Opinion
Case No. 8:18-bk-05028-RCT
04-03-2019
IN RE: FRANK LAPACE and ROSA LAPACE, Debtors.
Chapter 7 ORDER DENYING TRUSTEE'S MOTION FOR SUMMARY JUDGMENT
The matter is before the court on a Motion for Summary Judgment filed by the Trustee, Angela Welch, on her objection to the Debtors' claimed homestead exemption (the "Motion"). The Debtors filed a Response opposing the Motion to which the Trustee filed a Reply. The parties have stipulated to a series of undisputed facts for purposes of the Motion. For the reasons set forth below, the court denies the Motion.
Doc. 61.
Doc. 66.
Doc.68.
Doc. 60.
I. UNDISPUTED FACTS AND PROCEDURAL HISTORY
The Debtors filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on June 18, 2018 (the "Petition Date"). On Schedule A, the Debtors disclosed their ownership of real property located at 3328 Kingswood Drive, Sarasota, Florida (the "Property"). Although the Debtors owned and occupied the Property for 26 years prior to filing bankruptcy, they did not initially claim the Property as exempt on Schedule C. Nor did the Debtors claim the "wildcard" exemption on Schedule C. The Debtors did not list any sales agreements or real estate agent/brokerage agreements on Schedule G. The Trustee conducted and concluded the Debtors' 341 meeting on July 24, 2018. With respect to the Property, the Debtors' testified:
Doc. 60 ¶ 1.
Id. ¶ 2.
Id. ¶ 3.
Id. ¶ 4.
Id. ¶ 6.
Id. ¶ 5.
Id. ¶ 8.
Trustee: and your home in Sarasota, are you going to keep it?
Debtors: yes.
Trustee: How long have you lived there?
Debtors: 26 years.
Trustee: Have you refinanced at all in say the last three years?
Debtors: No.
Id. ¶ 10.
According to Sarasota County public records, a few days prior to the Petition Date the Debtors listed the Property for sale and entered into a contract to sell the Property. The Debtors closed on the sale of their Property around July 26, 2018, after the Petition Date, without notifying the Trustee or obtaining the approval of this court. The Debtors received net sales proceeds totaling $95,717.17 (the "Sale Proceeds"). The Debtors deposited the Sale Proceeds into their joint checking account, commingling them with other funds. Debtors acknowledge that they spent some of the Sale Proceeds on daily living expenses and other miscellaneous items.
Id. ¶ 11.
Id. ¶ 12.
Id. ¶ 13.
Id. ¶ 15.
Id. ¶ 16.
Debtors filed for divorce on or about September 12, 2018, which action is still pending. On July 30, 2018, Debtor Frank LaPace used $35,779 of the Sales Proceeds to purchase a mobile home where he currently lives. Debtor Rosa LaPace lives in a separate residence and has not used any of the Sales Proceeds to purchase a new residence.
Id. ¶ 17.
Id. ¶ 19.
Id. ¶ 20.
On November 16, 2018, the Trustee's counsel demanded that Debtors turnover the Sale Proceeds to the Trustee within fourteen days (the "Demand Letter"). That same day the Debtors filed an Amended Summary of Assets and an Amended Schedule C (the "Amended Schedules"). The court struck the Amended Schedules from the record twice due to procedural deficiencies. On November 29, 2018, Debtors successfully filed the Amended Schedules. In their Amended Schedule C, the Debtors claimed the Property as exempt pursuant to Fla. Const. art. X, § 4(a)(1); and Fla. Stat. Ann. §§ 222.01 and 222.02, with a claimed exemption value of $152,146.
Id. ¶ 21.
Id. ¶ 22; Docs. 34 and 35.
Id. ¶¶ 22-23; Docs. 38, 42-43 and 46.
Id. ¶ 24; Doc. 49.
Id. ¶ 25; Doc. 49.
II. DISCUSSION
A. Summary Judgment Standard
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In this context, "[a] genuine factual dispute exists only if a reasonable fact-finder 'could find by a preponderance of the evidence that the [non-movant] is entitled to a verdict [in its favor].'" Though all reasonable inferences to be drawn from the underlying facts must be viewed in the light most favorable to the non-movant, "inferences based upon speculation are not reasonable."
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c) (1963) (later amended and relocated, in part, to Fed. R. Civ. P. 56(a)); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986); see generally Fed. R. Civ. P. 56(a) (made applicable to this proceeding by Fed. R. Bankr. P. 7056).
Kernel Records Oy v. Mosley, 694 F.3d 1294, 1300 (11th Cir. 2012) (quoting Anderson, 447 U.S. at 252).
Id. at 1301 (quoting Marshall v. City of Cape Coral, 797 F.2d 1555, 1559 (11th Cir. 1986)).
The moving party bears the initial burden of articulating the basis for its motion and identifying evidence which shows that there is no genuine issue of material fact. Thereafter, the burden shifts and the non-moving party must set forth specific facts showing that there is a genuine issue for trial. In so doing, the non-moving party may not rely on the "mere allegations or denials of [its] pleadings." And "[a] mere scintilla of evidence in the form of conclusory allegations, legal conclusions, or evidence that is merely colorable or not significantly probative of a disputed fact cannot satisfy [the non-moving] party's burden."
See, e.g., Celotex, 477 U.S. at 323; Kernel Records Oy, 694 F.3d at 1300.
Kernel Records Oy, 694 F.3d at 1300.
Marshall v. City of Cape Coral, 797 F.2d 1555, 1559 (11th Cir. 1896) (quoting Fed. R. Civ. P. 56(e) (1963) (later amended and relocated, in part, to Fed. R. Civ. P. 56(c)); see generally Fed. R. Civ. P. 56(c) (made applicable to this proceeding by Fed. R. Bankr. P. 7056).
Wiand v. Wells Fargo Bank, N.A., 86 F. Supp. 3d 1316, 1320 (M.D. Fla. 2015), aff'd, 677 F. App'x 573 (11th Cir. 2017); see also Anderson, 477 U.S. at 249-50; Kernel Records Oy, 694 F.3d at 1301.
B. Homestead Exemption Under Florida Law
The Florida Constitution provides one of the strongest exemptions to the citizens of this state - the homestead exemption. The exemption protects a citizen's home from most forced sales. And the exemption has been extended by the Florida Supreme Court to the proceeds of the sale of homestead, if the proceeds are properly segregated with the intent to purchase a replacement home.
Art. X, § 4, Fla. Const.
JBK Assoc., Inc. v. Sill Bros., Inc., 191 So. 3d 879, 881 (Fla. 2016) (citations omitted) (holding that the proceeds of a homestead sale do not lose their exempt status if they are deposited in an investment account where securities may be purchased).
The protection of a homestead, and its proceeds, are so strong that courts are directed to liberally interpret the exemption "in favor of protecting the homestead." The party objecting to the homestead exemption, here the Trustee, must make a "strong showing" that the claimant is not entitled to the claimed exemption.
Id.
Id. (citations omitted). This "strong showing" translates to preponderance of the evidence. In re Klaiber, 265 B.R. 290, 292 (Bankr. M.D. Fla. 2001).
It is possible, however, for a family home to lose the protection of the homestead exemption. For example, the permanent abandonment of the homestead strips the property of its homestead character. But, the abandonment must be intentional, and it must be permanent. A debtor who moves out of the home for financial, health or family reasons does not abandon the homestead. Selling the property is also not abandonment if coupled with the intent to reinvest in another home. The cases interpreting abandonment of homestead when the property is to be sold are all over the map and some even seem contradictory. Indeed, the only concept that emerges clearly is that whether a homestead has been abandoned is uniquely factual and requires consideration of all relevant facts and circumstances.
In re Klaiber, 265 B.R. at 293 (citing Hillsborough Invest. Co. v. Wilcox, 152 Fla. 889, 13 So.2d 448 (1943)).
In re Beebe, 224 B.R. 817, 820 (Bankr. S.D. Fla. 1998).
Id.
For example, compare In re Crump, 2 B.R. 222 (Bankr. S.D. Fla. 1980) (recognizing a homestead exemption where debtors entered into a pre-petition contract to sell their home and moved into a rental property the day after the petition was filed which they had no present ability to purchase) with In re McCarthy 13 B.R. 389 (Bankr. M.D. Fla. 1981) (finding abandonment of homestead where debtors entered into a pre-petition contact to sell their home and moved into a rental property because they could not afford another home). See also In re Beebe, 224 B.R. 817 (debtors sold their home pre-petition and moved out of state, but still had a good faith intent to reinvest in a new home).
In re Beebe, 224 B.R. at 820.
In a bankruptcy a debtor's exemptions are determined as of the date the bankruptcy is filed. Nevertheless, in examining the debtor's intent and the claim of abandonment, the court may look at post-petition conduct that might reflect on the intent of a debtor the day a bankruptcy was filed.
Section 522(b)(3)(A) of the Bankruptcy Code states "Property listed in this paragraph is—(A) .... any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition ..." [emphasis added]. 11 U.S.C. § 522(b)(3)(A); see also In re Crump, 2 B.R. at 223 (the status of exempt property is determined as of the petition date).
See, e.g., In re McCarthy, 13 B.R. 389, 391 (Bankr. M.D. Fla. 1981) ("[A]lthough the date of the petition is absolute in fixing certain rights of the Trustee, the Court cannot blind itself to subsequent events, particularly when trying to determine a matter as ephemeral as intent").
Although Debtors went through some fits and starts to finally declare their home as exempt, ultimately their schedules were properly amended to claim a homestead exemption. And the Trustee's objection to Debtors' exemption is timely.
Unfortunately, the primary focus of the Trustee's Motion is whether the proceeds of the post-petition sale of Debtors' home are exempt. Debtors' response falls into this same trap. But there were no proceeds when Debtors filed bankruptcy, so analysis here is more nuanced. The real issue is whether - on date this bankruptcy case was filed - Debtors had abandoned their homestead. Post-petition events are relevant only to the extent they may shed light on the Debtors' intent to abandon their homestead on the petition date.
The Trustee argues that Debtors lacked the necessary intent to claim a homestead exemption, and, by implication, abandoned their homestead, because the property was under contract for sale before the bankruptcy was filed. But this plainly is not the law in Florida. To the contrary, Florida law is well settled that a contract for sale does not itself constitute an abandonment of homestead. This is true even if the debtor moves out of the home several weeks before the actual sale of the property.
As explained by the court in In re Vick, No. 07-10844-BKC-AJC, 2008 WL 2444526, at *2 (Bankr. S.D. Fla. June 16, 2008):
It is well established Florida law that homestead property does not lose its constitutional protection because of a contract to sell the property. In re Crump, 2 B.R. 222; Brown v. Lewis, 520 F.Supp. 1114 (M.D. Fla. 1981) (homestead status not lost despite contract for sale); In re Estate of Skuro, 487 So.2d 1065 (Fla. 1986); In re Beensen, 218 So.2d 517 (Fla. 4th DCA 1969); 28A Fla. Jr 2d Homesteads § 91. Once homestead status has been acquired, it continues until the homestead is abandoned. Normally, this is evidenced by the establishment of a domicile at some other place or alienation in the manner provided by law. See Skuro, 487 So.2d at 1066; see also Marsh v. Hartley, 109 So.2d 34 (Fla. 2nd DCA 1959).
In re Beensen, 218 So. 2d 517.
On the date they filed bankruptcy, Debtors had a contract for sale and were residing in their home, as they had for twenty-six years. What happened post-petition, the sale the proceeds and the divorce proceedings, to the minds of some courts, is not even relevant to the determination of a debtors' homestead rights in bankruptcy. This court is not prepared to go that far and will consider post-petition conduct to the extent that it reflects on intent at the time Debtors filed bankruptcy. But the court is also not prepared to enter summary judgment without hearing evidence of the Debtors' post-petition activities in their proper context.
See, e.g., In re Vick, 2008 WL 2444526; In re Rivera, 5 B.R. 313, 315 (Bankr. M.D. Fla. 1980) ("the right to claim exemptions by a Debtor is governed by the facts and governing circumstances which existed on the date the petition was filed and not by any changes which may have occurred thereafter").
On summary judgment, inferences must be viewed in favor of the non-moving party. Here, it is not clear or undisputed that the Debtors post-petition activities reflect their intent to abandon their homestead when they filed bankruptcy. Indeed, it appears that the debtor husband in fact purchased a replacement home post-petition. If anything, inferences can be drawn, again solely for purposes of summary judgment, that Debtors were simply not receiving good advice or that the debtor wife simply changed her mind with respect to what to do with the proceeds after the bankruptcy was filed.
If it turns out that Debtors simply made mistakes post-petition and lost their homestead protection for the proceeds, this could benefit new creditors or creditors holding non-dischargeable debt. But it does not help the Trustee if the homestead was not abandoned when the case was filed.
Accordingly, based on the foregoing, it is
ORDERED:
1. The Trustee's Summary Judgment Motion is DENIED.
2. The court will issue a scheduling order setting trial and related dates separately.
ORDERED.
Dated: April 03, 2019
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Attorney Eric D. Jacobs is directed to serve a copy of this Order on interested parties and file a proof of service within 3 days of entry of the Order.