Keller Williams Realty - December 2017

Brown v. Ellmann, No. 16-1967 (6th Cir. 2017) Background In 2014, a debtor filed a voluntary petition for bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code. At the time, the debtor owned real estate property located in Ypsilanti, Michigan, valued at $170,000. However, the home was also subject to secured mortgage claims by two separate creditors that totaled $219,000. Therefore, the debtor had no equity in the home at the time she filed for bankruptcy protection. In her initial petition, the debtor indicated her intention to surrender the property to the bankruptcy estate and did not claim an exemption for the value of her redemption rights to the property under Michigan law. The bankruptcy trustee sought the court’s permission to sell the property for $160,000 and distribute the proceeds from that sale among the debtor’s creditors and professionals involved in the sale of the property. The 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. The 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 Sixth 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, the debtor had no equity in the property. The 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 Sixth 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 the 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 Sixth 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 the debtor’s requested exemption.

YouHave a Fiduciary Responsibility toMake Sure the Property Is Insured Correctly

Anyone who has a property insured has a responsibility to make sure that property is insured the right way. For example, if the property is vacant or if it is rented out to someone else, the insurance requirements will be different than the standard requirements for homeowners insurance. Generally, leaving a property vacant for a few days is not a problem, but if the property is going to sit empty for more than 30 days, most insurance companies expect the owner to let them know the property’s status. That way, they can cover the home for the real risks it has, which are somewhat different when the property is empty or rented out than when it is used as a permanent home. Sometimes people miss this step, and that often happens when there is a trustee or personal representative taking care of an estate. They can forget to do this or not realize it needs to be done. Then, if there is a fire, or someone gets hurt on the property, or another kind of issue arises, the owner can be liable. The insurance company can also refuse to pay because the property was not correctly insured. That can lead to serious problems for a homeowner or for the estate of a person who has passed away and left their home to be settled as a part of their estate. For example, when a person dies, they may will their home to someone else. The deed to the house will need to go through probate, and during that time, the house is empty. If there is a fire during the period when the house still belongs to the previous owner but is vacant, the insurance company can deny the claim and refuse to pay because the house was not properly insured. That can be devastating for the estate. Fortunately, such circumstances are easily avoided by getting the proper coverage for the home. Virginia real estate property taxes are surprisingly low, although the taxes are still high because of the high property values. Residents can take advantage of homestead exemptions, both state and federal, for tax and bankruptcy purposes. Some local jurisdictions have enacted laws which penalize vacant property owners, although the effects are nominal compared to D.C.’s stricter policy. Charlottesville, for instance, has a requirement to register a vacant property within 365 days, and the fee is $25. ... Continued from front page

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 | Short Sales and Real Estate Licensees — Real Estate Commission

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