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Special Homestead Exemption for Elderly
Tossed Out
By Joe Kafka, Associated Press, Aberdeen American News
June 17, 2004
Pierre, South Dakota: An unlimited homestead exemption that is designed to protect older South Dakotans from loss of their homes to creditors is unconstitutional, the state Supreme Court has ruled.
The unanimous decision throws out a portion of state law enacted in 1980. Ruled unconstitutional was an exemption from forced sales and legal claims on homes owned by people who are at least 70.
The justices issued their ruling at the request of U.S. Bankruptcy Judge Irvin Hoyt in a bankruptcy case filed by Dorothy Davis, a Sioux Falls homeowner who racked up $46,000 in credit card debt. Most of the debt was caused by playing video lottery machines, she said.
Unsure of the homestead exemption available to Davis, whose house is valued at a minimum of $95,000, Hoyt asked the state Supreme Court for clarification.
Davis' lawyer had argued that creditors could not force the sale of her home to collect on the bad debts.
State law provides a $30,000 homestead exemption for those younger than 70, but the law also gives special preference to those older than 70 by saying their exemptions are not limited to $30,000. It does not, however, specify any limit on the value of exemptions for older South Dakotans and that is the problem.
It violates a state constitutional provision that partially protects people from loss of their homes to creditors, the Supreme Court has ruled.
The constitution says laws exempting debtors from forced sales of their homes must state the value of the exemptions, and the high court says the 1980 law falls short of doing that because it provides an unlimited exemption for those older than 70.
"The Legislature must limit that portion of a homestead which may be exempted from forced sale," wrote Justice John K. Konenkamp.
"The Legislature has broad and liberal discretion of setting the exemption limit. However, that discretion is not boundless," he continued. "The Legislature simply must place a monetary value on that limit."
Because no cash value is specified in the homestead exemption for the elderly, that portion of the homestead law is unconstitutional, the Supreme Court said.
There was no immediate word Thursday from the state Revenue Department on whether it would offer remedial legislation next year and, if so, what amount of exemptions for the elderly would be requested in any such bill.
"The constitution says exemptions have to be capped," said John Lovald, a Pierre attorney appointed as bankruptcy trustee in the Dorothy Davis case.
"You've got to set a value. If the Legislature had come out and said this exemption is unlimited, I think they'd still run into problems under the constitution."
Lovald said Thursday that he is in the process of negotiating with Davis' attorney on the options that exist in the wake of the Supreme Court ruling.
One option would be to force Davis to sell her home and use the proceeds to settle her debts.
"That would be the worst-case scenario," Lovald said. "She would also have the option of borrowing against her equity in the home and a third option would be to convert the case to what's called a Chapter 13 bankruptcy and pay her obligation to her creditors over a period of years."
Only limited bankruptcy cases will be affected by the Supreme Court ruling, Lovald said.
"This is an issue that comes up very rarely. Most people filing for bankruptcy don't have that much equity in their homes."
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