QUESTION: We are new to Florida and have recently heard about Florida Homestead rules. I understand that homes are not able to be forced into a sale in a bankruptcy. My brother is in financial trouble and he would like to protect his assets by buying a home in Florida. He and my husband read about a court case, Havaco of America vs. Hill, which sounded like it could be similar to my brother's plan because Hill moved his cash to Florida to buy a home after he had a very large judgment placed against him. Will this work?
ANSWER: Homestead property is exempt from creditors' claims but there are exceptions such as taxes, mortgages, other debts contracted to purchase the property and debts for improvements. Your brother should begin seeking the solution to his financial problems by meeting with an attorney, probably one who specializes in bankruptcy.
Although Homestead protection in Florida has been liberally applied, converting assets that are not exempt from a judgment into Florida Homestead property to protect the money can raise complicated issues. In a 2001 case, a man named Hill, who lived in another state, bought a Florida property after a judgment had been placed against his assets in his original state just a few days before. He claimed it as Homestead. The company that won the judgment, Havaco of America, claimed they were being defrauded of the money due them. The court did protect the Homestead from a "forced sale" based upon the Homestead provisions of the Florida Constitution but there have been other cases when the result has been the opposite.
For example, if the home is clearly used in the commission of a crime, the protection would be lost. If the creditors had been able to show that the money was used for improvements or that the funds were originally gotten through fraud or theft and can prove this, there would probably have been a different outcome for Mr. Hill. A home used in an illegal drug operation, for example, would not be protected.
Also unprotected is the spouse of the person who committed the fraud. If a Homestead is obtained with illegally obtained funds, the entire Homestead is subject to lien, not just the portion that belongs to the person who committed the crime, even if he or she didn't know of the crime.
The argument is that even though Hill used Homestead to convert the assets from nonexempt to exempt through Homestead protection, the Florida Constitution protected the Homestead because the funds were not obtained illegally.
Your brother should consult an attorney.
Attorney Sylvia Heldreth is a certified specialist in real estate law. Her office is located at 1215 Miramar St., in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.