Yes, in MA: Homestead Exemption Successfully Claimed by Holder of the Beneficial Interest in a Resulting Trust

In what appears to be an issue of first impression, the United States Bankruptcy Court for the District Of Massachusetts, Western Division, has determined that the beneficiary of a court-imposed resulting trust may claim the homestead exemption in bankruptcy. 

The Chapter 7 Debtor in In re Sullivan, Case No. 15-30544, entered into an arrangement with her sister whereby the sister purchased a condominium in Agawam, taking title in the sister’s name, although the Debtor has at all relevant times been the sole resident of the condo.  The Debtor orally agreed to pay a monthly amount to her sister to cover real estate taxes, condominium fees, and monthly mortgage payments, and the Debtor would be responsible for utility bills.  The Debtor deposited the monthly payments into an account in her sister’s name, which was later changed to a joint account.  All parties agreed that the sister never deposited funds into the joint account.  Once the mortgage was fully repaid, the sister would transfer title to the Debtor. 

The Debtor filed for bankruptcy in 2015, at which time she described her interest in the condo as an “[u]nenforceable oral rent to own contract . . .; unenforceable per statute of frauds MGL c. 259 sec. 1 (zero value).”  She later amended her interest to claim automatic homestead protection.  The Trustee objected to the homestead exemption, claiming that, while the Debtor may lack a legal interest in the condo, she has an equitable interest, and that such interest is not subject to homestead protection.

The Bankruptcy Court (Boroff, J.) determined that the Debtor was not the beneficiary of a constructive trust, as there were no allegations of fraud, mistake, or breach of duty which might justify imposition of such a trust.  However, the Court determined that the Debtor was the beneficiary of a resulting trust, stating that “Under Massachusetts law, ‘when a person pays the purchase price of property and takes title in the name of another, the beneficial interest in the property inures to the person who paid the purchase price by way of resulting trust.’” (internal citations omitted).  Such being the case here, the Court imposed a resulting trust. 

The Trustee then argued that the Debtor’s interest in the condo could not be exempted under the Massachusetts Homestead Act.  The Court disagreed.  The Court stated that “Massachusetts law provides for a homestead exemption for an owner who occupies or intends to occupy a home as a principal residence. An owner is defined as ‘a natural person who is a sole owner, joint tenant, tenant by the entirety, tenant in common, life estate holder or holder of a beneficial interest in a trust.’”  Acknowledging the lack of Massachusetts case law which addressed the question of whether the holder of a beneficial interest in a resulting trust, the Court, recognizing the liberal construction of the Homestead Act by the Supreme Judicial Court and the 2010 amendments to the Homestead Act which expanded the class of people eligible to benefit from the homestead exemption, concluded that the Debtor’s interest in the condo qualified her as an “owner” under the Homestead Act and therefore entitled to the benefit of the exemption.

Given the relatively recent change in the language of the Homestead Act and the expanded protections offered thereby, this seems like a reasonable prediction of the conclusion likely to be reached by Massachusetts courts when they find themselves confronted with the question.  It does not appear (at least from the decision) that any party requested certification of the question to the Supreme Judicial Court).  Moreover, given the eminently logical analysis by the Bankruptcy Court, certification seems unnecessary absent a split in opinion among the federal courts.