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Hennigan v. Smith (In the Matter of Smith)

Unpublished Opinion - Case No. 16-20241 (5th Cir. Aug. 17, 2016)
AFFIRMED lower courts' orders and upheld the debtor's homestead exemption, even though the debtor clearly intended to sell the property and move back to Australia. "The fact that a party desires to sell the property and move does not defeat the exemption." While the debtor consistently testified that he had some future plans to move back to Australia to be with his children and family, the Court explained that Texas homestead laws are to be construed broadly in favor of debtors “[H]omesteads are favorites of the law, [and] we must give a liberal construction to the constitutional and statutory provisions that protect homestead exemptions. Indeed, we must uphold and enforce the Texas homestead laws even though in so doing we might unwittingly assist a dishonest debtor in wrongfully defeating his creditor." In re Bradley, 960 F.2d 502, 507 (5th Cir. 1992). In this case, the Court found no evidence showing that when the debtor declared bankruptcy, he lacked the intention of making the property his homestead, even though he also intended to sell it and move back to Australia at some later point in time. Thus, the Court upheld the debtor's exemption and overruled the creditors' objections.
Procedural context:
Appeal from District Court, which affirmed the bankruptcy court's order overruling creditors' objection to the debtor's homestead exemption claims.
Robert T. Smith, debtor, acquired an interest in a residence in Crosby, Texas (the “Property”), under the will of his aunt, Barbara Christley. In 2005, Smith, an American citizen, was living in Australia. At Christley’s request, he moved in with and cared for her until she died in January 2008. Under Christley’s will, Smith was to receive the Property as well as 50% of the residual estate. After Christley’s death, a dispute arose between Smith and the executor of Christley’s estate. As a result, Smith hired the appellants, attorneys Dan Hennigan and Delia Stephens, to represent him. Four years of litigation followed, culminating in a settlement whereby Smith agreed to receive the Property in exchange for forfeiting his 50% share of the residuary estate. Smith was deeded the Property on September 26, 2011. On October 27, Smith filed for Chapter 7 bankruptcy, claiming the Property as homestead and therefore exempting it. Hennigan and Stephens sought to recover what they claimed from their contingency-fee contract with Smith. In bankruptcy court, Hennigan and Stephens argued that Smith should not have been able to claim the Property as a homestead. Because he clearly intended to return to Australia, they asserted he could not also intend to make the Property his homestead. The bankruptcy court disagreed: “Debtor has established the homestead character of his property by living there for the last eight years and claiming the property as his homestead.” The district court affirmed: “Even if the Court were to inquire into Debtor’s intentions, he merely discussed a future move back to Australia, without any definite plans to do so.” On appeal to this court, Hennigan and Stephens argue Smith always intended to sell the Property and return to Australia. It was only due to protracted litigation that Smith lived in the house for an extended period of time.
(per curiam) Jolly, Davis, Southwick

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