GARY SPRAKER, United States Bankruptcy Judge.
An evidentiary hearing on creditor Karen Montague's Objection to Homestead Exemption (ECF No. 15) was held on July 21, 2016. The court has considered the record herein and the testimony at the hearing. For the reasons stated below, the court will sustain the Objection, and disallow the debtor's homestead exemption.
Debtor Keith Vaughn filed his chapter 7 petition on March 30, 2016. On his Schedule
The debtor has very little in the way of personal property. However, Schedule A/B reflects that he receives "PERS monthly payments" of $2,941.00, and anticipates receipt of both a $2,500.00 tax refund and the 2016 Alaska PFD.
The debtor has scheduled no priority or secured debt.
Ms. Montague timely filed her Objection to Homestead Exemption ("Objection") on May 13, 2016. She argues that the debtor cannot claim a homestead exemption for the Property because he has not used it as his principal residence since July 11, 2014, when he deeded it to Wallace Hansen. The Property was deeded back to the debtor on July 31, 2015 after Ms. Montague posted a notice of foreclosure. She also asserts that the debtor filed his bankruptcy petition on the eve of a scheduled state court evidentiary hearing to determine whether the Property qualified as his homestead. She argues the transfers were made, and the bankruptcy petition was filed, to frustrate her foreclosure rights, and raise issues of "shenanigans" and fraudulent behavior on the debtor's part. Ms. Montague contends the homestead exemption should be disallowed so the chapter 7 trustee can sell the Property for the benefit of creditors of the estate.
The debtor claims a homestead exemption under applicable state law. The Alaska exemption laws "should be liberally construed in favor of the debtor."
When considering these circumstances, a debtor's conduct is weighted more heavily than his declarations of intent regarding the claimed homestead.
Because the debtor has filed bankruptcy, his entitlement to the homestead exemption is determined as of the date of the petition, under 11 U.S.C. § 541(a)(1).
Ms. Montague emphasized the coincidental timing of the debtor's transfers of the Property to, and from, Mr. Hansen, and the filing of his bankruptcy petition, with certain events pertaining to her prepetition
The following summer, the debtor quitclaimed his interest in the Property to Wallace Hansen on July 10, 2014.
The next year, on July 16, 2015, a Notice of Judgment Execution Sale of Real Property was recorded in the Kenai Recording District, indicating that the Property would be sold at public auction on September 10, 2015 to satisfy the Judgment.
Ms. Montague says a state court hearing on the debtor's claim of homestead exemption was scheduled to be heard on March 30, 2016. The debtor filed his petition the same day, staying the state court proceeding. He did not live on the Property at the time of filing.
While this chain of events suggests some maneuvering on the debtor's part, it is not determinative on the issue that must be determined here: whether the debtor had a valid homestead exemption in the Property as of the date his petition was filed. The court will instead look to the debtor's overall conduct with respect to the Property, and the facts and circumstances of his absences from that location, to determine the issue.
The debtor testified that he is "medically retired," but at one time he was a plumbing contractor in Anchorage. He said he has been injured since 2000. He stated that he has five fused vertebrae in his back, and also suffers from bipolar disorder. He is not currently living on the Property. In fact, by his own admission he hasn't lived there since October of 2014. Instead, he has been living in a rental property at 52144 Kasilof Beach Road ("Kasilof rental") for $300.00 per month, continuously since October 2014.
The debtor's recollection is that he bought the Property in 2007. At the time of purchase, it was an unimproved parcel with no road access. The debtor said he excavated a road to the site, and then lived there in an old, insulated school bus while he built a house on it. He described the structure as a large A-frame, but also said it was a 24 by 24 foot building, with a small arctic entry. He testified that construction on the home had not ever been finished; the insulation and walls were never completed,
The debtor acknowledged that he had sued his sister, Ms. Montague, in a probate action in Washington involving their mother's estate, to try to "affirm my mom's word." He stated that he "failed," and that the action didn't work. He said the attorney who represented him, Mr. Flanigan, had given him a box of papers once the action was over, but he never looked at them, because, "I lost; it was done." This litigation resulted in the Judgment that Ms. Montague sought to enforce prepetition.
Sometime around 2011 or 2012 it appears the debtor acquired some real property in Anchorage, on Lake Otis Boulevard, with some money he received from his mother's probate estate. However, he testified that once he moved the old school bus to the Property, he lived there until 2012. He later qualified this assertion, recalling that he had rented his sister's duplex at one point, for one or two years. He explained that he had broken his wrist, and it was better living in the duplex so he'd have a place to cook and take a shower. However, he said he nonetheless went to the Property every day to work on it.
The debtor said both he and his wife were living on the Property in 2011 and 2012. He and his spouse had a tumultuous relationship. From the testimony, it sounded like the couple separated frequently. They are not currently living together. The debtor stated that he left the Property in late 2012 after he was served with a restraining order that his wife had obtained, and didn't return until the term of that order had expired.
The debtor initially testified that he returned to the Property sometime in early 2014, but later in the evidentiary hearing he said he returned in February 2013.
Because the structure was uninhabitable, the debtor lived on the Property in a Safari RV that he borrowed from a friend. Between the time of his return and October 2014, he lived in the RV, but he said he would occasionally return to Anchorage "to get out of the cold" or "do other things." His friend also stayed in the RV. It is unclear when, or for how long, he was actually on the Property or would leave during this time period. When the friend decided to move the RV back to Anchorage in October 2014, the debtor moved to the Kasilof rental, where he is now living.
In July 2013, after the debtor says he had returned to the Property, the Judgment against him was entered in the Washington probate matter. As noted in Part III.A, this Judgment was recorded in the Kenai Recording District, where the Property is located, on August 27, 2013.
A year later, on July 11, 2014, the debtor quitclaimed his interest in the Property to Wallace Hansen. When asked why, he said he "was trapped in Anchorage. My dog had cancer, was dying." He said Mr. Hansen, a good friend, picked him up, paid the vet bills for his dog, and bought him food and other necessities. He also stated that Mr. Hansen "fired up the RV," but did not identify him as the person who lent him the Safari RV so he could live on the Property.
In addition to paying for food, necessities, and the debtor's veterinary bills, Mr. Hansen agreed to pay the back taxes on the Property.
Mr. Hansen testified that once the Property was conveyed to him, he paid to have the electricity put back on, and the debtor had his permission to go there to work on improvements. Mr. Hansen confirmed that the structure was uninhabitable, without water or power, at the time the Property was transferred to him. He said the debtor had planned on the Property being his retirement home, but had fallen on hard luck and he didn't want to see him losing it. He also stated that the debtor "built that place and did all the improvements that are there now."
Throughout 2015, the debtor lived in the Kasilof rental. In July 2015, Mr. Hansen quitclaimed the Property back to the debtor. In exchange, the debtor gave Mr. Hansen a 2005 Harley Anniversary Fat Boy motorcycle. The debtor testified that he purchased the motorcycle new in 2005, for about $18,200.00. He believed it was worth half that when he transferred his interest in it to Mr. Hansen, who indicated he
As noted in Part III.A, the quitclaim of the Property back to the debtor coincided with Ms. Montague's further collection efforts with respect to the Judgment. A Notice of Judgment Execution Sale of Real Property was recorded on July 16, 2015, which indicated that the Property would be sold by public auction on September to satisfy the obligation. The debtor testified that Mr. Flanigan suggested the July 2015 quitclaim of the Property be done "as part of his case" with Ms. Montague. His recollection on this point was fuzzy. However, this transaction occurred around the time the debtor took his wife to Philadelphia to receive medical treatment for a serious illness. He said he went there twice in 2015, once for about 10 days and a second time for around 34 days.
The debtor testified that no one has lived on the Property since October 2014. He has occasionally returned to the Property to make sporadic improvements. He said there is very little work being done, because he does it all himself and "it's nickle and dime." He said he has been working on fixing the sewers, and has also dug a 30-foot ditch to try to locate the break in the water service. He said he's "started a hole, but that's about it." He also said he has been working on a power problem with the well, and has cleaned up the interior of the home a bit.
It appears that vandalism to the property has been ongoing. The debtor stated that the utilities to the property were vandalized in the last couple of months, in that power wiring had been cut, which was very dangerous. He said he had "ATA" come out and secure the wires so no one would get hurt.
The debtor has resided in the Kasilof rental continuously since October 2014, when his friend moved the RV back to Anchorage. His clothing, his two dogs, and some of the personal effects he was able to save from the Property are also located there. He also indicated his wife is using the yard around the rental for free storage, and has left some three-wheelers and "other stuff" there. His rental unit is just 20 by 20 feet, with no running water or bathroom. To eat, the debtor says he has to either barbecue or dine out, which gets expensive.
When asked what improvements he had made to the Property since January 2016, the debtor said he'd been working on the power issue with ATA, electrical for the well, and "digging a hole." He didn't have receipts for any parts or materials that he might have used in connection with these improvements. He said he has spent about $200.00 for fittings and glue. He estimates that wiring to the well will cost about $1,000,00, but he hasn't purchased that yet. He said he acquired a "wood burner" for winter by helping someone else clean up their property, and explained that this was an important item, because "you need to be warm." He further stated that, "Right now, I am working on fish; I got a container to smoke fish in," so he would have food during the winter.
The debtor has not stayed on the Property at any time in 2016. He said he couldn't live in the structure there because "pretty much everything you could use is gone," although "you could camp there." The structure itself would be too cold; the insulation and roofing needed to be done before it could be lived in. Post-petition, he has purchased an Airstream trailer from a friend, which he has placed on the Property.
The debtor said he planned to put his wood burner into the Airstream and move to the Property. But he didn't live there yet, explaining "I need to go fishing now, need food for winter." He also said he didn't "know if I'm gonna be there or not;" it depended on "what happens here." If he is permitted to keep the property, his plan is to have a greenhouse to grow food, and hunt "right in my yard." However, he conceded the frequency of his visits to the Property depend on his physical and mental well being. He said going there was "extremely depressing with the mess there, and all the things that my family has done to me there." He explained that he plans to stick with it, though, stating, "I do intend to go there, finish, because that's what I do, I finish stuff."
The debtor estimates at least $10,000.00 to $20,000.00 needs to be put into the Property, depending on the labor costs, to make the structure habitable. Additionally, real property taxes are owed to the Kenai Peninsula Borough for tax years 2015 and 2016. When asked why he doesn't put more money into the property to fix it up, given his pension and SSI income, the debtor said he is juggling too many other things. He said his car needs repair, he is focused right now on fishing for winter food, and is trying to pay for other things in his life.
The debtor has the burden of establishing the validity of his homestead exemption by a preponderance of evidence.
The debtor says he purchased the land in 2007 and has lived there ever since while building his house. This seems to be a perception rather than a reality. Sometime prior to 2011, the debtor lived in a duplex rented from his sister, after he broke his wrist, for roughly two years. He testified that he and his wife lived on the Property in 2011 and 2012, but after he left the Property in late 2012 to comply with a restraining order, the time he has spent at the Property has been sporadic. The debtor lived in an RV on the Property sometime between February 2013 and October 2014, but he came to Anchorage frequently to "get out of the cold" and do other things. These actions, the accommodations utilized to stay on the Property,
Even if the court were to find that the debtor had actually resided at the Property and established it as his homestead prior to 2014, the court finds that his voluntary conveyance of the Property and departure terminated his residence. Since October 2014, the debtor has lived in the Kasilof rental. He has returned to the Property sporadically. Even though he says he has now moved an Airstream trailer to the Property, this occurred post-petition and the debtor still was not actually living there at the time of the evidentiary hearing. Moreover, he says he's not sure if he will be there or not in the future because it is depressing for him to go there. He says he wants to finish the house and live there, because "that's what he does, he finishes things," but not because it's his home. Both his actions and intentions are contradictory, and do not reflect a consistent intent to treat the Property as a homestead. Indeed, the one event that is clear from the record presented is the quitclaim transfer of the Property to Mr. Hansen. Although one can view the transfer as akin to security for repayment, the amount and existence of a debt were never formalized, and the conveyance was unconditional on its face. The court is unable to reconcile the transfer with his stated declaration of homestead.
The court is sympathetic to the debtor's overall circumstances, and is mindful that exemptions are to be liberally construed. The court also recognizes the debtor's stated intent to move onto, and live on, the Property, and that he has provided the court with some evidence of his efforts to do so. But, to establish a homestead exemption, Alaska law requires "actual occupancy on a regular basis,"
Importantly, the debtor voluntarily conveyed the Property to his friend in July, 2014, and moved off the Property shortly thereafter when he lost the use of the RV that he was living in.
For these reasons, the court will sustain Ms. Montague's Objection and deny the debtor's homestead exemption. An order will be entered consistent with this Memorandum.
