In re Nazario

533 B.R. 1, 2015 Bankr. LEXIS 2331, 2015 WL 4305289
CourtUnited States Bankruptcy Court, D. Puerto Rico
DecidedJuly 15, 2015
DocketCASE NO. 13-05391 (MCF)
StatusPublished
Cited by1 cases

This text of 533 B.R. 1 (In re Nazario) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Puerto Rico primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Nazario, 533 B.R. 1, 2015 Bankr. LEXIS 2331, 2015 WL 4305289 (prb 2015).

Opinion

OPINION AND ORDER

MILDRED CABAN FLORES, U.S. Bankruptcy Judge

The question before the Court is whether the lease of the lower level of a two-[2]*2story residence disqualifies a bankruptcy debtor from claiming the homestead exemption under Puerto Rico law. The matter under advisement comprises the Chapter 13 trustee’s objection to the debtor’s claim of homestead exemption (Docket Nos. 12, 21, 38 and 59) and the debtor’s opposition thereto (Docket Nos. 17, 30, 36, 48 and 46). For the reasons stated herein, we hold that the debtor is entitled to claim an indivisible homestead exemption over his property. Consequently, the Court denies the trustee’s objection to the debtor’s claim of homestead exemption.

PROCEDURAL HISTORY

Antonio Otero Nazario (hereinafter, “the debtor”) filed for bankruptcy relief under Chapter 13 on June 28, 2013. (Docket No. 1). He included a two story cement house on Schedule A and declared, under penalty of perjury, that the house was occupied by him as his principal residence. He also declared that no other property in or outside of Puerto Rico was claimed as a homestead. (Docket No. 1, at 18). The debtor claimed his residence as exempt under the Homestead Right and Family Home Protection Act, P.R. Laws Ann. tit. 31, §§ 1851-1857, as amended by Act No. 195 of September 13, 2011 (hereinafter, “Act 195”) on Schedule C. He swore under penalty of perjury that the property was his principal residence. (Docket No. 1, at 22). Schedule D reflects that the property is unencumbered by liens. (Docket No. 1, at 23).

The Chapter 13 trustee, Alejandro Oliv-eras Rivera (hereinafter, “the trustee”), objected to the debtor’s claim of homestead exemption alleging that (1) the debt- or had not presented evidence of having executed, pre-petition, a homestead deed over the real property, (2) the debtor had not presented evidence that the homestead deed was presented, pre-petition, at the Registry of Property and (3) the debt-- or’s property is not used exclusively as his principal residence because he leases the lower level of the property to a tenant; all misgivings that would preclude the debtor from claiming the local homestead exemption. For these reasons, the trustee requested that the debtor’s alleged homestead exemption be disallowed in its entirety because the debtor has not demonstrated that he can claim a homestead exemption under Act 195. (Docket No. 12).

The Court entered an order granting the trustee’s objection to the homestead exemption as unopposed. (Docket No. 16). Subsequently,- the debtor filed a motion for reconsideration of the order granting the trustee’s objection to exemption, stating that he submitted supporting documents to evince his right to the homestead exemption in regards to the trustee’s first and second objections. (Docket No. 17). Nevertheless, genuine controversy remained surrounding the 'trustee’s third objection as to whether the debtor’s lease of his property’s lower level precludes him from claiming Puerto Rico’s homestead exemption. The Court granted the debtor’s motion for reconsideration and vacated its previous order granting the trustee’s objection. (Docket No. 19).

The trustee filed a memorandum of law in support of his objection, alleging that Commonwealth law does not provide homestead protection for the debtor’s property, given the debtor’s lease of the lower level of his two-story home. The trustee posits that the word “exclusively,” as articulated in Section 3 of Act 195, is controlling as to the debtor’s occupancy of the residence and that as such the law requires that the property be exclusively occupied by him or his family. The trustee claims that the debtor is rendered ineligible to assert a homestead exemption [3]*3over his property because he shares its occupancy with a tenant. (Docket No. 21).

The debtor filed his memorandum of law and reply to the trustee’s objection to the homestead exemption. The debtor indicates therein:

Other relevant facts concerning the property are that the debtor converted the house into two levels for the purpose of providing housing to his children and grandchildren. The debtor lives upstairs and sometimes rents the lower level on a verbal month-to-month basis to tenants. The tenants’ rights to accessing the property for purposes of using it as their dwelling place [sic]. The Debtor is responsible for maintenance and all legal matters, such as taxes. The tenants are subject to termination and ouster from the property on 30-day’s notice. Consistent with prior experience, the Debtor fully expects to have to house his family during periods of family hardship.

“Response to Trustee’s Objection to Exemption and Memorandum of Law in Opposition,” Docket No. 21 at 2, ¶ 2.

The debtor alleges that the homestead statute at issue is vague and some aspects of the wording lack precision, but that its purpose is clear and unambiguous. He claims that Act 195 does not forbid other uses for the property nor does it forbid other ■ persons from dwelling within its structure. The debtor urges the Court to interpret Act 195 in light of the public policy’s purpose contained in its provisions.' (Docket No. 30).

The trustee filed a response in which he argues that debtor’s eligibility to the homestead exemption is contingent upon his occupancy of the residence. According to the trustee, the statute is free from all ambiguity as the word “exclusively” in the statute serves to modify the verb “occupied” and as such, the debtor does not exclusively occupy the residence as a home because he shares its occupancy with the property’s lower-level tenant. The trustee also submits that the debtor’s leasing activity is not contemplated in Act 195. He alleges that in contrast to Texas’s homestead protection, the Puerto Rico legislature decided to limit the homestead exemption to property used and occupied exclusively as the homesteader’s principal residence. The trustee alleges that Act 195 is in keeping with Florida’s homestead law, which is more restrictive than Texas’s homestead statute inasmuch as the Florida Constitution requires the exemption be limited to the residence only. (Docket No. 38).

The trustee requests that the Court deny the homestead exemption, or in the alternative, if the Court decides that the debtor is entitled to a homestead protection, that the protection be apportioned to the area of the residence occupied only by the debtor, as in In re Veguilla, 504 B.R. 316 (Bankr.D.Puerto Rico 2014). The trustee agrees that this alternative solution provides an equitable outcome for both the debtor and his creditors. (Docket No. 38).

After granting the debtor’s request to file a.sur-reply and hearing parties’ oral arguments, the Court allowed the parties to file supplemental briefs to their positions (Docket Nos. 48, 59 and 65) and a final hearing was held where parties answered several questions, upon which this Court took the matter under advisement.

LEGAL ANALYSIS

I. Exemptions in general

Generally, a debtor’s assets become part of the bankruptcy estate when a debt- or files a bankruptcy petition. 11 U.S.C. § 541. However, a debtor may reclaim certain property as exempt under 11 U.S.C. § 522. Property is exempt by op[4]*4eration of law if no party objects. 11 U.S.C.

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Bluebook (online)
533 B.R. 1, 2015 Bankr. LEXIS 2331, 2015 WL 4305289, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-nazario-prb-2015.