In a recent case before the United States Bankruptcy Court for the District of Connecticut, the Chapter 7 trustee objected to an aggregate homestead exemption claimed by debtors for property that they owned, but did not occupy, at the time they filed for bankruptcy. The court sustained the objection and denied the homestead exemption.
In August 2010, SunTrust Bank (“SunTrust”) commenced a foreclosure action against a property owned in Norwalk, Connecticut by a married couple (“the debtors”). The debtors and their children resided at this property as their primary residence until January 2011, when they rented the property to a third party for one-year under the terms of a residential lease.
Prior to the foreclosure sale in August 2011, the debtors filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 701 et seq. The debtors testified that when they filed for bankruptcy relief they were residing with a relative at a street address other than the property being foreclosed upon. Pursuant to 11 U.S.C.§ 522(b)(3), the debtors amended their bankruptcy filing to claim personal exemptions allowed by Connecticut state law. Among the exemptions was a $150,000 aggregate homestead exemption. See Conn. Gen. Stat. § 52–352b(t) (2009). The trustee objected to the homestead exemption.
In Connecticut, any “natural person” is entitled to claim an exemption for his homestead up to $75,000, which is calculated based on the fair market value of the property less the amount of any statutory or consensual lien. Conn. Gen. Stat. § 52–352b(t) (2009). A “homestead” is defined as “owner-occupied real property … used as a primary residence.” Id. at § 52–352a (e) (2005) Case law has further refined this definition to establish three requirements for real property to constitute an individual’s statutory homestead: (1) the individual must “own” the subject real property within the meaning of Section 52–352a as of the relevant time; (2) the individual must “occup[y] ” the subject real property within the meaning of Section 52–352a as of the relevant time; and (3) the subject real property must be “used as a primary residence” within the meaning of Section 52–352a as of the relevant time. In re Kujan, 286 B.R. 216, 220–21 (Bankr.D.Conn.2002); see also KLC, Inc. v. Trayner, 426 F.3d 172, 175 (2d Cir. 2005) (citing Kujan as “setting out ‘homestead’ requirements for invocation of homestead exemption”).
The issue before the Bankruptcy Court was whether the debtors occupied the property within the meaning of Connecticut General Statute § 52–352a. Neither party disputed that the debtors owned the property; likewise, the Chapter 7 petition evidenced that the debtors were not using the property as their “primary residence” on the date of the filing of their petition.
The debtors argued that the word “occupy” must be broadly construed. They claimed that, even though they were not occupying the property, it was a temporary situation because they intended to move back when the one-year lease expired. The debtors testified that the property was rented solely because the family was experiencing financial problems. Finally, the debtors argued that they had not completely surrendered occupation of the property because they reserved the right to access storage areas in the attic and the basement to retrieve stored personal property during the term of the lease. However, this access agreement was not contained in the lease and was contrary to an explicit lease provision granting the renters quiet enjoyment of the property.
The Bankruptcy Court held that the essence of a “homestead” would be nullified if they construed the requirement to “occupy” to include an “intention to occupy.” Even if the debtors were permitted to access areas of the property, they had given up the right to use the property as a home eight months before they filed their Chapter 7 case. Therefore, the debtors no longer occupied the property in the sense required by Connecticut statutory and common law.
Because the Bankruptcy Court found that the debtors did not occupy the property when they filed for bankruptcy protection, the property did not satisfy the tripartite requirements to classify for a homestead exemption in Connecticut. Therefore, the court sustained the trustee’s objection to the claimed homestead exemption.
In re Taliercio, 11-51732, 2012 WL 441421 (Bankr. D. Conn. Feb. 10, 2012)
Should you have any questions relating to bankruptcy or personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.