In re Cole

642 B.R. 208

IN RE: Elaine M. COLE, Debtor.

Case No. 21-21071 (JJT)

United States Bankruptcy Court, D. Connecticut, Hartford Division.

Signed April 15, 2022

Patrick W. Boatman, Jenna N. Sternberg, Boatman Law LLC, Glastonbury, CT, for Debtor.

Steven E. Mackey, Office of the U.S. Trustee, New Haven, CT, for U.S. Trustee.

Jeffrey Hellman, Law Offices of Jeffrey Hellman, LLC, New Haven, CT, for Trustee Anthony S. Novak.

Anthony S. Novak, Novak Law Office, P.C., Manchester, CT, Trustee, Pro Se.

RE: ECF Nos. 16, 54, 64, 98, 100

MEMORANDUM OF DECISION ON TRUSTEE'S OBJECTION TO HOMESTEAD EXEMPTION

James J. Tancredi, United States Bankruptcy Judge

Pending before the Court is the Trustee's Objection to the Debtor's claimed homestead exemption. The Trustee challenges the Debtor's assertion of Connecticut's homestead exemption on both factual and legal grounds. Factually, the Trustee argues that the Debtor's property does not qualify as her homestead for exemption purposes because, as of the petition date, the Debtor did not occupy the property as her primary residence. As a legal matter, the Trustee argues that the Debtor is not entitled to assert an exemption pursuant to Connecticut's newly amended homestead exemption, which became effective on October 1, 2021, because the claims of the Debtor's creditors arose prior to the effective date of the statute. The Court will address each argument in turn.

I. INTRODUCTION

Under Connecticut state law, a debtor may claim a homestead exemption in "owner-occupied real property ... used as a primary residence." Conn. Gen. Stat. § 52-352a(5) ; In re Maresca , 982 F.3d 859, 863 (2d Cir. 2020). To be entitled to Connecticut's homestead exemption, as of the petition date, a debtor must own and occupy the property, and the property must be the debtor's primary residence. See In re Kujan, 286 B.R. 216, 220 (Bankr. D. Conn. 2002). On July 12, 2021, Governor Ned Lamont signed Public Act 21-161 (the "2021 Act" or "Amendment") into law, thereby amending Connecticut's homestead exemption¹ by repealing the prior version of the statute, renumbering its provisions, and increasing the homestead exemption from $75,000 to $250,000, effective October 1, 2021.

The threshold issue the Court must decide in this case is whether a debtor's claimed homestead that was owned and occupied as her primary residence for 26 years, loses its status as a "primary residence" for exemption purposes when the debtor, pre-petition: (1) enters into an agreement to sell that property; (2) signs a lease for a separate apartment with a pre-petition effective date; and (3) sells or otherwise moves a significant amount of personal property out of the claimed homestead. If the answer is yes, then the Trustee's Objection to the Debtor's Homestead Exemption (ECF No. 54) must be sustained and the Court's inquiry ends. If the answer is no, and the claimed homestead remains the Debtor's "primary residence" for exemption purposes, the Court must then determine whether the Amendment to the homestead exemption shall be applied "retroactively,"² thereby entitling the Debtor to assert the increased $250,000 homestead exemption, or whether it shall be applied only prospectively, thereby limiting the 2021 Act's application only as to any claim arising on or after October 1, 2021.

Here, Elaine Cole (the "Debtor") commenced the instant Chapter 7 case on November 22, 2021 ("Petition Date"). The Debtor valued her residence, 17 Burrows Street, Mystic, Connecticut (the "Property"), at $589,000 (ECF No. 36, p. 3). On Schedule C, the Debtor claimed as exempt the equity in the Property in the amount of $250,000 pursuant to Connecticut's newly amended homestead exemption.³ Id. at p. 16.

The Trustee objected to the Debtor's claimed exemption in the Property, arguing that "although the [Debtor's] Chapter 7 case was commenced after the effective date of the [2021 Act] increasing the homestead exemption from $75,000.00 to $250,000.00, the claims of the unsecured creditors arose prior to the effective date in the change in the Statute." ECF No. 16, ("Objection"). The Trustee later amended his Objection, raising the additional factual argument that the Property "was not the Debtor's homestead on the date of the Chapter 7 filing as it was not owner-occupied real property used as the Debtor's primary residence." ECF No. 54, ("Amended Objection").

The Debtor responded to the Amended Objection by thoroughly outlining the legislative history of Connecticut's Original Homestead Exemption, discussing the decisions of Connecticut Bankruptcy Courts that grappled with the issue of the Original Exemption statute's application (whether retroactive or prospective), distinguishing between procedural and substantive statutes and discussing what effect, if any, that distinction has on the 2021 Act's applicability. ECF No. 64, ("Response"). In her Response, the Debtor argues that because the "2021 increase in the amount of the exemption leaves the preexisting exemption scheme intact and merely changes the amount of the protection available to the debtor," the Amendment is procedural and should therefore be applied retroactively. Id. at 10. Alternatively, the Debtor argues that if the Amendment is deemed substantive, it nonetheless was enacted with a remedial purpose, and as such, should be applied retroactively. Id. at 12–13.

Following receipt and review of the Debtor's Response, and in connection with a hearing on the issues raised in the Amended Objection and the Trustee's prosecution thereof, the Court ordered further briefing on certain of the legal issues (i.e. the retroactive or prospective effect of the Amendment and the earmarks of a procedural and substantive statute) and the factual issues (i.e. the attributes of the Property as the Debtor's homestead) raised in the Trustee's Amended Objection. See ECF No. 70. An evidentiary hearing on the Trustee's Amended Objection was thereafter held on March 4, 2022. ECF No. 84.

For the reasons set forth herein, the Court finds that the Trustee has failed to satisfy his burden in demonstrating that the Debtor's claimed homestead exemption is improper. The Court further finds that the Amendment to Connecticut's homestead exemption is entitled to retroactive application. Accordingly, the Trustee's Amended Objection is hereby OVERRULED, and the Debtor is entitled to claim her homestead exemption in the total amount of $250,000.

II. JURISDICTION

The United States District Court for the District of Connecticut has jurisdiction over the instant proceedings under 28 U.S.C. § 1334(b), and the Bankruptcy Court derives its authority to hear and determine this matter on reference from the District Court under 28 U.S.C. §§ 157(a) and (b)(1) and the General Order of Reference of the United States District Court for the District of Connecticut dated September 21, 1984. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) and (O).

III. FACTS

Pre-Petition Activity

1. In September of 1995, the Debtor purchased the Property located at 17 Burrows Street in Mystic Connecticut. At all relevant times, the Debtor owned the Property.

2. Facing serious health issues, the challenges of aging, and the financial decline of her business, the Debtor made the decision

to move out of the Property sometime between August and October of 2021.

3. On August 23, 2021, the Debtor signed a listing agreement for the sale of the Property.

4. On September 12, 2021, the Debtor entered into a contract to sell the Property. Under the contract, the closing was to take place no later than December 30, 2021—a date following her bankruptcy filing

5. On October 27, 2021, the Debtor signed an 8-month Congregate Lease ("Lease") with Mystic River Homes Congregate, allowing her access to the apartment ("Apartment") as of November 1, 2021. By check dated October 27, 2021, the Debtor paid $1,425 for the first month's rent payment under the Lease.

6. From September 1995 to November 1, 2021, the Debtor indisputably owned and occupied the Property as her primary residence.

7. The Debtor did not reside at the Apartment as of November 1, 2021.

8. In early to mid-November of 2021, the Debtor began the process of moving certain personal property from the Property to the Apartment. The Debtor consigned substantial furniture and other personal property to Leone's Auction Gallery during that period.

The Debtor's Bankruptcy Case

9. On July 12, 2021, Governor Lamont signed Public Act No. 21-161 into law. The 2021 Act repealed Connecticut's Original Homestead Exemption and increased the exemption from $75,000 to $250,000. By its terms, the 2021 Act took effect on October 1, 2021.

10. On November 22, 2021, the Debtor commenced the instant Chapter 7 case.

11. The Debtor valued the Property at $589,000.

12. TD Bank held a first mortgage secured by the Property in the amount of approximately $120,830. The State of Connecticut, Department of Economic and Community Development held a second mortgage secured by the Property in the amount of approximately $115,275.

13. The Debtor claimed an exemption in the Property in her Petition as of November 22, 2021, in the amount of $250,000 pursuant to Connecticut's Amended Homestead Exemption.

14. As set forth in the sale contract signed on September 12, 2021, and subsequently amended on September 27, 2021, the closing of the Property was to take place no later than December 30, 2021.

15. On December 23, 2021, the sale of the Debtor's Property closed.

The Debtor's Testimony

13. At the evidentiary hearing, the Debtor testified as follows:

(a) In early 2021, facing severe health issues and the dissolution of her business, the Debtor submitted an application with Mystic River Homes Congregate ("MRHC").

(b) By letter dated March 30, 2021, MRHC acknowledged receipt of the Debtor's application and indicated that she had been placed on a waitlist. The letter states that the waitlist is updated each year.

(c) The Debtor was under the impression that the waitlist was long, and that it

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