Middle District of FL, how worried should I be?

[donfmb]

Long time lurker, was originally planning on filing pro se but retained lawyer last week...

During the consultation, what the lawyer was telling me was concerning to me and has been bothering me ever since. I have approximately $5k of non-exempt personal property after the $1k vehicle exemption and $1k personal property exemption (equity in car + personal items). Filing Chapter 7 jointly, I figured our $8k in wildcard exemptions would cover this.

Just got a mortgage modification on my home so I thought that would be one less thing to worry about for a while. I owe $303k and it is worth $150k. Obviously I will not reaffirm that loan, but I will continue to stay and pay for the time being (and probably many years to come, don't want to move).

My lawyer told me that, despite the ruling in Osborne v. Dumoulin (avvo.com/legal-guides/ugc/florida-supreme-court-rules-on-wild-card-exemption-issue), I will probably have to use the homestead exemption even though there is no equity in the home. He stated that investors are beginning to purchase the "trustee's interest" in the home for $2k to $10k, then short-selling the homes and turning a profit. This totally blew my mind! Is this really happening in the FL Middle District on a routine basis?

I searched around for verification and found this article (tampabankruptcylawyerblog.com/2011/05/door-1-or-2-taking-the-wildcar.html), but I can't find anything saying that it happens often.

I thought that if there was no equity in the property the trustee had to abandon it? How can they do this? I'm just about scared enough to give up the vehicle and its equity just so I don't have to leave my home. And if an investor did purchase the trustee's interest and couldn't find a buyer, would they then be responsible for the home if/when it turns into a "zombie property?" I'm assuming the property will still be in my name, so I'm on the hook if someone is injured on the property after I am kicked out?

So many questions on this, sorry for being so long. Links above probably don't work because I'm not allowed to post links yet. First post, PLEASE be nice...

[justbroke]

Well, let me start by saying this. You are 100% entitled to the unused homestead exemption provided by F.S. 222.25(4) (I think it's #4). That is the $4K that you get if you don't receive the benefit of the homestead exemption. If you are underwater on your home, then you don't receive the benefit of the homestead exemption!

Sounds more like your attorney does not want to fight anyone. The Supreme Court was very clear. Unless you ACTUALLY want to protect the home, which does not appear, on the face of what you posted, to make any financial sense.

You are the first person to mention "investors" buying the Trustee's interest and short selling. I guess there are some fools that would risk a bunch of money, but it's just foolish. (I mean, they gain nothing by taking the property. The Trustee can't even sell free and clear without the court and bank's approval due to the lien.) I have not heard of such thing and I live in the Middle.

(I just posted about this recently. Osborne v Dumoulin from the Florida Supreme Court in 2011. This confirms which was always believed, but never practiced in much of Florida's bankruptcy courts. That is, if you can't actually USE the homestead exemption, you don't magically "receive the benefit" of it solely by having a home! If the homestead is underwater, you get the exemption.)

In summary, a debtor in a federal bankruptcy proceeding may cease to receive the constitutional protection from forced sale or levy by not claiming homestead property as exempt. Accordingly, if under the facts of the case the article X homestead exemption does not otherwise present an obstacle to the bankruptcy trustee‟s administration of the estate, then the debtor in bankruptcy is not receiving the benefits of the homestead exemption and is eligible to claim the statutory personal property exemption of section 222.25(4).

For full openness... that speculative attorney blog was from May of 2011. I have not heard, to this date. "Some" companies have "contacted"? What was the outcome? I have not heard anything in almost 2 years. I did hear about some Trustees attempting to get a carve out on short sales, but I don't hear much about those either.

At least, those are my thoughts on this topic.

[donfmb]

Thanks for the quick response, justbroke! I'm leaning toward claiming the wildcard exemption and see what happens. I know there are a lot of people on this board from our area, and was hoping to see if anyone has actually had this happen to them. I agree 100%, it seems foolish for an investor to invest money in a property which has no equity. If it was easy to short-sale these homes I probably wouldn't be filing BK...

[keepsmiling]

The only "carve-outs" I recall hearing about here were in Washington State. And I'm not so sure they actually wound up happening.

[AngelinaCat]

I know there are a lot of people on this board from our area, and was hoping to see if anyone has actually had this happen to them.

It would help to know what part of the Middle District you are in. Florida Middle cuts a swath through the length of the entire state from Jacksonville-Lake City to around Sarasota. Some of the 'horror stories' we see occur in the Tampa Bay area.

[tobee43]

yes, and i have heard a few in the orlando area as well. point being, as well, this middle district is HUGEm from jacksonville, to tampa to orlando as angelinacat points out.

[justbroke]

The problem is that all of it is anecdotal at best. I am not saying that there wasn't at least one case in which the Trustee successfully pulled off one of these. I'm saying that there are only rumors of some Trustees attempting this strange maneuver. I love to quote citations and list cases, but I can not list one.

Here are some cases where the Trustee (in Florida Middle) tried this manure... I mean, maneuver, and failed.

• http://pacer.flmb.uscourts.gov/pdf-new/34702405.pdf -- this was the best rebuke. The Trustee lost the first battle, but then appealed because they could not make this "short-sale" thing work. You can't see if from this initial order, but the Trustee appealed and lost the appeal as well. The Trustee was trying to kick the debtor out of their home because the debtor did not claim the homestead exemption. The debtor objected to the initial Motion to Sell and prevailed. The Trustee didn't like that and hence the appeal. I am telling you that I am happy that this judge shut down the Trustee. This, in my opinion, is a misuse of the bankruptcy code and the fidelity and position of the Panel Trustee. The United States Trustee (UST) should have stepped in as amicus on the side of the debtor.
  
• http://pacer.flmb.uscourts.gov/pdf-new/51678766.pdf -- another Florida Middle case just as above. Trustee trying to sell Free and Clear without an actual buyer/contract. Given 60 days to find one. This never happened and this case is actually still open from 2010! The debtor agreed to pay the Trustee about $5,000 to end the controversy over the property. Just as in the case above, the Trustee tried to get the debtor to leave the property; the debtor clearly, on record, was going to stay until foreclosed. Another case of the Trustee's trying to wield extraordinary power that, in my layman's view, they do not possess! (That is, to force a debtor that doesn't take the homestead exemption, to move!)

I have read too many cases where people say that the Trustee made them move. I have not found ONE case where the Trustee was able to execute a short-sale on a property where the debtor did not use their homestead exemption. Maybe this should go on Snopes.

[IBroke]

Well, let me start by saying this. You are 100% entitled to the unused homestead exemption provided by F.S. 222.25(4) (I think it's #4). That is the $4K that you get if you don't receive the benefit of the homestead exemption. If you are underwater on your home, then you don't receive the benefit of the homestead exemption!

WOW! Waaaaaiiit a minute...

This is news to me as well. If reading this correctly,

(4) A debtor’s interest in personal property, not to exceed $4,000, if the debtor does not claim or receive the benefits of a homestead exemption under s. 4, Art. X of the State Constitution. This exemption does not apply to a debt owed for child support or spousal support.

does this actually mean that we don't have to pay the trustee the $1,600 exceeding the $1K limit for personal property (total assets, $2,600) since my mum is underwater, too? Could this be the reason why her case is considered a no-asset case after all?

So in plain English:

- My mother claims homestead exemption to protect the home
- Although she claims it, she is not receiving the benefit of it since she's underwater
- Due to that fact, her allowance for personal property increases from $1K to $4K
- Therefore, if she has a total of $2,600 in assets (cash, furniture etc.), her case is a no-asset case and she owes nothing to the trustee

Did I get that right or is the mere protection the homestead exemption provides against any actions from the trustee already considered a "benefit"? If I'm reading your previous post correctly, it isn't?!

[justbroke]

Well, the Florida Supreme Court (FSC) ruling in Osbourne was that you would need to be in compliance with the statute (222.25(4)). That is, you cannot "claim or receive the benefits of a homestead exemption". If you claimed the homestead exemption to remove the property from the bankruptcy estate, then you are not entitled to the F.S. 222.25(4) "wildcard" exemption of $4,000.

The argument was always about whether you received the benefit of the homestead exemption. I don't think the FSC ruling helps where you claim it exempt in the bankruptcy. This was specific to those that did not claim the exemption. The In re Iuliano, 2010 WL 5452726 (Bkrtcy. M.D. Fla. Dec 28, 2010) case which I listed above, was the one that was real sticky. However, they did not claim the exemption but the Trustee tried to force them out the property.

So, in your case, your Mum actually put the home on Schedule C, so she is actually exercising her rights to exclude the home from the bankruptcy. The supermajority of people in bankruptcy cases where the home is underwater, in Florida, would not claim the exemption on Schedule C. Instead, they will just list the property and wait for the Trustee to abandon the property. The cases I listed show what happens when the Trustees start to get "greedy" and try to "take" the home and sell it (albeit without a buyer). In both cases listed above, the Trustees were really playing games and should have abandoned the asset from the bankruptcy estate.

(The Trustees use to argue that you received the benefit of the homestead exemption if you stayed in the home. Remember, many people still list, on the Statement of Intentions, that they will "stay and pay". The Trustee sees that as a way to pry themselves into the home by demanding abandonment since the debtor did not redeem or reaffirm, while not claiming the homestead exemption. The FSC ruling is pretty interesting when it comes to the affect of the homestead exemption "inside" and "outside" bankruptcy.)

[IBroke]

Interesting..

Thanks for the input, justbroke!

I'll have a look into PACER to see if our attorney actually claimed the homestead exemption and if the home is indeed under Schedule C. If it is, I'm still wondering why the case was filed/recorded as a no-asset case.

[IBroke]

Arghhhh...

Yup, the home is listed under Schedule C - as well as all other assets. Basically, everything listed is 100% exempt with the exemption of household goods including some furniture, our Dishwasher, Refrigerator and Washer & Dryer. These appliances already make up $800 of my mum's assets. Those items are listed at a value of $1,885 with an exemption amount of $523.37, leaving an open balance of $1361.63.

It certainly makes me wonder what would happen if my mother would tell the trustee that she is unable to come up with the $1,300 exceeding her exemption (which isn't far fetched - her monthly net income from schedule J is a whopping $22.16). Is the trustee really going to get involved in the hassle of picking up items from our home, selling them and distributing the (after expenses probably far less than) $1,000 among my mother's 60+ creditors?

BTW, the Washer & Dryer ($400) were included in the purchase price of the home - so I'm curious why they aren't part of the homestead exemption..

[justbroke]

It certainly makes me wonder what would happen if my mother would tell the trustee that she is unable to come up with the $1,300 exceeding her exemption (which isn't far fetched - her monthly net income from schedule J is a whopping $22.16). Is the trustee really going to get involved in the hassle of picking up items from our home, selling them and distributing the (after expenses probably far less than) $1,000 among my mother's 60+ creditors?

The Trustee will employ someone to do this; some sort of Estate auctioneer. Your Mum could negotiate with the Trustee precisely on the premise that you raise in your post. Explain to the Trustee that she doesn't have the money and that it's going to take someone to come and get these things and liquidate them. Further explaining that by time all is said and done, there may only be $400 for the Estate. So, Mum would offer $400 on a payment plan of 12 months at 0% interest or about $34/month.

It's a negotiation tactic!

BTW, the Washer & Dryer ($400) were included in the purchase price of the home - so I'm curious why they aren't part of the homestead exemption..

They are not "fixtures" that are permanently attached to the home.

[IBroke]

Thanks, justbroke!

Good to know that the non-exempt portion - or the amount she would have to pay - is somewhat negotiable. That might save us some money.

In regards to the washer & dryer: I knew I should have screwed them on to the wall..

[donfmb]

Thanks for the replies everyone! Angelina, we are in Fort Myers area..