In re Vazquez

Decision Date17 October 2019
Docket Number Case No. 18-12278,Case No. 18-12277
Citation606 B.R. 432
Parties IN RE: Horacio VAZQUEZ, Debtor. In re: Aracely Vazquez, Debtor.
CourtU.S. Bankruptcy Court — District of Kansas

Justin T. Balbierz, Mark J. Lazzo PA, Mark J. Lazzo, Landmark Office Park, Wichita, KS, for Debtor.

J. Michael Morris, Klenda Austerman LLC, Wichita, KS, for Trustee.

MEMORANDUM OPINION

Robert E. Nugent, United States Bankruptcy Judge

A Kansas debtor who lives in a city or town may exempt a homestead of up to one acre from the property of the bankruptcy estate if the debtor owns the real estate and resides there either alone or with family. Those factual and legal determinations are made as of the bankruptcy filing date. Married and separated on the petition dates, Horacio and Aracely Vazquez filed separate cases, each attempting to exempt separate residences situated on contiguous lots. Even though the adjacent lots total only one-third of an acre in area, only Aracely resides in a home that she owns. The Trustee's objection to her homestead exemption is overruled. Because Horacio attempted to exempt a second home that only Aracely owns, and married debtors may only claim one homestead under Kansas law, the Trustee's objection to his exemption must be sustained.

Findings of Fact

Horacio and Aracely Vazquez married in 2015, but separated in the summer of 2018 before each filed separate bankruptcy petitions on November 27, 2018. On the petition date Aracely lived with her children in a home at 1617 Holland Street in Great Bend. Horacio lived in the house next door, 1621 Holland.1 Each claimed their respective residences as their exempt homesteads. Their bankruptcy trustee objected to the exemptions in each case.

Before she married Mr. Vazquez, Aracely Cerda agreed to buy the house at 1621 Holland from Michael Whetham on a contract for deed signed on January 18, 2011.2 After she signed the contract, Whetham encumbered the property with a mortgage but agreed to deed the property to Ms. Cerda and to pay the debts secured by the mortgage. On January 24, 2012, Whetham deeded the property to Cerda, "subject to" the mortgages of the Bank of Holyrood.3 Whetham has since paid most or all of the debt. Ms. Cerda married Mr. Vazquez in 2015, but did not convey any interest in 1621 Holland to him.

After they married, Aracely and Horacio purchased 1617 Holland from Crystal Torres who deeded that property to them on March 30, 2015 as joint tenants with the right of survivorship.4 They granted the Bank of Holyrood a purchase money mortgage on 1617 Holland and a second mortgage on 1621 Holland to secure the purchase money loan for the Torres transaction.5 The 1617 Holland mortgage secures repayment of $45,300 and the 1621 Holland mortgage secures $15,000.6 The Bank of Holyrood's claims in these cases seeks repayment of $50,266.79 on the April 2018 renewal note that is secured by the two homes.7

Until their separation in July of 2018, the Vazquez family lived in 1617 Holland and rented 1621 Holland out to a third party. After they separated, Horacio moved into 1621 Holland with Aracely's permission. The evidentiary record does not reflect that Horacio paid rent to Aracely or that his occupancy was for an agreed-upon term. Aracely testified that they intended the separation to be permanent. They lived apart, but neither filed a petition for divorce or separate maintenance before the bankruptcy petition date because they could not afford to pay attorney fees for the bankruptcy cases and a divorce. In March 2019 Aracely filed a divorce case pro se in Barton County District Court, and received a consent decree of divorce on June 7, 2019.8 In the decree, the parties agreed to divide their real estate as follows. Title to 1617 Holland would be set over to Aracely who will continue to live there while Horacio would receive title to 1621 Holland and live there. Horacio will pay the Bank of Holyrood mortgages.9 Aracely stated that she had to file bankruptcy because she lost her job. Her schedules reflect her owing significant unsecured debt, including a student loan, some in collection status. Horacio likewise scheduled substantial unsecured debt.

On the date of the petitions November 27, 2018, Aracely and Horacio were legally married. Aracely owned her joint tenancy interest in 1617 Holland and lived there with her children, claiming it as her homestead. She also owned a 100 percent fee simple interest in 1621 Holland subject only to the Holyrood Bank's mortgage. Horacio lived in 1621 Holland, but had no legal title or other ownership interest in that property. Nevertheless, he claimed 1621 Holland as his homestead. Indeed, on his amended bankruptcy schedules, he claimed no interest in any real property, though on the petition date he owned his joint tenancy interest in 1617 Holland.10

The Chapter 7 trustee objected to Aracely's and Horacio's homestead exemptions, asserting that because Aracely and Horacio were married on the date of the petition, they could only claim one of the Holland properties exempt.11 Only Aracely testified at trial. Both debtors stipulated with the trustee that if Horacio were to testify, his testimony would be substantially the same as Aracely's. The case was submitted on the stipulated exhibits and her testimony alone.12

Jurisdiction

Objections to exemptions are contested, core proceedings under 28 U.S.C. § 157(b)(2)(B) and the bankruptcy court may exercise subject matter jurisdiction under 28 U.S.C. § 1334 and § 157(a) and (b)(1) and issue a final order.

Analysis
1. Real estate the debtors owned and could exempt at filing.

A Kansas chapter 7 debtor may "exempt from property of the estate" that property which is exempt under Kansas law.13 "Property of the estate" includes "all legal and equitable interests of the debtor in property as of the commencement of the case."14 A debtor therefore may only exempt property that is his or hers on the date the case is filed or meets the requirements of the Kansas exemption laws.

Aracely and Horacio Vazquez filed separate bankruptcy cases in November of 2018. Their filings created two separate bankruptcy estates: Aracely's included her joint tenancy fee title interest in 1617 Holland and her sole fee title interest in 1621 Holland while Horacio's estate only included his joint tenant interest in 1617 Holland; he held no legal or equitable interest in 1621 Holland. No divorce or separate maintenance case was pending between these debtors on the petition date. Therefore no "marital estate" had been created.15 If she met the requirements imposed by Kansas's exemption laws, Aracely could exempt from property of her bankruptcy estate either of her fee title interests in 1617 and 1621 Holland, depending on where she lived. Horacio owned no title or fee interest in 1621 Holland—the only tract that became part of his bankruptcy estate was his joint tenant fee interest in 1617 Holland.

2. Only an owner, owner's family, or both may claim "a" Kansas homestead .

The Kansas homestead exemption is codified in § 60-2301.16 Kansas courts liberally construe exemption laws in favor of the intended beneficiaries and objectives of the exemption.17 The purpose of the homestead exemption is to protect the family from destitution and to benefit society by preventing its citizens from becoming paupers or public charges.18 An urban homestead consists of "one acre within the limits of an incorporated town or city" that is "occupied as a residence by the owner or by the family of the owner , or by both the owner and family ..."19

A valid Kansas homestead must first be "occupied as a residence." There is no dispute that on the date of the petition, Aracely "occupied" 1617 Holland "as a residence." Horacio "occupied" 1621 Holland "as a residence."

But in order to claim a valid Kansas homestead, occupancy of the residence must be as the owner, the owner's family, or the owner and the family.20 There is no question that Aracely is the owner of 1617 Holland (with Horacio) and that she resides there with her family. Horacio may occupy 1621 Holland, but he does not own it. At best, Horacio had a possessory interest in 1621 Holland as a tenant at will.21 That interest is not an ownership interest sufficient to exempt under Kansas law.22 But that does not end the inquiry. The Kansas homestead exemption allows the "family" of the owner of the property to claim it exempt. Because Horacio and Aracely were married on the date of the petition, they were members of the same family and in theory, Horacio could have claimed exempt the 1621 Holland property as "family" of the owner.23 Therein lies the problem. Kansas courts have traditionally concluded that a family (including married Kansas debtors) are entitled to only one homestead.24 Family members may not claim different homesteads. Here, the entire Vazquez family resided at 1617 Holland until Horacio and Aracely separated prior to filing their bankruptcy cases. Horacio voluntarily left 1617 Holland when they separated, and it was undisputed that the separation was permanent. In that sense, Horacio abandoned the family homestead.25 But because he was still married on the date of filing, he could not establish a different homestead from 1617 Holland under the "one homestead rule." Finally, even if his possessory interest in 1621 Holland was sufficient to claim the homestead exemption and Kansas law permitted family members to claim different residences exempt, the Court heard no testimony that Horacio intended to establish 1621 Holland as his homestead.26 Horacio's claimed exemption in 1621 Holland as his homestead must be rejected.

3. The single acre limit cannot save Horacio's homestead .

The debtors assert that they can exempt both 1617 Holland and 1621 Holland because the lots are contiguous and, combined, comprise far less than the one-acre limit imposed by § 60-2301. That argument ignores two things.27 First, each of these lots is in a separate bankruptcy estate. Even though the...

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