In re Pool
| Decision Date | 05 March 2019 |
| Docket Number | Case No. 18-11052-hcm |
| Citation | 598 B.R. 584 |
| Parties | IN RE: Roy Kevin POOL and Cynthia Anne Pool, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Texas |
William T. Peckham, Law Office of William T. Peckham, Austin, TX, for Debtor.
John Patrick Lowe, Uvalde, TX, for Trustee.
OPINION DENYING OBJECTION TO DEBTORS' CLAIM OF HOMESTEAD EXEMPTION
Here, the Court wrestles with whether two separate parcels of land are both exempt as a rural homestead under Texas law, when one rural parcel is used to operate the debtors' body shop business. The Court concludes that the debtors may claim both parcels as a rural homestead protected under Texas law. As a result, the Court will deny the creditor's objection to the rural homestead exemption.
On August 8, 2018, Roy Kevin Pool and Cynthia Anne Pool ("Debtors"), filed a voluntary Chapter 7 bankruptcy case. John Patrick Lowe was appointed as trustee ("Trustee") for the Debtors' bankruptcy estate.
On October 15, 2018, the Trustee and Nathan Joshua Herrington ("Creditor") jointly filed their Objections to the Debtors' Claims of Exemption ("Objection") (dkt# 34), objecting to the Debtors' claims of homestead exemption as to two separate, non-contiguous tracts of real property located in Llano County, Texas and Burnet County, Texas.
On October 31, 2018, the Debtors filed their Response to the Objection ("Response") (dkt# 35). In the Response, the Debtors denied several of the legal and factual contentions made in the Objection and requested that the Court deny the Objection.
At a hearing conducted on December 18, 2018, the Trustee advised the Court that he would no longer join the Creditor in objecting to the Debtors' exemptions. The Trustee then filed a notice of dismissal of his objections (dkt# 59). The Creditor continued to prosecute the Objection.
On December 20, 2018, the Court conducted a hearing on the merits of the Objection. Counsel for the Debtors and counsel for the Creditor presented legal argument. During the hearing, the Court admitted certain exhibits into evidence.1 One of the Debtors, Mr. Pool, provided the only testimony.
At the conclusion of the hearing, the Court took its ruling on the Objection under advisement. The Court provided the parties with the opportunity to file post-hearing briefs. On December 20, 2019, the Debtors filed their brief with Legal Authorities (dkt# 61). On January 7, 2019, the Debtors filed their Supplemental Brief and Legal Authorities (dkt# 63).
The Court has subject matter jurisdiction over the Objection under 28 U.S.C. § 1334(b). The Objection is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(B) (). As a result, the Court has authority and jurisdiction to enter a final order on the Objection. This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to FED. R. BANKR. P. 7052 and 9014.
The Debtors claim two non-contiguous parcels of land as their exempt rural homestead under the Texas Constitution and the Texas Property Code in their Bankruptcy Schedules. First, the Debtors claim their residence comprising 1.4 acres in rural Sunrise Beach, Llano County, Texas ("Residence").2 Second, the Debtors claim as exempt a separate, rural, non-contiguous tract of less than one acre in Kingsland, Burnet County, Texas, where Mr. Pool operates his automotive repair and restoration business known as "God's Hot Rod Shop" ("Body Shop").3 Together, the Residence and the Body Shop comprise considerably less than 200 acres.
At the hearing, the parties stipulated that the Residence met the requirements for a rural homestead exemption. Although the parties did not dispute the Body Shop's rural character, they disagreed about whether the Debtors could properly claim the Body Shop as part of their exempt rural homestead.
Consequently, the argument and testimony presented by the parties at the hearing focused on the Body Shop's status as exempt homestead property. While the Debtors contended that the Body Shop was part of their rural homestead, the Creditor argued that the Body Shop was not exempt under Texas law.
In their Bankruptcy Schedules, the Debtors valued their Residence and the Body Shop at $ 140,000 and $ 200,000, respectively—totaling $ 340,000—the lion's share of the Debtors' assets. Both properties, however, are subject to purchase money liens held by other secured creditors (about $ 88,477 on the Residence and $ 147,440 on the Body Shop). As a result, the claimed exemptions listed on their Bankruptcy Schedules amounted to $ 51,523 in the Residence, and $ 52,560 in the Body Shop—for a total homestead exemption claim of $ 104,083.
As the crow flies, the Residence is just over two miles from the Body Shop. As the car drives, the properties are about ten miles apart.4 The Residence and the Body Shop are on separate (non-contiguous) parcels of land. See Ex. C-6. The Residence and the Body Shop are both rural (not urban) properties.
Purchased by the Debtors in 2015, the Body Shop specializes in the repair, restoration, and maintenance of classic American automobiles. See Ex. D-4. Both Debtors actively work at the Body Shop four to five days per week, although Mr. Pool typically spends more time working at the Body Shop than Ms. Pool.
The Debtors earn almost all their income from the work they perform at the Body Shop, which they use to support their family and to maintain and pay expenses associated with their Residence. See Schedules I and J, Ex. C-3. Mr. Pool is the head of the Debtors' household, and he works full-time at the Body Shop. He does not have any expertise other than working on cars; the Body Shop is where Mr. Pool practices his vocation. Without the Body Shop as their source of income, the Debtors and their minor daughter, as a family, would face great financial difficulty. The Body Shop income also allows the Debtors to cope with less foreseeable expenses, like those the Debtors recently incurred to address their daughter's medical issues.
The Debtors also use the Body Shop for purposes connected to their Residence. Mr. Pool uses the Body Shop's equipment and facilities to repair and maintain household items he brings there from the Residence. For example, on a number of occasions, Mr. Pool has made the short drive to the Body Shop to repair washers, dryers, and lawn equipment used at the Residence. Mr. Pool also uses equipment and tools from the Body Shop for routine home improvement and repair projects at the Residence on a regular basis. At the Body Shop, Mr. Pool repairs the Debtors' personal cars stored and used at the Residence. In one instance, Mr. Pool fabricated a barbeque pit at the Body Shop for use at the Residence. In another, Mr. Pool used some of the Body Shop's tools to repair a gazebo at the Residence that had fallen into disrepair. While working at the Body Shop, Mr. Pool regularly utilizes certain facilities normally associated with a home, such as the Body Shop's kitchen and shower. On at least one occasion, Mr. Pool has spent the night on the Body Shop's premises after working late into the evening.
Section 522(b)(1) of the Bankruptcy Code allows debtors who file jointly (i.e. , as spouses) to claim certain property as exempt. 11 U.S.C. § 522(b)(1). In Texas, debtors may choose either federal or state law exemptions. See, e.g. , Beckwith v. Harris Cty. (In re Norra) , 421 B.R. 782, 788 (Bankr. S.D. Tex. 2009). In this bankruptcy case, the Debtors have chosen state law exemptions—specifically, the rural homestead exemption set forth in the Texas Constitution and Texas Property Code. See TEX. CONST. art. XVI, § 51 ; TEX. PROP. CODE § 41.002(b).
Under Texas law, homestead claimants have the initial burden of proof to establish the homestead status of property. Perry v. Dearing (In re Perry) , 345 F.3d 303, 311 (5th Cir. 2003) (applying Texas law).
The rural homestead protection is enshrined in the Texas Constitution, which provides, in pertinent part, as follows:
The homestead, not in a town or city, shall consist of not more than two hundred acres of land, which may be in one or more parcels , with the improvements thereon ...
TEX. CONST. art. XVI, § 51 (emphasis added).
The Texas Property Code defines a rural homestead for a family in the following manner:
If used for the purposes of a rural home , the homestead shall consist of:
(1) for a family, not more than 200 acres, which may be in one or more parcels , with the improvements thereon ...
TEX. PROP. CODE § 41.002(b)(1) (emphasis added).
Courts have consistently interpreted Texas homestead law for a handful of virtually inalienable legal propositions. First, homesteads are "favorites of the law" in Texas. Courts liberally construe the homestead protections set forth in the Texas Constitution and the Texas Property Code. See, e.g. , Perry, 345 F.3d at 316 ; Bradley v. Pac. Sw. Bank (In re Bradley) , 960 F.2d 502, 507 (5th Cir. 1992) (supporting citations omitted).
Second, a "rural" homestead may consist of one or more non-contiguous (separate) parcels. See, e.g. , Autry v. Reasor , 102 Tex. 123, 108 S.W. 1162, 1164 (Tex. 1908) ; Fajkus v. First Nat'l Bank , 735 S.W.2d 882, 884 (Tex. App.—Austin 1987, writ denied) ; see also TEX. PROP. CODE § 41.002(b). By contrast, if an "urban" homestead consists of more than one lot, the lots must be contiguous to be granted homestead protection. See, e.g. , Seidemann v. New Braunfels State Bank , 75 S.W.2d 167, 167-68 (Tex. Civ. App.—Austin 1934, writ ref'd) ; see also TEX. PROP. CODE § 41.002(a) ().
Third, regardless of whether a property is urban or rural, claimants face little trouble proving that their place of residence falls within the homestead exemption....
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In re Harris, CASE NO. 19-02083-NPO
...Circuit similarly held that a rural homestead also can include property where the landowner conducts his business. In re Pool , 598 B.R. 584, 589 (Bankr. W.D. Tex. 2019). The Trustee relies on the narrow interpretation of the homestead exemption provided by the Mississippi Department of Rev......