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Fact: D and his wife entered into a contract for deed for the purchase of a 160-acre farm. Later, the Hedges assigned their vendees’ interest to Hedge Farm, Inc. as a family farm corporation qualified under Minnesota law. D, his wife, and their daughters were the corporate directors, with D as president, Patricia as vice president, and his wife as secretary-treasurer. And, none of them received any salary. And, Sam Hedge purchased farm supplies and services on account from P, totaling about $17,000 after the aforesaid events. P became aware of Hedge’s corporation after starting suit on the account. An execution sale was held with P as the successful bidder. Shortly before the 1-year redemption period expired, the district court enjoined further proceedings on the execution, tolled the redemption period, and allowed D’s wife to join the proceedings as an intervenor. The trial court and the court of appeals ruled that the Hedges has a right to exempt from the execution 80 acres constituting their homestead.
Issue: Do the owner-occupants of a farm, by placing their land in a family farm corporation, lose their homestead exemption from judgment creditors?
Holding: No, it is treated the Hedge farm as if owned by D and his wife as vendees under their contract for deed by disregarding the entity the family corporation, thus, D is entitled to claim a homestead exemption in 80 acres of his farm, and the creditors’ execution sale of the exempted 80 acres is void.
Rule: Originally, it is the constitutional right to exempt a homestead from seizure or sale the house owned and occupied by the debtor as his dwelling place, together with the land upon which it is situated. (Minn. Stat. § 510.02).
In rural areas, 80 acres may be exempted (Minn. Stat. § 510.02)
And, a corporation, an artificial entity needing no dwelling, is not entitled to a homestead exemption. (Sugg v. Pollar).
Application: Here, D’ farm placed under a family farm corporation is exempted according to the district court and court of appeal. Thus, it would be one personal to D, notwithstanding the existence of their corporation. According to Roeke, the court disregarded the corporate entity where the decedent had been president and sole stockholder of the corporation, that all six vehicles were used as family vehicles, and that no one in the family-owned any other vehicles based on reasoning that it seemed unfair to deprive the business owner of no-fault coverage he would have had if he had operated as a sole proprietorship. Here, there is a close identity between the Hedges and their corporation. While the Hedges maintained some of the corporation formality, they had no lease with the corporation and paid no rent. In addition, the farmhouse was their family home. D’s wife owned all the stock. All of their family were corporate directors. Thus, it was as much as alter ego for the Hedges. Also, according to Kuennen, the court explicated the policy reasons for a pierce do not alone justify disregarding the corporate entity. Not only the degree of identity between the individual and the family corporation, the extent to which the corporation is an alter ego, is important, whether a creditor or other shareholders would be harmed by a pierce is important. The policy for a reverse pierce is just not for the debtor’s benefit, but it also “in the interest of the state, whose welfare and prosperity so largely depend upon the growth and cultivation among its citizens of feelings of personal independence, together with love of country and kindred - sentiments that find their deepest root and best nourishment where the home life is spent and enjoyed. (Ferguson v. Kumler). Also, the law also permits moratorium on the foreclosure of certain mortgages and contracts for deed when the property involved qualifies for homestead tax treatment. (Minn. Stat. ch. 583) Besides, the legislature has given homestead classification for real estate tax purposes to homesteads held in daily farm corporations where a shareholder occupies and actively farms the land. (Minn. Stat. § 273. 13, subd. 6a) Here, P is no more adversely affected by the reverse pierce than the insurance company in Roepke. There is no claim that the rights of other shareholders are harm, and as for creditors, if the Hedges who live on the farm are in reality its owner, any unfairness in allowing them the homestead exemption is merely inherent in the exemption itself. Also, Creditors are deemed to extend credit in awareness that, should an individual debtor default, a homestead is exempt. Here, when P extended credit, it was to D, and only after suit was filed did P discover the existence of the family farm. Thus, D is entitled to claim a homestead exemption by disregarding the entity of the family corporation (reverse pierce).
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