Don Frederick Shefte

IN THE UNITED STATES BANKRUPTCY COURT

WESTERN DISTRICT OF ARKANSAS

FAYETTEVILLE DIVISION

IN RE: DON FREDERICK SHEFTE, DEBTOR CASE NO.: 5:21-bk-70177

CHAPTER 7

MEMORANDUM OPINION AND ORDER

Before the court is an Objection to Claim of Exemptions (“Objection”) filed by creditor

Bruce Lewin (“Lewin”) on April 9, 2021, at docket entry 37. The court heard this matter on

September 15, 2021. The debtor, Don Frederick Shefte (“debtor”), appeared personally and by

and through his counsel. Lewin appeared by and through his counsel. At the conclusion of the

hearing, the court took this matter under advisement. For the reasons stated herein, the Objection

is overruled, and the debtor’s claimed homestead exemption is allowed.

I. Jurisdiction

This court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157. This is a

core proceeding under 28 U.S.C. § 157(b)(2)(B). The following opinion and order constitute

findings of fact and conclusions of law in accordance with Federal Rules of Bankruptcy Procedure

7052 and 9014.

II. Facts

The debtor filed a Chapter 7 Voluntary Petition on February 8, 2021. In his schedules, the

debtor claims his residence on a 2.5-acre tract of land as an exempt rural homestead pursuant to

11 U.S.C. § 522. In his Objection, Lewin argues that (1) the debtor is not entitled to claim a

homestead exemption under Arkansas law because he is not “married or the head of a family” as

required in Article 9, Section 3 of the Arkansas Constitution, and (2) the debtor’s 2.5-acre tract of

land is urban and, thus, exceeds the threshold permitted for an urban residence under Article 9,

Section 5 of the Arkansas Constitution. (Objection at ¶ 12, 18.) At the hearing, Lewin’s counsel

conceded that the debtor is entitled to a homestead exemption under Arkansas law. Lewin still

contends, however, that the debtor’s homestead is urban in nature and, therefore, should be limited

to one-quarter of an acre, without regard to value, consistent with the Arkansas Constitution.

The debtor’s homestead consists of his residence on 2.5 acres of land located at 3741 North

Old Wire Road, Fayetteville, Arkansas. Although Fayetteville is the mailing address, the debtor’s

property is located outside of Fayetteville’s corporate limits. The debtor has continuously resided

there for twenty-two years and was married during that time. The property is marked by

undeveloped woods and a creek running along one edge. (Shefte’s Ex. 1.) Additionally,

approximately one acre of the debtor’s property is within the 100-year floodplain and, according

to the debtor, has flooded. The property is flat where the residence is; however, it is “fairly steep”

as it slopes down to the Mud Creek floodplain, Mud Creek, and Old Wire Road. (Shefte’s Ex. 3.)

The debtor requires an easement to access his property from Old Wire Road.

The debtor has never used his property for agricultural purposes. However, the property

adjacent to the debtor’s land is used for agricultural purposes. Specifically, the debtor’s property

is bordered on two sides by a farm that raises and sells cattle. This operation consists of anywhere

from fifty to seventy-five head of cattle at any given time. Also, near the debtor’s residence is a

construction business engaged mostly in grading, a wholesale sod farm, and a piano tunning

business. The debtor testified that the owner of the later runs the business from his home where

he also raises goats.

The property receives water from the city of Fayetteville and electric from Ozark Electric.

It has no municipal sewer services but instead depends on a septic tank. Similarly, the debtor uses

a private garbage pickup service. Police protection is provided by the Washington County

Sheriff’s Department, and fire protection is provided by the Goshen Volunteer Fire Department

for an annual fee.1

The debtor stated that sitting on his front porch feels like the country. The property has a

large front yard, pastoral views and sounds, including birds and cattle, and overlooks large trees,

pastures, and a cattle operation. (Shefte’s Ex. 5.) Occasionally, cattle will make it through the

three-strand barbed wire fence separating the debtor’s property from the neighbor’s cattle farm

and wander into his front yard. (Shefte’s Ex. 5.) Photographs introduced into evidence confirm

the bucolic nature of the property, including the nearby cattle operation and occasional

commensurate intrusion. (Shefte’s Ex. 5.)

The debtor testified that his property is in the designated growth and planning area for the

city of Fayetteville and permission would likely need to be obtained from both Washington County

and the city of Fayetteville if he were to subdivide the property. According to the Washington

County Rural Property Record Card for the debtor’s property, the property is considered “rural.”

(Shefte’s Ex. 4.) Aerial views of the property can be described as extensively “green” to the east

and principally “green” to the west for up to 1.5 miles, or at least until the intrusion of heavily

developed areas in the city of Fayetteville. (Creditor’s Ex. 3.) The debtor’s property is located

within one mile of Fayetteville’s corporate limits and is considered unincorporated Washington

county. The development services director for the city of Fayetteville also testified. He confirmed

that the property is outside Fayetteville’s corporate limits and possibly outside the extra

jurisdictional territory over which cities sometimes exercise limited authority presuming potential

and eventual annexation.

1 The city of Goshen is a town located in Washington County, Arkansas.

Lewin argues that the property is urban in nature. In doing so, Lewin relies almost

exclusively on the property’s proximity to Fayetteville. A private investigator testified that the

debtor’s property is located one mile from a prominent intersection with many businesses

including, banks, restaurants, law offices, an insurance company, medical buildings, a construction

company, automotive services, a dental office, a liquor store, a real estate office, and similar

businesses. (Creditor’s Ex. 2.) More precisely, the debtor’s homestead is located 1 mile from a

bank, 1.3 miles from the Fayetteville Athletic Club and a gas station, 1.5 miles from a church, 2

miles from a golf course, 2.3 miles from a post office, 2.7 miles from a Walmart Neighborhood

Market, 3 miles from a city park and the Northwest Arkansas Mall, and 4 miles from Washington

Regional Hospital. (Creditor’s Ex. 1). The private investigator acknowledged that the business

entities he referenced are located to the west of the property.

III. Analysis

“Section 522(b)[] of the Bankruptcy Code allows [a d]ebtor to exempt from property of the

estate any property exempt under state law as of the date of the bankruptcy petition.” In re Kimball,

270 B.R. 471, 478 (Bankr. W.D. Ark. 2001). Pursuant to Arkansas Code Annotated § 16-66-217,

Arkansas residents can “claim exemptions under 11 U.S.C § 522 of the Bankruptcy Code or the

exemptions provided by the constitution and the laws of the State of Arkansas.” In re Kelley, 455

B.R. 710, 715 (Bankr. E.D. Ark. 2011).

Article 9, Section 3 of the Arkansas Constitution provides:

[t]he homestead of any resident of this State, who is married or the head of

a family, shall not be subject to the lien of any judgment or decree of any court, or

to sale under execution, or other process thereon, except such as may be rendered

for the purchase money, or for specific liens, laborers’ or mechanics’ liens for

improving the same, or for taxes, or against executors, administrators, guardians,

receivers, attorneys for moneys collected by them, and other trustees of an express

trust, for moneys due from them in their fiduciary capacity.

ARK. CONST. art. 9, § 3. At the hearing, Lewin’s counsel conceded that the debtor is entitled to a

homestead exemption under Arkansas law. Thus, the remaining issue for the court to decided is

the nature of that homestead exemption—specifically, whether the debtor’s homestead is rural or

urban.

If rural, the entire 2.5-acre tract of land is protected; if urban, only one-fourth of an acre

enjoys the same protection.2 Article 9, Section 4 of the Arkansas Constitution provides:

[t]he homestead outside any city, town or village, owned and occupied as a

residence, shall consist of not exceeding one hundred and sixty acres of land, with

the improvements thereon, to be selected by the owner; [p]rovided, [t]he same shall

not exceed in value the sum of twenty-five hundred dollars, and in no event shall

the homestead be reduced to less than eighty acres, without regard to value.

ARK. CONST. art. 9, § 4. By electing section 4, the debtor declared his homestead to be rural.

Contrary to the debtor’s election, Lewin contends that the debtor’s real property is urban as defined

by Article 9, Section 5 of the Arkansas Constitution which provides:

[t]he homestead in any city, town or village, owned and occupied as a

residence, shall consist of not exceeding one acre of land, with the improvements

thereon, to be selected by the owner; provided, the same shall not exceed in value

the sum of two thousand five hundred dollars, and in no event shall such homestead

be reduced to less than one-quarter of an acre of land, without regard to value.

ARK. CONST. art. 9 § 5. Pursuant to Federal Rule of Bankruptcy Procedure 4003, “the objecting

party has the burden of proving that the exemptions are not properly claimed.” FED. R. BANKR. P.

4003(c) (2021).

The parties agree that the debtor is entitled to the Arkansas homestead exemption. “The

rule is well-established in Arkansas that homestead laws are remedial and should be liberally

construed to effectuate the purpose for which they are intended.” In re Oldner, 191 B.R. 146, 148

2 If urban, the parties reserved for future determination the value, allocation, and

apportionment issues.

(Bankr. E.D. Ark. 1995). Thus, “[a]ll presumptions are to be made in favor of the preservation

and retention of the homestead.” In re Kelley, 455 B.R. at 715. Accordingly, having a homestead

in Arkansas confers benefits under the law consistent with a legislative philosophy affording

protection from creditors who do not enjoy voluntary or improvement liens on the property.

The debtor’s property is “outside any city, town or village.” Were the inquiry to end here,

the debtor would clearly prevail. He is entitled to an Arkansas homestead, and, in isolation, every

aspect of the property points to its rural nature; Lewin’s proof does not compellingly suggest

otherwise. Lewin relies almost exclusively on the property’s proximity to the city of Fayetteville.

This argument is consistent with authority in both Arkansas state and federal courts that, despite

the clear language in the Arkansas Constitution, mere location inside or outside “any city, town or

village” is not dispositive. Specifically, courts have found that “[t]he question of whether a

homestead is urban property is not ‘altogether controlled by the corporate limits,’ thus property

located within the corporate limits of a town may still be determined rural and property outside the

corporate limits may be determined urban.” In re Weaver, 128 B.R. 224, 227 (Bankr. W.D. Ark.

1991). “The use made of the property is ‘very much pertinent’ to the determination of the rural or

urban character of a debtor’s homestead.” Id. For example, “[u]se of the property for exclusively

agricultural purposes generally indicates a rural homestead; however, property used for another

purpose may still be determined rural.” Id. Further, “[c]ourts have focused on the characteristics

of the property and surrounding area in determining whether the homestead should be considered

rural or urban.” In re Evans, 190 B.R. 1015, 1022 (Bankr. E.D. Ark. 1995). Consequently, the

court’s ultimate decision “must be determined based on the facts of each case and must be

considered in light of the intent of the constitutional provisions allowing the exemption.” Oldner,

191 B.R. at 149.

Several courts have considered whether a debtor’s Arkansas homestead exemption

qualifies as urban or rural. In Weaver, the court analyzed whether a 10-acre plot of land comprising

two lots was rural or urban. Weaver, 128 B.R. at 225. The debtor’s property was located within

a subdivision known as Wofford Estates; however, the nearest stores and banks were fifteen to

twenty miles from the property. Id. at 228. Additionally, the road leading to the property was not

designated as a county road; no city tax was assessed; only electrical service was provided to the

property; the property used private septic tanks; it had “no local government or police protection”

and was “serviced by a volunteer fire department.” Id. The property neighboring the debtor’s

property was owned by a man operating a beef cattle business. Id. The area also lacked a “school,

church, drugstore, barber shop, industry, motel, or service station.” Id. Based on those facts, the

court found that the debtor’s property was rural as it “d[id] not possess the requisite urban

characteristics of a city, town, or village. The only characteristic which could be construed as

urban is that the property is divided into a subdivision[.]” Id.

In Oldner, the court decided that “9.7 acres of land located in Saline County, Arkansas”

was urban rather than a “rural homestead.” Oldner, 191 B.R. at 147.

The facts in this case support a finding that the debtor’s homestead is urban

in nature. The Court observed from viewing the area in which the debtor’s property

is located that the property is located in a megalopolitan area that has developed in

recent years on either side of Interstate 30 from Little Rock, Arkansas, on the north

and Benton, Arkansas, on the south. Bryant, Arkansas, is located in between Little

Rock and Benton. While traveling on Interstate 30 between Little Rock and Benton

it is not easy to discern when you leave one municipal corporate limit and enter

another. Land uses range from single family residences to commercial and

industrial uses. Only a relatively small percentage of the land in the immediate area

is still devoted to agricultural activity.

The property has access to the common attributes and conveniences of a

town or city. Although many of the town or city conveniences such as grocery

stores, banks, retail stores, and service stations are located one to five miles from

the debtor’s property, the road and highway systems in the area are substantially

developed and access to these conveniences are readily available by automobile in

a matter of a few minutes. The residents in the area in which the debtor’s property

is located enjoy the same conveniences as residents of the nearby cities enjoy and

the residents are engaged in pursuits related to and carried on in the cities. All these

characteristics taken together clearly support a finding that the debtor’s property is

urban in nature.

Id. at 149–50.

Similarly, the court in Evans found the debtors’ “2.8 acre tract of land located on Grider

Field Ladd Road in Jefferson County, Arkansas” to be urban in nature. Evans, 190 B.R. at 1017.

In this case, the facts support a finding that the debtors’ homestead is urban

in nature. The debtors’ property . . ., although not technically within the city limits

of Pine Bluff, is only six to eight feet away. The debtors’ property enjoys all the

modern conveniences that are enjoyed by the residents of the city of Pine Bluff.

For example, electricity and phone services are provided by the same suppliers that

service Pine Bluff residents. Emergency services, including fire, police, and

ambulance services, are provided to the property through the 911 Emergency

Service System in Pine Bluff, Arkansas. In addition, although the debtors use the

services of a Ladd Water Association, city water is available at the road adjoining

the property. Retail services [including the Pines Mall] such as gas stations and a

grocery store are available approximately one mile from the homestead.

The bus manufacturing business located on the debtors’ property is

consistent with other uses of the property in close proximity to the debtors’

residence. The surrounding area contains many commercial and industrial

businesses, which is not characteristic of a rural area, but more characteristic of an

urban area.

Id. at 1023–24. Echoing the analysis in Oldner, the court in Chambers found that the debtor’s

“property has immediate access to all of the common attributes and conveniences of an urban area.

The distance to all of the urban amenities available in Nashville, Arkansas, are either adjacent to

the property or accessible by a vehicle in less than ten minutes.” In re Chambers, 2003 WL

21397757 at *4 (Bankr. W.D. Ark. Apr. 10, 2003).

In Kelley, the court analyzed whether the trustee “satisf[ied his] burden of proving that

debtor’s homestead property was ‘urban’ in character.” Kelley, 455 B.R. 710. The debtor resided

on eight acres in Lexa, Arkansas, and exempted his homestead as rural property pursuant to Article

9, Section 4 of the Arkansas Constitution. Id. at 712. In sifting through the facts, the court noted

that the “evidence [wa]s evenly balanced with no preponderance in favor of either [the trustee or

the debtor].” Id. at 717.

The property in question has characteristics of both an urban and rural

homestead. Factors suggesting urban include the property’s proximity to the town

of Helena–West Helena; the availability of all urban amenities of Helena–West

Helena; the Debtor’s property corners on the city limits of Helena–West Helena;

the residence is provided some city services such as water, fire protection, garbage

pickup; the property has telephone service and the electric service is provided by

Entergy and not a rural co-op; the property is located on a paved road []; the

property is not devoted to agricultural use; and the surrounding area consists of

houses on either side of the highway beginning north of the Debtor’s property south

toward Plaza Street.

Factors which suggest rural include the size of the Debtor’s yard; its

location outside the city limits of Helena–West Helena; the fact that in the near

vicinity of the Debtor’s property the city limits form a strip along the highway and

the houses are usually on a large tract fronting the highway while the use to the

west behind the houses is devoted to agricultural uses; the land to the east in front

of the Debtor’s property is not conducive to agricultural uses because it is within a

ridge area; the Debtor has some animals and a barn located on the property; the

property is not served by city sewer; the post office serving the residences is located

in Lexa, Arkansas, a tiny community four miles west and north of the subject

property; along Fourth Street Road traveling east toward Plaza Street there are a

number of vacant parcels; the population of Helena–West Helena declined from

15,000 residents to 12,000 residents in 2010; the property is taxed as rural property;

and law enforcement is provided by the county sheriff's office and not city police.

After considering the factors listed above and the impression gained from a

view of the residence and surrounding areas, the evidence is evenly balanced with

no preponderance in favor of either party. Therefore, the Trustee’s objection must

be overruled because he is the party who carries the burden of proof and with the

evidence evenly persuasive he has not sustained his burden of proof. The objection

to the Debtor’s homestead as being urban is overruled and the homestead is

determined to be rural.

Id. at 716–17.

The facts in this case, the presumptions in favor of the homestead, and the allocation of the

burden of proof on the objecting party collectively compel the conclusion that the debtor’s property

is rural in nature for purposes of the homestead exemption. Based on the proof at the hearing,

which was not effectively disputed by Lewin, the property, taken in isolation, is unquestionably

rural. It is a 2.5-acre wooded tract of land in a pastoral environment of which significant parts are

undeveloped, timbered, steep in places, lying within a floodplain, and bordered by a creek and

farm animals. It has no direct access to a road and must depend upon an easement. It is surrounded

by properties used for agricultural or farm purposes, including a sod farm and properties used for

raising cattle and goats. It relies on a septic tank, private trash service, the county for police

protection, and a fee paid volunteer fire department. There is literally no proof that the property

or its immediate contiguous areas are anything other than rural.

The only facts tending to diminish or temper this conclusion relate to the proximity of the

amenities available in the city of Fayetteville. The weight, however, of this evidence must be

equally tempered by the fact that the closest cited amenity, a bank, is at least a mile away, and

most amenities are in the two mile range from the property. (Shefte’s Exs. 1, 3.) Additionally,

the overhead view reflects that that the 1 to 1.5-mile range west of the property shares the same

heavily wooded and rural nature of the vast rural expanse to the east of the property. (Creditor’s

Ex. 3). While proximity to amenities is a factor, it is not the sole and exclusive determining factor,

especially when no other factors or evidence in the aggregate support the conclusion that the

property should be defined as urban rather than rural.

Unlike Oldner and Evans, the debtor in this case does not live immediately adjacent to a

city or in a highly developed area as part of a megalopolitan expanse. Rather, he lives in an area

characterized by a large expanse of rural property to the east and west with only the intrusion of

the city anywhere from a mile to two miles to his west. All the contiguous and nearby properties

relate to traditional rural activities. Nothing more than the intrusion of the city a mile to his west

suggests that this property or its contiguous areas are anything other than rural. To hold that solely

these amenities—ain isolation from all other factors—are dispositive would be a determination that

the penumbra of every city, town, or village in Arkansas is per se urban. Such a finding is contrary

to the presumptions in favor of the homestead and the appropriate inclusion and consideration of

other factors in determining the nature of the property in question. This court’s conclusion is more

consistent with that of Ke//ey but with the proviso that its determination, while based on the burden

of proof, is less dictated by that burden given the lack of any evidence diminishing the rural nature

of the property other than its proximity to a city.

IV. Conclusion

For the reasons stated above, Lewin’s Objection is overruled, and the debtor’s claimed

homestead exemption is allowed.

IT IS SO ORDERED.

Dated this 7th day of October, 2021.

HONORABLE RICHARD D. TAYLOR

UNITED STATES BANKRUPTCY JUDGE

ce: Don Frederick Shefte

Stanley V. Bond

J. Brian Ferguson

Hamilton Moses Mitchell

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