Opinion
Civil Action No. 7:20-CV-275
2021-05-11
IN RE MICHELENA
Antonio Martinez, Jr., Attorney at Law, McAllen, TX, Gilberto Hinojosa, Law Office of Gilberto Hinojosa & Associates P.C., Brownsville, TX, for In re Michelena.
Antonio Martinez, Jr., Attorney at Law, McAllen, TX, Gilberto Hinojosa, Law Office of Gilberto Hinojosa & Associates P.C., Brownsville, TX, for In re Michelena.
ORDER AFFIRMING IN PART AND REVERSING IN PART BANKRUPTCY COURT'S JUDGMENT
Randy Crane, United States District Judge
I. Introduction and Background
This is an appeal by Appellant Monica Michelena of the Bankruptcy Court's August 27, 2020 Memorandum Opinion finding Appellee Robert Marcus Michelena established a homestead on three tracts of land. Upon consideration of the briefs on appeal (Dkt. Nos. 18, 21), and the parties' reply briefs (Dkt. Nos. 24, 25), the Court finds that the Bankruptcy Court's Memorandum Opinion must be affirmed in part and reversed in part for the reasons explained below.
The facts of this case are undisputed. On March 4, 2019, Appellee filed a Chapter 11 bankruptcy petition listing 7.31 acres of land as his homestead. Dkt. No. 18. The 7.31 acres was initially part of a 28.55-acre tract of land purchased by Appellee's family, including Appellee's parents—Manuel and Loretta Michelena—his two brothers, and himself in May of 1980. Id. at ¶ 9. Through various transactions, the family was left with 7.31 acres of land. Id. Included in the 7.31 acres is (1) a 4.027-acre tract upon which Appellee's parents lived in a large house (Large House) beginning in 1983, (2) a 0.24-acre tract deeded to Appellee in 1992 where he has lived in a cottage (Cottage) since then, and (3) a 3.043-acre tract. Looking at these tracts as a whole, the 0.24-acre tract is to the west, the 4.027-acre tract in the middle, and the 3.043-acre tract is the easternmost tract. Dkt. No. 18 at ¶ 13–14. Appellee claimed a 100% homestead on the entire 7.31 acres.
The pleadings and the bankruptcy court often refer to a 4.267-acre tract. This 0.24-acre tract was once a part of the 4.027-acre tract, totaling a 4.267-acre tract. Dkt. No. 21 at 14.
Appellant—Appellee's former spouse—objected to this claimed homestead. Dkt. No. 18 at ¶ 5. The bankruptcy court, after hearing evidence on four occasions and receiving briefing from the parties, found that Appellee was entitled to a homestead exemption and that the exemption encompassed his 66.6% undivided interest in the 7.07-acre tract of land (the 4.027-acre tract and 3.043-acre tract combined) and his 100% interest in the 0.24-acre tract of land. Id. at ¶ 8.
II. Standard of Review
In reviewing the findings of a bankruptcy court, the district court acts in an appellate capacity. In re Perry , 345 F.3d 303, 308 (5th Cir. 2003). The court reviews the bankruptcy court's conclusions of law de novo whereas it may disregard findings of fact only if they are clearly erroneous. Id. at 309. "Under a clear error standard, this court will reverse only if, on the entire evidence, [the court is] left with definite and firm conviction that a mistake has been made." In re Am. Hous. Found. , 785 F.3d 143, 152 (5th Cir. 2015) (quoting Morrison v. W. Builders of Amarillo, Inc. (In re Morrison) , 555 F.3d 473, 480 (5th Cir. 2009) ).
III. Issues on Appeal
On appeal, Appellant argues that the bankruptcy court erred in finding Appellee established his right to claim a homestead exemption on the 7.07 acres that do not include the Cottage. Dkt. No. 18 at 1–2. Appellant also argues that the bankruptcy court erred in finding Appellee had not abandoned this homestead. No questions are presented on appeal with regard to the 0.24-acre tract upon which Appellee has resided for almost 30 years.
In its August 24, 2020 Memorandum Opinion, the Bankruptcy Court found Appellee established a homestead pursuant to Tex. Const. Art. 16 §§ 50, 51 ; Tex. Prop. Code. Sec. 41.001 -.002. In re Michelena , 620 B.R. 570, 582 (Bankr. S.D.Tex. 2020). The court, relying on deeds and wills, found that the homestead exemption encompassed only Appellee's 66.6% undivided interest in the 7.07-acre tract of land and his 100% interest in the 0.24-acre tract of land. Id. The court found Appellee's actions—including storing his boat, truck, lawnmower, and wood in the carport of the Large House, maintaining the lawn and trees on the entire tract, paying for utilities and a security system for both the Large House and the Cottage, washing his laundry in the carport of the Large House, and using the land to practice archery—were sufficient overt actions of an intent to claim a homestead. Id. at 578. Further, the court held that Appellee presented prima facie evidence of a homestead claim by demonstrating that he applied for and received a homestead exemption from the Hidalgo County Appraisal District on December 9, 2015, in effect for the 2014 appraisal year. Id. at 577. "Therefore, [the bankruptcy court held,] not only did [Appellee] establish his homestead claim through overt acts of homestead usage and intent to claim the property as a homestead, the approved homestead designation is prima facie evidence of the same." Id.
The bankruptcy court also found that Appellee had not abandoned his homestead. The court found Appellant's evidence arguing abandonment—including photos of the deteriorated and unlivable condition of the Large House—non-dispositive. The court pointed to Appellee's homestead usage (cited above) to support its holding that Appellee had not abandoned the 7.07-acre tract. Relatedly, the court also declined to sever the 7.07-acre tract from the 0.24-acre tract finding that "the Property cannot and will not be severed into one homestead tract and one non-homestead tract by this Court." In re Michelena , 620 B.R. at 578.
A. Overt Acts
Under Texas law, the individual who seeks homestead protection has the initial burden to establish the homestead character of his property. In re Bradley , 960 F.2d 502, 507 (5th Cir. 1992) (citing Lifemark Corp. v. Merritt , 655 S.W.2d 310, 314 (Tex.App.—Houston [14th Dist.] 1983, writ ref'd n.r.e.) ). "To meet this initial burden of proof, the claimant must ‘show a combination of both overt acts of homestead usage and the intention on the part of the owner to claim the land as a homestead.’ " Id. (quoting Sims v. Beeson , 545 S.W.2d 262, 263 (Tex.Civ.App.—Tyler 1976, writ ref'd n.r.e.) ). This is a short hurdle. Id. Many of Appellant's arguments on this issue are specific to either the 4.027-acre tract or the 3.043-acre tract. Therefore, the Court takes these arguments in turn.
1. 4.027-Acre Tract
Appellant argues that Appellee's evidence of alleged homestead usage of the Large House failed to meet his burden to establish a homestead. Dkt. No. 18 at ¶ 45. Appellee presented the bankruptcy court with the following evidence as to the 4.027-acre tract: 1) Appellee stored his automobile, boat, washing machine, dryer and lawnmowers at his "mom's property" for the last 30 years, 2) he installed motion detector security lights at the Large House, 3) he installed an $11,000 alarm system at the Large House that is monitored by him and others, 4) his dog travels to this property frequently, 5) he paid taxes on the property for two years after his mother passed away, 6) he chops wood on the property to use in his fireplace, 7) he owns items stored at the Large House including a dinette set and figurines, and 8) he has paid for the electricity at the Large House. Dkt. No. 21 at 18–19 (citing Appellee's testimony at the December 3, 2019 hearing).
Whether a tract of land is protected homestead property is a question of fact. See AG Acceptance Corp. v. Veigel , 564 F.3d 695, 699 (5th Cir. 2009) (reviewing district court decision that land was not a protected homestead under clear error standard). The bankruptcy court cited a number of cases to support its conclusion that Appellee's actions constituted overt acts of homestead usage. For example, In In re Norra the debtor sought to claim nearby vacant mobile homes as part of her homestead because she used them as storage and as sources for spare parts. The bankruptcy court held that this usage coupled with her ability to freely move to and from the vacant mobile homes, was ample evidence of debtor's use of the vacant mobile homes for homestead purposes. In re Norra , 421 B.R. 782, 801 (Bankr. S.D.Tex. 2009). Similarly, in Little v. Baker the Texas Supreme Court indicated that the storage of a wood-pile on one parcel and the cultivation of a garden on another were uses of a character making those parcels part of the homestead. 11 S.W. 549, 551 (Tex. 1889) (holding that the jury should have been instructed that the use of the parcels, "if proved, made the property the homestead of plaintiffs"). And in In re Ling , the court held a homestead was established where the party was using the land for hunting and gathering. 511 B.R. 83, 89 (Bankr. S.D.Tex. 2014). In that case, the Lings used the land to pick fruits, garden, gather firewood, and unsuccessfully attempt to farm. Id. at 88. The bankruptcy court found these actions "consistent with the requirement that the property be used for the ‘comfort, convenience, or support of the family.’ " Id. (quoting In re Perry , 345 F.3d at 316 ).
Appellant does not argue that this case law is flawed nor does she make any attempt to distinguish this case law from the facts before the Court. Appellant instead seems to argue that because Appellee did not reside in the Large House, he is precluded from establishing overt homestead usage. See, e.g. , Dkt. No. 18 at ¶ 45; Dkt. No. 24 at ¶ 16. However, as the case law shows, actual residence upon a tract is not a requirement to show homestead usage of related tracts. Appellee's actions on the 4.027-acre tract are analogous to the examples courts have previously held to be overt acts of homestead usage. Like the party in In re Ling , Appellee uses the land to gather firewood. Like the parties in In re Norra and Little v. Baker , Appellee uses the land as storage. These uses comport with the requirement that the property be used for the "comfort, convenience, or support" of the individual. In re Perry , 345 F.3d at 316. Accordingly, this Court cannot hold that the bankruptcy court erred in holding Appellee established homestead usage on the 4.027-acre tract.
2. 3.043-Acre Tract
Next, Appellant argues that "there was no evidence of overt acts of homestead usage by Debtor on the 3.043 acres[.]" Dkt. No. 18 at ¶ 53. Appellee presented the bankruptcy court with the following evidence as to the 3.043-acre tract: 1) Appellee practiced archery for the last 30 years on the "property next to" his mother's house, 2) he installed stadium lights "on the other side," by the Large House to allow him to practice archery at night, and 3) he built a 10-foot berm, east of the Large House, behind the archery range, to protect the public from archery arrows. Dkt. No. 21 at 16–17 (citing Appellee's testimony from the September 20, 2019 and December 3, 2019 hearings). Appellee argues these actions were taken on the 3.043-acre tract. Id. The bankruptcy court also found that Appellee maintains the lawn and trees on the entire tract, including the 3.043-acre tract. In re Michelena , 620 B.R. at 577 (citing Debtor's Ex. 8, September 20, 2019 Hearing; Debtor's Testimony 02:07:00–02:07:25, December 3, 2019 Hearing).
Texas law disfavors the severance of contiguous parcels of land into homestead and non-homestead tracts. In re Bradley , 960 F.2d at 508–09. Texas law provides that a tract should be severed only if there is no evidence that the tract is used for homestead purposes. In re Bradley , 960 F.2d at 509. However, Appellant argues the 3.043-acre tract is not contiguous to the 0.24-acre tract Appellee resides on and therefore this standard does not apply. Dkt. No. 18 at ¶ 14. According to Appellant, the 7.31-acre tract was divided into 3 separate parcels of property with different ownership interests. Id. at ¶ 17. This fact does not defeat the contiguous nature of the tracts. There is no evidence of physical barriers between the tracts and no evidence that the tracts are treated separately. Cf. In re Baker , 307 B.R. 860, 862 (Bankr. N.D.Tex. 2003) (a tract was non-contiguous where it was located approximately five miles from the residence); PaineWebber, Inc. v. Murray , 260 B.R. 815, 820 (Bankr. E.D.Tex. 2001) (a tract was non-contiguous where is was located about a half mile from the other tracts). Instead, the evidence shows the tracts are treated as one. See Youngblood v. Youngblood , 124 Tex. 184, 76 S.W.2d 759, 760 (1934) (holding that "two tracts were practically and in effect contiguous. The unfenced road between them afforded no substantial barrier to their use as one body of land."). Accordingly, the standard disfavoring severance of contiguous tracts is applicable. Because Appellee's activities on the 3.043 acres are some evidence of homestead use, this Court does not find clear error in the bankruptcy court's homestead characterization of the 3.043-acre tract.
The fact that a tract is contiguous with another, however, does not superpose ownership percentage of that tract onto another. The bankruptcy court's analysis seemingly takes evidence pertaining to the 4.027-acre tract and applies it to the 3.043-acre tract as well, concluding that "at the time of the filing of the bankruptcy petition, [Appellee] held a total of 66.6% undivided fee simple interest in 7.07 acres of the Property." In re Michelena , 620 B.R. at 576. However, the entirety of the bankruptcy court's preceding analysis was pertaining to the 4.027-acre tract and Appellee's resident 0.24-acre tract only. Id. at 575–76. Appellant argues, and Appellee freely admits, that his interest in the 3.043-acre tract only amounts to a 46.67% undivided interest. Dkt. No. 18 at ¶ 17b; Dkt. No. 21 at 13, 15; Dkt. No. 25 at 9. Appellee's mother devised her undivided 1/5—or 3/15—interest in the 3.043-acre tract to Appellee upon her death. Dkt. No. 21 at 15. Before her death, Appellee's ownership interest in the 3.043-acre tract was a 4/15 undivided interest. Id. at 13. Therefore, when Appellee filed for bankruptcy, he had a 7/15—or 46.67%—undivided interest in the 3.043-acre tract of land. Considering the lack of evidence to support the bankruptcy's finding that Appellee's ownership interest in the 3.043-acre tract was 66.6% and the fact that a debtor's "homestead right in property can never rise any higher than the right, title, or interest that one owns in the property, " this Court is "left with definite and firm conviction that a mistake has been made." Sayers v. Pyland , 139 Tex. 57, 161 S.W.2d 769, 773 (1942) ; In re Am. Hous. Found. , 785 F.3d at 152. Accordingly, this Court finds that the bankruptcy court erred in finding Appellee had a 66.6% ownership of the 3.043-acre tract.
3. Timing of Appellee's Homestead Usage
Many of Appellant's arguments center around the contention that the timing of Appellee's actions prevent him from claiming a homestead on the 7.07 acres. Appellant argues, until the death of Appellee's mother in 2013, Appellee could not establish homestead use because he had no possessory interest or present right of occupancy on the property. Dkt. No. 18 at ¶ 40. While Appellee's mother was alive, she was the only individual with a right of possession in the property:
Since appellant owned in fee simple a one-twentieth undivided interest in the land, he had the right of occupancy as between himself and all of the other joint owners except his father. The latter under his homestead proprietorship alone could deny him occupancy. The
homestead right in the father, so long as he desired to exercise it over the entire tract, excluded the assertion of a homestead interest by the appellant.
Rettig v. Houston West End Realty Co. , 254 S.W. 765, 768 (Tex. 1923).
Accordingly, if Appellee did not have a possessory interest or present right of occupancy before 2013, the Court should look only to overt acts of homestead usage occurring after Appellee acquired a present interest in the property when his mother died. In Re Niland , 825 F.2d 801, 807 (5th Cir. 1987). Appellant claims that "[v]irtually all the evidence offered by [Appellee] showed certain actions taken by him on the subject property before the date of the death of his parents." Dkt. No. 18 at ¶ 44. This is an incorrect characterization of the evidence. There is evidence that most, if not all, of Appellee's homestead actions took place after his mother's death and continue to this day.
The bankruptcy court held that Appellee did have a present interest and possessory right, as a tenant at will. The Court does not need to delve into this issue because the evidence shows Appellee's use of the property continued after his mother's death.
The bankruptcy court found that Appellee had been using the 7.07-acre tract for storage, recreation and enjoyment "at least since ... [his mother's] will was probated December 18, 2013." In re Michelena , 620 B.R. at 579. This is a factual finding and thus can only be reversed for clear error. The bankruptcy court relied on photographic evidence indicating that Debtor continues to store his boat at the Large House and still uses the land for archery practice. In re Michelena , 620 B.R. at 582 (citing Ms. Michelena's Ex. 22, September 20, 2019 Hearing and Debtor's Ex. 49, December 3, 2019 Hearing). The bankruptcy court also relied on Appellant's own testimony that while she lived there—until May 2005—Appellee stored his boat in his mother's shed, raised goats on the land, and practiced archery behind the Large House. Id. (citing Debtor's Ex. 40, November 22, 2019 Hearing; Deposition of Ms. Michelena at 8, 56–61, November 14, 2019). Considering these facts, this Court cannot hold that the bankruptcy court clearly erred in holding Appellee took acts sufficient to establish a homestead after his mother's death.
B. Abandonment
Appellant claims that regardless of whether Appellee met his initial burden, "the overwhelming evidence showed that [Appellee] had abandoned the homestead shortly after his mother died." Dkt. No. 18 at 27. When a claimant establishes the homestead character of his property, the burden then shifts to the creditor to disprove the continued existence of the homestead. In re Bradley , 960 F.2d at 507 (citing Sullivan v. Barnett , 471 S.W.2d 39, 43 (Tex. 1971) ; Lifemark Corp. , 655 S.W.2d at 314 ). Abandonment of homestead exemptions under Texas law requires cessation or discontinuance of use of property coupled with intent to abandon the homestead permanently. In re Perry , 345 F.3d at 310, n. 8 (citing Resolution Trust Corp. v. Olivarez , 29 F.3d 201, 207 & n. 7 (5th Cir. 1994) ). Abandonment of homestead is a question of fact. Parks v. Buckeye Retirement Co., L.L.C. , C.A. No. H-05-3524, 2006 WL 1662945, at *3 (S.D.Tex. 2006).
According to Appellant, the large house on the 4.027-acre tract has "been abandoned for several years and [was] left to rot." Dkt. No. 18 at ¶ 50. Defendant testified before the bankruptcy court that he had not been in the Large House in over four years and had not lived in the Large House since June of 2013. Dkt. No. 18 at ¶ 50 (citing testimony from November 22, 2019 hearing).
The bankruptcy court rejected Appellant's argument, pointing to Appellee's "maintenance of the lawn and trees, use of the Large House and its carport to store a truck, a boat, a lawnmower, and a wood pile, and use of the surrounding land for recreational purposes" as evidence of homestead use negating abandonment. Id. at 579. The evidence of Appellee's actions on the 7.07 acres prevent a finding of clear error by the bankruptcy court.
IV. Conclusion
For the foregoing reasons, the Court finds that the bankruptcy court did not err in holding Appellee satisfied the prerequisites under Texas law for establishing the homestead character of the entire 7.31 acres. The bankruptcy court did err in determining Appellee's ownership percentage of the 3.043-acre tract. Accordingly, the bankruptcy court's holding that Appellee is entitled to a homestead exemption of 66.6% on the 3.043-acre tract is REVERSED . Appellee is entitled only to a 46.67% homestead exemption on the 3.043-acre tract in accordance with his ownership percentage of the tract. Accordingly, the Court REMANDS this case to the bankruptcy court for further proceedings in conformance with this ruling. As to all other issues before this Court, it is hereby ORDERED that the bankruptcy court's judgement is AFFIRMED .
SO ORDERED this 11th day of May, 2021, at McAllen, Texas.