Florida Asset Protection Blog

Perfection of Equitable Lien Or Constructive Trust

A collection attorney from outside Florida called me about enforcement of an equitable lien on property. He obtained a judgment from a Florida court against a Florida debtor declaring that the creditor had an equitable lien on real property owned by the debtor and that the debtor held title in constructive trust for the creditor. The attorney wanted me to send him a form for perfecting his lien and trust.

As far as I know, there is no separate form for recording or perfecting a court order which declares an equitable lien. I suggested that the attorney record a certified copy of the court order in the county where the property was located, or alternatively, that he record some form of notice of equitable lien or trust which references the court order. Let me know if anyone is aware of a better procedure to perfect an equitable lien or constructive trust on real property.

Of course, if the debtor’s property was his homestead (its not in this case) the debtor may have asserted homestead defenses against the lien and trust.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Beware Of Short Sales

Many people who invested in real estate at the end of the boom are in financial trouble. I have been getting more and more inquiries from individual investors facing foreclosures of their investment properties. Often, people tell me they are discussing “short sales” with their mortgage lenders. In a short sale, the lender allows the house to be sold for less than the mortgage balance. The borrower avoids a deficiency judgment. The lenders would rather get most of their mortgage through a sale arranged by the owner then take the property back at a foreclosure sale. Borrower should beware of short sales.

The problem for the borrower in a short sale is that the difference between the payment to the mortgage company and the full mortgage balance is a forgiveness of debt for tax purposes. The mortgage company is forgiving the debtor’s liability for the deficiency. The IRS considers forgiven debt to be taxable income to the borrower. The mortgage lender may send the borrower a Form 1099 for the amount of the deficiency. Most borrowers who cannot afford mortgage payments can even less afford additional tax liability. Owing money to the IRS is usually worse than owing money to a mortgage lender. Many mortgage lenders will not pursue debtors for deficiency judgments; the IRS will always pursue unpaid taxes. For that reason, most borrowers will fare better by letting their property go to foreclosure, even if the foreclosure may result in a deficiency liability.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Can Debtor Protect Nonexempt Real Property By Making The Property His Child's Homestead?

Man owns several rental properties and a primary residence. He is concerned some of his rental properties will be foreclosed as the falling real estate market has made it impossible to sell the homes for enough money to pay the mortgage and rental income does not cover monthly expenses. One of the rental home is owned free and clear. The man asked whether he can protect the free and clear home by deeding it to his adult child and having the child move into the home as the child’s primary residence. The man understands the transfer would be a fraudulent conveyance if one of his homes went into foreclosure and resulted in a deficiency judgment in the near future. His question is whether a creditor could take the transferred house occupied by the child and whether this is a viable asset protection plan.

The answer is no and no. I do not think the man’s creditors can take the house once owned and occupied by the child. The house would be the child’s homestead, and even if the child acquired the house as a result of a fraudulent transfer the creditor cannot set aside or reverse the conveyance of homestead property. I do not think this is an effective asset protection plan because the creditor would get a money judgment against the child for the value of the transferred property. Even if the child can protect the house he received, the child would still have a large money judgement against him. A fraudulent conveyance suit results in a money judgment against the transferee. The creditor could collect the judgment by levying upon nonexempt assets owned by the child. Homestead protection shields residences from fraudulent conveyance suits, but it does not protect against fraudulent conveyance judgments.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida.

Credit Card or Debit Card Tied To Offshore Bank Accounts

Most of my knowledge about offshore bank accounts comes from my clients’ experiences. This past week one of my new clients spoke with me about an offshore bank account he had previously established and funded. I asked him how he accesses his money from a bank located in another country. Specifically, I asked whether the bank issued him a debit card which he uses to make payments in the U.S. or whether he uses a credit card tied to his offshore bank account.

The client told me that he uses a credit card to charge his U.S. expenses and that the foreign bank automatically pays the credit card from his checking account. He explained that he cannot use a debit card. The reason is that, according to this client, courts in the U.S. consider a debit card to be a negotiable asset, and a creditor can get an order from a U.S. court either levying on the debit card or permitting the creditor to use the debit card to pay the judgment. The client states that a foreign bank will not block a U.S. court order which forcibly withdraws money with a debtor’s debit card.

I do not know whether the client is accurately explaining the difference between using a debit card and credit card tied to an offshore account. I do recall that the IRS has cracked down on offshore credit cards used to evade reporting income deposited in offshore accounts. Otherwise, I present the information for readers to evaluate for themselves.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Opinions Wanted: Are Punitive Damages Available For Fraudulent Conveyance

I found an interesting issue in a California bankruptcy case concerning fraudulent conveyance. A bankruptcy corporation paid many expenses within one year of bankruptcy including salaries and other money due to corporate insiders who had provided services to the corporation. The Trustee filed a complaint alleging the payments to insiders were fraudulent transfers. Some corporate insiders were Florida residents. The bankruptcy trustee sued these Florida insiders under the fraudulent conveyance sections of the bankruptcy code and under Florida’s fraudulent conveyance statute. A jury returned a verdict against the insiders, in favor of the bankruptcy trustee, finding that there were fraudulent transfers and that such transfers were made “with malice.” The court entered a verdict against the Florida insiders finding them jointly and severally liable for the total amount of fraudulent transfers by the debtor corporation and imposing $2 million punitive damages. The individuals are considering whether a fraudulent transfer judgment can include punitive damages.

I have not heard of any court decision that punitive damages are permitted for fraudulent conveyance under the bankruptcy code. I know one case from 1984 in Texas were a federal appellate court held there can be no punitive damages under the applicable bankruptcy code sections. I think some bankruptcy court have awarded punitive damages for fraudulent conveyance under applicable state fraudulent transfer statutes. Florida courts take a strict view of fraudulent conveyance remedies and have not allowed any damages other than the reversal of the transaction. Anyone’s informed thoughts would be appreciated. Is there a basis for punitive damages for fraudulent conveyance under the bankruptcy code?

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Spouses's Liability For Receiving Fraudulent Conveyance

I often receive calls, like this one, where a potential debtor is concerned that asset protection planning can affect his spouse. This man wanted to open a new bank account with his wife as “tenants by entireties” and deposit some of his separate money in the account. There were currently no judgments or lawsuits against the caller, but he was involved in a business disagreement which he feared could lead to a lawsuit and liability. He wanted to better protect his assets, but he did not want to make his wife involved in his problems.

Unfortunately, asset protection sometimes creates risk for an innocent spouse. In this case, the risk is that the husband’s transfer of funds into the new entireties accounts could someday be challenged as a fraudulent conveyance. A creditor’s fraudulent conveyance lawsuit would name the wife as a defendant; the husband/debtor may not be named as the defendant in the fraudulent conveyance suit. Any conveyance of any interest in property to a family member increases the recipient’s exposure to fraudulent conveyance litigation.

On the other hand, the recipient’s exposure is limited. The fraudulent conveyance remedy is the return of the property to the debtor. A fraudulent conveyance action cannot impose on the recipient / transferee any liability greater than the amount of asset value received. So, if this debtor’s wife were sued as a recipient of a fraudulent conveyance she should be able to resolve the lawsuit by returning to the debtor/ husband the amount of money she received in the entireties account. To further illustrate the principle, in most cases if the debtor conveys by deed a property to his spouse, or to he and his spouse jointly, the non-debtor spouses should be able to absolve herself of liability by executing a quit-claim deed of same property back to the husband or his creditors.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Typical Homestead Concerns and Questions

I received a call from an out-of-state businessman who anticipated a large judgment. He had already listed for sale his current home and anticipated moving to Florida. He already had a vacation home in the Caribbean. He fired off several quick questions, each of which are common questions about Florida homestead and warrant repeating. His question were: 1. Does it make any difference if I title my Florida homestead just in my name because my wife and I separate our assets? 2. Does it matter if I spend several months a year in my Caribbean home. 3. Is there anything I have to file with the State of Florida to get residency and homestead protection, and 4. Does it matter if I return to the state of my previous residence for weeks at a time for business reasons?

The answer to all questions is “no”. Florida homestead protection is more simple than most people imagine. If you make your Florida residence your “primary residence” that is, the place where you get your mail, keep your stuff, send your kids to school etc., then your Florida residence is protected from judgment creditors. Generally speaking, it makes no difference how much time you are away from your home for business reasons or how often you visit a vacation home, and it does not matter how your homestead is titled so long as it is your house. Homestead is not about waiting periods, filing documents, or logging time; its about your intent to call Florida your home.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida