Opinion
Bankruptcy Case No. 600-60689-fra7
August 8, 2000
MEMORANDUM OPINION
The trustee objects to Debtors' claim of a homestead exemption in property they own in Hammond, Oregon. I find for the Debtors, and overrule the objection.
I. FACTS
The Debtors filed their petition for relief on February 14, 2000. At that time they owned two residential properties: one in Aurora, Oregon, and the other in Hammond, Oregon.
The Aurora property had been the Debtors' principal residence for many years. They acquired the Hammond property in 1994, intending ultimately to spend their retirement there. In December 1999, in light of their failing financial prospects, the Debtors decided to remove permanently to Hammond, and abandon the Aurora property to the mortgagee. In January they directed their bank to discontinue automatic payments on the Aurora property, but not on the Hammond property. They understood at the time that the result would likely be a foreclosure on the Aurora property. Also, Debtors instructed their bankruptcy attorney to claim the Hammond property as exempt in their bankruptcy schedules.
This was not done: the original Schedule C listed the Aurora property as exempt. An amended Schedule C claiming the Hammond property as exempt was filed on May 10. It appears that the treatment of the homes in the first Schedule C was an error on the attorney's part.
By the time the petition was prepared and filed the Debtors were spending 25% of their time at the Hammond property, and 75% at Aurora. They testified that, by that time, they fully intended to make the Hammond property their permanent residence. By March they had completed the transition and were spending no time at all in the Aurora property. On May 17 the lender on the Aurora property filed a motion for relief from the automatic stay to allow it to foreclose, which motion was not contested.
It should be noted that the transition was incomplete on the date of the petition in many respects. For example, at the time the petition was filed they were still receiving their mail at the Aurora address. The Aurora address was given in Debtors' papers filed with this court.
II. DISCUSSION
Bankruptcy Code § 522(b)(2)(A) excludes from the bankruptcy estate property which is exempt under applicable state law. Oregon law provides for an exemption of $33,000 in a homestead, which the statute states "must be the actual abode of and occupied by the owner." The question here is: was the Hammond property the Debtors' "actual abode" under the statute?
ORS 23.240 Exemption of homestead or proceeds thereof; duration of exemption. (1) A homestead shall be exempt from sale on execution, from the lien of every judgment and from liability in any form for the debts of the owner to the amount in value of $25,000, except as otherwise provided by law. The exemption shall be effective without the necessity of a claim thereof by the judgment debtor. When two or more members of a household are debtors whose interests in the homestead are subject to sale on execution, the lien of a judgment or liability in any form, their combined exemptions under this section shall not exceed $33,000. The homestead must be the actual abode of and occupied by the owner, or the owner's spouse, parent or child, but the exemption shall not be impaired by:
(a) Temporary removal or temporary absence with the intention to reoccupy the same as a homestead;
(b) Removal or absence from the property; or
(c) The sale of the property.
(2) The exemption shall extend to the proceeds derived from such sale to an amount not exceeding $25,000 or $33,000, whichever amount is applicable under subsection (1) of this section, if the proceeds are held for a period not exceeding one year and held with the intention to procure another homestead therewith.
(3) The exemption period under subsection (1)(b) and (c) of this section shall be one year from the removal, absence or sale, whichever occurs first.
Exemption statues such as ORS 23.240 are to be liberally construed in order to advance their purpose. In re Earnest, 42 B.R. 395 (Bankr.D.Or. 1984). The purpose of the Oregon homestead exemption is to ensure that debtors may continue to reside in their homes "sheltered beyond the reach of urgent creditors or economic misfortune." In re Laughlin's Estate, 170 Or. 450, 454, 134 P.2d 961, 963 (1943).
In this case I believe that the Debtors had made sufficient effort to establish the Hammond property as their "abode" by the time they filed their petition for relief. Most significantly, they had cut themselves off from the Aurora property by discontinuing their payments. ORS 23.240 provides that temporary absence from a homestead with the intent to return does not impair the exemption. Here the requisite intent to return is obviously missing. While they may have been spending a majority of their time in Aurora in February, 2000, it is clear that they would, eventually, depart permanently. It follows that any right to claim an exemption in the Aurora property has been abandoned. See Fleischhauer v. Bilstad, 233 Or. 578, 379 P.2d 880 (1963).
Under the doctrine of constructive occupancy a debtor who acquires a homestead with the intent to occupy it, and who does so within a reasonable time, may claim the property as an exempt homestead from the time of the acquisition. In re McElroy, 204 B.R. 62 (Bankr.D.Kan. 1996), In re Lehman, 44 B.R. 946 (Bankr.D.Minn. 1984), In re Cottingim, 7 B.R. 56, (Bankr.S.D.Ohio 1980), See also In re Cameron, 25 B.R. 119 (Bankr.N.D.Ohio 1982).
As the Oregon statute gives effect to debtor's intentions respecting temporary absence, I believe it likewise looks to their intent in establishing the homestead in the first instance, and that the rule of constructive occupancy is consistent with Oregon law. The Debtors satisfied the rule by taking steps to retain the Hammond property, including continued payments, and instructions to counsel to claim the exemption in that property. The record is also clear of their intent ultimately to abide in the Hammond property as their home.
III. CONCLUSION
The Debtors' real property in Hammond, Oregon, qualifies for Debtors' claim of exemption under ORS 23.240. The trustee's objection to that claim should be overruled, and an order to that effect will be entered.
The foregoing constitutes the court's findings of fact and conclusions of law.