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Debtor Cannot Claim Homestead Exemption for Home Acquired After Debt Incurred - In re Jody May Walters

July 11, 2011

Our Riverside County foreclosure defense attorneys were interested to see a recent decision about when exactly debtors in bankruptcy may claim a homestead exemption. In In re Jody May Walters, the debtor and her husband routinely owned several houses at a time, building or remodeling them and selling them for a profit. Between 1999 and the June decision, they owned five homes in Iowa and six in Florida. However, like others involved in the real estate market, they fell into trouble in 2008 and ended up returning one home to the mortgage lender. They moved from that home into their current home in Pleasant Hill, Iowa in 2008. Bank of the West also won judgments against the Walterses and others in that year.

In early 2010, Walters filed for Chapter 7 bankruptcy and claimed an interest in the Pleasant Hill house as a homestead exemption. Bank of the West successfully challenged this, and Walters appealed to the bankruptcy panel of the Eighth U.S. Circuit Court of Appeals. The appeal focused on Iowa's rules for homestead exemptions. These say, in relevant part, that a homestead may be sold to satisfy debts incurred before it was acquired, but only when debts remain after other property has been sold. Another section says that when a new homestead is purchased with the proceeds of an older homestead, the new one is exempt to exactly the same degree as the old one would have been

It is not disputed that the Walterses received their interest in the Pleasant Hill property in June of 2009, which was after Bank of the West received its February 2008 judgment against them. However, Walters argued that she was entitled to an exemption because the Pleasant Hill home was acquired with the proceeds of a former homestead, a Florida property sold in 2006. The Eighth disagreed. It noted that the bankruptcy court found that Walters never intended to claim Florida as her residence, lived there only sporadically and never had a Florida driver's license. Thus, under Florida law, she was never entitled to claim a homestead exemption in that home. Furthermore, the court found, the Florida home did not fund the Pleasant Hill home; the Walterses had mixed funds from several sources and also transferred the home into and out of another couple's name. Thus, it affirmed the lower court's decision that the home was not entitled to a homestead exemption.

Of course, Iowa's homestead exemptions rarely apply in the kinds of bankruptcy cases handled by our Newport Beach foreclosure defense lawyers. But because so many people are in financial trouble after investing heavily in real estate, we think this issue could easily arise in California or any other state. Homestead exemptions frequently allow for the possibility of more than one home -- and bankruptcy is kinder to second homes than to first homes in many cases -- but they get murkier when property has been transferred repeatedly or at sensitive times like during a bankruptcy filing. That's why it's very important for people with this kind of complicated real estate situation to get the help of an experienced Cerritos foreclosure defense attorney as early as possible -- so we can help you make strategically and legally sound decisions before you file.

If you're considering bankruptcy as a way to handle the threat of foreclosure on your home, you should talk to Howard Law PC right away. To discuss your legal options at a free, confidential case evaluation, send us an email or call 1-800-872-5925 today.

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