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Posted by: National Bankruptcy Forum
Homestead Exemptions Don’t Protect Investment Property
Although homestead exemption laws vary by state, none of them protect investment property. A homestead is, by definition, a primary residence. You don’t necessarily need a white picket fence and a golden retriever, but you must live in the home in order to claim the exemption. As a general rule, investment properties are easier to attack because the law views the family home as sacred. Lose an investment property you’re out some money, lose a home and you’re out on the street. What happens when a homestead and investment property are arguably one unit? Does the homestead exemption then protect the investment land?
Is an Adjacent Lot Protected as Part of the Homestead?
An Ohio Court has answered the question in the negative. The Southern District of Ohio Bankruptcy Court has ruled that a debtor is not entitled to protect a lot adjacent to their home with the Ohio homestead exemption. The debtors in In Re Maine argued that the homestead exemption should cover a lot next to their home because it was used as a part of their residence. The trustee objected on the grounds that the lot was not a part of their home but an entirely separate piece of property that should not be afforded homestead status.
How is the Lot Used?
Ultimately, the Court sided with the trustee due to the unique facts of the case. The debtors were unable to prove that the lot was used for residential purposes and the Court found vague arguments of a trailer located somewhere on the property as unpersuasive. Perhaps evidence that the trailer was regularly used as a home or that household activities, such as gardening, were carried out on the property could have changed the analysis, but in the end the evidence showed that the debtor’s use of the property was not consistent with a homestead.
Ohio Homestead Exemption
The Court focused heavily on the debtor’s use of the vacant land in part due to ambiguity in the Ohio homestead exemption which allows residents to protect:
the person’s interest, not to exceed twenty thousand two hundred dollars, in one parcel or item of real or personal property that the person or a dependent of the person uses as a residence.
Presumably strong evidence of a single use for both the home and adjacent lot would have consolidated the debtor’s properties into one uniform item of real estate and thereby satisfied Ohio’s definition of homestead.