Florida Asset Protection Blog

Resident's Homestead Protection Does Not Protect Property From Creditor of Non-resident Co-Owner

A parent buys a house for their child to live in. The parent borrows the purchase money by giving a bank a second mortgage on the parents’ own homestead property. The child does not have sufficient income or credit to qualify for a purchase money mortgage on the new home. The second mortgage lender insist that the new property be titled jointly in the names of the parents and the child. The parents and child take title as joint tenants with rights of survivorship. The child moves into the new house and files for homestead taxation. The question posed to me this past week is whether the new home is protected from judgment creditors.

The child and the parents each have an undivided legal interest in the child’s residence. The parents own their 50% interest as tenants by the entireties assuming they own their 50% interest jointly and not 25% each. The parents and the child share legal title as tenants in common. A parent and child cannot own property as tenants by the entireties even though they take title as joint tenants with survivorship. The house is protected from the child’s judgment creditors because it is the child’s homestead. The house is protected from a creditor of either the mother or the father because their interest is owned by the entireties. The house is not protected from a joint creditor of the mother and the father because the house is not the parents’ homestead. The child’s homestead protection does not protect the house from the parents’ joint creditor. A joint creditor of the parents’ may be able to force the sale of the house in which case the child would get 50% of the sales proceeds.

posted by Jonthan Alper, asset protection and banrkuptcy attorney, Orlando, Florida 

Loss Mitigation Contact List

One of the bankruptcy trustees in Tennessee has assembled a list of loss mitigation contacts at the national mortgage lenders. If you would like to discuss a modification of your mortgage with these lenders you might try contacting the people on the list. Download Mortgage-001 

Transferring Real Estate To Friendly Buyers In Today's Depressed Market

The real estate collapse has increased the need for asset protection, and in one way, it has made easier some asset protection tools. Many real estate owners seeking to protect unencumbered properties from potential lawsuits from their mortgage lenders ask whether they can transfer title of the free and clear properties to business associates, friends, or even to family members. Transfers of title without fair consideration are subject to reversal as fraudulent conveyances up to four years after the transfer is made. Transfers for reasonably equivalent value are usually protected from allegations of fraudulent transfers. Owners can sell or transfer their properties to anyone as long as the conveyance is in consideration for receipt of reasonable equivalent value. Reasonably equivalent value may or may not be the same as fair market value; some bankruptcy courts have upheld sales at 20 to 30 percent less than fair market value as a transfer for "reasonably equivalent value."

In a depressed real estate market less money need change hands to substantiate a conveyance when market values, and reasonably equivalent values, are depressed Real estate appraisers have told me that the market is almost completely illiquid and that as a result the practical value of many formally valuable properties is close to zero; real estate cannot be sold or financed. People who want to move properties to closely related buyers may be able to sell the properties in consideration for very little money and defend that transfer against fraudulent conveyance allegations in today’s market environment.

People considering a sale to a friendly buyer should always get the property appraised prior to the sale. The sale contract should have a price within the range of appraised value. Money must actually change hands. The more formal the contract and the closing the easier it will be to later defend the transaction. Some people ask if they can sell property for reasonably equivalent value in the form of a promissory note. This is not a good idea because a creditor of the seller can garnish the note payments and enforce the terms of the note against the buyer.

An owner who transfers title to valued property for reasonably equivalent value must be prepared to explain what happened to the money received. Large amounts of money don’t simply disappear, so it is not credible for the former owner to testify under oath that he simply spent the money. The creditor is entitled to see bank statements tracing the proceeds in to the debtor’s financial accounts and subsequently out of the same accounts. However, asset protection of money is generally easier than the protection of real property.

Real estate owners interested in asset protection planning  should use today’s depressed market values to facilitate some real estate transfers as part of an overall asset protection plan.

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

Debtor Maintains Homestead During Four Year Absence

I often get questions about abandonment of a Florida homestead. People ask whether they can move from their Florida homestead to live in another state and still maintain creditor protection of the Florida residence under the Florida homestead protection. A recent bankruptcy case considered a debtor who moved from her Florida home to another state for several years prior to filing bankruptcy and claimed her Florida property as exempt homestead on her bankruptcy petition. The court held that under the facts of the case the debtor had not abandoned her Florida homestead even though she had not resided there for several years.

The debtor owned and occupied a homestead property in Key West. In 2003, she moved to California with her children to pursue a romantic relationship. She rented the Key West property for income to carry the mortgage. After the relationship ended she stayed in California and moved in with friends; later, she leased an apartment on a month to month basis. Her children enrolled in California schools. The debtor filed bankruptcy in 2007, four years after moving to California.

The court held that these and other facts indicated that the debtor did not intend to abandon the Florida homestead. The court found that this debtor did not establish a permanent place of residence in California by living with others and in short-term rentals. Her renting of her Key West home did not by itself show an intent to abandon the property as her home.

The case illustrates the legal principal that Florida residency and homestead are based on the owner’s demonstrated intent rather than hard and fast rules about time of occupancy or time of living away from the homestead. As long as the debtor intends to maintain the Florida residence as their home they can maintain homestead protection during a temporary absence which is this case lasted four years prior to filing bankruptcy. The case is : In re Lloyd 07-13502

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