Interesting Question About Mortgage Foreclosure And Homestead Exemption
April 15th, 2010 | by Jonathan Alper |A reader submits the following question about homestead protection and foreclosure in a bankruptcy context.
A Florida resident files Chapter 7. His homestead (is situated upon) 2 acres, each legally described as 1 acre lots. House sits on one acre with attached acre free and clear. If a Ch7 has already been filed and the house will eventually be lost to foreclosure, can the "attached acre" be sold or kept outside of a bankruptcy given it is now protected by homestead.
I inferred that the lender’s mortgage is against only the acre where the home is built. The Chapter 7 bankruptcy does not disturb or impair the lender’s mortgage. If the debtor does not keep current the mortgage, or arrange a modification program with the lender, the mortgage lender will take back the secured lot. The Chapter 7 bankruptcy will not strip or modify the mortgage.
The debtor’s homestead exemption covers his residence and up to 160 acres of contiguous property. The contiguous property does not have to be under the same legal description as the lot where the debtor’s home is located. The contiguous 160 acres may be comprised of several different legally described real estate.
I see two ways to interpret the facts in the question. First, if the debtor files Chapter 7 bankruptcy prior to the foreclosure the debtor would declare both lots as exempt homestead in a Chapter 7 bankruptcy. After the bank forecloses upon and take back possession of the residential lot the property as a whole will no longer be the debtor’s homestead because the bank will have taken the house. The remaining lot will lose homestead status even if it was part of the bankruptcy homestead exemption. Assuming the prior bankruptcy discharges all creditors, there will be no creditors post-bankruptcy who could record a judgment lien upon the unoccupied, and now non-exempt, one acre parcel.
The question is more interesting if the foreclosure precedes the bankruptcy. If the foreclosure against the residence takes place before the bankruptcy the remaining unoccupied lot could not be claimed as exempt in subsequent bankruptcy for the reason stated above; to repeat- the unoccupied lot cannot be protected by a homestead exemption after a bank’s foreclosure sale deprives the debtor of residency in and ownership of the residential house. The unoccupied lot would no longer be contiguous to a homestead lot.
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