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Can Florida’s Homestead Exemption Be Used To Defraud Creditors?

When it comes to Asset Protection, Florida has one of the best homestead exemptions in the Country. However, that exemption often comes under fire, especially in situations where creditors feel the exemption is an unfair impediment to them collecting against a borrower.

In the case Havoco of America, Ltd. V. Hill, 790 So.2d 1018 (2001), the following question was certified from the bankruptcy court of appeal to the Supreme Court of the State of Florida:

Does Article X, Section 4 of the Florida Constitution exempt a Florida homestead, where the debtor acquired the homestead using non-exempt funds with the specific intent of hindering,delaying or defrauding creditors in violation of Fla. Stat. s. 726.105 [The Uniform Fraudulent Transfers Act] or Fla. Stat. s. 222.29 and 222.30 [Florida Exemptions]?

In the case, the Hill bought a homestead residence for $650,000 cash just two (2) days before a judgment was entered against him, and in favor of Havoco, for $15 million. The debtor then filed bankruptcy and claimed the homestead as exempt. The Court tried, but ultimately never deviated from the starting point of its analysis, that the homestead exemption in Florida is to be liberally construed in the interest of protecting the family home. The Court ultimately agreed that a homestead that is purchased with the specific intent to hinder, delay or defraud a creditor (as Mr. Hill had) is protected by the Florida Homestead Exemption.

Unfortunately for the savvy debtor, the Bankruptcy Code was amended in 2005 to allow the debtor utilize the exemption of the state of filing, only if the debtor has lived in that state for more than 2.5 years. Mr. Hill lived in Tennessee just prior to purchasing his homestead in Destin, FL, meaning his strategy would not work today, because he would not be entitled to use Florida’s exemptions in bankruptcy court. Presumably, however, the strategy might still be effective if the debtor has lived in Florida for more than 2.5 years, and buys a house all cash to prevent that money from being attached by a creditor.

For more information on bankruptcy, asset protection, or Florida’s Homestead Exemption, please subscribe to the Crushing Debt Podcast, on iTunes, Stitcher and GooglePlay. If you prefer, please contact us to schedule a free initial consultation to discuss your options at 813-774-5737 or email me directly at shawn@yesnerlaw.com.

Shawn M. Yesner, Esq., is the founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate debt by providing options, so they can live the lifestyle of their dreams. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.

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