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Q: I have heard Florida homestead properties exempt from creditor claims. Is that true?

A: Article X, Section 4, of the Florida Constitution provides protection to homestead property from creditor claims. A provision of the Constitution exempts homestead property from forced sale and provides that no judgment, decree, execution or lien on homestead property except for (1) payment of taxes and assessments on the property, (2) obligations contracted for the purchase, improvement or repair of the property, (3) or contracts for house, field, or other labor performed on the property.

The constitution goes on to describe homestead property as property owned by a natural person of up to 160 acres of contiguous land if located outside a municipality or one-half acre of contiguous land within a municipality, limited to the residence of the owner or the owners family and personal property to the value of $1,000.

Florida courts have followed a strong policy of protecting homestead from creditors of all kinds, but the courts have carved out limited exceptions — like when the homestead is transferred to a revocable living trust.

Three bankruptcy court decisions have addressed the trust issue, with one decision holding the Constitution language limiting homestead to property owned by a natural person means transferring to trustee of a trust, even if it is the same person, ends the homestead protection. Two bankruptcy court decisions hold to the contrary as does the only Florida appellate case on point. The Florida Supreme Court has not addressed the issue.

Florida courts have also created an equitable trust exemption.

In 1925, the Florida Supreme Court allowed imposition of an equitable lien where an employee had embezzled funds and, in turn, used the funds to make improvements to his home. To impose an equitable lien, two tests must be met. First, the funds must be obtained through fraud or other wrong doing. Second, the funds must be directly traceable to the homestead.

In another case, the plaintiffs made improvements to the defendants homestead with the understanding they were acquiring an interest in the homestead. The court imposed an equitable lien.

In a later case, an elderly woman gave the defendant money and domestic services. The defendant used the money and services to purchase and operate a tourist camp. The defendant had promised to take care of the elderly woman for the remainder of her life in exchange for her payment and services. When the defendant reneged, the court granted the elderly woman and equitable lien.

The Florida Supreme Court has frequently explained the homestead exemption is to be liberally construed in the interest of protecting the family home. The protection has remained strong, even in the face of criminal activity.

In one case, Florida sought civil forfeiture of a homestead under a statute that provides for forfeiture of property used in criminal activity. The Florida Supreme Court held that the constitution prohibits civil or criminal forfeiture of homestead property.

In another case, the Supreme Court confirmed that even where it was clear a debtor had transferred non-exempt assets into a homestead with the intent to hinder, delay, or defraud creditor, the homestead was still protected.

The Supreme Court explained that the constitution provides only three exceptions to the exemption from forced sale and those exceptions are unqualified. They create no personal qualification with respect to moral character of the resident nor do they exclude the viscous, the criminal, or the moral from the benefits of homestead.

In yet another case, a homeowner purchased vacant land adjacent to their homestead shortly after a judgment was entered against them. They declared the additional land part of their homestead and the Florida Supreme Court held that the homestead claim protected all of the property from the efforts by the judgment holder to collect his judgment.

The Florida Homestead Exemption does not have a value limitation. It’s only limited by size. In contrast, most other states place a dollar limit on the homestead exemption.

In response to states with large or no dollar limit on the homestead exemption, federal bankruptcy statutes were recently amended to place a $125,000 cap on a homestead acquired within a 1,215 day period prior to the filing of a bankruptcy petition. If the person seeking bankruptcy protection has a claim in violation of federal or state securities law, racketeering, fiduciary fraud or certain other crimes or intentional wrong doing, the $125,000 cap applies with out regard to the date the property was acquired. Intent of the statute is to stop debtors from fleeing to a state with an unlimited homestead exemption and investing all of their available assets in their residence.

This limitation does not apply to a transfer from one homestead to another in the same state. This is consistent with Florida cases, which have long held that proceeds from sale of homestead property continue to be exempt from creditor claims, as long the proceeds are to be invested in a replacement home. The federal law will limit the exemption of a new homestead where one moves from one state to another.

The Florida homestead protection is a strong defense to creditor claims. However, it’s not with out exception. If you believe you have a claim involving homestead property, you should consult with an experienced attorney for review of your case.

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William G. Morris is a lawyer with offices at 247 N. Collier Blvd., Marco Island. The column is not intended to be legal advice for specific circumstances. General questions can be sent by e-mail to wgmorrislaw@earthlink.net or by fax to (239) 642-0722. Read other columns at http://www.wgmorris.com.