This recession has pushed many homeowners to get creative about where they live, especially after losing their home to foreclosure .
But in the bankruptcy case of Gregoria Villarreal and Estalla Villarreal, that creativity cost them their homestead exemption during their bankruptcy case:
In 2005, Debtors' prior family home was foreclosed upon. They moved into their only other property, their place of business, Greg's Ballroom, and surreptitiously used it as their sole family home. They resided "in the restaurant portion of the building behind a black curtain that concealed their bed and bedroom furniture." Id. at 830. "They used the shower area in the back of the building, which is inaccessible to visitors." Id. While a friend of Debtors' testified that she was aware that they were living on the property, she also stated that Debtors never allowed her to view their living area. Id.
"Debtors admitted that they have kept secret their residence at Greg's Ballroom." Id. Consequently, there generally was no clothing, personal effects or home furnishings visible on the property. Id. Although a police officer testified that he once saw toys and furniture by the black curtain leading to Debtors' sleeping area, he stated that he had the impression that the curtain demarcated a storage area, not a living space. Id. No county or real estate records indicated that Debtors were living on the property. Id.
The bankruptcy court found that because they debtors were secretly living in their business facility and that this was not a building that any prudent person would assume they would live in, they could not use the homestead exemption to protect their property from foreclosure. What could have made the difference in this family's bankruptcy case? For starters if they had made it clear to their friends, family and community that they were living on the business property it may have qualified as a homestead during their bankruptcy.
Because they couple admitted during bankruptcy that they purposely hid the fact that they were living on the property from their friends, family, community and customers and didn't even allow visitors in their living area, the bankruptcy court found that they should not be able to use the homestead exemption.