Fraud Exception To Florida Homestead Protection

The Florida Constitution includes three specific exceptions to homestead protection: consensual liens (mortgages); taxes and assessments (homeowners associations) and debts for improvement (mechanics liens). There is an important fourth exception to homestead protection established not in the Constitution but through a history of court decisions. The fourth exception is the "fraud exception." Courts have held that people cannot protect money used to purchase or improve a Florida homestead when the money was obtained by fraud or by breach of a fiduciary duty. Courts use equitable remedies, such as an equitable lien or constructive trust, to pursue the money taken from a fraud victim and put in a Florida homestead.

It is important to distinguish homestead protection from a fraud judgment and the protection of an investment with fraudulent obtained money. The fraud exception to homestead protection applies only when the same money obtained by fraud is used to buy or improve the homestead. The creditor has to trace the money. If Florida resident becomes subject to a civil judgment based on a finding of fraud or breach of fiduciary duty the money judgment based on the fraud count cannot be enforced against the homestead property if the proceeds of the same fraud cannot be traced into the house.

As an example, someone who conducts a ponzi scheme cannot protect the stolen proceeds in a Florida homestead. However, the "bad guy's" homestead is protected from his ponzi victims if the debtor can show that his house was purchased with money other than ponzi proceeds.

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