610 B.R. 414
D.P.R.2020Background
- Debtor Antonio Otero Nazario filed Chapter 13 and claimed a $140,000 homestead exemption in a two‑story cement house he owns with his non‑filing spouse, declaring it his principal residence and that he claimed no other homestead.
- The Chapter 13 Trustee objected because the lower level of the house was leased to a third party.
- The Bankruptcy Court initially sustained the Trustee’s unopposed objection, then vacated that ruling on reconsideration and ultimately denied the Trustee’s objection, construing the statute to allow the exemption.
- The Bankruptcy Court interpreted the word “exclusively” in Puerto Rico’s Act 195 as modifying “as a principal residence” (i.e., excluding other properties), and concluded the homestead’s “right to own and enjoy” protected the entire two‑story structure.
- The District Court reviewed the statute de novo, affirmed the Bankruptcy Court’s construction of “exclusively,” but held the homestead cannot cover portions rented to third parties; it remanded to limit the exemption to the portion occupied as the principal residence.
Issues
| Issue | Trustee's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Does the adverb “exclusively” in Act 195 modify “occupied” (so leasing disqualifies the exemption) or “as a principal residence” (so it only bars claiming multiple residences)? | “Exclusively” modifies “occupied”; leasing part of the house means it is not occupied exclusively as a principal residence, so no homestead. | “Exclusively” modifies “as a principal residence”; it bars claiming any other property as homestead but does not defeat an exemption when part of the property is rented. | Agreed with Bankruptcy Court: “exclusively” modifies “as a principal residence” (bars claiming other residences), so Debtor met that requirement. |
| Does Act 195’s homestead protection extend to the entire structure (including portions rented to third parties)? | Homestead should be limited to the portion used as the principal residence; rented portions not protected. | The statute’s “right to own and enjoy” protects the whole property, including income‑producing portions. | Reversed as to this point: exemption limited to the portion actually used as the principal residence; remand to determine and apply that limitation. |
Key Cases Cited
- In re Gordon, 487 B.R. 600 (B.A.P. 1st Cir. 2013) (standard of review for bankruptcy findings and legal conclusions)
- In re Navarro, 504 B.R. 316 (Bankr. D.P.R. 2014) (homestead under Act 195 extends only to portion used as principal residence)
- Doña Antonia Rivera García v. Hernández Sánchez, 189 D.P.R. 628 (P.R. 2013) (Act 195’s legislative purpose is to protect the family’s primary residence)