Florida Court Shields Undrawn Reverse Mortgage Line-of-Credit Funds Under Homestead Exemption: Jhelum Enterprises, LLC v. Desmarais

 In a matter of first impression, Florida’s Fourth District Court of Appeal held on March 25, 2026, that undistributed funds available under a reverse mortgage line of credit on homestead property remain protected by the state’s constitutional homestead exemption and cannot be reached by a judgment creditor through garnishment or by forcing the homeowner to draw on the credit.

The case is Jhelum Enterprises, LLC v. Norman L. Desmarais, Jr., and Oceanside Automotive Service and Towing, LLC, No. 4D2025-0554 (Fla. 4th DCA Mar. 25, 2026). Judge Levine authored the opinion, with Judges Conner and Haw concurring. The decision affirms the trial court’s rulings from the Fifteenth Judicial Circuit in Palm Beach County (Judge Gregory M. Keyser).

Background

Jhelum Enterprises obtained judgments totaling approximately $54,864 against Oceanside Automotive Service and Towing. In 2011 supplementary proceedings, the trial court found that Oceanside’s sole officer, Norman L. Desmarais, Jr., had fraudulently transferred company assets to himself and a new entity to avoid the judgments and held him personally liable.

Years later, Desmarais obtained a Home Equity Conversion Mortgage (HECM)—a federally insured reverse mortgage—with a discretionary line of credit. He refinanced into a new HECM in 2022. By early 2024 the available (undrawn) line of credit stood at roughly $61,000–$63,000. Desmarais had previously drawn about $17,000 over several years for a mix of home repairs, living expenses, and other purposes.

Jhelum pursued garnishment, serving writs on the lender (Longbridge Financial), the servicer, and Desmarais’s bank. It argued the available credit constituted a liquid asset that had lost homestead protection (or never properly had it) and sought to compel Desmarais to request a draw so the funds could be turned over.

Desmarais claimed the undrawn funds retained homestead protection. He testified he had made no draw requests after the garnishment, had no present intention of drawing, and that any future use would be for homestead-related purposes. The lender and servicer confirmed they had no obligation to disburse funds absent a request from the borrower.

The Holding and Reasoning

The Fourth District framed the issue as one of first impression under Article X, Section 4 of the Florida Constitution, which protects homestead from forced sale (with limited exceptions) and is liberally construed in favor of the homeowner. Entitlement to the exemption is a pure question of law reviewed de novo. The party challenging the exemption must make a “strong showing” that it does not apply.

The court held that the undrawn line-of-credit funds retained homestead protection. Access depends entirely on the homeowner’s discretionary request—a contingency that had not occurred and might never occur. A purely contingent interest is not garnishable “property” of the debtor under Florida law. Courts cannot order a homeowner to borrow against the homestead to satisfy a creditor, as that would effectively convert protected equity into a reachable asset and undermine both the constitutional exemption and the federal purpose of HECMs (helping elderly homeowners convert equity while remaining in their homes).

The court distinguished a discretionary line of credit from a reverse mortgage structured to produce an automatic stream of monthly payments; the latter could more readily be treated as a liquid asset subject to garnishment. It also noted that once funds are voluntarily withdrawn, their protected status depends on use. Funds reinvested in the homestead (repairs, improvements, or purchase of a replacement homestead) may retain protection under longstanding Florida doctrine; funds used for non-homestead purposes generally lose it. (The trial court had ordered turnover of a small bank-account balance that represented previously disbursed funds.)

The court relied in part on analogous reasoning from an Oklahoma decision (Bowles v. Goss) and aligned its result with the non-recourse, borrower-controlled nature of HECMs under federal law.

Practical Implications

For Florida estate planners and asset-protection counsel, the case reinforces that a properly structured discretionary HECM line of credit on homestead property does not, by itself, convert protected equity into reachable assets. The protection is contingent, however, and evaporates (or is at risk) upon voluntary draws used for non-homestead purposes. Careful documentation of the purpose of any draw, and consideration of reinvestment timing and tracing, remain important.

Creditors holding judgments against individuals with HECM lines of credit face clearer limits: they generally cannot compel a draw or reach the undrawn balance. They may still pursue other available assets or wait for voluntary disbursements whose character can then be challenged.

Lenders and servicers receive useful clarity that they are not required to treat undrawn discretionary credit as currently payable property subject to garnishment.

The decision does not alter the fundamental rule that a reverse mortgage itself is a consensual lien that can be enforced according to its terms; it addresses only the treatment of the undrawn credit feature for judgment-creditor purposes.

Overall, Jhelum Enterprises v. Desmarais strengthens the already formidable shield of Florida homestead protection in the specific setting of modern reverse-mortgage products. It is a useful precedent for anyone advising clients who hold, or are considering, HECM lines of credit on Florida homestead property.

This article is intended for general informational purposes only and does not constitute legal or tax advice. Taxpayers should consult their legal and tax advisors regarding their particular circumstances. 

IRS Will Automatically Remove Many Penalties for Previously Compliant Taxpayers

For years, one of the more frustrating aspects of IRS penalty administration was that many taxpayers who clearly qualified for relief never received it—not because they were ineligible, but because they didn’t know to ask. That is finally changing.

On July 8, 2026, the IRS announced a significant modernization of its administrative penalty relief procedures. The agency is replacing the long-standing First Time Abate (FTA) process with a new Automatic Exemption from Penalty (AEP) program that will automatically grant relief to many eligible taxpayers without requiring them to file a request or call the IRS.

For taxpayers—and the professionals who advise them—this is one of the most practical taxpayer-service improvements the IRS has made in years.

The Old System: Relief Was Available—If You Knew About It

For many years, the IRS has maintained an administrative policy allowing taxpayers with a strong compliance history to obtain relief from certain penalties after an isolated mistake.

The problem was not the eligibility rules. The problem was the process.

Generally, a taxpayer first had to receive the penalty notice, then know that First Time Abate existed, then contact the IRS and request relief. Taxpayers represented by experienced tax professionals often obtained the relief routinely. Many unrepresented taxpayers never did.

The National Taxpayer Advocate has repeatedly criticized this system because relief often depended less on eligibility than on whether a taxpayer knew the right words to say or could successfully reach the IRS by telephone.

What Is Changing?

Beginning with the phased rollout in summer 2026, the IRS will begin automatically determining whether taxpayers qualify for penalty relief during original return processing.

If the taxpayer qualifies, the IRS simply will not assess the covered penalties. No request is required. Eligible taxpayers will instead receive a notice informing them that the relief has already been granted because of their prior compliance history. No response to that notice is needed.

In other words, the IRS is moving from a “request it if you know about it” model to an “apply it automatically” model.

Which Penalties Are Covered?

The Automatic Exemption from Penalty generally applies to the three penalties that historically qualified for First Time Abate:

• Failure-to-file penalties
• Failure-to-pay penalties
• Failure-to-deposit penalties

The main return series currently eligible for AEP consideration include Forms 1040, 1065, and 1120; employment tax returns (Forms 940, 941, 943, 944, and 945); and Form CT-1.

Importantly, this is not forgiveness of the tax itself. Taxpayers remain responsible for:

• the underlying tax,
• any applicable interest, and
• penalties that are outside the scope of the program (such as accuracy-related penalties, estimated tax penalties, information-return penalties, and the daily delinquency penalty).

Who Qualifies?

The eligibility standards are largely familiar.

Generally, taxpayers must have demonstrated a clean compliance history during the preceding three years (or twelve consecutive quarters for quarterly filers). This includes timely filing of the same type of return and timely payment of any tax due. In most cases, either no covered penalty was assessed in the look-back period, or any assessed penalty was later abated for reasonable cause or IRS error.

Although the mechanics are changing, the underlying concept has not: Taxpayers who have historically complied with the tax laws should not be penalized because of one isolated mistake.

Not Every Return Is Eligible

One important limitation deserves attention.

The IRS has stated that certain specialized returns generally are not eligible for Automatic Exemption from Penalty. Examples include:

• Form 706 (U.S. Estate Tax Return)
• Form 709 (U.S. Gift Tax Return)
• many information returns
• certain other returns associated with infrequent or specialized transactions

This is particularly relevant for estate planning practitioners. Clients filing estate tax or gift tax returns should not assume that automatic relief will be available. Traditional requests for penalty abatement—including reasonable cause arguments where appropriate—will continue to play an important role.

The Transition Period

The IRS is implementing the new system gradually.

AEP begins applying during summer 2026 to eligible original 2025 tax-year returns and 2026 quarterly returns (and subsequent periods) once the system is live for those returns. First Time Abate remains available during the transition for taxpayers who receive penalties on returns processed before AEP applies, as well as for earlier periods. Taxpayers in those situations must still contact the IRS and request FTA.

Beginning with eligible returns having original due dates on or after January 1, 2027, Automatic Exemption from Penalty is expected to replace First Time Abate for covered returns.

A Significant Administrative Improvement

The practical significance of this change should not be underestimated.

According to the National Taxpayer Advocate, during fiscal year 2025 approximately 220,000 taxpayers obtained First Time Abate through the traditional request process. TAS estimates that if Automatic Exemption from Penalty had been in place, more than 1.5 million taxpayers would have received penalty relief automatically—roughly seven times as many.

That represents a substantial reduction in unnecessary taxpayer burden while allowing IRS personnel to devote resources to matters requiring individualized review.

A Few Practical Takeaways

Although the new system is welcome, taxpayers and advisors should keep several points in mind:

• Automatic relief applies only if the taxpayer meets the eligibility requirements.
• It does not eliminate the underlying tax or interest.
• Estate tax returns, gift tax returns, and certain other specialized filings generally remain outside the program.
• During the transition period, some qualifying taxpayers may still receive penalty notices on 2025 returns or 2026 quarterly returns that were processed before AEP applied. Those taxpayers should contact the IRS and request First Time Abate if they believe they qualify.
• Traditional reasonable cause relief remains available when the facts support it. Because AEP is an administrative waiver, practitioners should carefully consider whether a reasonable cause request is preferable in a given case. Applying AEP first can consume the administrative relief and potentially affect eligibility in a later year, whereas statutory reasonable cause relief does not.
• Taxpayers who receive a penalty notice should not assume the IRS has already considered every available form of relief. When in doubt, contact the IRS.

Final Thoughts

As tax practitioners, we often spend considerable time requesting relief that everyone involved knows is likely to be granted.

Automating this process is a common-sense improvement. It reduces unnecessary phone calls, correspondence, and administrative expense while promoting more consistent treatment of similarly situated taxpayers.

The IRS deserves credit for making a taxpayer-friendly change that simplifies compliance without changing the substantive eligibility rules.

For taxpayers who generally file and pay on time, making one mistake should no longer require knowing the secret handshake.

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This article is intended for general informational purposes only and does not constitute legal or tax advice. Taxpayers should consult their tax advisor regarding their particular circumstances.