thorough review of Texas homestead law, however, we are unable to say that Texas would necessarily adopt such an unequivocal statement regarding the effect of business activity on a single contiguous piece of rural homestead property. 39 We accept responsibility for the bankruptcy court's misstatement of Texas law. In reaching its conclusion, the bankruptcy court relied upon a statement contained in a footnote in one of our prior decisions, In re Bradley, 960 F.2d 502 (5th Cir.1992). Footnote 6 states, [u]nlike the urban homestead, the rural homestead does not encompass a `business homestead,' and indeed, the operation of a business on part of a rural homestead forfeits the homestead protection on that part of the property. Id. at 506 n. 6. 40 We are not bound, however, to follow Bradley. Bradley did not concern the operation of a business on claimed rural homestead property. Id. There, we were asked to decide whether the claimants had abandoned a portion of their rural homestead by lack of use or by disclaimer. Id. at 508. The statement in footnote 6 was not relevant to the holding, and is therefore dictum that we are not bound to follow. United States v. Calderon-Pena, 339 F.3d 320, 325-27 (5th Cir.2003); Curacao Drydock Co. v. M/V AKRITAS, 710 F.2d 204, 206 (5th Cir.1983). Moreover, the single case we cited in support of the statement in Bradley is an undeniably weak reed upon which to rest such a sweeping pronouncement of Texas homestead law. 16 41 Homesteads are favorites of the law, and are liberally construed by Texas courts. In re Bradley, 960 F.2d 502, 507 (5th Cir.1992); Whiteman v. Burkey, 115 Tex. 400, 282 S.W. 788 (1926). We are therefore obligated to interpret the Texas homestead laws equally broadly in order to effectuate their purpose of protecting the family home and a place where the head of the household may pursue his calling or business. See Wynne v. Hudson, 66 Tex. 1, 17 S.W. 110, 112 (1896)(stating the purpose of the homestead exemption). 42 At first blush, the plain meaning of the Texas Constitution and Texas Property Code appear to support the conclusion that a business may not be included as part of a rural homestead. The laws require that a rural homestead must be used for the purposes of a rural home and may include up to 200 acres of land for a family. Tex. Prop.Code Ann. § 41.002(b). The urban homestead, in contrast, must be used for the purposes of an urban home or as both an urban home and a place to exercise a calling or business,  and may include no more than 10 acres. 17 Id. at § 41.002(a)(emphasis added); Tex. Const. art. XVI, § 51 (emphasis added). The bankruptcy judge inferred that, in light of a phrase expressly sanctioning the operation of a business on an urban homestead, the absence of similar language purposely denied the inclusion of property utilized for business purposes in a rural homestead. See id. 43 It appears, however, that a business element has historically been embedded within the definition of a rural homestead. See, e.g., PaineWebber Inc. v. Murray, 260 B.R. 815, 822 (E.D.Tex.2001). The statement permitting the inclusion of business property in the urban homestead was added in 1876 to the Texas Constitution 18 in order to ensure that property essential to the livelihood of urban dwellers would be as equally protected from creditors as that of rural residents. Due to the agrarian nature of rural society at the time, property designated as a rural residential homestead served the dual purpose of protecting the family's means of survival (e.g., farming), as well as its home. 19 See Foust v. Sanger, 13 Tex.Civ. App. 410, 35 S.W. 404, 405 (1896). Certainly, some of the farming activity that was done on rural homestead property was tantamount to operating a business. 20 The urban residential homestead, however, often protected only the family shelter, and not necessarily the property essential to the pursuit of the debtor's livelihood. As a Texas Court of Appeals explained, 44 Undoubtedly the purpose of the homestead exemption is to shield from creditors a place for the family to live and a place for the head of the family to exercise his calling or business to enable him to support the family. It was contemplated that a rural homestead would serve both purposes, and, therefore, no separate provision was made for a residence and a business homestead, although it was permitted that the homestead consist of separate and detached parts, if used for the purposes of a home. As to the urban homestead, it was not contemplated that the exemption of a place of residence would be sufficient as the exemption of a place to exercise the calling or business of the head of the family. Hence a separate provision was made for each. 45 Thomas v. Creager, 107 S.W.2d 705, 709 (Tex.Civ.App.1937) (emphasis added). See also In re Moellendorf, 1989 WL 16034, at  n. 6 (Bankr.W.D.Tex.1989)(Clark, J.) (In a rural homestead exemption is comprehended a residence and business homestead exemption. Therefore, the dedication consists of the use of a part of the tract for a residence and the balance for the support of the family.). 46 The purpose of the homestead exemptions, both urban and rural, has been to protect not only the home, but also the property that enables the head of the household to support the family. 21 Foust, 35 S.W. at 405. 47 The exemptions should not be construed as reserving merely a residence where a family may eat, drink and sleep, but also a place where the head or members may pursue such business or avocation as is necessary for the support and comfort of the family. 48 Pryor v. Stone, 19 Tex. 371, 1857 WL 5128 (1857)(emphasis added). See also Houston & Great N.R.R. Co. v. Winter, 44 Tex. 597, 611, 1876 WL 9154 (1876)(stating that the rural homestead exemption aims to protect the farm, mill, gin, tanyard, or whatever else had been used in connection with the residence to provide a living and support the family); In re Spencer, 109 B.R. 715 (Bankr.W.D.Tex.1989)(defining a rural homestead as land that must be used for a residence and the balance of the tract for the support of the family.); 43 Tex. Jur.2d § 35 (stating that the rural homestead exemption serves the purpose of securing a place for a home and a place for the claimant to exercise his business or calling). Perry's use of his property thus ostensibly comports with the stated purpose of the homestead laws. 49 Neither the Texas Property Code, nor the Texas Constitution, bar a rural resident from operating a business, per se, on the property on which he resides. Because the business or calling of rural residents has traditionally been agricultural, the Texas Supreme Court has not yet been presented with the opportunity to pass upon a case that involves (a) a rural resident, who claims (b) rural property, that is (c) on the same tract as his residence 22 and (d) is used for non-agricultural business purposes, as part of his homestead. But see, Hollifield v. Hilton, 515 S.W.2d 717, 717-721 (Tex.Civ.App.1974), writ ref'd, n.r.e. (holding that where appellants owned and resided upon contiguous 60-acre rural farm and used 18 acres as a mobile home park, 18-acre tract was part of the rural homestead); In re Buie, 287 F. 896 (N.D.Tex.1923), aff'd, Rockhold v. Buie, 293 F. 1021 (5th Cir.1923)(concluding that land, contiguous to the debtor's residence, on which he ran a general store and public blacksmith shop, was exempt rural homestead); In the absence of a clear statement expressly limiting the scope of the rural homestead to property used for home or agricultural purposes, we cannot agree that the operation of a business, without more, necessarily forfeits a rural homestead interest. 50 The Dearings challenged Perry's ability to claim the 26 and 59-acre tracts as rural homestead on the theory that they were used inconsistently with homestead purposes. See Wynne v. Hudson, 66 Tex. 1, 17 S.W. 110, 112 (1886)(holding that land that is permanently appropriated to an inconsistent use is abandoned). On remand, the court may wish to consider the impact that the operation of a mobile home and RV park, specifically, has upon the status of a claimed rural homestead. 51 There is a significant body of Texas case law indicating that one who rents a section of his property continuously to others, abandons that portion of his property for purposes of the homestead laws. 23 The cases justify partitioning a single piece of land into homestead and non-homestead portions in these cases not because renting constitutes a business, see Mays v. Mays, 43 S.W.2d 148, 152 (Tex.Civ.App.1931), but because by permanently renting the property to others, the owners surrender possession and control of the property. See, e.g., Texas Building & Mortgage Co. v. Morris, 123 S.W.2d 365, 371 (Tex.Civ.App. 1938). In so doing, they evince an intention to abandon it for homestead purposes. Id. 52 Renting property does not always abandon it for purposes of the homestead laws. Indeed, the Constitution and Texas Property Code protect the homestead status of property that is only temporarily rented. Tex. Const. art. XVI, § 51; Tex. Prop.Code Ann. § 41.003. Whether Perry temporarily rented portions of his homestead property or did so permanently in such a manner that he abandoned the property as his homestead is a question of fact. Carver v. Gray, 140 S.W.2d 227, 231 (Tex.Civ.App.1940). Because abandonment is an affirmative defense, the party opposing the homestead claim, in this case the Dearings, carries the burden. Huffington v. Upchurch, 532 S.W.2d 576 (Tex. 1976). 53 As an initial matter, the court should determine whether, and if so, over what portions of property, Perry released possession and control. See Hollifield v. Hilton, 515 S.W.2d 717 (Tex.Civ.App.1974) (finding that property used as mobile home park was only temporarily rented to others because tenants were month-to-month). Then, the court should consider Perry's intent with respect to that portion of the property. Gonzalez v. Guajardo de Gonzalez, 541 S.W.2d 865, 867 (Tex.Civ.App. 1976). If Perry intended to resume control over the property, the property will not lose its homestead character. Hollifield, 515 S.W.2d at 721 (finding lack of intent to abandon homestead when claimant testified to that effect and when rental property could be reconverted to agricultural use with minimal effort). 54 Although we are unable to agree that the operation of a non-agricultural business on a rural homestead necessarily sacrifices the homestead character of that portion of the property, we are not in a position to say that Perry, by operating a mobile home and RV park, did not abandon the 26-acre tract for homestead purposes. We therefore vacate the bankruptcy court's ruling and remand for a determination of this issue.