Defining a Primary Residence for Legal Reasons
The general legal definition of primary residence is most easily understood as the address of where a debtor resides. In order to classify as a primary residence, the property must be a place that, as a legal matter, is established as a home. One of the critical factors in determining whether a property is a primary residence is the intention of the owner to treat it as such . Once a person shows intent, the law presumes it is a primary residence until proven otherwise. As a practical matter, the determination of a primary residence will largely deal with documentary proof since family members may have different opinions on the matter.
The Importance of Defining Primary Residence
Legally defining a primary residence is fundamental to a wide variety of legal principles, and failure to do so can bring serious, and usually negative, consequences. A classic example is a divorce. Since marital property is divided up during divorce proceedings, the "home," or "marital residence" can be a significant portion of this. It is clear from the legal definition of primary residence that a spouse cannot lay claim to a marital home in Florida unless he or she meets the primary residence criteria set out in Florida law (homestead status is different from primary residency). Even in cases they do meet the criteria, they may be awarded no more than half the equity in the home, while the other half remains with the primary resident for his or her exclusive use. In such a situation, it is common for the leaving spouse to make a claim against the "marital residence" for the portion he or she believes is rightly theirs according to the principle of equitable distribution. If the home can be legally proven to be the primary residence of the other spouse or party, then this claim fails and the primary resident gets to retain the full equity in the home as a result. Similarly, primary residency issues are also common in non-marital family law situations as a result of paternity suits filed under the Florida paternity statute. This statute determines legal custody of children born out of wedlock, or any property, assets and liabilities awarded by a paternity judge, and similarly determines the duration a father is obligated to provide child support. Depending upon the circumstances of the individual paternity case, either shared parental responsibility or sole parental responsibility may be awarded. However, Florida law requires that visitation agreements between the parents be primary and residential. This means that there must be a primary residential parent, and visitation schedules cannot interfere with or damage the relationships with the less-than-residential parent. The law dictates the schedule of visitation, and the responsibilities of both parents. Because parenting rights are such a unique and contentious area of family law, it becomes vital in issues relating to the extension of residential rights and the imposition of parenting plans that a clear and legal primary residence is established.
Legal Tests to Determine a Primary Residence
In the legal context, a primary residence is typically established by evaluating all of the circumstances surrounding your intent of treating a particular property as your home. That being said, there are some common criteria that are evaluated to determine whether a home will be considered your primary residence, such as: duration of stay, mailing address, and voter registration.
Duration of Stay
Examining how long you have lived at a property is a critical piece of the puzzle when determining the primary residence of a property. You are required to spend at least 240 days per year at a dwelling for it to be considered your primary residence. While there are exceptions to this rule, the criteria is simple: the longer you stay at a property, the easier it is for you to establish it as the location of your primary residence.
Mailing Address
Although you may own multiple properties in various states, you may only have one primary residence. When determining your primary residence, your mailing address is a factor. Even if you live at a property for only a fraction of the time, if your mailing address is listed as that property site, it is possible that it may be classified as your primary residence.
Voter Registration
Similar to your primary residence, you may only maintain one registration to vote. Both the U.S. District Court for the Southern District of New York and the U.S. District Court for the Eastern District of New York have ruled that voter registration is a significant indicator of establishing a primary residence. If a property is registered as your voting district, that property is likely to be considered your primary residence.
Primary Residence Versus Secondary Home
Most people live in a residence other than their primary residence at some point – perhaps a vacation place at the beach or mountain, a second home where family members live or where they used to live, a rental property or an investment property.
The rights and obligations with respect to this "secondary home" or "vacation home" are often vastly different from those of the primary residence. Different ownership interest, different transferability rules, different maintenance obligations, different liability risks, different tax consequences, and different homestead consequences all result in different valuations for real estate that may be held as a primary residence and/or held as a secondary or vacation home.
The distinction between the various types of real estate becomes increasingly important both when entering into purchases, sales, and transfers as well as when dividing real estate between divorce spouses, transferring real estate between parents and children, and selling real estate in foreclosure situations.
Legally Changing Your Primary Residence
The process to change your primary residence has become easier than it used to be. While I am no longer practicing law, I have a good bit of experience with limiting my domiciliaries and that of my clients. Check the rules of your domicile state and then the state you are going to. You will likely be deemed a resident where you spend more than 183 days.
When you move into your new state you will need to obtain a local driver’s license. Don’t just do this in passing. There will be a burden of proof that will be the basis for the tax authorities to use in determining where you were actually domiciled . For example, if the state or federal government requires you to show you are paying state income taxes and/or local taxes, then you need to provide sufficient evidence of payment, check stubs, gather all your W2 materials, etc..
Having filed tax returns where you are now domiciled could have a negative impact on any defense you have to the state you left. I do not suggest filing tax returns in both states. License plates, car registrations, warranties, voter registration, school schedules and records, and cable bills are all items that can be reviewed. The bottom line is that you should contact an attorney and review these facts specific to your situation to decide the most strategic approach to changing your primary residence.
Case Examples of Primary Residence Disputes
To illustrate some of the issues discussed above, here are several examples of cases that were litigated where the definition of a primary residence was contested: In Re: McMahon, 2014 Bankr. LEXIS 217 (Bankr. E.D. Va. Jan. 15, 2014): Although a legal veteran, the debtor owned a humble home in a historic section of Norfolk, Virginia, where she had lived since 1996. However, because she remarried in 1996 and then separated from her husband in 2006, the Debtor and her new husband decided to buy a larger home together in Portsmouth, Virginia. They purchased their Portsmouth home with the expectation that they could eventually sell her Norfolk home for a good price. Unfortunately, that was not the case. The property in Norfolk had just been on the market for a period where similar homes had sold for about $200,000 to $225,000, but theirs sat idle for an extended period because of its less desirable location. As a result, the Debtor and her new husband decided to move back into the Norfolk home in 2011 while they tried to sell their Portsmouth home. This domicile shift was significant. Under Virginia law, the Debtor could file in the district "where she has been domiciled or resided for the180 days immediately preceding such filing." (DE 16 at 5). And while "residence" is not defined in the Bankruptcy Code, Congress intended to use a term with the same meaning as used in applying the substantive laws of individual states. Hull v. Midlantic National Bank (In re David), 14 B.R. 453, 499 (Bankr. E.D. Va.1981) "In short, the members of the Judicial Conference of the United States understood the word ‘residence’ in the Code to be used in its ordinary sense, i.e., as synonymous with ‘domicile.’ 13 Lawrence R. Akin, Collier on Bankruptcy ¶ 100.01 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2014)" (DE 16 at 5). Stanton v. MCG Capital Corp., 2005 U.S. Dist. LEXIS 10364, at *2-3 (E.D. Mich. May 12, 2005): On June 1, 2004, the Stanton Family Trust entered into a loan agreement for $10 million with MCG Capital Corporation. Stanton owned a 75% interest in the Trust and was the corporation’s chairman. Trust funds held with an escrow agent were used to finance the loan. A security agreement executed on the same day as the loan agreement identified MCG as a secured party and the Trust as a debtor. The loan was secured by a first lien on three separate parcels of real property located in Houston, TX, Philadelphia, PA, and New York, NY. The security agreement, executed by Stanton, contained a description of each parcel, a legal description, and an example of a real estate mortgage that would be used to secure the loans. Under the terms of the loan agreement, only the New York mortgage was to be recorded. The purpose of the loan was to purchase a corporate jet for the Trust. On August 21, 2004, Stanton took out a $25 million line of credit using the Houston and Philadelphia mortgages as collateral. The loan agreement was governed by Texas law and was expressly identified as a business purpose loan. Stanton defaulted on the Corporate Line and paid off the loan with the proceeds from the sale of his Alaska home, which was his primary residence. His use of his primary residence to satisfy a business account default was the key factor in allowing MCG to make a claim on the trust’s $10 million loan. In re Louldon, 347 B.R. 247 (Bankr. M.D. Pa. 2006): In this case, the Chapter 13 Debtors had purchased their home in 2003 for $42,000, using a small amount of their own funds and from their parents, between them and their children. In September of 2004, title to the property was conveyed to the Debtors, who executed a joint Pennsylvania bring down residential mortgage on the property for $56,500. The property was being rented to Debtors’ son and his fiancée. The Debtors, who both worked full-time, filed their Chapter 13 bankruptcy in December of 2005. Their schedules listed the property as "not occupied" if rented or "vacant." As can be expected, there are countless anecdotes from the predatory lending days where the question of primary residence is an important issue as it is the qualification criteria the lenders use to bait consumers into high interest loans with hidden fees and penalties.
How to Avoid Legal Conflicts
It is always important to document the information outlined above on your residential property for legal purposes. I recommend the following tips which are often overlooked by individuals when dealing with real estate transactions.
Tips for Lawyers and Clients
• Make sure you have an ownership in a primary residence.
• When renting an apartment or a house, get a lease and expiry date. The landlord can evict you upon expiry unless you have a renewal.
• If you are a tenant, make sure the owner of the building has title & not just a right to possess.
• If you have more than one property, make sure the property you are occupying is listed as a primary residence.
• Check your home care agreement. It should reflect that it is for a primary residence. Otherwise your care can be terminated upon expiry.
• Check your Will. Your property should be transferred to your spouse upon your death. Otherwise , the Court could get involved. For optional tax reasons and your other children, your Will could reference your primary residence as a life estate, which is a legal definition that your spouse could live in your primary residence for the remainder of the natural life, but the property would transfer to your other children upon your spouse’s death. It would be revisited after your spouse’s death.
• If your primary residence is rented, be certain the lease is very clearly drawn by professionals so that you don’t have to go to Court to interpret the lease.
• If persons holding a co-ownership interest in the property are "tenants in common" then it has to be sold under the NHTA process and auction.
• If you have a power of attorney, make sure it clearly states your primary residence. This is also important if a guardian decides to sell your residence- make sure it is defined clearly to avoid a Court process.