By Mark Martella, Esq.
Most homeowners are familiar with the real estate tax benefits of claiming your home as your homestead in that you will get a tax exemption off of the assessed value of up to $50,000. There is also a 3% cap imposed on the amount your property taxes can increase. However, in my experience, there is a lot of confusion regarding the other two benefits, or exemptions, provided by the Florida Constitution's Homestead provisions which are powerful protections against creditors.
Under the Florida Constitution, Article X 4(a), a homestead is not subject to a judgment lien and cannot be forced to be sold in order to satisfy a judgment even if there is no mortgage. Additionally, the surviving spouse, as well as any heirs, are protected from their inheritance being taken by the creditors of the deceased (however, the inheritance is not protected from the creditors of the spouse or heirs).
A situation that often comes up is where someone may come into some money, whether from an insurance settlement or divorce, but is also facing a lawsuit that will expose them to a hefty judgment. The question that is then asked is whether they can invest that money into a homestead to protect it from the judgment creditor? Well, pursuant to the U.S. Bankruptcy Code, transfers made to avoid creditors can be objected to and voided by either the Trustee or a creditor within two (2) years of filing bankruptcy. Under Florida law, any fraudulent transfer [that is a transfer to avoid creditors] can be objected to and reversed within four (4) years from the date of the transfer. While transfer of any of your assets to other individuals or investment instruments may expose the transferred assets to your creditors as a fraudulent, (See my Martella Memo's November Newsletter Article on page 1), the homestead exemption provided by the Florida Constitution provides a significant degree of protection as interpreted by the Florida Supreme Court.
In the case of Havoco of America, Ltd. v. Hill, 790 So.2d 1018 (2001), the Florida Supreme Court specifically ruled that "...a homestead acquired by a debtor with the specific intent to hinder, delay, or defraud creditors is not excepted from the protection of Article X, Section 4." In other words, the funds are protected in the homestead. Therefore, investing the proceeds of an insurance settlement or inheritance for example into a homestead would appear under the Havoco decision to be protected.
One of the exceptions to this rule is if proceeds that were obtained by fraud and are then attempted to be protected by the purchase of a homestead. In the case of Financial Federated Title & Trust, Inc., 273B.R. 706 (U.S. Bkrtcy. S.D.Fla. 2001), the defendants obtained a homestead after acquiring funds through a fraudulent Ponzi scheme. In this case, the court imposed an equitable lien on the properties purchased by the defendants, stating that is was necessary to impose such a lien in order to prevent the defendants ". . . from using the homestead exemption as an instrument of fraud and to prevent the defendant's unjust enrichment at the expense of the defrauded investors."
The other exceptions from your homestead being protected are as follows: it is not protected from
1.) a mortgage foreclosure;
2.) a construction lien for an improvement on the home; or
3.) taxes and assessments.
If you face a situation as described in this article, please give me a call at 941-206-3700 to schedule an appointment to discuss your options.
Courtesy Martella Law Firm, P.L.
© 2012 Martella Law Firm P.L., All Rights Reserved.