Florida Asset Protection Blog

Tenants By Entireties Account Resistance At Large Banks

An attorney emailed me with a question about a prospective bankruptcy client who is in the real estate sales business. The real estate salesman has a few contracts in the pipeline- sales contracts are signed subject to financing contingency and other conditions. If the sales close the realtor will earn a commissions. The question is whether the salesman has to value and report these future earnings on a Chapter 7 bankruptcy petition either as an asset or as income. The attorney wonders whether the debtor should discount the present value of the future commissions based on their probability and timing.

There have been many blog posts dealing with tenancy by entireties bank accounts. I have often explained that accounts opened by married couples as joint tenants with rights of survivorship are presumed to be owned tenants by entireties under Florida law. I advise clients to open accounts specifically titled as tenants by entireties so they don’t have to rely on the legal presumption that creditors can overcome and rebut under some circumstances. There is nothing to rebut or overcome if the account is titled as an entireties accounts.

Over the years I have found that some banks refuse to offer tenancy by entireties as an account ownership option. Depositors at those banks had to rely on the legal presumption applicable to joint survivorship accounts. Sun Trust was the first bank to refuse entireties titles. Bank of America and Wachovia has always offered the entireties choice. My wife and I had a BOA entireties accounts for many years.

Today, a client reported that none of the large banks offered he and his wife tenants by entireties as an account titled. Specifically, Bank of America and the other major banks all told him that their new policy is that entireties ownership is not an option. Previous depositors at these banks with accounts expressly titled as tenants by entireties are grandfathered. The client finally found a bank for his entireties account. It was CNL bank. CNL is a small, relatively new Florida bank with branches in and around Orlando and in southwest Florida. I have had dealings with this bank, and its employees are very customer friendly.

Let me know if you have experienced similar problems opening entireties accounts at the larger banking institutions. 

Can Creditor's Attach Debtor's U.K. Pension?

The Florida statutes exempt retirement pensions from creditor claims. Courts have protected pension distributions after they were deposited in financial accounts. This week a Florida resident with an English accent called me with asset protection questions. On of his assets is a pension from an English company which he earned while working for many years in England. He assumed that his English pension is safe from creditors. I told him I disagreed, and that I think his creditors could garnish the pension ( they may have to go to England to do so), or his creditors could levy upon pension payments after they were deposited in a U.S. checking account. Why is an English pension not a protected pension?

The Florida statutes do not include a blanket exemption of all pension and retirement accounts as they do for all annuities. The applicable statute exempts only those statutes authorized by a list of specific Internal Revenue Code sections. The list of Code sections applies to certain retirement plans which are tax deferred under the Code. The U.S. revenue law has no tax deferral provisions for retirement plans established in other countries under their own tax laws. Pension plans set up pursuant to England’s tax law are not referred to in Florida’s laws, and therefore, this caller’s English pension and the payments therefrom are not exempt in Florida.

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.

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.

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.

This client’s Thrift Plan is a government retirement benefit. Florida Statute 222.21 exempts retirement plans that are tax deferred under any of the IRC sections listed in the statute. The Thrift Plan does not appear to fall within any of the IRC code sections listed in that statute, and therefore, it may not be protected under Florida’s law. But again, the federal law provides its own protection. Federal law characterizes the government’s Thrift Savings Plan as a retirement program and provides that any money in a Thrift Saving Fund is not subject to levy, attachment or garnishment.

The point of this story is that sometimes a debtor has to look beyond the Chapter 222 of the Florida statutes (the main exemption chapter) for creditor protection. There are some exemptions (social security is another one) which are provided by federal law and are not explained anywhere in our statutes. There are exemptions for some assets (mobile homes, for instance) that are provided in statutes outside Chapter 222. You need to see the whole picture.

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.

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.

A deed in lieu of foreclosure is supposed to be a final settlement between owner and mortgage lender. The lender accepts a deed to the property in consideration for releasing the borrower of any further liability under the loan or mortgage. When my clients tell me they want to offer a deed in lieu they intend for the deed to the lender will end their liability under the mortgage loan. When I looked at this client’s "deed in lieu" I found that the lender did not include a release of liability, and in fact the document referred to the borrower’s continued liability for a deficiency. This client had negotiated a deed in lieu of foreclosure by not a deed in lieu of deficiency liability. Also, by surrendering title to the property without the bank having to foreclose, the client gave up all the defenses available in a foreclosure action which he could use as leverage to negotiate a complete release.

If your mortgage lenders offers you a deed in lieu make sure it’s the real deal. You give them the property back and they release you from any further liability. Anything less may be a trap.

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