Saturday, June 2, 2007

Non-Rented Partially Detached Unit Held Part of Exempt Homestead

In reviewing the recent decision of In re Ensenat, 2007 WL 2029332 (Bkrtcy.S.D.Fla. May 24, 2007)(Isicoff, J.), one is reminded how fact specific may be the determination of the extent of a Florida homestead exemption under Article X, Section 4(a)(1) of the Florida Constitution. The case involved a parcel of real property with two buildings. The first building was the debtors' home and the second building was a partially detached unit that was occupied by the debtors' niece, her son, and her boyfriend. The partially detached unit, which had its own kitchen and utility meters, was attached to the main house by a covered patio. The Court found that there was no payment of rent, but that the boyfriend paid their separate water and electric bill, mowed the lawn, and made various contributions, including the buying of groceries.

The Chapter 7 trustee argued that the second building was not part of the Debtors' "residence" and that the Debtors' niece (actually "half-niece") was not a member of the Debtors' "family." Article X, Section 4(a)(1) limits the homestead exemption to that of the residence of the owner or his family.

The Court stated that a separate structure on what is otherwise homestead property is not disqualified merely because it is a separate structure. The Court cited a 1917 Florida Supreme Court decision that observed that the homestead exemption would "doubtless include outhouses, barns, wagon houses, wood or coal sheds, chicken houses, fences, etc. as were appurtenant and subsidiary to and used in connection with the residence as conveniences and auxiliaries." Armour & Co. v. Hulvey, 74 So. 212 (Fla. 1917). Such improvements would be protected as "improvements" to the homestead. The Court also cited another decision that held that the homestead included a garage and overhead apartment used for storage and laundry. White v. Posick, 150 So. 2d 263, 265 (Fla. 2d DCA 1963).

The Court observed that "to the extent court have found abandonment or waiver of the homestead exemption in a separate structure it was because the homeowner at some time used that portion of the property to generate income." But the Court further noted that if the business purpose ceases, the homestead status may be regained.

After noting that Florida law recognizes "families-at-law" and "families-in-fact", the Court held that it was not clear whether or not the niece, son, and boyfriend qualified as the Debtors' "family" under the Article X Section 4(a)(1) of Florida Constitution. But the Court concluded that whether are not these persons qualified as the Debtors' "family", the debtors were entitled to claim the entire parcel as exempt homestead as the second structure was not used for a business purpose.

One might query how the holding may have been different had the court found the boyfriend's payment of the electric bill, mowing of the lawn, and various contributions, including the buying of groceries to be a form of constructive rent. Apparently this would have rendered the second structure to be considered as used for a business business and therefore non-exempt.

One may also note that the Trustee had initially argued that the two structures constituted a duplex, but at trial acknowledged that they were actually two separate structures joined by a roofed patio. Perhaps, the Court's decision would have been the same even if the two structures constituted a duplex as long as the second unit was not rented out. The majority of the bankruptcy courts in Florida would not allow an exemption for a side of a duplex that is rented out. In re Bornstein, 335 B.R. 462 (Bkrtcy. M.D. Fla. 2005, In re Dudeney, 159 B.R. 1003 (Bankr.S.D.Fla. 1993).
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