In re Morgan

607 B.R. 880

IN RE: Alwin Gerald MORGAN; aka Morgan, Debtor(s)

CASE NO: 19-30004

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed October 9, 2019

Margaret Maxwell McClure, Attorney at Law, Houston, TX, for Debtor.

Robert P. Franke, Andrew G. Edson and Audrey L. Hornisher, Clark Hill Strasburger, Dallas, Texas, for Creditor.

MEMORANDUM OPINION

Jeffrey P. Norman, United States Bankruptcy Judge

This matter is before the Court on the Objection to Homestead Exemption filed by Regions Bank (ECF No. 36). A bench trial was held on September 17, 2019. For the following reasons, the objection is sustained. The debtor may not claim 604 Logans Lane, Austin, Texas as his homestead.

FACTUAL AND PROCEDURAL BACKGROUND

In a bankruptcy case, a debtor may use the federal homestead exemption or elect to use the homestead exemption of his state of domicile. 11 U.S.C. § 522(b). Here, the debtor has elected to have his homestead exemption determined by Texas state law. The time for filing objections to exemptions pursuant to Bankruptcy Rule 4003(b)(1) expires 30 days after the meeting of the creditors. Regions Bank timely filed its objection (ECF No. 36).

Alwin Gerald "Jerry" Morgan (hereinafter "Morgan" or the "debtor") filed his Chapter 11 petition on January 1, 2019. Morgan elected to use Texas exemptions and claimed a homestead exemption in the real property known as 604 Logans Lane, Austin, Texas (hereinafter "Logans Lane" or the "Austin property"). Since 1999, Morgan has owned three tracks of real estate, two of which have been sold.¹ In 1999, he and his former wife, Kimberly Morgan (hereinafter "Kimberly"), purchased real property at 5890 Highway 159 West, Bellville, Texas 77418. It is undisputed that they lived there as their marital homestead. On March 12, 2015, Morgan filed for divorce. Fifteen days later, he entered into an earnest money contract to purchase real property, a new residence, at 426 Warner Road, Bellville, Texas (hereafter "Warner Road" or the "Bellville property"). However, due to his pending divorce and his spouse's refusal to consent to the purchase, he was unable to finalize the closing. This led to numerous written extensions of the original earnest money contract. Morgan given his inability to close leased the Warner Road property with the intent to close at the end of his lease term, once his divorce was finalized.

Morgan entered into the lease on August 1, 2015 and began to reside at the Warner Road property.

On November 17, 2015, the divorce was finalized. The Agreed Decree of Divorce awarded the marital homestead to Morgan in exchange for his payment of 1.2 million dollars to Kimberly. Two days after the divorce was finalized, Morgan sold it. He netted $556,655.18² from the sale of the homestead and his former wife received $950,000 as a credit towards the 1.2-million-dollar payment awarded to her in the Divorce Decree.

On May 15, 2016, Morgan married his current wife, Keyla B. Turro (hereinafter "Turro") and shortly thereafter purchased two residential properties. On May 26, 2016, eleven days after they married, he and his new wife purchased the real property at 604 Logans Lane, Austin, Texas. Twenty-two days later, on June 17, 2016, Morgan closed on the property on Warner Road that he had been leasing and living in since August of 2015. Grantor Norman N. Kiecke and Darcy E. Kiecke executed the Warranty Deed with Vendor's Lien on Warner Road with Morgan as Grantee for consideration of cash and a note in the amount of $484,000. On June 17, 2016, Morgan executed the Deed of Trust in favor of JP Morgan Chase Bank, N.A., creating a lien on Warner Road. The Chase Deed of Trust was recorded in the Deed Records for Austin County on June 23, 2016. Under the section titled "Uniform Covenants" in the Chase Deed of Trust, paragraph six, titled "Occupancy," contains the following covenant:

Borrower shall occupy, establish, and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exists which are beyond Borrower's control.

(Emphasis added).

The purchase documents on the Warner Road property (Trial Ex. 12-15) indicate Morgan is unmarried. Additionally, the executed deed of trust (Trial Ex. 15) indicates Morgan intends to use the property as his principle residence. Morgan's representation that he was unmarried was false, but his representation that he would use the property as his principle residence was true as he was living there at the time of closing.³

Morgan's wife, Turro, has never lived at Warner Road. However, it was Morgan's primary residence both before and after the purchase of Logans Lane, as evidence by his lease, occupancy and subsequent purchase after his remarriage. Notably, at the time they closed on Logans Lane, Morgan and his wife were living in separate residences; he resided at Warner Road and Turro had been leasing an apartment. Morgan testified at his creditor's meeting that he was separated from his wife.

Morgan specifically testified as follows:

Ms. McClure: He and his wife are separated, not officially, but kinda sorta. And she lives in the homestead in Austin. He's living in Bellville.

Q. When did that separation occur?

A. We haven't really been together in two years, primarily because of all these financial issues - -

Q. And so - -

A. - - but we're not - -

Q. - - you're in Bellville - -

A. Yeah.

Q. - - and she's in Austin?

While the Court believes that the debtor has spent some time at the Austin property prepetition, it has been fleeting at best and occurred after his occupancy then subsequent purchase of the Bellville property. The debtor closed on the Austin property on May 26, 2016, and then went on his honeymoon for ten days. He testified that he moved some office furniture and clothing into the Austin property after he closed, but it was not clear exactly when this occurred, and if it occurred pre or post his closing on the Bellville property.

Further, the debtor has made numerous representations under oath indicating that he never resided at Logans Lane. For instance, the debtor's petition (ECF No. 1) shows the following:

(a) The debtor lived at the Bellville property and not the Austin property on the petition date;

(b) The debtor had resided in this district over the last 180 days as of the petition date⁴ ;

Likewise, the debtor's Statement of Financial Affairs (ECF No. 14) shows the debtor has never lived at the Austin property:⁵

Additionally, the debtor claimed a homestead exemption for property taxes for the Bellville property in 2017,⁶ 2018 and 2019 (Trial Ex. 16) and not the Austin property. Notably, as of the petition date, there was no homestead affidavit or any other document indicating any entitlement to an exemption on the Austin property.

In summary, Morgan and his current spouse do not currently cohabitate and have never cohabitated for more than a few days; they have lived apart substantially more than they have lived together. Therefore, the Court finds the debtor's residence from August 1, 2015 to the petition date was the Bellville property⁷ and has never been the Austin property.

LEGAL ANALYSIS

Regions objects to the debtor's homestead exemption of the Austin property for two reasons: (1) the debtor improperly claims the Austin Property is his homestead, and (2) even if the debtor is entitled to claim the Austin property as his homestead, the homestead exemption is capped at the statutory amount of $160,375 pursuant to 11 U.S.C. § 522(p). The Court granted leave for the debtor to file a brief regarding the objection. The Court sustains Regions Bank's objection on the grounds that the debtor improperly claims the Austin property is his homestead.

Texas homestead rights have constitutional and statutory origins. Tex. Const. art. 16, §§ 50 to 52 ; Tex. Prop. Code Ann. § 41.001 et seq. The Texas Constitution protects Texas homesteads from most liens, with few specified exceptions. Tex. Const. art. 16, § 50. Given this extensive protection, an owner is not permitted to claim two homesteads. See O'Neil v. Mack Trucks, Inc. , 542 S.W.2d 112 (Tex. 1976). The law will only acknowledge one homestead for single adults, Ramsey v. Davis , 261 S.W.3d 811 (Tex. App.—Dallas 2008), and one for a family, Drake Interiors, L.L.C. v. Thomas , 433 S.W.3d 841 (Tex. App.—Houston [14th Dist.] 2014).

A Texas homestead claimant must show "both (i) overt acts of homestead usage and (ii) the intention on the part of the owner to claim the land as a homestead." Kennard v. MBank Waco (In re Kennard) , 970 F.2d 1455, 1458 (5th Cir. 1992). Specifically, there must be proof of concurrence of usage of, and intent by the owner to claim, the land as a homestead.

Hankins v. Harris , 500 S.W.3d 140, 145 (Tex. App.—Houston [1st Dist.] 2016, pet. denied). Mere ownership is insufficient to support a claim of homestead. In re Liao , 553 B.R. 584 (Bankr. S.D. Tex. 2016). However, a debtor's prepetition homestead designation is considered prima facia evidence of what constitutes a family homestead. In re Perry , 345 F.3d 303, 311 (5th Cir. 2003). Courts determine the validity of a debtor's claimed homestead exemption based on the facts and circumstances that existed as of the petition date. See Lowe v. Sandoval (In re Sandoval) , 103 F.3d 20 (5th Cir. 1997)

A. Logans Lane

The debtor asserts Logans Lane is his homestead, claiming a Texas homestead exemption. He specifically claims it is his marital homestead with Turro. He further argues that although he purchased the Austin property just seven⁸ days after the six-month requirement,⁹ equitable tolling should apply because lightning struck the home delaying the scheduled closing.¹⁰ The debtor's argument misses the point. The evidence, which...