In re Michelena

631 B.R. 621

IN RE MICHELENA

Civil Action No. 7:20-CV-275

United States District Court, S.D. Texas, McAllen Division.

Signed May 11, 2021

Antonio Martinez, Jr., Attorney at Law, McAllen, TX, Gilberto Hinojosa, Law Office of Gilberto Hinojosa & Associates P.C., Brownsville, TX, for In re Michelena.

ORDER AFFIRMING IN PART AND REVERSING IN PART BANKRUPTCY COURT'S JUDGMENT

Randy Crane, United States District Judge

I. Introduction and Background

This is an appeal by Appellant Monica Michelena of the Bankruptcy Court's August 27, 2020 Memorandum Opinion finding Appellee Robert Marcus Michelena established a homestead on three tracts of land. Upon consideration of the briefs on appeal (Dkt. Nos. 18, 21), and the parties' reply briefs (Dkt. Nos. 24, 25), the Court finds that the Bankruptcy Court's Memorandum Opinion must be affirmed in part and reversed in part for the reasons explained below.

The facts of this case are undisputed. On March 4, 2019, Appellee filed a Chapter 11 bankruptcy petition listing 7.31 acres of land as his homestead. Dkt. No. 18. The 7.31 acres was initially part of a 28.55-acre tract of land purchased by Appellee's family, including Appellee's parents—Manuel and Loretta Michelena—his two brothers, and himself in May of 1980. Id. at ¶ 9. Through various transactions, the family was left with 7.31 acres of land. Id. Included in the 7.31 acres is (1) a 4.027-acre tract upon which Appellee's parents lived in a large house (Large House) beginning in 1983, (2) a 0.24-acre tract¹ deeded to Appellee in 1992 where he has lived in a cottage (Cottage) since then, and (3) a 3.043-acre tract. Looking at these tracts as a whole, the 0.24-acre tract is to the west, the 4.027-acre tract in the middle, and the 3.043-acre tract is the easternmost tract. Dkt. No. 18 at ¶ 13–14. Appellee claimed a 100% homestead on the entire 7.31 acres.

Appellant—Appellee's former spouse—objected to this claimed homestead. Dkt. No. 18 at ¶ 5. The bankruptcy court, after hearing evidence on four occasions and receiving briefing from the parties, found that Appellee was entitled to a homestead exemption and that the exemption encompassed his 66.6% undivided interest in the 7.07-acre tract of land (the 4.027-acre tract and 3.043-acre tract combined) and his 100% interest in the 0.24-acre tract of land. Id. at ¶ 8.

II. Standard of Review

In reviewing the findings of a bankruptcy court, the district court acts in an appellate capacity. In re Perry , 345 F.3d 303, 308 (5th Cir. 2003). The court reviews the bankruptcy court's conclusions of law de novo whereas it may disregard findings of fact only if they are clearly erroneous. Id. at 309. "Under a clear error standard, this court will reverse only if, on the entire evidence, [the court is] left with definite and firm conviction that a mistake has been made." In re Am. Hous. Found. , 785 F.3d 143, 152 (5th Cir. 2015) (quoting Morrison v. W. Builders of Amarillo, Inc. (In re Morrison) , 555 F.3d 473, 480 (5th Cir. 2009) ).

III. Issues on Appeal

On appeal, Appellant argues that the bankruptcy court erred in finding Appellee established his right to claim a homestead exemption on the 7.07 acres that do not include the Cottage. Dkt. No. 18 at 1–2. Appellant also argues that the bankruptcy court erred in finding Appellee had not abandoned this homestead. No questions are presented on appeal with regard to the 0.24-acre tract upon which Appellee has resided for almost 30 years.

In its August 24, 2020 Memorandum Opinion, the Bankruptcy Court found Appellee established a homestead pursuant to Tex. Const. Art. 16 §§ 50, 51 ; Tex. Prop. Code. Sec. 41.001 -.002. In re Michelena , 620 B.R. 570, 582 (Bankr. S.D.Tex. 2020). The court, relying on deeds and wills, found that the homestead exemption encompassed only Appellee's 66.6% undivided interest in the 7.07-acre tract of land and his 100% interest in the 0.24-acre tract of land. Id. The court found Appellee's actions—including storing his boat, truck, lawnmower, and wood in the carport of the Large House, maintaining the lawn and trees on the entire tract, paying for utilities and a security system for both the Large House and the Cottage, washing his laundry in the carport of the Large House, and using the land to practice archery—were sufficient overt actions of an intent to claim a homestead. Id. at 578. Further, the court held that Appellee presented prima facie evidence of a homestead claim by demonstrating that he applied for and received a homestead exemption from the Hidalgo County Appraisal District on December 9, 2015, in effect for the 2014 appraisal year. Id. at 577. "Therefore, [the bankruptcy court held,] not only did [Appellee] establish his homestead claim through overt acts of homestead usage and intent to claim the property as a homestead, the approved homestead designation is prima facie evidence of the same." Id.

The bankruptcy court also found that Appellee had not abandoned his homestead. The court found Appellant's evidence arguing abandonment—including photos of the deteriorated and unlivable condition of the Large House—non-dispositive. The court pointed to Appellee's homestead usage (cited above) to support its holding that Appellee had not abandoned the 7.07-acre tract. Relatedly, the court also declined to sever the 7.07-acre tract from the 0.24-acre tract finding that "the Property cannot and will not be severed into one homestead tract and one non-homestead tract by this Court." In re Michelena , 620 B.R. at 578.

A. Overt Acts

Under Texas law, the individual who seeks homestead protection has the initial burden to establish the homestead character of his property. In re Bradley , 960 F.2d 502, 507 (5th Cir. 1992) (citing Lifemark Corp. v. Merritt , 655 S.W.2d 310, 314 (Tex.App.—Houston [14th Dist.] 1983, writ ref'd n.r.e.) ). "To meet this initial burden of proof, the claimant must ‘show a combination of both overt acts of homestead usage and the intention on the part of the owner to claim the land as a homestead.’ " Id. (quoting Sims v. Beeson , 545 S.W.2d 262, 263 (Tex.Civ.App.—Tyler 1976, writ ref'd n.r.e.) ). This is a short hurdle. Id. Many of Appellant's arguments on this issue are specific to either the 4.027-acre tract or the 3.043-acre tract. Therefore, the Court takes these arguments in turn.

1. 4.027-Acre Tract

Appellant argues that Appellee's evidence of alleged homestead usage of the Large House failed to meet his burden to establish a homestead. Dkt. No. 18 at ¶ 45. Appellee presented the bankruptcy court with the following evidence as to the 4.027-acre tract: 1) Appellee stored his automobile, boat, washing machine, dryer and lawnmowers at his "mom's property" for the last 30 years, 2) he installed motion detector security lights at the Large House, 3) he installed an $11,000 alarm system at the Large House that is monitored by him and others, 4) his dog travels to this property frequently, 5) he paid taxes on the property for two years after his mother passed away, 6) he chops wood on the property to use in his fireplace, 7) he owns items stored at the Large House including a dinette set and figurines, and 8) he has paid for the electricity at the Large House. Dkt. No. 21 at 18–19 (citing Appellee's testimony at the December 3, 2019 hearing).

Whether a tract of land is protected homestead property is a question of fact. See AG Acceptance Corp. v. Veigel , 564 F.3d 695, 699 (5th Cir. 2009) (reviewing district court decision that land was not a protected homestead under clear error standard). The bankruptcy court cited a number of cases to support its conclusion that Appellee's actions constituted overt acts of homestead usage. For example, In In re Norra the debtor sought to claim nearby vacant mobile homes as part of her homestead because she used them as storage and as sources for spare parts. The bankruptcy court held that this usage coupled with her ability to freely move to and from the vacant mobile homes, was ample evidence of debtor's use of the vacant mobile homes for homestead purposes. In re Norra , 421 B.R. 782, 801 (Bankr. S.D.Tex. 2009). Similarly, in Little v. Baker the Texas Supreme Court indicated that the storage of a wood-pile on one parcel and the cultivation of a garden on another were uses of a character making those parcels part of the homestead. 11 S.W. 549, 551 (Tex. 1889) (holding that the jury should have been instructed that the use of the parcels, "if proved, made the property the homestead of plaintiffs"). And in In re Ling , the court held a homestead was established where the party was using the land for hunting and gathering. 511 B.R. 83, 89 (Bankr. S.D.Tex. 2014). In that case, the Lings used the land to pick fruits, garden, gather firewood, and unsuccessfully attempt to farm. Id. at 88. The bankruptcy court found these actions "consistent with the requirement that the property be used for the ‘comfort, convenience, or support of the family.’ " Id. (quoting In re Perry , 345 F.3d at 316 ).

Appellant does not argue that this case law is flawed nor does she make any attempt to distinguish this case law from the facts before the Court. Appellant instead seems to argue that because Appellee did not reside in the Large House, he is precluded from establishing overt homestead usage. See, e.g. , Dkt. No. 18 at ¶ 45; Dkt. No. 24 at ¶ 16. However, as the case law shows, actual residence upon a tract is not a requirement to show homestead usage of related tracts. Appellee's actions on the 4.027-acre tract are analogous to the examples courts have previously held to be overt acts of homestead usage. Like the party in In re Ling , Appellee uses the land to gather firewood. Like the parties in In re Norra and Little v. Baker , Appellee uses the land as storage. These uses comport with the requirement that the property be used for the "comfort, convenience, or support" of the individual. In re Perry , 345 F.3d at 316. Accordingly, this Court cannot hold that the bankruptcy court erred...