Romo v. Montemayor (In re Montemayor)

• Decision Date: 09 March 2016
• Docket Number: ADVERSARY NO. 15–01003,CASE NO: 14–10031
• Parties: In re: Juan Jose Montemayor; aka Johnny Joe Montemayor; aka Juan Montemayor; aka Johnny Montemayor; aka Johnny J Montemayor, Debtor William C. Romo, Plaintiff v. Juan Jose Montemayor, Defendant
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

547 B.R. 684

In re: Juan Jose Montemayor; aka Johnny Joe Montemayor; aka Juan Montemayor; aka Johnny Montemayor; aka Johnny J Montemayor, DebtorWilliam C. Romo, Plaintiff

v.Juan Jose Montemayor, Defendant

CASE NO: 14–10031

ADVERSARY NO. 15–01003

United States Bankruptcy Court, S.D. Texas, Brownsville Division.

Signed March 09, 2016

Antonio Villeda, Attorney at Law, McAllen, TX, for Plaintiff.

Richard O. Habermann, Attorney at Law, McAllen, TX, for Defendant.

MEMORANDUM OPINION DENYING TRUSTEE'S MOTION FOR SUMMARY JUDGMENT AND GRANTING SUMMARY JUDGMENT FOR THE DEBTOR

[Resolving ECF No. 9 ]

Eduardo V. Rodriguez, United States Bankruptcy Judge

I. INTRODUCTION

As a matter of first impression for this court, there are two issues in this case, both of which are simply stated, but neither are simply answered. First, what happens to the proceeds from the sale of a properly exempted Texas homestead if not timely reinvested into a new Texas homestead within the statutory six-month period where the proceeds would lose their exemption under Texas law? Second, does the Fifth Circuit's Opinion in In re Frost apply in this chapter 7 proceeding rendering the sale proceeds non-exempt and subject to pre-petition creditor's claims? This Court considers: a Motion for Summary Judgment filed by the chapter 7 trustee, wherein he requests the return of the proceeds from the sale of debtor's homestead that have not been timely reinvested under Texas law; the arguments presented in a hearing on this matter held December 16, 2015; all other evidence in the record; and relevant case law. Although the Motion for Summary Judgment was filed by the chapter 7 trustee, under Rule 56(f), the court may alternatively grant summary judgment in the debtor's favor.

II. PROCEDURAL BACKGROUND

On May 26, 2015, (approximately 355 days after closing on the sale of Debtor's homestead) the Chapter 7 Trustee, William C. Romo ("Romo "), initiated a freeze on the Debtor's bank account in order to preserve such assets as may remain from the proceeds of the sale of the Debtor's Texas homestead ("Proceeds "). [Case No. 14–10031, ECF Nos. 38, 40]. The pro se Motion in Objection Against Trustee's Action to Take Possession of Debtor's Homestead Exemption Proceeds and Estate ("Motion in Objection "), [ECF. No. 40], filed by Juan Jose Montemayor ("Debtor ") on July 17, 2015, was mooted at a hearing held on September 18, 2015, as Romo had initiated an adversary proceeding to recover the Proceeds on September 17, 2015. [ECF No. 49]. After filing the pending adversary, Romo also filed a Motion for Summary Judgment (the "Motion "), which is currently pending before this Court. [Case No. 15–1003, ECF No. 9].

This Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rules of Bankruptcy Procedure 7052, which incorporates Fed. R. Civ. P. 52, and 9014. To the extent that any Finding of Fact constitutes a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law constitutes a Finding of Fact, it is adopted as such.

III. FINDINGS OF FACT

Debtor filed his voluntary petition for relief under chapter 7 of title 11 of the United States Code (the "Bankruptcy Code " or "Code ")¹ on January 27, 2014, thereby initiating Case No. 14–10031. [ECF No. 1]. Debtor claimed real property in Schedule A, "15155 Sparrow Rd Harlingen, TX 78552 ...," as in the nature of a homestead (the "Homestead "). [ECF No. 1 at 6, 12]. The amount of the Debtor's interest, as declared, was $113,891.00. Debtor only declared a half interest in the Homestead because his former spouse owned the other half interest. Debtor elected to claim Texas State exemptions, as allowed by 11 U.S.C. § 522(c)(3). [ECF No. 1 at 6, 12]. Debtor's exemption of the Homestead was based on the Texas Constitution, art. 16, §§ 50, 51, and the Texas Property Code, §§ 41.001–.002. Id. at 12. A review of the docket in the main cases shows that neither the Trustee or any party in interest filed an objection to the Debtor's claimed homestead exemption. Dkt. Case No. 14–10031.

On February 24, 2014, the First Meeting of Creditors, pursuant to 11 U.S.C. § 341, was noticed for March 21, 2014, and the last day to oppose discharge or dischargeability of certain debts was May 20, 2014. [ECF No. 11]. On March 21, 2014 the First Meeting of Creditors was held and continued to April 17, 2014. On April 17, 2014 the First Meeting of Creditors was held and continued to May 23, 2014. [ECF No. 11].

On May 19, 2014, Romo filed his Motion to Extend Time to Object to Discharge ("Motion to Extend "). [ECF No. 13]. In his Motion, Romo sought to extend the time due to the Debtor's counsel being unable to attend the May 23, 2014 Meeting of Creditors, due to out of town work-related matters. Id. at ¶ 2.

On May 28, 2014, Debtor filed his Motion for Authority to Sell Homestead. [ECF No. 14]. This Court granted Debtor's Motion for Authority to Sell Homestead on June 3, 2014, which ordered that the Proceeds of the sale be used to extinguish the outstanding liens to Regions Mortgage and HEB Federal Credit Union, with the remaining Proceeds to be evenly divided between Debtor and Debtor's ex-spouse. [ECF No. 18].

On June 5, 2014, Debtor closed on the sale of his homestead resulting in Debtor receiving net Proceeds in the amount of $107,627.25. [ECF No. 49 ¶ 7]; [Case No. 15–1003, ECF Nos. 9–3, 9–4]; Pl. Exs. C and D. On June 9, 2014, it is undisputed that Debtor utilized $41,521.72 of the Proceeds from the sale of his former homestead to purchase a lot on which he intended to construct a new homestead (the "New Property "). [Case No. 14–10031, ECF No. 49 ¶ 8]; see also Pl. Exs. E and F. Over the course of the next three months, Debtor expended another $9,558.96 from the Proceeds (for a total of $51,080.68) in mostly dirt work to prepare the lot for construction. [ECF No. 49 at ¶ 9]; see also Pl.Ex. G.

On June 12, 2014, this Court granted Romo's Motion to Extend, extending Romo's deadline to object to discharge to June 30, 2014. [ECF No. 20]. On June 25, 2014, Romo filed his Second Motion to Extend Time to Object to Discharge ("Second Motion to Extend ") [ECF No. 22]. In his Motion, Romo stated that Debtor's attorney was again unable to attend the Meeting of Creditors, this time scheduled for July 11, 2014, due to attendance at an out of town bankruptcy conference. Id. at ¶ 3. The First Meeting of Creditors was again continued to July 11, 2014. On July 18, 2014, this Court granted Romo's Second Motion to Extend, extending Romo's deadline to object to discharge to July 31, 2014. [ECF No. 23].

On August 6, 2014, The First Meeting of Creditors was held and concluded, wherein it was determined that there were potential assets in which to provide creditors a dividend. On August 6, 2014, Romo issued a Trustee's Notice of Assets, Notice to Creditors And Other Parties In Interest Of The Need To File Claims, setting the bar date to November 10, 2014. [ECF No. 25]. Pursuant to Fed. R. Bankr. P. 4003(b)the last day to object to Debtor's exemptions expired on September 5, 2014. The statutory six (6) month period, pursuant to Tex. Prop. Code § 41.001(c), for which Texas law provisions the Proceeds to be free from creditor's claims expired on December 5, 2014.

This Court issued an Order of Discharge, [ECF No. 27], and a Final Decree, [ECF No. 28], on February 25, 2015, but subsequently vacated both orders on February 26, 2015. [ECF No. 29 and 30]. This Court issued a new Order of Discharge for Debtor on March 3, 2015. [ECF No. 35]. A Final Decree was not subsequently re-entered by this Court.

On March 13, 2015, Debtor deposited $58,731.70, which constituted the residue of his Proceeds, into an account at First Community Bank of San Benito, Texas. Pl.Ex. H. On May 26, 2015, Romo initiated a freeze on Debtor's bank account containing the Proceeds. Id. ; [ECF No. 40].

Romo filed an Application to Employ Villeda & Romo, as Counsel on July 14, 2015. [ECF No. 37]. The Application was filed for the purpose of prosecuting a § 542 action related to the non-exempt proceeds from Debtor's sale of homestead in June 2014. [ECF No. 37, ¶ 1]. This Court granted the Application to Employ on July 22, 2015. [ECF No. 43].

On July 17, 2015, Debtor filed a pro se "Motion in Objection Against Trustee's Action To Take Possession of Debtor's Homestead Exemption, Proceeds & Estate", alleging that Romo had frozen the remaining Proceeds in his bank account and requesting that an extension be granted for Debtor to finish construction of his new homestead using the proceeds. [ECF No. 40]. At the time of the filing, Debtor stated that his prior counsel had ceased representing him for unknown reasons and Debtor was therefore seeking representation. Id.

On September 17, 2015, Romo filed a Complaint for Turnover (the "Complaint "), thereby initiating the pending adversary proceeding, Case No. 15–1003, seeking the "turnover of homestead sales Proceeds that were not timely reinvested into a habitable homestead." [Case No. 14–10031, ECF No. 49]; [Case No. 15–1003, ECF No. 1]. On September 18, 2015, this Court conducted a hearing on Debtor's Motion in Objection. At the hearing, Debtor was represented by new counsel, Richard Habermann, and former counsel, Judith Flores Saldivar of Davis Law Firm, was also in attendance. Debtor's Motion in Objection was mooted by the pending adversary proceeding. On October 21, 2015, Debtor filed his Response to Trustee's Original Complaint for Turnover (the "Answer "). [ECF No. 8]. In the Answer, the Debtor admits, inter alia, that the sale of the homestead occurred during the bankruptcy, that the proceeds were divided evenly between the Debtor and the Debtor's ex-spouse, that the Debtor used a portion of the Proceeds to purchase the New Property, that the Debtor prepared the New Property for construction, and that, as of the filing of the Complaint, the Debtor had $58,731.70 on deposit at First Community Bank. [ECF No. 8]. However, Debtor denies that he...