In re Landgraf, Case No. 19-41155-ELM

In re: MICHAEL GUY LANDGRAF, Debtor.

Case No. 19-41155-ELM

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS FORT WORTH DIVISION

Filed: September 29, 2020

September 28, 2020

The following constitutes the ruling of the court and has the force and effect therein described.

Chapter 7

MEMORANDUM OPINION AND ORDER

Before the Court for determination in this case is a summary judgment dispute between Michael Guy Landgraf (the "Debtor"), the chapter 7 debtor, and Areya Holder Aurzada (the "Trustee"), the appointed trustee of the Debtor's bankruptcy estate, with respect to the propriety of the Debtor's identification of certain real property as exempt homestead property under Texas law.

On March 22, 2019 (the "Petition Date"), the Debtor initiated the case with the filing of his voluntary petition for relief under chapter 7 of the United States Bankruptcy Code. On the same date as the filing, the Debtor filed his Schedules of Assets and Liabilities (the "Schedules"), including Schedule A/B, wherein he disclosed an ownership interest in two contiguous tracts of real property and improvements thereon located at 9210 Miles Road (the "9210 Property") and 9214 Miles Road (the "9214 Property" and together with the 9210 Property, the "Properties") in Rowlett, Dallas County, Texas;¹ and Schedule C, wherein he claimed the Properties as exempt homestead property under applicable exemption provisions of the Texas Constitution and Texas Property Code.²

On July 17, 2019, the Trustee filed the Trustee's Objection to Exemptions [Docket No. 24] (the "Exemptions Objection") to object to the exemption claim. The Debtor timely filed his response in opposition to the Exemptions Objection on August 2, 2019.³ The Trustee thereafter filed her Motion for Summary Judgment on Objection to Exemptions [Docket No. 65] (the "Motion"), wherein she has requested entry of summary judgment on two of the exemption challenges included within the Exemptions Objection. The Motion is supported by the Trustee's Brief in Support.⁴ In response to the Motion, the Debtor has filed the Debtor's Response in Opposition,⁵ the Debtor's Brief in Opposition⁶ and the Debtor's Supplemental Response in Opposition,⁷ to which the Trustee has filed her Reply.⁸

On February 11, 2020, the Court conducted a hearing on the Motion to entertain arguments of counsel. Having now considered the Exemptions Objection, the Debtor's Objection Response,the Motion, the Debtor's Response and Supplement in Opposition to the Motion, the Trustee's Reply, the parties' respective summary judgment briefing and evidentiary submissions, and the arguments of counsel, the Court will grant the Motion in part, and deny the Motion in part, for the reasons set forth herein.

JURISDICTION

The Court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 1334 and 157 and the Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc (Miscellaneous Rule No. 33) of the United States District Court for the Northern District of Texas. Venue of the proceeding in the Northern District of Texas is proper under 28 U.S.C. § 1409. The proceeding constitutes a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B).

FACTUAL BACKGROUND

A. The Properties

The 9210 Property is comprised of one acre of land.⁹ The 9214 Property, which is adjacent to the 9210 Property, is comprised of 45.86 acres of land.¹⁰ Both of the Properties are located within the City of Rowlett, Texas.¹¹

As of the Petition Date, both Properties were served by police and fire protection¹² and both Properties received electric and water service from the City of Rowlett or under a contract with the City.¹³ As for natural gas service, however, the parties have presented conflicting evidence with respect to whether the Properties received such service as of the Petition Date. Inthis regard, the Trustee points to the City of Rowlett's informational webpage on utilities available to residents of the City, including natural gas through Atmos Energy.¹⁴ The Debtor, on the other hand, has presented the deposition testimony of a representative of Atmos Energy calling into question whether such service was specifically available to the Properties as of the Petition Date.¹⁵

B. The Debtor's Acquisition of Interests in the Properties

Prior to May 2011, the 9210 Property was owned by the Debtor's mother, Patsy Nichols ("Mrs. Nichols"). Mrs. Nichols resided at the 9210 Property along with her husband (the Debtor's stepfather), W.N. (Butch) Nichols ("Mr. Nichols").¹⁶

In May 2011, Mrs. Nichols passed away.¹⁷ Under her will, which was probated in Cause No. PR-11-1953-1 in Probate Court No. One, Dallas County, Texas, the 9210 Property was bequeathed to the Debtor, her sole heir.¹⁸ Under applicable provisions of the Texas Probate Code,¹⁹ Mr. Nichols asserted a right to continuing occupancy of the property;²⁰ hence, the Debtor agreed to the assignment of a life estate in the property to Mr. Nichols in connection with the probation of his mother's estate.²¹ Accordingly, on October 26, 2011, Mr. Nichols and the Debtor, as the co-independent executors of Mrs. Nichols' estate, executed a Warranty Deed (the "9210 Property Deed") to convey a life estate in the 9210 Property to Mr. Nichols and a fee simpleremainder interest in the property to the Debtor. The deed was recorded in the Dallas County property records on November 9, 2011.²²

Prior to September 2011, the 9214 Property was owned by the Debtor's grandmother, Daisy McCallum ("Mrs. McCallum"), and Mrs. McCallum resided at the 9214 Property.²³ In September 2011, Mrs. McCollum passed away.²⁴ Under her will, which was probated in Cause No. PR-11-3419-1 in Probate Court No. One, Dallas County, Texas, the 9214 Property was bequeathed to Mrs. Nichols, her sole heir. Because Mrs. Nichols had predeceased Mrs. McCallum, however, and because the Debtor was the sole heir under Mrs. Nichols' will, the 9214 Property became distributable to the Debtor through Mrs. Nichols' estate.²⁵ Accordingly, on November 11, 2011, the Debtor, as the independent executor of the estate of Mrs. McCallum, executed a Warranty Deed to convey the 9214 Property to the Debtor. The deed was recorded in the Dallas County property records on November 11, 2011.²⁶

C. Use of the Properties After the Transfers

As of the dates of the Debtor's inheritance of each of the Properties, the Debtor was living in an apartment in Wylie, Texas.²⁷ Thus, neither of the Properties constituted the Debtor's homestead property at the time.²⁸

In the case of the 9210 Property, since the date of execution of the 9210 Property Deed on October 26, 2011, Mr. Nichols has continuously resided at the 9210 Property.²⁹ At no time prior to the Petition Date did the Debtor ever reside at or otherwise occupy the 9210 Property as his residence.³⁰ And at no time prior to the Petition Date did the Debtor ever record an executed homestead declaration to declare the 9210 Property as his homestead property.³¹

Similarly, in the case of the 9214 Property, following transfer of the 9214 Property to the Debtor in November 2011, the Debtor did not move to the 9214 Property. Instead, he continued to reside at his apartment in Wylie, Texas.

In March 2012, the Debtor was arrested on felony pornography charges.³² At the time of the arrest, the Debtor was still living in the Wylie apartment.³³ In June 2012, upon obtaining his pretrial release from custody, however, the Debtor moved to the 9214 Property.³⁴ Additionally, between the date of the Debtor's arrest and the date of the Debtor's release from custody, the Debtor's best friend moved all of the Debtor's personal property from the Wylie apartment to the 9214 Property.³⁵ Thus, beginning in June 2012, the Debtor resided at the 9214 Property.

Ultimately, the Debtor pled guilty to various charges of producing child pornography and on November 21, 2013, was sentenced to a prison term of 180 months to commence on January 21, 2014.³⁶ Until the commencement of the Debtor's prison sentence on January 21, 2014, theDebtor continuously resided at the 9214 Property.³⁷ On January 21, 2014, the Debtor surrendered to authorities to commence his prison term.³⁸

As a result of the prison sentence, as of the Petition Date on March 22, 2019, the Debtor did not reside at the 9214 Property.³⁹ While at no time prior to the Petition Date did the Debtor ever record an executed homestead declaration to declare the 9214 Property as his homestead property,⁴⁰ the Debtor has submitted his declaration testimony that he always intended, and continues to intend, to move back to the 9214 Property once his prison sentence is fully served or otherwise commuted.⁴¹

That said, on or about April 2, 2014, shortly after the commencement of the Debtor's prison term, the Debtor created the Landgraf Revocable Trust (the "Trust"), a self-settled trust under which the Debtor is both the settlor and the beneficiary.⁴² Pursuant to the Trust agreement, Kevin M. Ross is trustee of the Trust (in such capacity, the "Landgraf Trustee").⁴³ On August 26, 2014, prior to the Petition Date, the Debtor executed a Special Warranty Deed to transfer the 9214 Property to the Landgraf Trustee for the benefit of the Trust. The deed was recorded in the Dallas County property records on September 2, 2014.⁴⁴

Similarly, on August 26, 2014, the Debtor executed a Special Warranty Deed to transfer his interest in the 9210 Property to the Landgraf Trustee for the benefit of the Trust, subject to thelife estate in the property held by Mr. Nichols, and the deed was recorded in the Dallas County property records on September 2, 2014.⁴⁵

According to the Debtor, he set up the Trust and transferred his interest in the Properties to the Landgraf Trustee so that the Landgraf Trustee could more easily administer the properties while the Debtor served out his prison sentence.⁴⁶

D. The Debtor Claims the Properties as Exempt Homestead Property Under Texas Law and the Trustee Objects

Pursuant to Schedule C of the...