Debtors’ use of a portion of Property for Commercial Purposes (Airbnb rental) did Not Remove the Property from the protection of Homestead Exemption

Debtors’ use of a portion of Property for Commercial Purposes (Airbnb rental) did Not Remove the Property from the protection of Homestead Exemption

The Debtors filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code  on December 15, 2017 (the “Petition Date”). In their bankruptcy schedules, the Debtors disclosed their ownership interest in the Property, listing the value as $195,400, subject to a mortgage with an outstanding balance of $162,125 as of the Petition Date. On their amended Schedule C, the Debtors claimed a $500,000  homestead exemption in the Property.

The Debtors acquired the Property in August 1995, and on March 24, 2015, the Debtors recorded a declaration of homestead in the  Registry of Deeds (the “Registry”) claiming a homestead exemption (the “Homestead Exemption”). The Property, located in a commercial zone, consists of a single structure with two residential dwelling units, a detached two-car garage, and a large carport. At all relevant times, the Debtors and their children have occupied one unit of the Property as their principal residence. Historically, the second unit was rented to third parties; however, since 2015, the Debtors have used the second unit for family visits and short-term rentals through services such as Airbnb (an online short-term rental platform). Mr. Shove owned and operated a landscaping business from the Property until approximately December 2014. The Debtors also own and manage several rental properties; according to the Debtors’ schedules, the Debtors owned eight rental properties on the Petition Date.

In addition to the mortgage, the Property is subject to a judicial lien held by Hernandez. In June 2017, Hernandez obtained a money judgment against Mr. Shove, individually and d/b/a Rick’s Complete Lawn and Landscaping Service, in the total amount of $965,201.53. On September 20, 2017, Hernandez recorded an Execution issued on account of the judgment in the Registry (the “Judicial Lien”). The Debtors have now moved to avoid the Judicial Lien on grounds that it impairs their exemption in the Property pursuant to § 522(f)(1).

Hernandez objects to the Motion on grounds that the Property is not entitled to the protection of the Homestead Statute because the Debtors use the Property primarily for commercial, and not residential, purposes. In support of his position, Hernandez states that the Property is “the center of operations of the Debtor’s [sic] property management . . . and landscaping business” and is used for “commercial rental purposes.” The Debtors, in turn, say the Property is not used commercially to the extent alleged by Hernandez, and claim entitlement to the Homestead Exemption regardless of the minimal commercial activity that may take place at the Property.

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