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 

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

Homestead Protection Of Multi-Family Property

A common homestead question is whether or not a homeowner can rent out part of a homestead property and retain homestead protection from creditors. A client this past week owned a four unit apartment building which is currently rented to four tenants. He proposed to move into one of the four units and assert homestead protection as to the entire property. I am fairly sure that courts would not extend homestead protection over the entire building. There are several bankruptcy cases which have declined homestead protection to those parts of a property that were physically separate and were used primarily for the production of income. Duplexes where one unit is rented to someone other than an immediate family member, and the other unit occupied by the owner are considered homestead only up to half of the value. Courts do not permit people to convert multi-unit investment properties, such as apartments or motels, to homestead by the owner’s occupancy of a single unit therein.

Does Weekly Rentals Of Property While Away On Business Forfeit Homestead Protection?

The owner of a Florida homestead takes a one-year work assignment in another state. He rents a house in the other state for work. He decides to rent his Florida homestead as much as possible to help carry the mortgage. The house is in a vacation area, and the best rental opportunities are weekly rentals to people on vacation. Vacation rental are primarily during the summer months. The house will not be rented during most of the winter. The person hopes to return to the Florida house after his year assignment, but his return is not guaranteed by his employer. He asks whether he will retain homestead protection during his absence under these facts.

Florida residents lose homestead protection when they demonstrate their intent to abandon the homestead as their primary residence. In general, rental of a prior homestead indicates the intent to abandon the property as a residence and convert the property to an investment. When a property owner rents a property on a weekly basis he has the right to terminate rental immediately and reoccupy the property almost without notice. As long as this homeowner retains indices of Florida residency, such as his drivers license, I think that his rental to weekly vacationers does not prove he intends to permanently abandon the property as his residence nor convert the property to a rental investment. Also, a yearly work assignment in a different state does not amount to a permanent move to the other state. Without further evidence, I would advise this person that he retains homestead protection.

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

Can You Waive Homestead Protection In Loan Documents?

A client’s real estate development company obtained a large construction loan from a commercial bank. The client personally guaranteed the loan. The company will soon be unable to pay the loan so that the loan and guarantee will be in default. The guarantee document contained a clause which stated that the borrower waived Florida homestead protection to the extent allowed by law. The client use to transfer non-exempt money to pay down the homestead mortgage in order to protect the money from a future judgment in the event the lender sues on the guarantee. The client asks whether the homestead waiver forfeits his homestead protection including cash paid toward the mortgage soon prior to a lender lawsuit.

The Florida Supreme Court has reviewed the issue of homestead waivers. The Court decided that homestead protection could be waived in favor of a mortgage lender or in favor of a spouse in a pre-nuptial agreement. Homestead protection cannot be waived in favor of a creditor. The Court said that public policy prohibits a homeowner from “in the stroke of a pen” forfeiting an important Constitutional protection of his family home. (Chames v. DeMayo).

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

Constructive Trust Imposed Upon Florida Homestead

Can a court from another state impose a constructive trust on the homestead of a Florida debtor? This interesting question was the subject of an opinion last week from the Fifth District Court of Appeals involving one of my clients. (Case No. 07-3718) The briefest summary of the facts is that my client’s former husband (deceased) was trustee of a trust for the benefit of his other family members, and he wrongfully took money from the trust to my a home in Florida for himself and my client, his then current wife. The former husband and my client lived in California at the time they bought the Florida property. A California court entered a judgment in favor of the trust beneficiaries and as a remedy the court imposed a “constructive trust” over the Florida property in favor of the beneficiary-judgment creditor. No one alleged that my client did anything wrong. My client occupies the Florida property as her primary residence. My client filed a lawsuit in Florida asking the court to dissolve the constructive trust on the grounds that the California court had no jurisdiction to impose a trust on Florida real estate and because of my client’s homestead protections.

The district court held that a California court had the jurisdiction to impose a constructive trust on a Florida property so long as the foreign court had personal jurisdiction over the debtor. The Court said that an order imposing equitable remedies such as a constructive trust is not an order which directly affects Florida real property. As long as a foreign court has personal jurisdiction it can impose equitable relief in favor of a creditor even if such relief indirectly impacts Florida real estate. The appeals court remanded the case to the lower court to determine homestead issues.

My client argued that the constructive trust is ineffective applied to Florida homestead. The Florida Constitution prohibits judgment creditors from imposing a lien upon or forcing the sale of homestead properties. It is unclear whether the Constitution prohibits this type of constructive trust. It is possible that the courts may permit the constructive trust to stand, prohibit a forced sale of the property, but preserve eventual sale proceeds for the wronged trust beneficiaries.

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

Homestead Boats

Following a rough divorce up north a man sails his sailboat to Florida, docks the boat, and thereafter lives on the boat . He registers the dock address as his primary residence on his drivers license and in other government registrations. The man wants to know if his boat is protected as a Florida homestead similar to protection afforded mobile homes.

I have written prior blog posts on this interesting issue. Protection of boats under Florida’s homestead laws has been dealt with from time to time by different bankruptcy court judges. The issue is whether the boat in question is more like a “house” situated on real property or is more like a “boat” used for transportation. The consensus ruling is that boats used as a primary residence are protected if they are docketed permanently and are not navigable. If a boat is in condition to travel by water the courts have held that it is not a permanent residence eligible for homestead protection. It makes no difference if the boat is a “houseboat,” or if it powered by motor or wind.

For instance, I recently met a new client who lived on a motorized boat. He said the motor was broken and the boat could move on the water. In my opinion, that boat could qualify as his homestead until such time as the motor was repaired. However, I could also understand a judge ruling that the broken boat did not qualify because it had a motor attached regardless of whether the motor required fixing. Homestead boats will be evaluated on the facts of each situation.

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

Homestead Exceptions: Homeowner Association Dues and Contractors

From time to time I get asked whether a homeowners association or a contractor can lien a Florida homestead. The answer is “yes.” There are several exceptions to the protection against creditors’ liens on your Florida homestead. Mechanics liens are an exception in the Florida constitution. If someone works to build or repair your home, or if a company provides materials for the construction or repair of your home, they are entitled to a lien on the homestead to secure payment. Homeowner Associations acquire a consensual lien similar to a mortgage. An HOA can foreclose its lien under the provisions of a new HOA Act effective July, 2007. A homeowner may lose his homestead if he does not pay HOA dues or does not pay for the construction or repair of his property.

Is Homestead Protection Lost When You Move Into A Nursing Home?

I often get calls or emails from people who are concerned about protecting their parents assets because their last surviving parent is being moved to an assisted living facility or nursing home. People are concerned primarily about their parents’ homestead. Many elderly people own their homestead properties free and clear. The question is often whether the nursing home or medical providers can levy upon the homestead to collect medical debts after their parents move from the home.

The answer depends on the facts of each case. A Florida resident can move from a homestead for medical care and retain homestead protection so long as they intend to return to the home. What happens in situations where it is unrealistic medically that the parent will ever be able to return to their homestead? If the parent’s health has declined to the point that their children and their doctors agree that their move to assisted living or nursing home care is permanent the parents may have permanently abandoned their homestead. Yet, the parents may not know their move to assisted living is permanent and in their own mind they intend to return home “when they get better.” The question is whether a person can intend to return to his homestead if it is medically unlikely he can return.

I do not know any case directly on point. I think there are many factors that should be considered. One question is whether the parent has the mental capacity to formulate intent to return. Another fact is whether the former homestead has been rented or listed for sale. Given the bias in case law to protect the debtor’s homestead issue I expect that courts would try to protect the family home when the owner has been forced into a care facility at the end of their life.

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

Waiver Of Homestead Protections

Can you waive your homestead protection? The issued was recently addressed by the Florida Supreme Court in the case of Chames v. DeMayo. The Court pointed out that Florida’s Constitution expressly allows people to give up their homestead protection when they voluntarily pledge their homestead to secure a debt by mortgage deed. The Supreme Court in previous cases affirmed the right of a spouse to waive marital homestead rights before or during marriage. The present case addressed the situation where a debtor entered into a written contract with a creditor (in this case, a law firm) which contract waived the debtor’s homestead protection in the event the creditor took legal action to collect the debt. While affirming the narrow exceptions to homestead waiver stated above, the Supreme Court said that the homestead protection cannot be waived by contract with a creditor to enforce an unsecured debt. The Court overturned a contrary decision by one of Florida's district appellate courts.