Florida Asset Protection Blog

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.

 

This client will have more problems protecting the reverse mortgage proceeds after they are deposited in a bank account. Florida courts have protected pension or 401k funds after deposited in financial accounts. There are too many cases holding that homestead proceeds lose asset protection in a bank account unless clearly intended to buy another homestead. This client will have to deposit his reverse mortgage checks in a protected financial account.

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

Deferred Compensation Is Not Protected As Pension Or Wages To Head Of Household

Retirement plans are protected from creditors in Florida, except when the "retirement plan" is not a retirement plan. Consider, for example, a client who told me about his "Senior Executive Retirement Plan (SERP)." Initially, I told him his plan is protected from creditors as a retirement or pension plan. Upon further review, it turned out that this employer benefit plan is not protected by Florida law.

Florida Statute 222.21 protects tax deferred retirement and pension plans including most IRAs. The statute refers to specific IRS Code sections, and the debtor’s benefit plan must fit under one of the listed Code sections. After our initial meeting, this client sent me written information about his SERP. It turned out that the Senior Executive Retirement Plan was actually a deferred compensation plan. The employer withheld parts of the client’s salary until after retirement. The company’s plan did not fall under any of the IRS deferred taxation retirement plans listed in the applicable Florida Statute 222.21. The client suggested that his deferred compensation might be protected under Florida Statute 222.11 which protects from garnishment wages of a head of household. His current compensation consist of wages, and therefore, he argued that the same compensation paid after his retirement is also a form of protected wages.

Florida courts have not protected money paid or payable to a debtor as deferred compensation. A Florida bankruptcy court rejected attempts to protect a debtor’s deferred compensation either as wages under F.S. 222.11 or as a form of a pension under F.S. 222.21. (221 B.R. 537). This example illustrates the importance of examining statements and underlying documents of your financial plans to make sure they are protected under Florida law.

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

Garnishment of Alimony

A judgment creditor threatens the debtor to garnish her alimony payments she receives from her ex-husband on a monthly basis. The debtor depends on the alimony to pay her mortgage an other household expenses. The debtor asks if the alimony is exempt from garnishment under the Florida statutes.

There is no statutory exemption of alimony or child support receipts. However, Florida courts have not allowed judgment creditors to garnish the debtor’s alimony payments. Garnishment is permitted only where the garnishee (alimony payer) and the debtor have a debtor-creditor relationship. A Florida court many years ago held that alimony was not a "debt" in the traditional sense, and that alimony therefor could not be subject to garnishment. The court also held that public policy prohibited the garnishment of alimony from one ex-spouse to the other. No court has disagreed. The same court also found that alimony is not a form of wages which could be exempt under Florida’s protection of head-of-household earnings.

Mortgage Modification: An Explanation Of Why Lenders Prefer Foreclosure Of Delinquent Mortgages

A good percentage of my clients over the past three years have been trying to save homes from foreclosure by modifying their mortgages. Successful modifications are becoming more common, but still, the vast majority of people who call me state that their mortgage lender is not willing to modify their loan in a way that would permit the borrowers to maintain the mortgage until the housing market recovers. Clients wonder, and they asked me, why their mortgage company would rather force them into foreclosure than modify the mortgage so that the loan can be paid. Why, clients asked, would the bank want their vacant property rather than whatever amounts of money the clients can afford to pay.

I just read an interesting article by Mr. Richard Kessler, CEO of a web based company called www.cancelthemortgage-now.com, about the mortgage lending industry's loan modification policies. Mr. Kessler suggests several reasons why mortgage service companies have difficulty entering into flexible mortgage modifications and why they have rational reasons to foreclose delinquent mortgages. His article tries to explain the difficulty you may experience trying to modify your own home mortgage. Rather than try to paraphrase the article, I offer selected portions for your own reading:

Mr. Kessler states as follows:

"The cost of a foreclosure, it turns out, is pretty staggering and one wonders why lenders and the investors they represent aren't jumping at a solution, any solution, that would allow them to avoid going to foreclosure whenever possible... The fact is the banks prefer to take large losses in foreclosure rather than offer various types of smaller discounts to enable the debtor to convert a loan in default into a performing loan. Part of the problem is the moral cost dilemma. If defaulting loans are getting a better deal than those loans which continue to perform, it is but a question of time until more and more loans go into default. If bad behavior is rewarded instead of punished, more and more people will behave badly...."

"What everyone overlooks is the institutionalized constraints to mortgage modification which have resulted from the securitization of mortgages. More than 80% of all mortgages have been converted into securities. This practice has divided those who control the mortgage from those who suffer from the incidence of loss. The certificate holders bear the losses. The trusts and servicing companies control the mortgage. ..For the banks which control but do not own the mortgages in default, foreclosure is far, far more profitable. It is highly profitable to collect the fees associated with foreclosure rather than to forego the profits in favor of an alternate dispute resolution. This is a major constraint to mortgage modification of securitized mortgages."

"In addition, there are many constraints to mortgage imposed upon securitized mortgages. These restrictions either prohibit or restrict the changes which can be made to mortgages in default. Some of these restrictions are contained in the master pooling and servicing agreement which form the investment vehicle."

posted by Jonathan Alper, asset protection and bankrupty lawyer, Orlando, Florida

Nevada Law Helps Asset Protection Planning With Some Partnerships And LLCs

The 2009 Nevada legislature passed an interesting estate planning statute designed to increase the effectiveness of family limited partnership (FLP) and family limited liability companies (FLLC) for estate tax planning. The bill, SB 350, went into effect on October 1, 2009. An article about the new law appeared this week in Lawyersusaonline.com. Lawyers USA Online. I was intervied by the author, Correy Stephenson,  in order to discuss the bill's effect on asset protection planning.

The bill provides for new business entities called Nevada Restricted Limited Partnerships and Nevada Restricted Limited Liability Companies. The "restriction" aspect means that the LP or LLC is restricted from making distributions to its partners (members) for a period of up to ten years. The restrction against distributions effectively locks money inside these entities. In theory, the applicable restrctions warrant greater valuation discounts from fair market value of assets held in these new entities. For families with taxable estates a greater valuation discount means lower estate tax bills. Estate tax planning is the primary benefit of the Restricted LP and LLC.

I think that restrictions against distributions conmplated by the new Nevada law may also have an asset protection beneift. The judgment creditor's remedies against the debtor's interests in either a partnership or LLC is limited to a charging lien against distributions, if any, when made. If a judgment debtor was not receiving cash distributions from a partnership or LLC controlled by himself or a family member the creditor's charging lien would yield no recovery. However, the judgment creditor could pursue a court order requiing distributions be made by the general partner or manager. In my opinion, the judgment debtor would have a better defense against compelled distributions where the partnership or LLC owned by the debtor was a Nevada Restricted LP or LLC, all other things being equal. As the law is so new it will take a long time before its terms are tested in an asset protection court case.

posted

Second Mortgage Sabotage Of First Mortgage Modification Plan

I would like to ask you, the blog readers, to help a reporter who is investigating  practices in the mortgage modification programs. A national business publication is investigating overly aggressive second mortgage lenders. The reporter, Mr. Robert Berner (312-451-7149), is looking at situations where a second mortgage lender sues a homeowner after the homeowner has already entered into a modification agreement with the first mortgage. The second mortgage gets a judgment against the homeowner and then garnishes the owner's bank accounts or salary which causes the homeowner to default under the first mortgage modification agreement. These second mortgage lenders are sabotaging the modification programs set up and encouraged by the government to help homeowners. In some cases where the same bank holds the first and second mortgage the bank modifies the first mortgage and then sells the second mortgage to a third party investor which then agressively collects the second or even sues the homeowner for delinquent second mortgage payments. These mortgage lenders appear cooperative in modifying their first mortgages but then undermine the same modification by collecting or selling the second mortgage.

A related mortgage issue I have heard about from my own clients occurs when a homeowner has checking accounts at the same bank that holds his home mortgage. Some clients have reported that when they missed a mortgage payment the bank invaded their checking account and pulled the mortgage payment out of their checking account without notice. I have previously posted my general advice which is to move your accounts out of the bank that holds your home mortgage if you miss a mortgage payment.

Please get involved. If you have had a mortgage modification plan ruined by a second mortgage holder who sued you during the modification process, or if you have had your mortgage lender grab mortgage payments from your checking account at the same back before a foreclosure or other lawsuit was even filed, call Mr. Berner (312-451-7149) and discuss your experiences.

Homestead Protection Not Lost Just Because Judgment Shows Up On Title Search

From time to time people call me and state that a title search discovered a judgment lien on their homestead. They ask how a judgment can encumber their homestead property if homestead is exempt from creditors.

A title search does not answer the question of whether there are enforceable judgment liens on your homestead. The search will tell only what filing appear on the public record. Any civil judgment against you will appear when you do a title search of any property in your name. Whether a recorded judgment acts as a lien on your homestead is a separate legal issue that takes into account the Constitutional homestead exemption.

If a judgment is issued by a court and recorded prior to the time you occupy a home as your permanent and primary residence (homestead) then the judgment will attach to the property. Moving in to the house after the judgement will not protect the home from the judgment. However, if you occupy a house at the time a judgment is recorded the judgment stays on the public record but does not legally impair your title or your equity in the house.

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