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8. Limits on state specific homestead exemptions, effective date.
The noted amendments, limiting the right to claim large homestead exemptions, apply in all cases filed on or after the enactment of S.256. The provisions related thereto are thus retroactive to enactment and not contingent on the October 17, 2005 effective date.
Reduction of homestead value for fraudulent additions.
A new § 522(o) reduces the value of a debtor's homestead, for purposes of a state homestead exemption, to the extent of any addition to the value (which would include renovations, additions or other things which may have been done to increase the value) of the homestead on account of a disposition of nonexempt property made by the debtor-made with the actual intent to hinder, delay, or defraud creditors-during the 10 years prior to the bankruptcy filing. This provision involves converting property and assets for subsequent use to increase the value of a homestead. An example would be if a debtor sold several valuable automobiles which were otherwise nonexempt property and used the proceeds to build an addition or undertake home improvements on an existing homestead property. This would have the effect of shielding the value of these prior non-exempt assets insofar as a debtor could presumably increase the value of equity in a particular homestead asset and draw the equity out through a credit line or refinance. This provision prevents this type of activity. This is the fraudulent conveyance aspect of the statute that relates to the conversion of non-exempt assets to exempt assets as part a scheme to defraud creditors. It is unclear on how this will affect the housing market but the practice of liquidating assets for the purchase of homestead protected real property is done frequently enough to warrant the change. From an anecdotal standpoint the practice will typically involve a quickly closed cash deal on residential property which is rarely negotiated. This may temporarily inflate purchase prices in a specific location but it is unlikely to have any far reaching market effect. It does however factor into the cumulative effect of the new law.
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