The Florida Homestead exemptions “rules” – at least generally in non-bankruptcy courts. In the recent case of Brian Dowling v. Davis, Slip Copy, 2007 WL 1839555 (M.D. Fla. June 26, 2007), Plaintiff Dowling held an Illinois judgment and filed a three count complaint in the District Court of the Middle District of Florida for 1. fraudulent asset conversion under Fla. Stat. Section 222.30, 2. to impose an equitable lien, and 3. to avoid fraudulent transfers Fla. Stat. Section 726.101, et. seq. The Illinois judgment was obtained in 2002 and the married defendants purchased real property in Florida in 2003 as tenants by the entirety. The purchase money was comprised of a bank loan and personal funds. The Defendants maintained that Florida’s constitutionally-created homestead exemption protected their Florida residence.
The Court concluded that the Plaintiff’s claims failed as the Florida Supreme Court has expressly held “[t]hat the transfer of nonexempt assets into an exempt homestead with the intent to hinder, delay, or defraud creditors is not one of the three exceptions to the homestead exemption provided for in article X, section 4″ of the Florida Constitution. Havoco of Am., Ltd. v. Hill, 790 So. 2d 1018, 1028 (Fla. 2001)(“Havoco I”) (emphasis added); Havoco of Am., Ltd. v. Hill, 255 F.3d 1321,1322 (11th Cir. 2001)(“Havoco II”) ( affirming that judgment debtor’s purchase of home with intent to hinder creditors did not overcome homestead exemption, based on answer to certified question in Havoco I). The Court stated that “the homestead exemption does not contain an express exception for real property that is acquired in Florida for the sole purpose of defeating the claims of out-of-state creditors. Havoco II, 255 F.3d at 1322; Havoco I,790 So. 2d at 1028; Bank Leumi Trust Co. v. Lung, 898 F. Supp. 883,887 (S.D. Fla. 1995); In re Adell, 321 B.R. 562,569-70 (Bankr. M.D. Fla. 2005).
The Court further noted that equitable liens may only be imposed in limited circumstances where a debtor fraudulently procured funds to invest in, purchase, or improve a homestead. See Palm Beach Savings & Loan Assoc. v. Fishbein, 619 So. 2d 267, 270 (Fla. 1993) (affirming imposition of equitable lien against wife’s residence where debtor husband obtained mortgage by fraud); Jones v. Carpenter, 106 So. 127,129-30 (Fla. 1925) (affirming imposition of equitable lien in action by trustee of bankrupt corporation against former president for embezzling funds used to improve homestead). The Plaintiff did not argue that this type of fraud was perpetrated against him but only alleged that Defendant purchased a homestead knowing that a judgment was imminent and used funds that could have been used to satisfy the judgment. The Court further noted that the exceptions to the homestead exemption are to be strictly construed. Havoco I, 790 So.2d at 1021-22.
One may query what the result may have been if these facts and issues had arisen in a bankruptcy case (voluntary or involuntary) under the full panoply of the BAPCPA amendments. See e.g. section 522(o) (reduction of homestead for dispositions made during prior 10 years with intent to hinder, delay, or defraud a creditor), 522 (p) (cap on homestead acquired within 1215 with certain exceptions), 522(b) (domicile and exemptions). Perhaps the homestead exemption would have been reduced or capped. Perhaps the Florida homestead exemption would not have applied at all and the Defendant/Debtor would have been required to use the Illinois or Federal exemptions. Perhaps an attempt to exempt the real property as tenants by entireties property under 522(b)(3)(B) would have been subject to avoidance.
Posted by Jordan Bublick 