Opinion
Case No. 18-07536-JMC-13
08-29-2019
IN RE: BRADLEY ALAN SULLIVAN, Debtor.
ORDER REGARDING DEBTOR'S INTEREST IN REAL PROPERTY LOCATED AT 501 SOUTH PRESTWICK LANE , YORKTOWN, INDIANA 47396
THESE MATTERS come before the Court on (1) the Motion to Avoid Judicial Lien In-Part and Notice of Objection Deadline filed by Bradley Alan Sullivan ("Debtor") on October 16, 2018 (Docket No. 11) (the "Motion") and the Objection to Motion to Avoid Judicial Lien In-Part filed by Show-Me's Franchises, Inc. ("Creditor") on November 6, 2018 (Docket No. 17); (2) the Objection to Debtor's Claimed Real Estate Exemption filed by Creditor on November 6, 2018 (Docket No. 16) ("Creditor's Objection"); and (3) Trustee's Objection to Debtor's Exemptions filed by John M. Hauber, chapter 13 trustee ("Trustee"), on November 13, 2018 (Docket No. 21) ("Trustee's Objection"). The Court, having reviewed the above-referenced pleadings, having considered the evidence admitted at a hearing on May 20, 2019 (the "Hearing"), having weighed the credibility of the witnesses who testified at the Hearing, having heard the representations and arguments of counsel for Debtor, counsel for Creditor and counsel for Trustee at the Hearing, and being otherwise duly advised, now RULES as follows: Issues
At the heart of each of these matters is the proper exemption that Debtor can claim with respect to an interest in real property commonly known as 501 South Prestwick Lane, Yorktown, Indiana 47396 (the "Property"). Debtor asserts that Indiana was his domicile and the Property was his residence as of October 1, 2018 (the "Petition Date"). Debtor claims a "homestead" exemption in the Property of $19,300 pursuant to Ind. Code § 34-55-10-2(c)(1). Although Trustee does not contest the assertion that Indiana was Debtor's domicile on the Petition Date, Trustee asserts that the Property was not Debtor's residence as of the Petition Date, and therefore the dollar amount of Debtor's claimed exemption is excessive. Creditor asserts that the Property was not Debtor's personal or family residence as of the Petition Date, nor was Debtor domiciled in Indiana as of the Petition Date, and therefore Debtor's claimed exemption should be disallowed.
Creditor additionally objects to the valuation of the Property for the purpose of determining whether Creditor's judicial lien (the "Lien") in the amount of $315,458.95 plus interest can be avoided. The Lien attached to and against Debtor's interest in the Property through the domestication in Delaware Circuit Court under Cause No. 18C01-1502-CB-000001 on March 9, 2015 of Creditor's foreign (non-Indiana) judgment. Facts
Debtor and Jessica A. Gilliom gave birth to two children. In 2013, Debtor owned the Property with Gilliom as tenants in common, each holding an undivided one-half interest therein.
On or about January 25, 2016, Debtor quitclaimed his undivided one-half interest in the Property to Gilliom because Gilliom was paying all the bills and Debtor wanted to protect the Property for Gilliom and the children. On or about July 31, 2018, Gilliom quitclaimed the ownership of the entire Property to Gilliom and Debtor as joint tenants with right of survivorship because Debtor was planning to live at the Property with the children. Each of these transfers was made subject to the Lien. As of the Petition Date, Debtor owned an undivided one-half interest in the Property, subject to the Mortgage (as defined below) and the Lien.
Approximately 1-2 years ago, Gilliom moved to Tennessee. In September 2017, Debtor, as lessee, signed a lease of a Tennessee residence. He moved with the children to Tennessee because he wanted Gilliom's help to co-parent the children and he wanted to assist his mother who was ill. In August 2018, Debtor, as lessor, rented the Property to some friends for a one-year term. Debtor reserved the right to occupy a room at the Property to provide a place for him to stay if and when he visited Indiana. Debtor testified that it was his intent to return to reside in the Property in August 2019 with the children and to thereafter live permanently in Indiana. Debtor maintained his Indiana driver's license and his Indiana voter registration. Debtor (and perhaps Gilliom) also pays property taxes with respect to the Property. Debtor testified that, on the Petition Date, he was living in Tennessee and, from time to time, occupying a room at the Property.
Based on water damage in several rooms, repairs that need to be made, and the original purchase price, Debtor believes the fair market value of the Property is $260,000. Debtor's appraiser, Jack Fife, appraised the fair market value of the Property at $288,000. Creditor's appraiser, Jay Allardt, appraised the fair market value of the Property at $375,000. The Hamilton County Assessor assessed the Property for assessment year 2018 at $364,300.
Debtor scheduled a mortgage claim, held by a third-party mortgagee, against the Property in the amount of $196,612 (the "Mortgage"). As of the date of this order, the Mortgage holder has not filed a proof of claim. Discussion Domicile, Residence and Available Exemption
A debtor's right to claim exemptions provided by applicable state or federal law is determined as of the date the bankruptcy petition was filed commencing the case; here, the Petition Date, October 1, 2018. In re Burns, 218 B.R. 897, 898 (Bankr. N.D. Ind. 1998).
Indiana Code § 34-55-10-2(c) provides:
The following property of a debtor domiciled in Indiana is exempt:(Emphasis added.)
(1) Real estate ... constituting the personal or family residence of the debtor or a dependent of the debtor ... of not more than [$19,300].
(2) Other real estate ... of [$10,250].
A debtor's "residence" for exemption purposes is the "place where one actually lives or has his home; a person's dwelling place or place of habitation." BLACK'S LAW DICTIONARY (6th ed.). Judge Grant, in his Burns opinion, differentiated between the concepts of "domicile" and "residence", explaining that the concept of "domicile" is much more dependent upon a debtor's intention regarding where his or her home is or will be located on a permanent basis. "Residence", on the other hand, is much less dependent upon intention and is instead largely determined by the debtor's physical living arrangement as of the date that the bankruptcy petition is filed. Burns, 218 B.R. at 898-99.
In cases where a debtor is forced involuntarily to move from an intended residence, so as to be absent from such residence as of the petition date, but intends to return to the intended residence as soon as circumstances will allow, the debtor's intention regarding his or her "residence" may be a larger factor in determining where a debtor resides as of the petition date. See In re Briggs, 2019 WL 494110 (Bankr. S.D. Ind. 2019); Burns, 218 B.R. at 900, n.3.
Because of Debtor's expressed intent to return to the Property and other indicia, the Court concludes that as of the Petition Date, Debtor intended his state of domicile to be Indiana. However, Debtor voluntarily stopped residing in and at the Property in September 2017 when he moved himself and his children to Tennessee. Also, Debtor had leased the Property to friends for a one-year term in August 2018, which term includes the Petition Date. These facts lead the Court to conclude that the Property was not Debtor's residence on the Petition Date.
As such, the Court concludes that Debtor may not claim the $19,300 "homestead" exemption in the value of his equity in the Property provided by Ind. Code § 34-55-10-2(c)(1). Rather, the maximum allowable exemption in the value of Debtor's equity in the Property is the unused portion of the $10,250 exemption provided by Ind. Code § 34-55-10-2(c)(2). At the Hearing, Debtor's counsel represented that, if the Court ruled against Debtor on these matters, Debtor would file an amended Schedule C: The Property You Claim as Exempt to claim as much of the exemption under Ind. Code § 34-55-10-2(c)(2) as possible with respect to the Property. The Court will give Debtor the opportunity to file such amended Schedule C as noted below.
Value of Property
Based on the evidence presented, as announced at the Hearing, the Court concludes that the fair market value of the entire Property is $350,000.
Calculation
As discussed on the record at the Hearing, starting with the value of the entire Property of $350,000 and subtracting therefrom $196,612 owed with respect to the Mortgage, the equity in the entire Property is $153,388. To arrive at the value of Debtor's equity represented by his individual undivided one-half interest, the total equity is divided by two. That yields a nominal value of no more than $76,694 for the equity held by Debtor.
It is reasonable to discount the nominal value of Debtor's equity to account for the fact that a buyer of the Property would have to deal with issues attendant to owning only an undivided one-half interest in the Property. See, e.g., Martin J. Healy, Jr., Valuation of Partial Interests, THE APPRAISAL JOURNAL, July 1988, at 293-98. The parties provided no testimonial help on this discount issue. The Court determines that a 10% discount is appropriate. Accordingly, the value of Debtor's equity in an undivided one-half interest in the Property is $69,025.
After subtracting the amount of Debtor's exemption (amount to be determined based on the to-be-filed amended Schedule C but no more than $10,250) from the value of Debtor's interest in the Property, there is equity to which a portion of Creditor's Lien can attach. Accordingly, Creditor's Lien is not avoided in the amount that is the difference of $69,025 and Debtor's appropriately claimed exemption under Ind. Code § 34-55-10-2(c)(2). The balance of Creditor's Lien is avoided. Conclusion
For the reasons set forth above, the Court GRANTS the Motion as described herein, SUSTAINS Creditor's Objection and SUSTAINS Trustee's Objection.
Debtor shall file the amended Schedule C within 21 days of the date of this order. Concurrently therewith, Debtor shall submit to chambers, in Word format, a proposed order on the Motion that incorporates the calculation described above based on the revised amount of the exemption Debtor claims with respect to the Property pursuant to Ind. Code § 34-55-10-2(c)(2).
IT IS SO ORDERED.
SO ORDERED: August 29, 2019.
/s/ _________
James M. Carr
United States Bankruptcy Judge
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See also Show Me's Franchises Inc. v. Sullivan, Cause No. 18C01-1604-MI-000067, which is the state court action listed in the Motion.