Florida Asset Protection Blog

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.

Does Joint Bank Account In Non-Entireties State Automatically Become Tenants By Entireties Property When Family Moves To Florida?

Suppose a husband and wife own personal property, a bank account for example, jointly with rights of survivorship in a state that does not recognize tenants by entireties ownership of personal property, and they intend to move to Florida. Florida recognizes tenants by entireties of personal property, and under Florida law all personal property owned by married couples with rights of survivorship is presumed to be entireties property. The question for this fact situation is whether the couples bank account in another state’s bank becomes protected entireties property when the couple moves to Florida as permanent residents.

 

Based on my initial research for a client this week I think the answer is "no." A bankruptcy court held that a promissory note owned by a married couple in a non-entireties state did not morph to protected entireties property just because the family moved to a state (Florida) which recognizes entireties. The court said that the nature of the debtor’s interest in property should not change just because the debtor moves across state lines.

If you have a joint bank account outside of Florida and are considering moving to Florida in part for asset protection purposes I suggest you and your spouse open a new, tenants by entireties bank account after you arrive in Florida. In most cases you can defend any fraudulent conversion arguments if the account where you came from was owned jointly and most of your other property was also jointly held.

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

Creditor Rights To Attack Debtor's Charitable Gifts

You would think that people who donate substantial sums of money to charity would get a break when defending their charitable planning from judgment creditors. This past week a client asked me whether her creditors could attack a charitable trust she established. The debtor created the trust several years before she had any creditor problems, and the debtor was solvent at the time. The charitable trust was known as a "charitable remainder unitrust" under IRS regulations. The client donated marketable securities to the trust. When the debtor dies the trust will distribute all its property to a charity. During the debtor’s lifetime the trust pays the debtor an annual payment equal to 7 percent of trust value. The trust document contains a "spendthrift provision" which states that the trust’s payments to the client may not be assigned to her creditors. The client wanted to know if her judgment creditors can seize her annual payments or reverse the entire gift as a fraudulent transfer.

Florida law prohibits creditors from attaching payments to a debtor from a trust where the trust agreement has a spendthrift clause. However, there is an exception when the trust was established by the debtor- a so-called "self-settled trust." Courts have held that a spendthrift clause does not protect a debtor’s right to payment from a trust established by the debtor even when the trust is primarily for the benefit of a charity. A second issue is whether a creditor can reverse a charitable trust as a fraudulent transfer to avoid or delay creditors. If a debtor makes a charitable bequest of non-exempt assets to keep the assets away from his creditors the bequest could be subject to fraudulent transfer claims. A creditor could argue the debtor intended to benefit from an income tax deduction from the charitable gift rather the lose the money to the judgment creditor with no tax deduction ( assuming the debtor could not deduct the loss to the creditor). The new bankruptcy law enacted in 2005 specifically prohibited fraudulent transfer claims against charitable gifts. The bankruptcy provision is not applicable in state court fraudulent transfer claims.

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

Bank Calls Loan By Seizing Money Deposited In Entireties Acouunt At Same Bank By Non-Debtor Spouse

Just because the law protects an asset or an account from creditor does not mean your creditors will not try to levy on the asset or garnish the account. Consider this example reported by a current client. The client, who is married, borrowed money in his own name from a large bank. The bank called the loan and demanded payment in full. The client ignored the call and continued to make timely monthly payments. The client and his wife had a joint account at the same bank. All money in the account was deposited from his wife’s earnings. The wife did not sign the note or any guarantee of the note. Without warning, and without filing a law suit to enforce the note, the bank invaded the account and took all of the wife’s money to pay off the loan.

The bank account is exempt from the husband’s judgment creditors as a tenants by entireties accounts. It is possible that the loan agreement with the bank may have given the bank the right to invade the account in order to pay all amounts due under the loan. The client has to look at the loan papers. Even so, such agreement would not give the bank the right to invade a joint account unless the non-debtor spouse signed the same agreement assuming she did not guarantee the note. This Blog has previously posted examples of large banks invading bank accounts without notice to enforce credit card payments where the credit card agreement gave them such right.

This client will have to retain an attorney to carefully review the loan papers to see if the bank had the right to take the money out of the joint account. If such right was not provided in the loan documents, the client will have to go to court to ask a judge to reverse the seizure. In such event, the attorney could seek damages for wrongful garnishment or breach of the loan agreement.

Before you sign a credit card agreement or commercial loan with a bank make sure you understand what rights you are giving the lender to force repayment. If you bank at the same bank that is giving you money, make sure you are not pledging your bank account balances to guarantee repayment. The best advice is to not deposit where you borrow. Some lenders want to see that you maintain accounts at their bank when you apply for a loan. If you anticipate any default under the terms of the loan (as this client received a demand for payment in full) you should transfer most, if not all, of your funds from the lending bank to another bank. During this recession people who owe money to banks must be vigilant and use common sense to protect their money.

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

Some Mortgage Companies May Be Planning Deficiency Attacks

The mortgage deficiency debate continues. A prominent creditor’s collection attorney named Mitch Dinkin from South Florida reports by email that in the past two weeks he has been contacted by two small to mid-size mortgage lenders regarding his representation to pursue mortgage deficiency judgments. His prospective clients express an aggressive policy to go after defaulting homeowners. Mitch’s opinion is that the small lenders, rather than the larger national mortgage banks, are most likely to go after deficiency awards. He explains that if the larger lenders decide to do anything with deficiency claims they would likely sell their claims as a package to collections firms.

Although we have not seen significant deficiency claims to date, if Mitch Dinkin is correct, some lenders may be adopting a more aggressive policy as foreclosures increase and bank’s financial losses mount. Maybe some banks believe that they need to pursue personal judgments in order to stem the flow of homes being abandoned by people who think the mortgage company will passively accept full responsibility for the decline in their home’s valuation.

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

Mortgage Deficiency: Experienced Real Estate Attorney Reports His Experiences

Hank Evans, Esq. is one of the smartest real estate attorneys I ever met. Hank has been practicing real estate law for 35 years in Titusville, Florida, where he represents several banks and many large real estate developers. He called me recently to ask me an asset protection question, and I used the opportunity to ask Hank Evans about his experience with mortgage deficiency judgments during the real estate and credit recession. I expected that Hank would be an excellent source of information about bank’s practices with regard to foreclosure and deficiency claims.

Hank Evans stated that in his 35 years of real estate law practice he can recall only three instances where a lender sought a deficiency judgment following a foreclosure. Each of these three deficiency actions were brought by private lenders- not banks or mortgage lenders. For whatever reasons- and Hank said he can only speculate as to the reasons- institutional lenders are not, and never have, pursued personal judgments against borrowers after foreclosures.

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

Junk Debt Buyer Suing For Mortgage Deficiency

There have been some interesting comments to the blogs concerning deficiency judgments. One comment says that it is unlikely that a junk debt buyer can successfully buy and enforce a mortgage company’s rights to a deficiency judgment because the secondary buyer would be reured to produce the original mortgage note. He says that owing to securitization and resalse of mortgages it is difficult for lenders and buyers of their deficiency rights to produce original notes unless they are members of organizations which serve as a repository for original documents. This person says that a debtor who lost property in a foreclosure can easily defend a deficiency suit if the bank sells its deficiency rights to a third party junk debt collector.

However, another reader provided a less optimistic assessment. Larry Kosto, Esq. is one of the best debt collection attorneys in Orlando and represents several buyers of junk debt sold from banks. Mr. Kosto states that in order for a bank to get an underlying foreclosure judgment the lender is required to submit the original note or have the court established the lost instrument. If the note was deposited with the court during the foreclosure or if the court reestablishes the lost note the purchaser of the deficiency claims can step into the shoes of the original lender and proceed without the ability of the debtor to question the existence of the original document. Also, Mr. Kosto, states that the borrower may be estopped from challenging the existence of the note if the issue was not raised in the underlying foreclosure.

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

Bank Invades Checking Account To Pay Credit Card Bill

A prospective bankruptcy client told me that Bank of America took money from his B of A bank account without notice to pay a delinquent credit card bill. The bank did not obtain a writ of garnishment, did not have a money judgment, and had not even filed suit. He wanted to know if the bank could seize his bank account without notice.

Generally, a creditor cannot get money from your bank account just because your bill is overdue until the creditor sues you and gets a judgment. It may be that the customer had a written credit card agreement with B of A for this card which gave the bank a right to take money without notice to pay past due bills. I am not familiar with terms and conditions of credit card agreements as I do not practice consumer law. If there was a written agreement to that effect the bank probably acted properly. Or, it may be the bank did something it wasn’t supposed to do.

Many people who might have difficulty sometimes paying credit card debt should read credit card agreements to see what rights the credit card company has to invade bank accounts maintained at the same financial institution.

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

Deficiency Judgments: A Different Opinion of Risk

In response to my statements on this Blog that most lenders do not pursue mortgage deficiency judgments, I received a email from an experienced collection attorney expressing a contrary opinion. The collection attorney (he did not giver permission to reveal his name) stated that he knows that lenders will be pooling mortgage deficiency judgments and selling them to collection companies for pennies on the dollar. Credit card companies have an established practice of selling non-performing credit card debt at seep discount. This same attorney says that many borrowers who walk away from mortgages will be in for a big shock in the future when collectors who have purchased the mortgage companies deficiency rights surprise the borrower with legal action.

Whether or not the attorney’s prediction is correct will be seen in the future. As stated often, my own experience over the past few years is that deficiency judgments are rare, and most attorneys and bankers I have spoken with agree. Yet, if its economically practical to purchase mature deficiency claims then there might develop an industry to pursue some of today’s numerous homeowners walking away from their mortgages. The homeowner needs to be aware of all opinions and predictions in order to make informed financial decisions.

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

Old Judgments Can Take You By Surprise

Judgments never go away. There is a 20 year statute of limitations for enforcement of judgments. Old judgments can come back to bite you. Take, for instance, the experience of a debtor who called me earlier this week who had a judgment entered against him in California in 1995. The debtor currently lives in Florida. She had heard nothing from the judgment creditor since 1995. Without warning, a couple week ago she found that writs of garnishment had been placed on all of her several bank accounts and brokerage accounts. All financial accounts were owned with her husband as tenants by entireties and were exempt.

The debtor told me that many of her outstanding checks bounced. She had to go to court to get the garnishment dissolved on the basis that the accounts were all exempt entireties accounts. She incurred legal fees and great inconvenience. If the creditor had any reason to know that the financial accounts were exempt joint accounts the debtor may have a cause of action against the creditor for wrongful garnishment.

It is unlikely that the original creditor is the party trying to execute on this judgment. Most creditors let judgments lie on the public record after their initial collection efforts. What may have happened in this instance is that the original judgment was sold to a third party investor, probably a collection company. There are companies that pay pennies on the dollar for old judgments in hope of making money by a surprise attack on a complacent debtor. The lesson is that people must maintain effective asset protection plans long after a judgment is entered against them. Asset protection must remain up to date and correctly implemented. Don’t relax just because your asset protection has effectively defended initial creditor attacks because you do not know when the next collection attack will come.