blogger visitor

Friday, December 08, 2017

Florida Homestead Protections Against Forced Sale Under Threat of Dilution

Once every 20 years, Florida convenes a Constitution Revision Commission (CRC) to review and make recommended changes to the Florida Constitution. Proposed changes are then put to Florida voters for approval or disapproval. A CRC is presently convened and at work in making such a review.
The CRC process is fairly advanced regarding a change to Article X, Section 4. Proposal 17 would add the following language relating to the exemption of homestead property from creditor claims:
(d) Notwithstanding subsection (a), a homestead is not exempt from creditor claims if an owner:
(1) Obtained the homestead using the proceeds from a fraudulent or dishonest act; or
(2) Caused the creditor’s damages or losses by an intentional criminal or fraudulent act.
The legislature may enact implementing legislation consistent with the purposes of subsection (d), and such legislation may include, but is not limited to, limitations periods and protections for an innocent spouse or dependents.
There are a number of problems with this (especially the broad scope of losing the exemption for funds from a mere “dishonest act,” whatever that means)  but on December 4, an amendment was approved in committee to change the proposal to read:
Notwithstanding subsection (a), a homestead is not exempt from the claim of a creditor if the creditor:
  (1) Establishes in an action against the owner of the homestead that the creditor’s funds were fraudulently used by the owner to acquire or improve the homestead; or
  (2) Obtains a judgment against the owner of the homestead  for damages caused by an intentional tort or intentional criminal or fraudulent act by the owner of the homestead, so long as the homestead was not the primary residence for the owner’s spouse or minor child when the tort or act occurred or at the time of the judgment in the action.
Subsection (1) appears to me to be a fraudulent conveyance exception to creditor protection. That is, if funds are transferred into a homestead (whether such funds were fairly and legally owned, or obtained in a fraudulent or other improper manner) in defeat of a creditor’s claims, then the protection would not apply. This is not presently allowed under the Havoco decision of the Florida Supreme Court, and thus would void that holding. The policy of protecting the homestead of a debtor and his or her family members so as to avoid them being kicked to the curb and/or becoming public charges of the state would be diluted, in favor of creditors. Beyond this change in policy, the use of the term “fraudulently” also raises an interpretative question. While fraudulent conveyance law employs the term “fraud” in its title, it does not require common law fraud to occur before it applies. By using the term “fraudulently,” is this provision requiring common law fraud, thus imposing a higher standard than prevailing fraudulent conveyance law, or merely intending to co-opt the less rigorous requirements of fraudulent conveyance law?
Subsection (2) provides a new exception to protection if the creditor was injured by an intentional tort, or intentional criminal or fraudulent act - essentially a “bad acts” exception. This is a substantial loss of protection from what is under current law. It does provide an exception if the owner’s spouse or minor child is living on the homestead at the time of the bad act or judgment, which is a good thing but has the unfortunate consequences of providing a windfall to bad actors and their families if they have a cohabitating spouse or minor child..
Credit to Michael Singer for pointing out this provision at the recent Florida Bar RPPTL Section meeting.
You can monitor the activities of the CRC here.
Post a Comment