How to Determine Your Primary Residence – Part 2, the Homestead Exemption

Creditor-Side Bankruptcy, Foreclosure Litigation, and Mortgage & Lending Law by Peter N. Brewer, Esq.

In 2011, Andy Diaz (“Diaz”) lived in a property in Fullerton, CA (“Property”) with his then wife.  In 2011, Diaz suffered severe health problems.  Later in 2011, Diaz and wife divorced.  Due to his health problems, after several months of living in hospitals and therapy facilities, Diaz moved into his mother’s home as he could not care for himself.  During the time he was living in his mother’s home, his brother and sister-in-law moved into the Property.  In late 2013, Diaz filed for bankruptcy protection.  As part of the bankruptcy, Diaz claimed a homestead exemption for the Property.  The trustee challenged this claim as Diaz did not live at the Property and Diaz’s relatives lived in the Property.  The bankruptcy court agreed with the trustee and denied Diaz’s claim for an exemption as it was not his primary residence.  Diaz then appealed.

THE DECISION:

In In re; Diaz, The United States Bankruptcy Appellate Panel of the Ninth Circuit (“BAP”) reversed the bankruptcy court’s decision and remanded the matter back to the bankruptcy court.  The BAP noted that a person’s homestead is determined by considering two factors, physical occupancy of the property and the party’s intention to reside in the party.  The Court noted that just because one factor is present or lacking is not dispositive of the issue.  Here, the BAP noted that just because Diaz did not live in the Property, this alone was not sufficient to determine that he could not claim a homestead exemption.  In fact, Diaz had repeatedly made the claim that he would move back to the Property when he was able to live by himself and without the need of constant care.  As the bankruptcy court did not have sufficient information, the BAP ordered the bankruptcy court to allow additional evidence to be submitted.

WHY THIS DECISION IS IMPORTANT:

In 2012, the bankruptcy court clarified that the determination of a primary residence is determined as of the filing of the petition date.  Here, the court has further expanded this determination to allow debtors to show that even if they did not live in their home, they still may be able to claim a homestead exemption.  Indeed, it may be possible that this ruling may be expanded further to apply to cases against lenders in determining whether a property is a primary residence and the applicable state rights and protections, including those under the foreclosure statutes.

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