In re: Ana Celis Estrada Lopez

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: July 10, 2013
• Docket: 12-09126
• Status: Unknown

Opinion

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2 3 IN RE: : CASE NO. 12-09126 (ESL) : 4 ANA CELIS ESTRADA LOPEZ : CHAPTER 7 Debtor : 5 ____________________________________: 6 OPINION AND ORDER 7 This case is before the court upon the Chapter 7 Trustee’s Objection to Claimed Exemptions 8 (the “Objection”, Docket No. 18), the Debtor’s Opposition thereto (Docket No. 24) and the Chapter 9 7 Trustee’s Reply (Docket No. 25). The Chapter 7 Trustee moves for the denial of the Debtor’s 10 homestead exemption alleging that although the homestead deed was filed pre-petition at the Puerto 11 Rico Property Registry, it was not recorded or registered by the Property Registrar pre-petition, 12 which contravenes Article 9 of Puerto Rico’s Home Protection Act No. 195 enacted on September 13 13, 2011 (in Spanish titled “Ley del Derecho a la Protección del Hogar Principal y el Hogar 14 Familiar”, hereinafter the “2011 PR Home Protection Act”), as amended by Act No. 257 of 15 September 15, 2012, and therefore fails to comply with subsequent Article 12. Conversely, the 16 Debtor sustains that she filed her homestead deed at the Property Registry pre-petition, which 17 complies with the 2011 PR Home Protection Act. For the reasons stated below, Chapter 7 Trustee’s 18 Objection is denied. 19 Factual and Procedural Background 20 On April 12, 2012, the Debtor executed Deed No. 112 before Notary Public Juan Rosa 21 Marcano to declare her principal residence as homestead (the “Homestead Deed”). The Debtor filed 22 the Homestead Deed at the Puerto Rico Property Registry, Humacao Section, on September 11, 23 2012. See Docket No. 24, p. 5. 24 On November 15, 2012, the Debtor filed a voluntary Chapter 7 petition (Docket No. 1). The 25 meeting of creditors was held and closed on January 4, 2013 (Docket No. 13). 26 On February 2, 2013, the Chapter 7 Trustee filed a Motion for Extension of Time to Object 27 to Debtor’s Claimed Exemptions (Docket No. 14), to which the Debtor opposed on February 3, 2013 28 (Docket No. 15), arguing that the motion was untimely and proffered no clear cause as to why it should be granted. 1 On February 7, 2013, the court entered an Order granting 21 days for the Chapter 7 Trustee 2 to reply to the Debtor’s opposition (Docket No. 16). On February 12, 2013, the Chapter 7 Trustee 3 filed a Response to Debtor’s Objection to Extension of Time and Objection to Claimed Exemptions 4 (Docket No. 18) averring that she had until February 4, 2013 to file object to the Debtor’s 5 exemptions and thus, the objection was timely. She also objects to the homestead exemption 6 claimed by the Debtor arguing that the Homestead Deed was not recorded at the Puerto Rico 7 Property Registry prior to the filing of the bankruptcy petition. In addition, she also objects to the 8 exemption on household goods under 32 L.P.R.A. § 1130 for lack of specificity. 9 On March 10, 2013, the Debtor filed a Request for Extension of Time to Oppose Trustee’s 10 Objections to Exemptions (Docket No. 19), which court granted on March 12, 2013 (Docket No. 20). 11 On March 13, 2013, the Debtor filed a Notice of Amended Schedules [B & C] and Statement 12 of Purpose of the Amendment (Docket No. 21). In Schedule B, the Debtor itemized the personal 13 household appliances in response to the Chapter 7 Trustee’s Objection. In Schedule C, the Debtor 14 itemized the personal household appliances claimed also in response to the Chapter 7 Trustee’s 15 Objection. See Docket No. 21, p. 1, ¶¶ 1-2. 16 On May 1, 2013, the Debtor filed an Opposition to Trustee’s Objection to Exemptions 17 (Docket No. 24) sustaining that she complied with the 2011 PR Home Protection Act. She also 18 avers that the objection to the household goods had become moot upon the filing of her amended 19 schedules and relies on the fact that the Chapter 7 Trustee had more than 30 days to object to the 20 amendments, which she had not. 21 On May 14, 2013, the Chapter 7 Trustee filed a Reply to Debtor’s Opposition To Objection 22 to Exemptions (Docket No. 25) seeking the denial of the homestead exemption because it had not 23 been “qualified” by the Puerto Rico Property Registrar nor had the appropriate marginal annotations 24 in the Debtor’s principal residence been made in the Property Registry. She further alleges that non 25 compliance of Article 12 of the 2011 PR Home Protection Act must result in the denial of the 26 homestead exemption. As to her previous objections to the itemization of Debtor’s household 27 exemptions, she acknowledges that the same became moot upon the Debtor’s Amended Schedules 28 B and C. See Docket No. 25, p. 5, ¶ 7. 2 1 No further replies or briefs were filed. 2 Legal Analysis & Discussion 3 | (4) — Exemptions in General 4 When a debtor files a bankruptcy petition, all of his/her/its assets become property of the 5 || bankruptcy estate [11 U.S.C. § 541] subject to the debtor's right to reclaim certain property as 6 || exempt under 11 U.S.C. § 522. See Taylor v. Freeland & Kronz, 503 U.S. 638, 642 (1992). A 7 || property becomes exempt by operation of law when no objections are filed. See 11 U.S.C. § 522(1). 8 || But the mere fact that debtors claim an exemption does not necessarily mean that they are entitled 9 || to it, since there must be compliance with statutory requirements and then an order that effect. See 10 |} 9A Am. Jur. 2d Bankruptcy § 1392; In re Gutierrez Hernandez, 2012 Bankr. LEXIS 2735 at *8, 11 |} 2012 WL 2202931 at *2 (Bankr. D.P.R. 2012); In re Rolland, 317 B.R. 402, 412 (Bankr. C.D.Cal. 12 || 2004); In re Colvin, 288 B.R. 477, 483 (Bankr. E.D.Mi. 2003); Carlucci & Legum v. Murray (In re 13 || Murray), 249 B.R. 223, 230 (E.D.N.Y. 2000). Exemptions are an integral component of a debtor’s 14 || fresh start and thus are liberally construed. Hon. Nancy C. Dreher, Hon. Joan N. Feeney and 15 || Michael J. Stepan, Esq., Bankruptcy Law Manual § 5:34 (5" ed. 2012-2); In re Farr, 278 B.R. 171, 16 || 48 (B.A.P. 9" Cir. 2002) (exemptions aid a debtor’s fresh start by enabling debtor to emerge from 17 || bankruptcy with adequate assets); In re Toppi, 378 B.R. 9, 11 (Bankr. D. Me. 2007) (exemptions are 18 || liberally construed); In re Wegrzyn, 291 B.R. 2, 8-9 (Bankr. D. Mass. 2003) (exemptions should be 19 || construed liberally in favor of debtor to further the fresh start); Christo v. Yellin in re Christo), 228 20 || B.R. 48, 50 (B.A.P. 1* Cir. 1999) aff'd 192 F.3d 36 (1* Cir. 1999). A “fresh start”, however, does 21 || not translate to a “head start”. In re Goldberg, 59 B.R. 201, 208 (Bankr. N.D. Okla. 1986). “The 22 || basis for exemption laws is that by providing a debtor to retain a minimum level of property, the 23 || debtor and his or her family will not be completely destitute and thus a burden to society.” Id. at 24 || 208. “A fundamental component of an individual debtor’s fresh start in bankruptcy is the debtors 25 || ability to set aside certain property as exempt from the claims of creditors.” Allan N. Resnick and 26 || Henry J. Sommes, 4 Collier on Bankruptcy §] 522.01 (16" ed. 2013). 27 Homestead exemptions are to be construed liberally on behalf of the homesteader. In re 28 || Dougan, 484 B.R. 529, 534 (Bankr. D. Mass. 2013); In re Haseltine, 2007 Bankr. LEXIS 3449, at

1 || *4, 2007 WL 2932807, at *2 (Bankr. D.N.H. 2007); In re Rolland, 317 B.R. at 413; Garran v. SMS 2 || Fin. V, LLC (In re Garran), 338 F.3d 1, 6 (1* Cir. 2003); Inre Arrol, 207 B.R. 662,665 (Bankr. N.D. 3 || Cal. 1997); Ingebretsen v. McNamer, 137 Cal. App. 3d 957, 960 (1982). (B) — Legal Construction of Puerto Rico Exemptions 5 A state’s' rules of construction must be followed by federal courts when construing state-law 6 || exemptions. See Goldman v. Salisbury (In re Goldman), 70 F.3d 1028, 1029 (9" Cir. 1995). 7 || Generally, federal courts must construe all exemption statutes liberally, in the debtor’s favor, “to 8 || reflect their remedial purposes.” Caron v. Farmington Nat’l Bank (In re Caron), 82 F.3d 7, 10 (1* 9 || Cir. 1996). Also see Shamban v. Perry (In re Perry), 357 B.R. 175, 180 (B.A.P. 1* Cir. 2006). 10 In Puerto Rico, exemptions are construed in the most liberal light to effectuate the 11 || humanitarian purpose of the lawmaker. Laguna v. Quifiones, 23 P.R. R. 358, 360-361, 23 D.P.R. 12 |) 386, 389 (1916); Marty Pérez v. Ramirez Cuerda, 75 P.R.R. 808, 814, 75 D.P.R. 858, 864 (1954). 13 || Questions as to the applicability of a Puerto Rico exemption must be resolved in favor of the 14 || exemption. Quintana v. Superior Court, 104 P.R. Off. Trans. Part I 26, 28, 104 D.P.R. 18, 20 15 || (1975); Marty Pérez v. Ramirez Cuerda, 75 P.R.R. 808, 814, 75 D.P.R. 858, 865 (1954). When 16 || interpreting a Puerto Rico statute, its wording cannot be applied mechanically, but by exercising 17 || reason. See Pueblo v. Pagan Medina, 99 P.R.R. 731, 737, 99 D.P.R. 753, 759 (1971). Puerto Rico’s 18 || Supreme Court has refused to follow literal interpretations of a statute if doing leads to an absurd 19 || result that is not in accordance with its legislative intent. Pueblo v. Seda Alvarez, 82 D.P.R. 719, 20 || 725 (1961); Col. Ing, Agrim, P.R. v, A.A.A., 131 D.P.R. 735, 756 (1992); Municipio de San Juan 21 || v. Banco Gubernamental de Fomento, 140 D.P.R. 873, 884 (1996); Pueblo v. Zayas Rodriguez, 147 22 || D.P.R. 530, 549 (1999). 23 | (C) □□□ The 2011 PR Home Protection Act and the Decision in In re Pérez Hernandez 24 In In re Pérez Hernandez, 487 B.R. 353 (Bankr. D.P.R. 2013), the court ruled that under the 25 || 2011 PR Home Protection Act, as amended, when a Puerto Rico individual or head of family files 26 || for bankruptcy, he/she retains his/her homestead right throughout the bankruptcy proceeding if 27 28 ' Puerto Rico is a considered a state for bankruptcy purposes pursuant to 11 U.S.C. § 101(52).

1 || he/she complies with the requirements established therein unless he/she chooses to claim the federal 2 || exemption scheme afforded in 11 U.S.C. § 522(b)(2). The court also ruled as follows: 3 Articles 9 and 11 of the PR Home Protection Act distinguish between real properties that are registered at the Property Registry and those that are not. The methods for 4 claiming the homestead exemption in both instances are different. In cases where the real property is registered at the Property Registry, Article 9 governs the procedure by 5 which homestead is claimed. In cases where the real property is not registered at the Property Registry or where the declaration of homestead has not yet been recorded or 6 annotated, Articles 11 and 12 will govern. Thus, when an individual or head of family files for bankruptcy, he/she must disclose in Schedule C whether or not his/her claimed 7 homestead is or not registered at the Property Registry. Ifthe real property is registered, he/she must show pre-petition compliance with Article 9 of the 2011 PR Home 8 Protection Act. If the real property is not registered, the debtor must submit with the bankruptcy petition the sworn statement required in Article 12 of the PR Home 9 Protection Act, but instead of declaring that the real property was a principal residence before the service of process of foreclosure, he/she must declare that the real property 10 was his/her pre-petition principal residence. 11 Compliance with the requirements of the 2011 PR Home Protection Act is essential to properly claiming a homestead exemption in bankruptcy proceedings. Id. at 368. 12 13 || The foregoing must be read in conjunction with Puerto Rico’s Mortgage Law and its Article 53, 14 || infra. 15 || (D) _ Relation-Back Provision in Puerto Rico’s Mortgage Law 16 Article 53 of Puerto Rico’s Mortgage Law, 30 L.P.R.A. § 2256, provides a specific 17 || relation-back provision for the registration of property interests pending to be recorded at the Puerto 18 || Rico Property Registry. Pursuant to Article 53, supra, the registration of any property interest by 19 || the Property Registrar relates-back to its filing date (filing entry). Id. As stated by the Court of 20 || Appeals for the First Circuit in Soto-Rios v. BPPR (In re Soto-Rios), 662 F.3d 112, 121 (1* Cir. 21 2011): 22 [A]t a minimum Puerto Rico law regards presentment to be a legally significant act that initiates the certifying role of the Registrar, begins the process of registration, and 23 as previously noted, operates as the decisive point for resolving any competing registrations in the same property. See P.R. Laws Ann. tit. 30, § 2256. Generally, 24 once presented, the registrar must pass judgment on the documents within sixty days, or some “just cause” period thereafter, and then either act to record them or alert the 25 applicant to any defect. See P.R. Laws Anna. tit. 30, §§ 2255, 2267, 2270-72. Indeed, the registrar must keep detailed records to memorialize the very “moment of 26 presentation” by entering “the exact time of day” into the day book (filing entry). See P.R. Laws Ann. tit. 30, §§ 2152, 2154, 2253. Such precision is required, of course, 27 because the filing entry is “intimately linked to the registry principle called rank or priority”; the first filing entry prevails. Gasolinas de Puerto Rico v. Richard F. Keeler 28 Vazquez, 155 D.P.R. 652, 675 (2001).

1 Also see Luis Rafael Rivera Rivera, Derecho Registral Inmobiliario Puertorriquefio, San 2 || Juan, Juridica Editors, 3" ed. (2012), at p. 204. 3 Therefore, the court is not moved by the Chapter 7 Trustee’s argument that the Debtor’s 4 || homestead exemption should be denied because, as of the date of her bankruptcy petition, the 5 || Homestead Deed “remain[ed] to be qualified and the appropriate marginal annotations [have not 6 || been] made by the Property Registrar to the body of the property registration” (Docket No. 25, p. 7 || 1,9 1). In the instant case, because the Debtor’s real property is registered at the Property Registry, 8 || and because the Homestead Deed was filed pre-petition (Docket No. 24, p. 5) upon the Property 9 || Registrar’s review of the Homestead Deed, he/she shall proceed to record it or alert the debtor to any 10 || defect, if any, in accordance with Puerto Rico’s Mortgage Law. If no defects are found by the 11 || Property Registrar, pursuant to 30 L.P.R.A. § 2256, the registration of the homestead right will 12 || relate-back to its filing date, which in this case would be September 11, 2012, that is, pre-petition. 13 || Compare Docket No. 24, p. 5, with Docket No. 1. The 2011 PR Home Protection Act cannot be 14 || taken out of the context upon which all documents, including homestead deeds, are filed and 15 || recorded at the Puerto Rico Property Registry. Therefore, the Chapter 7 Trustee’s homestead 16 || objection is hereby denied. 17 Conclusion 18 In view of the foregoing, the Chapter 7 Trustee’s Objection (Docket No. 18) and Reply 19 || (Docket No. 25) are hereby denied. 20 SO ORDERED. 21 In San Juan, Puerto Rico, this 10" day of July, 2013. 22 avverville 24 Afton Tencutte United States Bankruptcy Judge 25 26 27 28