Debtors Owning A Vested Reminder Fee Interest Can Claim Such Interest Under New York’s Homestead Exemption Statute

In Re Rasmussen, (E.D.NY., No. 10-CV-4173, September 14, 2011), the Debtors owned a vested reminder fee interest in a property in New York, which was subject to a life estate owned by the Mother of one of Debtors. The Debtors reside in the property, as their principal residence, together with the Mother, and paid the Mother monthly rent. The Debtors filed for Chapter 7 protection and claimed their vested reminder interest under the homestead exemption. Over the Chapter 7 Trustee’s objection the Bankruptcy Court ruled that the Debtors could claim their reminder interest as homestead because New York’s homestead exemption statute does not specify which types of ownership interests are exemptible. The Trustee appealed. In affirming the Bankruptcy Court’s decision, the District court found that New York homestead exemption exempts a debtor’s real property that is both owned and occupied as a principal residence. The District Court observed that the homestead exemption requires liberal construction in the Debtors favor to effectuate the exemption’s beneficial purpose. Base on such liberal construction, the District Court held that the Debtors owned the property because the vested reminder fee was an ownership interest, as it is descendible, alienable, and devisable. Although such future interest is not possessory, because it was undisputed that the Debtors are living the property as their principal residence the District Court held that Debtors also satisfied the occupancy requirement of New York’s homestead exemption.