In re Franzese

• Decision Date: 19 February 2008
• Docket Number: Case No. 6:07-bk-03944-KSJ
• Parties: In re JAMES MATTHEW FRANZESE, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

In re JAMES MATTHEW FRANZESE, Debtor.

Case No. 6:07-bk-03944-KSJ, Chapter 7

UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF FLORIDA, ORLANDO DIVISION

February 19, 2008, Decided

COUNSEL: For James Matthew Franzese, Debtor: Peter N Hill, Wolff Hill McFarlin & Herron PA, Orlando, FL.

Trustee: Leigh R Meininger, Orlando, FL.

JUDGES: KAREN S. JENNEMANN, United States Bankruptcy Judge.

OPINION BY: KAREN S. JENNEMANN

OPINION

MEMORANDUM OPINION SUSTAINING TRUSTEE'S OBJECTION TO DEBTOR'S PROPERTY CLAIMED AS EXEMPT

The Chapter 7 trustee objects to the debtor's request to exempt personal property in the amount of $ 4,000 made pursuant to the expanded personal property exemption recently granted in new Section 222.25(4) of the Florida Statutes, which provides:

The following property is exempt from legal process…

(4) The debtor's interest in personal property, not to exceed $ 4,000, if the debtor does not claim or receive the benefits of a homestead exemption under Section 4, Article X, of the State Constitution.

The trustee asserts that the debtor has received the benefit of the constitutional homestead protection even though he did not claim the home exempt under Article X, Section 4 of the Florida Constitution and is not entitled to the new $ 4,000 exemption in personal property. The debtor, who owns his home with his non-filing spouse and who relies on tenancy by the entireties law to protect his home from creditor's claims, opposes that position and contends that, as he is receiving no benefits bestowed under the Florida Constitution for his homestead exemption, he is entitled to the $ 4,000 personal property exemption.

The facts are undisputed. On October 20, 2007, the debtor filed this Chapter 7 bankruptcy liquidation case. In Schedule C, which lists exempt property, the debtor claimed a $ 4,000 exemption in his car, a 2004 Audi A-4, pursuant to Section 222.25(4) of the Florida Statutes (Doc. No. 1).

The debtor jointly owns a home with his non-filing wife. He listed the Orlando home as an asset in his schedules and valued the property at $ 275,000 (Schedule A, Doc. No. 1). The mortgages encumbering the property total approximately $ 345,000. The debtor also indicated that he intended to reaffirm the debt associated with the home; however, he never executed or filed any reaffirmation agreements.

The debtor initially did not claim the home exempt. In a recent amendment to Schedule C (Doc. No. 22), however, the debtor now claims that the home is exempt pursuant to 522(b)(3)(B) of the Bankruptcy Code, 1 asserting that the property was owned as tenants by the entireties between he and his wife and is exempt from the creditors' claims. The debtor claimed no exemption for the home pursuant to Section 4, Article X of the Florida Constitution.

The debtor makes two arguments. First, the debtor argues that he is not receiving the benefits of a homestead exemption pursuant to the Florida Constitution but rather is receiving an exemption pursuant to Florida common law theory allowing husbands and wives to own property as tenants by the entireties. Second, the debtor argues that, because he has no equity in the home, he is not receiving the benefits of a homestead exemption because the debt encumbering the property exceeds the value of the property.

The debtor first argues he is entitled to claim his home exempt because he owns the house as a tenant by the entirety with his non-filing spouse and does not rely on or receive any benefit under the Florida Constitution. Section 522(b) of the Bankruptcy Code generally permits a debtor to protect, or exempt, certain property of the estate from creditors' claims. Section 522(b)(3)(B) of the Bankruptcy Code specifically allows for the exemption of property owned by a debtor as a tenant by the entirety:

… in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.

11 U.S.C. § 522 (b)(3)(B)(2007).

Tenancy by the entireties, as defined by applicable Florida law, is a unique form of property ownership only married couples may enjoy. Beal Bank, SSB v. Almand and Associates, 780 So.2d 45, 52 (Fla. 2001). Entireties property belongs to neither individual spouse, but each spouse holds "the whole or the entirety, and not a share, moiety, or divisible part." Bailey v. Smith, 89 Fla. 303, 103 So. 833, 834 (Fla. 1925). Both real and personal property can be owned as entireties property in Florida. 2 Id. A party contending marital property is held in another form of ownership carries the burden of proof by a preponderance of evidence to establish a tenancy by the entireties was not created. Beal Bank, 780 So.2d at 58.

The Florida Constitution similarly protects Florida homes from creditors' claims in Article X, Section 4(a)(1) of the Florida Constitution, which provides:

(a) There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person:

(1) a homestead, if located outside a municipality, to the extent of one hundred sixty acres of contiguous land and improvements thereon, which shall not be reduced without the owner's consent by reason of subsequent inclusion in a municipality; upon which the exemption shall be limited to the residence of the owner or the owner's family.

FLA. CONST. ART. X, § 4.

The Florida constitutional homestead protection is more extensive than the protection bestowed by tenancy by the entireties law. For example, only spouses can own property as tenants by the entireties. Any natural person can claim the constitutional homestead protection. Also, joint creditors of the spouses can reach the entireties property, but they cannot reach property that the debtor claims as homestead, unless one of the applicable exceptions applies. Matter of Koehler, 6 B.R. 203 (Bankr. M.D. Fla. 1980); Stanley v. Powers, 123 Fla. 359, 166 So. 843 (Fla. 1936). Balding v. Fleisher, 279 So.2d 883, 884 (Fla. App. 1973) (holding it is well established in Florida law that property held as a tenancy by the entireties cannot be made available to answer for the judgment debts of one of the tenants individually); Sheeler v. United States Bank, 283 So.2d 566 (Fla. App. 1973) (holding funds held in joint bank account of a husband and wife as a tenancy by the entirety are not subject to garnishment or execution to pay the individual debt of one of the parties). The Florida Constitution therefore provides an unlimited and powerful exemption for Florida homeowners, married or not.

Florida state courts consistently have held that the homestead exemption 3 should be liberally construed in the interest of protecting the family home. Quigley v. Kennedy & Ely, Ins. Inc., 207 So.2d 431, 432 (Fla. 1968); Graham v. Azar, 204 So.2d 193, 195 (Fla. 1967). The homestead exemption is designed to provide solidity and preservation of the home. In re Harrison, 236 B.R. 788, 789-90 (Bankr. M.D. Fla. 1999). "Any challenge to the homestead exemption claim places a burden on the objecting party to make a strong showing that the Debtor is not entitled to the claimed exemption." In re Laing, 329 B.R. 761, 770 (Bankr. M.D. Fla. 2005); In re Harrison, 236 B.R. 788, 790 (Bankr. M.D. Fla. 1999).

Homeowners seeking to qualify for the homestead exemption must meet both an objective and subjective test. First, the owner must actually use and occupy the home. Second, he or she must express an actual intent to live permanently in the home. In re Brown, 165 B.R. 512, 514 (Bankr. M.D. Fla. 1994) (holding homestead established by actual use and occupancy coupled with an actual intent to live permanently in a house); Hillsborough Investment Co. v. Wilcox, 152 Fla. 889, 13 So.2d 448, 452 (Fla. 1943)(noting it is well-settled that homestead status is established by the actual intention to live permanently in a residence, actual use and occupancy).

A homeowner, however, can forfeit the right to claim a home exempt. Any action taken by the homeowner that is incompatible with an intention to permanently reside in a residence may cause the homeowner to lose the benefits of Article X, Section 4, of the Florida Constitution. Semple v. Semple, 82 Fla. 138, 89 So. 638, 640 (Fla. 1921) (holding owner did not have the intention needed to establish a homestead where he executed a deed of conveyance of the property to his wife). Finally, a homeowner can waive the right to claim homestead protection by abandonment or alienation in any manner provided by law. Barlow v. Barlow, 156 Fla. 458, 23 So.2d 723, 724 (Fla. 1945).

As such, not every natural person "receive[s] the benefits of a homestead exemption under Section 4, Article X, of the Florida Constitution." Those who do not own a home, such as renters, obviously cannot receive any benefit from the exemption. Even persons who own a home may not, at the time of filing of their bankruptcy petition, qualify for the homestead exemption. For example, when a debtor expresses an intention to surrender the property, the debtor exhibits a lack of intention to permanently reside in the home. The home is not entitled to constitutional homestead protection. Nor would a home qualify as a homestead if a debtor previously had alienated his or her interest to a former spouse in a divorce. In these types of cases, the debtor is still a title owner of the home but has no actual intent to live in the home and cannot claim the house as homestead.

The eligibility of a debtor to exempt property is fixed at the time the bankruptcy petition is filed. Section 522(b)(3)(A) of the Bankruptcy Code provides that ". . . any property that is exempt under Federal [or State] . ....