This Floridian's Annuity Proceeds May Not Be Creditor Protected
Annuities are exempt in Florida, and so are annuity proceeds. A client consulted with me today regarding assets which include a bank account, in his own name, which account contains $20,000 of annuity proceeds. There is no money in this bank account other than these annuity proceeds. Florida courts have protected annuity proceeds after they have been deposited in the debtor’s financial account as long as the money is traceable to an annuity. The annuity proceeds in this debtor’s bank account represent a final payment of an annuity purchased by his mother in New York for the debtor’s benefit. The debtor/son was the sole annuity beneficiary. The money is exempt, right? I thought so until I re-read the annuity statute. Now, I’m not so sure the money is protected from the son’s creditors.
Florida’s annuity statute, Section 222.14, exempts "the proceeds of annuity contracts issued to citizens or residents of the state, upon whatever form...." My client is a Florida resident and the only annuity beneficiary, but the annuity was not issued to my client. The annuity was issued to his mother who was a resident of New York. I don’t think the annuity qualifies for exemption under the statute because it was not issued to a resident of Florida, and therefore, I do not believe the annuity proceeds are exempt from the client’s creditors.
However, there is a 1996 court decision the Jacksonville Division of the Middle District of Florida wherein the bankruptcy judge disagreed with my interpretation of the statute. This judge found that the statute requires only that the "proceeds" of the annuity contract be issued to Florida residents. In re Allen, 203 B.R. 786.
November 17, 2009 in Florida Residency | Permalink | Comments (0)
Builders' Retroactive Tax Refunds Must Be Protected From Current Creditors
I read an article in the N.Y. Time Week in Review section about the government’s expansion of tax breaks to home builders. The government is permitting builders to amend tax returns and use losses incurred during the past two years to offset income reported as far back as 2004. The Times characterized this policy as a "gift.". I have had builder clients over the past few months who have told me they expect huge tax rebates coming from the government’s retroactive tax loss program.
My clients who expect a large income tax rebate usually have current creditor problems. Usually the problems concern commercial loans which have been called or may be called in the near future. In most cases, the tax refund from the retroactive loss program is not enough to pay off the problem bank loans.
I explain to these clients that these prospective tax refunds, even though not receivable until the client files his next return or amends prior returns, is an asset today. When the law passes, the client/debtor is immediately entitled to claim the money from the government. Today’s creditor can levy upon the tax refund and collect the refund when claimed. This happens every day in bankruptcy court. The Chapter 7 bankruptcy trustees typically gets debtors to provide their 2009 tax return when filed. The trustee may take any refund due to the debtor for his income prior to filing bankruptcy in 2009, when the debtor files his income tax return in April, 2010.
If you are a builder or developer with potential retroactive tax refunds you need to consider how you can protect these tax refunds from current creditors. Or, you will need to protect the cash you ultimately receive from your potential future creditors.
November 15, 2009 in In The News | Permalink | Comments (0)
Exemption Of V.A. Disability Payments And A Military Thrift Savings Plan
One of my asset protection consultations this week was with a military attorney. Hisjob is traveling around to military sites, both domestic and in combat areas, to advise soldiers about their V.A. benefits. Interesting job. In any event, my client had some civil creditor problems. Hispersonal assets included a "Thrift Savings Plan" with the government and a stream of disability payments from a V.A. disability insurance policy. Neither of these assets are not clearly exempted in the Florida statutes.
The client’s V.A. disability policy could be exempt under Florida Statute 222.18 which protects, "disability income benefits under any policy or contract of life, health, accident, or other insurance.... I think a creditor attorney could argue that V.A. benefits are not protected by this statute because they are not due pursuant to a disability "policy or contract" as they are automatic benefits given to all military employees by virtue of their service. I think most courts would reject that distinction. Nevertheless, the providing to V.A. disability to our soldiers provides independent protection. The federal V.A. laws provide that benefits administered by the V.A. are exempt from claims of creditors before or after receipt.
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November 12, 2009 in Client Questions | Permalink | Comments (0)
Lender Pursues First Mortgage Deficiency Judgment
One of this week’s new clients was a man living in New York City who had over $20 million of mortgage debt, including a $3 million first mortgage owed to Fifth Third bank secured by a Florida property. Fifth Third foreclosed on the Florida mortgage, and immediately after the foreclosure sale, the lender filed a motion for a deficiency judgment. The client said he did not defend the deficiency motion (he should have defended), and court entered a $1 million personal judgment. This is one of the few cases I know of where a first mortgage lender pursued a deficiency judgment. There is nothing unusual about this client’s situation other than, perhaps, the large amount of the mortgage debt. Time will tell is this lawsuit indicates a more aggressive policy by mortgage lenders in Florida.
November 8, 2009 in Foreclosure | Permalink | Comments (0)
Deeds In Lieu Of Foreclosure : Make Sure Lender Is Offering The Real Thing
Each week I talk to several people about negotiating a deed in lieu of foreclosure with their mortgage lenders. Like so many people around the county, these clients are experiencing problems paying mortgages on their upside down real estate. I typically tell people that as long as they are current on their mortgage they are wasting time trying to convince a mortgage lender to accept a deed in lieu. Banks will not consider a deed in lieu, short sale, modification or any other work out proposal until the borrower is in default, and usually not until loan payments are at least three months past due. My clients report that it is impossible to negotiate a deed in lieu until the property is in foreclosure; one reason is that until a foreclosure lawsuit is started and both sides are represented by attorneys it is difficult for you or your attorney to reach a bank representative who has authority to negotiate a deed in lieu or modification.
So I was surprised today when a client reported that his mortgage lender readily accepted a deed in lieu on one of his upside down rental homes after he was only two months behind in mortgage payments. Was it true, and were lenders finally beginning to accept owner’s offers to voluntarily deed back properties in lieu of foreclosure? Not exactly.
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November 3, 2009 in Mortgage Foreclosure | Permalink | Comments (0)
Garnishment Of Homestead Reverse Mortgage Payments
During this past week I met with a new client who had recently been subject to a money judgment from a credit card company. The client, retired, had a reverse mortgage on his homestead which money he used to pay his basic living expense. As most know, a reverse mortgage involves a bank providing a guaranteed monthly payment for the owner's life in exchange for the house title upon the owner's death. The retired client was concerned that his creditor could garnish his monthly reverse mortgage payments. I don't think a court would permit garnishment of reverse mortgage payments if the mortgaged property were currently the debtor's homestead. Protecting money received and deposited in the debtor's bank account is more difficult.
Lets start with the general rule that although your homestead is creditor exempt once you convert the homestead equity to cash by mortgage or sale the money is no longer protected by the constitutional homestead protection- the one exception is the continued exemption of sale proceeds intended to purchase a replacement homestead. Application of this general principal would lead to the conclusion that proceeds payable or paid from a reverse mortgage are not protected. I think a court would not permit the garnishment for two reasons. In my opinion there is a strong public policy protecting the money people rely upon for retirement, and in most cases, reverse mortgages are used to fund retirement of seniors who have managed to pay off their mortgage. A brief legal research session revealed no Florida cases on this issue.
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October 30, 2009 in Client Questions | Permalink | Comments (0)
