Law Proposed to Exempt Some D.C. Homeowners FromTenant Opportunity to Purchase Act (TOPA) Legislative Update
Brown v. Ellmann, No. 16-1967 (6th Cir. 2017)
Background In 2014, Debtor filed a voluntary petition for bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code. At the time, Debtor owned property in Ypsilanti, Michigan valued at $170,000; however, the home was also subject to secured mortgage claims, totaling $219,000, from two separate creditors. Therefore, the Debtor had no equity in the home at the time she filed for bankruptcy protection. In her initial petition, Debtor indicated her intention to surrender the property to the bankruptcy estate and did not seek an exemption for the value of her redemption rights in the property under Michigan law. The bankruptcy Trustee sought the court’s permission to sell the property for $160,000 and to distribute the proceeds from that sale among Debtor’s creditors and professionals involved in the sale of the property. Debtor objected to the Trustee’s request and subsequently attempted to amend her original disclosures, citing 11 U.S.C. 522(d) to include an exemption for the value of the redemption rights, worth approximately $23,000 pursuant to Mich. Comp. Laws 600.3240. The court granted the Trustee’s request to sell and denied the Debtor’s proposed exemption. Debtor appealed to the U.S. Court of Appeals for the Sixth Circuit. Arguments After rejecting two arguments made by the Trustee challenging the court’s jurisdiction, the Court analyzed the merits of the Debtor’s appeal. In doing so, the 6th Circuit reasoned that any exemption based on the value of redemption rights must attach to equity which the debtor is entitled to after satisfaction of all secured liens on the property. In the case before the court, Debtor had no equity in the property. Debtor primarily relied on Law v. Siegel, 134 S. Ct. 1188 (2014), to convince the court to depart from the “no equity — no exemption” decision reached in a previous, unreported case (In re Baldridge 553 F. App’x at 599). The 6th Circuit, however, did not find Law to be relevant. In that case, the bankruptcy court used its equitable powers to approve a Trustee’s request to surcharge a debtor’s $75,000 undisputed homestead exemption as reimbursement for over $500,000 in fees related to an investigation into debtor’s fraudulent conduct. In reversing the court’s approval of the request, the Court pointed to the statute which “expressly and unconditionally states that exempt property was not liable for payment of any administrative expense.” The 6th Circuit distinguished Law from the instant case by holding that Law was about “the extent of the bankruptcy court’s discretionary power under Section 105(a); this case addresses the bankruptcy court’s interpretation of a specific provision of the Bankruptcy Code.” Conclusion In the absence of authority contradicting the holding in Baldridge, the Court chose to follow the “no equity — no exemption” rule stated in that case and affirmed the bankruptcy court’s denial of Debtor’s requested exemption.
Council member Anita Bonds (D-at large), joined by council members Gray, McDuffie, Todd, Evans, Grosso, and Council Chair Phil Mendelson, recently introduced a bill, supported by co-sponsoring Council members Nadeau and Allen, that would relieve homeowners from adhering to the city’s TOPA law if they occupy single-family homes while renting out part of their properties.
TOPA gives renters the right of first refusal if their living space goes on the market.
The scope of B22-0315, the “TOPA Accessory Dwelling Unit Act of 2017,” would be quite narrow. It would exempt properties with two separate entrances, one unit of which includes the upstairs portion of the house, is owner-occupied, and takes up two-thirds or more of the property’s square footage. For the proposed exemption to apply, the smaller, rented portion must be built in the garage or basement, or be a carriage house or a similar unit. Council member Bonds issued a public statement explaining that some renters of such properties have “abused the spirit” of TOPA by delaying home sales by as much as six months, and insisting on being paid substantial sums in return for not exercising their TOPA rights. The practice, said the statement, has created a “cottage industry of ‘TOPA lawyers’” and added to the cost of home selling, so that homebuyers are having to pay more. The council member’s press statement goes further in challenging TOPA than this limited-scope bill would suggest, by pointing to a survey showing that TOPA almost never results in actual purchases by renters. Thus, the hearing on this bill, currently slated for Sept. 21, could get interesting — especially as the D.C. Council has, in years past, considered repealing the Tenant Opportunity to Purchase Act for single-family homes.
Michelle J. Adams, Esq. Adams, Morris, & Sessing
12850 Middlebrook Road Suite 308, Germantown, MD 20874 Phone (301) 637-0143 x 101 | Fax (888) 614-7163 Michelle@amslawgroup.com | www.amslawgroup.com
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