3 ABR 190 UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

In re:	)
	)	Case No. A93-00074-DMD
FRANK W. ROSE and	)	Chapter 7
CAROLYN A. ROSE,	)
	)
Debtors.	)
_____________________________	)

ORDER DENYING OBJECTIONS
TO DEBTORS' CLAIM OF EXEMPT PROPERTY

     A hearing on the trustee's objections to the debtors' claim of exempt property was held on May 5, 1993. David Rankine appeared for the debtors. Michael Mills appeared for the trustee. I find for the debtors.

     Frank and Carolyn Rose were husband and wife. They lived in a duplex in Anchorage, held jointly in their names. They purchased the duplex in the mid-1980s, when real estate values were high. The property has substantially declined in value. It is now worth about $160,000 and the Roses owe approximately $180,000 against it. The duplex is on a long, narrow lot. The living units have separate entries, but utilize the same roof and a party wall. The Roses purchased three lots adjoining the duplex. These lots are long, narrow, and adjacent to the Rose side of the duplex. They are not used by the other tenant of the duplex and have a gross value of about $75,000. The Roses have an encumbrance of about $38,000 against the lots.

     Frank Rose is a property manager. Since January of 1992 he has been living at Chena Hot Springs, near Fairbanks, running the Hot Springs for a lender. He lives in relatively primitive conditions in a cabin with no running water. He periodically returns to Anchorage to see his family and conduct business. The Hot Springs is listed for sale. Rose plans to return to Anchorage as soon as the property is sold.

     On September 21, 1992, Carolyn Rose quitclaimed her interest in the duplex and lots to Frank. On February 1, 1993, the Roses filed a chapter 7 petition. Three days later they were divorced. At the time of the petition filing, Mr. Rose was

3 ABR 191 residing at Chena Hot Springs, and Mrs. Rose and their son were residing in half of the duplex. The remaining half was rented to a tenant for $1,350 per month. Mrs. Rose contributed $600 per month for her use of the premises, both prior to and following the divorce. Mr. Rose intends to return to Anchorage and live in the duplex following sale of Chena Hot Springs. He has been paying the utilities for his ex-wife due to her poor financial circumstances. He keeps business records and other personal property in the garage and crawlspace of the duplex.

The validity of the homestead exemption is determined as of February 1, 1993, the date of the filing of the bankruptcy petition. In re Kincaid, 96 B.R. 1014, 1021 (9th Cir. B.A.P. 1989), rev'd on other grounds, 917 F.2d 1162 (9th Cir. 1990). The Alaska Supreme Court recognizes the general rule that exemption laws are remedial in character and should be liberally construed in favor of the debtor. Gutterman v. First Nat'l Bank of Anchorage, 597 P.2d 969, 972 (Alaska 1979).

AS 09.38.010 provides:

An individual is entitled to an exemption as a homestead of the individual's interest in property in this state used as the principal residence of the individual or the dependents of the individual, but the value of the homestead exemption may not exceed $54,000.

As of February 1, 1993, Frank was married to Carolyn. Their son, Christopher, was residing with Carolyn in half of the duplex. Even if Frank had abandoned the homestead, a contention he vigorously opposes, as of February 1, 1993 it served as the principal residence of Carolyn and Christopher Rose, dependents of the debtor. As such, Frank was entitled to a homestead exemption, even if he did not use it as his principal residence.¹

The trustee maintains that rental property cannot be subject to a homestead, citing Texas Commerce Bank-Irving v.

3 ABR 192 McCreary, 677 S.W.2d 643 (Tex. App. 5 Dist. 1984). That case held that when a mortgagor had another homestead at the time he purchased mortgage property, and leased the entire mortgage property to his corporation for business purposes, the character of the property was rental property. Permission by the corporation for the mortgagor to use one of its buildings as living quarters did not alter the properties' commercial character and qualify it for a homestead exemption. The case at bar is not similar to McCreary. There was never any business use of the property, other than the leasing of half of the duplex, and the property had been used as a homestead by the family since its purchase. Moreover, several courts have allowed homestead status for duplexes, especially where the severing of the units would be impractical. In re Kuver, 70 B.R. 190 (Bankr. S.D. Fla. 1986); In re Wells, 29 B.R. 688 (Bankr. D. Colo. 1983); Schwanz v. Teper, 66 Wis. 2d 157, 223 N.W.2d 896 (1974). In each of these cases, the court allowed a homestead exemption when there was an owner occupying half the duplex. Under Alaska statute, residency by dependents is the same as owner-occupancy. The fact that Carolyn Rose helped make the mortgage payments prior to her divorce is irrelevant. It was simply an internal family arrangement and did not alter the character of the family homestead to that of investment or commercial property. Moreover, given the physical structure of the duplex and the mortgage against it, any attempt at partition would be illogical and unprofitable.

The trustee argues that, should a homestead be found, it should be limited to the duplex plus one lot. Under the statute, property used as the principal residence may be exempted up to a value of $54,000. No cases arising under the current statute define "principal residence" in terms of lots or acreage. Cases arising in other jurisdictions have allowed inclusion of adjacent lots in the homestead, however. In In re Milsap, 122 B.R. 577 (Bankr. D. Idaho 1991), an extraordinarily lucid opinion, the court allowed a lot adjacent to the home to be included in the homestead exemption. The court looked to the value of the lot rather than to an acreage limitation. In In re Mann, 82 B.R. 981 (Bankr. W.D.

3 ABR 193 Wis. 1986), a lot adjacent to the debtor's home was found to be exempt. Both Am. Jur. 2d and C.J.S. generally concur with this result. 40 Am. Jur. 2d Homestead § 34 states:

A homestead claim is sustainable in respect of more than one tract of land--for example, adjoining or contiguous lots or tracts. "One lot," within the purview of the statute, may consist in adjacent parts of two lots as platted. The fact that the interest of the homestead claimant in the two lots is not identical, does not prevent inclusion of both lots in one homestead.

As a rule, it is a question of fact whether adjoining or contiguous tracts of land forming one compact body are parts of a homestead. But even where the tracts are contiguous, unless the second tract is used in conjunction with the tract on which the dwelling is located, the second tract is not included in the homestead. (Footnotes omitted.)

40 C.J.S. Homesteads § 39 states:

Adjoining tracts or lots not exceeding the extent or value allowed by law for homesteads may be selected as a homestead. In order that a lot or tract adjoining that on which the dwelling is situated may be claimed as part of the homestead, it must be used in good faith for homestead purposes.

Here, the debtor and his family have always used the lots for homestead purposes. They have been used primarily as a yard for the children's play. There is a sandbox, a storage shed, and a lawn on the lots. The debtor and his family have used the lots for recreational purposes, volleyball, badminton, and skating. They bought the lots for privacy, to preserve their view, and to give their children a place to play. The lots have never been used for commercial purposes. Under these circumstances, liberally construing the statute in the debtors' favor, I conclude that the lots constitute a part of the debtors' principal residence. They are, therefore, exempt as there is no equity above the homestead exemption of $54,000 and the underlying encumbrance of approximately $38,000.

   3 ABR 194
     Therefore, IT IS HEREBY ORDERED that the trustee's objections to the debtors' claim of exempt property are denied.

          DATED: May 13, 1993.

	DONALD MacDONALD IV
	United States Bankruptcy Judge

N O T E S:

3 ABR 191 1. U.S. v. Boyette, 413 So.2d 1250 (Fla. App. 1 Dist. 1982), cited by the trustee, has no similarity to the case at bar. No dependents lived in the home in question. The debtor had permanently moved out of state while claiming a homestead exemption.