Opinion
Case No. 19-13738
04-27-2020
In re: TERRI L. CREW Debtor
Chapter 7
DECISION AND ORDER OVERRULING TRUSTEE'S OBJECTION TO EXEMPTION
[Docket Number 17]
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This matter is before this Court on Trustee Eric W. Goering ("Trustee")'s Objection to Exemption [Docket Number 17], Debtor Terri L. Crew ("Debtor")'s Response [Docket Number 20]; and the parties' memoranda in support of their positions [Docket Numbers 28 and 31].
Upon filing her chapter 7 bankruptcy petition on October 11, 2019, the Debtor claimed a $145,425 homestead exemption in a parcel of real estate on which her house sits as well as the adjacent parcel, which is used as a yard. Subsequently, the Trustee filed an objection to the Debtor's claimed exemption. Although recognizing that the Debtor is entitled to a homestead exemption in the parcel of real estate on which her house is located, the Trustee objects to her inclusion of the adjacent parcel.
A hearing was held on March 5, 2020. Based upon the evidence, and particularly, the Debtor's testimony, as well as the legal analysis set forth below, the Trustee's objection to the Debtor's claimed homestead exemption is overruled.
I. FINDINGS OF FACT
The Debtor, together with her sister, purchased the house at 229 Northern Avenue, Cincinnati, Ohio, on or about December 8, 2009. At that time, the Debtor saw that there was an adjacent lot next to the house. She thought that the lot was the house's yard and part of the purchase only realizing it was not when a "for sale" sign was put up on the adjacent lot two years later.
Because the house at 229 Northern Avenue did not have a usable back yard, only a muddy hill, the Debtor and her sister went ahead and purchased the adjacent parcel at 225 Northern Avenue on or about March 29, 2011 with the intent to continue to use it as a yard. At the time of purchase, the property was valued at $10,000 according to the Hamilton County Auditor. The purchase was financed through a $10,000 mortgage loan, but the parties believe that the loan has been paid off.
At the hearing, the Debtor testified regarding the use of the adjacent parcel. The Debtor stated that she and her sister babysit children and use the adjacent parcel as a yard for the children to play. They also hold family gatherings in the yard on the adjacent parcel, including birthday parties, family reunions and celebrating summer holidays such as the Fourth of July and Memorial Day. During the summer, the Debtor spends time reading books under the shade of the trees.
The Debtor maintains the adjacent lot by cutting the grass, maintaining the trees, and planting rose bushes and a few other plants. She engages in this general up-keep so the property will look nice in the neighborhood. The yard has not been used for parking vehicles, however, because the Debtor cannot afford to put in a driveway.
While the Debtor admits that selling the adjacent parcel would not impact the use of her house itself, she has no plans now or in the future to sell it because she considers it her yard and part of the property.
II. LEGAL ANALYSIS
The Trustee objects to the Debtor's claimed exemption in her residential property. As the party objecting, the Trustee carries the burden of proving that the exemption is not properly claimed. Fed. R. Bankr. P. 4003(c).
Upon the filing of a petition, a bankruptcy estate is created that generally consists of all legal and equitable interests a debtor has in property at the time the case is commenced. 11 U.S.C. § 541(a). However, a debtor may protect certain property by claiming it as "exempt," thereby moving that property beyond the reach of most creditors. 11 U.S.C. § 522; Menninger v. Schramm (In re Schramm), 431 B.R. 397, 400 (B.A.P. 6th Cir. 2010); In re Pursley, 2014 Bankr. LEXIS 314, at *4, 2014 WL 293557, at *2 (Bankr. N.D. Ohio Jan. 23, 2014). Although the Bankruptcy Code creates a list of exempt property in 11 U.S.C. § 522(d), it also allows a state to "opt-out" of the federal list in favor of its own exemption framework. 11 U.S.C. § 522(b); Schramm, 431 B.R. at 400. Ohio is an "opt-out" state and, consequently, a debtor properly domiciled in Ohio may take exemptions authorized under Ohio law. Ohio Rev. Code § 2329.662. See also Schramm, 431 B.R. at 400.
"The overarching policy justification for bankruptcy exemptions is to 'ensure that debtors and their families have sufficient means to support themselves through difficult times without becoming a public charge.'" In re Way, 2014 Bankr. LEXIS 3985, at *7, 2014 WL 4658745, at *3 (Bankr. N.D. Ohio Sept. 17, 2014) (citing In re Wood, 459 B.R. 263, 269 (Bankr. S.D. Ohio 2011)). Accordingly, bankruptcy courts and Ohio courts alike "follow the rule that exemption statutes are to be construed liberally in favor of the debtors, and that any doubt in interpretation should be in favor of granting the exemption." In re Wengerd, 453 B.R. 243, 247 (B.A.P. 6th Cir. 2011) (relying on Daugherty v. Central Trust. Co. of N.E. Ohio, N.A., 504 N.E.2d 1100, 1104-05 (Ohio 1986)). See also In re Wood, 459 B.R. 263, 269 (Bankr. S.D. Ohio 2011); In re Caperton, 2011 Bankr. LEXIS 5761, at *4-5 (Bankr. N.D. Ohio March 31, 2011).
In this case, the Trustee's objection focuses on the Debtor's claimed "homestead exemption" of $145,425 under Ohio Revised Code § 2329.66(A)(1). This provision provides for an exemption "in one parcel or item of real or personal property that the person or a dependent of the person uses as a residence." Ohio Rev. Code § 2329.66(A)(1)(b). Effective March 27, 2013, the Ohio Legacy Trust Act ("Trust Act") was enacted providing a definition of the previously undefined term "parcel" for purposes of the Ohio homestead exemption. Way, 2014 Bankr. LEXIS 3985, at *9, 2014 WL 4658745, at *4 (citing the 2011 Ohio H.B. 479). The Trust Act provision, located in Ohio Rev. Code § 2329.66(A)(1)(c), defines "parcel" as "a tract of real property as identified on the records of the auditor of the county in which the real property is located." In essence, the Trustee argues that the language of Ohio Revised Code § 2329.66(A)(1)(b) and (c) limit the Debtor's homestead exemption to one legally identified "parcel" of land, the parcel on which her house stands, and not the adjacent parcel that she uses as her yard.
While the statute speaks alternatively of one "parcel," "item," or "tract" of real property, neither Ohio Rev. Code § 2329.66(A)(1)(b) nor (c) clarify whether these terms require the exemption to be applied narrowly based on Ohio's numbering system for "parcels" of real estate or, instead, more broadly based on how a contiguous tract of land is used. Bankruptcy courts faced with this issue, including this Court, found no Ohio case law interpreting this aspect of the Ohio exemption statute. Way, 2014 Bankr. LEXIS 3985, at *10, 2014 WL 4658745, at *4. With no case law on point, courts analyzing the issue are called upon to anticipate how the Supreme Court of Ohio would interpret the terms for purposes of the homestead exemption. See Wengerd, 453 B.R. at 247 (noting that when Ohio state courts have not addressed the proper interpretation of a provision in the Ohio exemption statute, a federal court must anticipate how the Ohio Supreme Court would resolve the issue); Way, 2014 Bankr. LEXIS 3985, at *11, 2014 WL 4658745, at *4 (when analyzing an Ohio statute, a federal court seeks to "give the statute the same meaning as would the Supreme Court of Ohio if posed with the same question").
Although not a direct interpretation of the Ohio exemption statute, the Supreme Court of Ohio has analyzed the term "parcel" in another context. See Park Ridge Co. v. Franklin Cnty. Bd. of Revision, 504 N.E.2d 1116, 1120 (Ohio 1987). In Park Ridge, the Supreme Court of Ohio was called upon to interpret the language of Ohio Revised Code §§ 5713.01 through 5713.04, which require county auditors to determine the value of "each separate tract, lot, or parcel of real estate" for the purpose of assessing property taxes. 504 N.E.2d at 1119-20. A county auditor argued that this statutory language requires the auditor to provide a valuation of each separate parcel based on the permanent parcel numbers identified in the auditor's records, even if a building spanned more than one parcel or multiple parcels were used for the same purpose. Id. at 1118-20. The opposing party, a property owner, argued that the valuation method used by the auditor inflated the value of his multi-parcel residential rental complexes. Id. at 1118.
The Supreme Court of Ohio rejected the county auditor's narrow reading of the term "parcel," noting it was used interchangeably with other terms in the relevant statutory provisions, including "tract" and "lot." Id. at 1120. Furthermore, the Supreme Court found that while permanent parcel numbers have their purpose, a rigid focus on them was inappropriate for valuing the property for tax assessment purposes:
Numbered permanent parcels facilitate conveyancing and may serve other valuable purposes. However, there is no valid reason why their relatively arbitrary boundaries must always limit valuation practices for real property taxes. The true value for real property may well depend on its potential use as an economic unit. That unit may include multiple parcels, or it may be part of a larger parcel, on the auditor's records. The boundaries of that unit may change with time and circumstances. Thus, a separate tract for valuation purposes need not correspond with a numbered parcel.Id. Accordingly, the Ohio Supreme Court rejected a narrow reading of the term "parcel" to instead, focus on the economic use of a contiguous tract or unit of property to determine its value. Id.
While not directly on point, bankruptcy courts have found the Park Ridge opinion instructive to the appropriate interpretation of the Ohio homestead exemption. See Way, 2014 Bankr. LEXIS 3985, at *13-14, 2014 WL 4658745, at *5; In re Miller, 2011 Bankr. LEXIS 5760, at *11-12 (Bankr. N.D. Ohio March 28, 2011). Like the statutory provisions at issue in Park Ridge, the Ohio homestead exemption provisions use the term "parcel" interchangeably with other arguably broader terms such as "item" or "tract." See Ohio Rev. Code § 2329.66(A)(1)(b) and (c). Furthermore, limiting the application of the homestead exemption to one permanently numbered parcel of real estate could create arbitrary boundaries that fail to consider the true nature of the property as one economic unit. Way, 2014 Bankr. LEXIS 3985, at *13-14, 2014 WL 4658745, at *5; Miller, 2011 Bankr. LEXIS 5760, at *12 (same). Indeed, Ohio bankruptcy courts have pondered the absurd result that could arise when applying such a rigid interpretation of the homestead exemption to a house that happens to span two numbered parcels of real estate: "Would the homestead exemption cover the debtor's living room and kitchen on one parcel, but exclude his bedroom and bathroom on the other?" Way, 2014 Bankr. LEXIS 3985, at *13-14, 2014 WL 4658745, at *5 (citing Miller, 2011 Bankr. LEXIS 5760, at *12).
Informed by the Supreme Court of Ohio's practical interpretation of "parcel" in Park Ridge and the policy favoring a broad interpretation of exemption statutes in favor of debtors, this Court concludes that the appropriate focus is not on a rigid numbering system for parcels of real estate that may create arbitrary boundaries but, instead, on the property's use. Accordingly, this Court holds that the homestead exemption may apply to "any land, regardless of legal identification numbers, as long as the land is contiguous and used by the debtor as a single residence." Way, 2014 Bankr. LEXIS 3985, at *13, 2014 WL 4658745, at *5. See also Miller, 2011 Bankr. LEXIS 5760, at *12-13 (holding that a contiguous quantity of land may constitute a parcel for purposes of the homestead exemption to the extent that the land is a single unit in its use by the person or a dependent of the person as a residence); In re Whitney, 459 B.R. 712, 716 (Bankr. N.D. Ohio 2011) (concluding that the homestead exemption may apply to contiguous parcels or items of real estate if used for a single purpose as the homestead). Accord In re Williams, 345 B.R. 853, 856 (Bankr. N.D. Ohio 2006) (concluding that the Ohio homestead exemption did not extend to a thirty-acre tract of real property that was not contiguous to the debtors' home).
Because the homestead exemption may apply to two or more contiguous parcels of real estate when used together as a residence, the next question that must necessarily be answered is what constitutes "use as a residence." Ohio case law on the issue has again been sparse. Way, 2014 Bankr. LEXIS 3985, at *14, 2014 WL 4658745, at *6; Miller, 2011 Bankr. LEXIS 5760, at *14. Accordingly, a line of bankruptcy cases has focused on the construction of similar state homestead exemptions as well as the policy of interpreting such exemption statues liberally in favor of debtors. Caperton, 2011 Bankr. LEXIS 5761, at *13-16; Miller, 2011 Bankr. LEXIS 5760, at *14-17. This Court agrees with that analysis and the resultant conclusion that property contiguous to the dwelling is used as a residence if it is "linked to the support, existence, or enhancement of the structure or for activities normally associated with a residence, such as family recreation." Caperton, 2011 Bankr. LEXIS 5761, at *16; Miller, 2011 Bankr. LEXIS 5760, at *17. See also Way, 2014 Bankr. LEXIS 3985, at *14-15, 2014 WL 4658745, at *6 (following Miller and Caperton).
Under this definition, the use of the land adjacent to the dwelling drives whether or not that land is covered by the homestead exemption. In one case, the Ohio homestead exemption was found to cover a 2.2-acre parcel adjacent to the debtors' home that held the septic system for the residence and was used for family recreational purposes, including bonfires, horseback riding and paint ball tournaments. Miller, 2011 Bankr. LEXIS 5760, at *17-18. In another case, the adjacent parcel was covered by the Ohio homestead exemption when it contained the utility lines and driveway to the residence, which linked the parcel to the "support, existence or enhancement" of the debtors' homestead. Way, 2014 Bankr. LEXIS 3985, at *15-16, 2014 WL 4658745, at *6. In contrast to these cases, a bankruptcy court held that the homestead exemption excluded a contiguous five-acre tract of undeveloped land that was used primarily as rental property leased to a farmer to plant crops and produce income. Caperton, 2011 Bankr. LEXIS 5761, at *17-18.
In this case, the Debtor testified that the parcel of land adjacent to her home is simply used and maintained as her yard. Children play in it, family gathers there, and sometimes, the Debtor relaxes with a book under the shade of its trees. The yard is both contiguous to the Debtor's house and used for activities normally associated with a residence such as family recreation. Accordingly, the Debtor's yard is part of the residence covered by the homestead exemption.
III. CONCLUSION
For purposes of the homestead exemption found in Ohio Revised Code § 2329.66(A)(1), this Court holds that the Debtor's residence includes both the parcel of land on which her house stands as well as the adjacent parcel constituting her yard. Accordingly, the Trustee's Objection to Exemption [Docket Number 17] is overruled.
SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
Beth A. Buchanan
United States Bankruptcy Judge Dated: April 27, 2020 Distribution List:
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