1989), the court expressly characterized a lien as equitable, rather than judicial, on the ground that the debtor ex-spouse would be unjustly enriched if allowed to avoid a judicial lien under §522(f)(1).10 The court in Boyd v. Robinson, 741 F.2d 1112 (8th Cir. She received a B.A., with honors, in 1989 from Duke University, and a J.D., with high honors, from the University of Florida in 1992. Joint ownership of property with a person who does not reside on the property can also jeopardize homestead property. This definition also subordinates the homestead exemption to certain other liens not relevant here. The Ewiak court noted the contradiction in letting stand a nondischargeable debt but discharging the lien securing that debt. 39 Id. 1985). 113 S.Ct. Therefore, the 11th Circuit held, §522(f)(1) was not available to void the lien.45. In fact, debtors will not be able to avoid under §522(f)(1) any floating judgment lien that attached to after-acquired homestead property because the lien will have attached simultaneously with the debtor’s acquiring the interest. Florida homestead laws are notorious among creditors for protecting debtors’ assets, particularly in combination with the protection provided by bankruptcy. 19 See, e.g., Jackson, 86 B.R. 42 Id. Conclusion Wayne Patton JD, LLC At first glance, this does not appear to be a good argument for the lienholder. An all-too-typical circumstance in Florida practice today: You, the attorney have obtained a money judgment for your client, and have properly recorded that judgment in the public records of the defendant’s county of residence and the surrounding counties. 6 Bessemer v. Gersten, 381 So. 33 Id. 35 See note 17 and accompanying text. 1989), rev’d, U.S. Therefore, the court reasoned, because homestead rights are subject to preexisting liens, the assessment fee lien prevailed over the debtors’ homestead exemption.6 Accordingly, under Florida caselaw, it appears that judgment liens attach to after-acquired homestead property, thus creating the “floating judgment lien” and raising the question of whether a bankrupt debtor can avoid such a lien under Bankruptcy Code §522(f). Therefore, it focused solely on whether the pre-existing lien “‘impair[ed] an exemption to which [the debtor] would have been entitled.. . 522(f)(1). Similarly, a bankruptcy court in Texas found a lien imposed by a state court judgment according to the terms of the parties’ settlement agreement to be consensual, rather than judicial.15 After being sued on a debt owed to the lienholder, the debtor had agreed to entry of a judgment against him in a certain amount and assigned to the lienholder an interest in the proceeds of the sale of his homestead to pay the amount of the judgment. 29 Owen v. Owen, 500 U.S. 305, 111 5. Bankruptcy Code §522(f)(1) controls the avoidance of judicial liens on property exempted from the bankruptcy estate. 1 This hypothetical fact situation assumes that the judgment was recorded sufficiently in advance of the bankruptcy filing that the trustee cannot avoid it as a preference under 11 U.S.C. 3 Bowers v. Mozingo, 399 So. The 11th Circuit also had adopted this reasoning in In re Maddox, 713 F.2d 1526 (11th Cir. Scope of the Debtor Protection. All rights reserved. S.D. Indeed, the 11th Circuit applied the Farrey analysis to the Owen case on remand.44 Although the Supreme Court had assumed without deciding that the Owen judicial lien had fixed on an interest of the debtor, the 11th Circuit noted on remand that the Owen lienholder recorded her lien before the debtor acquired the subject property. For example, if your sister owns half of a home but does not reside in that home with you, your sister’s one-half interest is not protected by the Florida homestead exemption and can, therefore, be sold to satisfy a judgment against her. Creating a florida protection against judgment, the homestead estate must get a law. After all, if the lien did not attach to the debtor’s property, then the underlying debt is unsecured and the result is no better than if the lien had been avoided under §522(f)(1). Thus, the entire value of large estate homes and farms can be protected under Florida’s homestead laws. 25 See, e.g., Matter of Hershey, 50 B.R. N.D. Texas 1991). Owen does not control this situation, and decisions cited in the margin give ample basis to argue that a presently unenforceable lien does not impair the homestead exemption.35 As some courts already have reasoned, the existence of an unenforceable lien does not interfere with the debtor’s exercise of his or her homestead rights.36 Therefore, the lien should remain on the property— enforceable if the property ever loses its homestead status.37, 3) The lien did not fix on a property interest of the debtor. 31 Id. There are three discrete requirements for a lien to be subject to §522(f)(1): 1) a judicial lien, 2) must impair an exemption to which the debtor otherwise would have been entitled, 3) because it has fixed on a property interest of the debtor. Some courts confronted with judicial liens that attached to property after it became homestead refused to allow §522(f)(1) avoidance.18 These courts reasoned that the liens did not impair the debtor’s homestead exemption because they could not be enforced against the property while it remained homestead. 45 Id. at 244. Upon the death of the owner of a homestead, a surviving spouse is entitled to a life estate on the property, and the remainder interest (e.g. 23 Fla. Const. However, these requirements have no bearing on the asset protection features of the homestead exemption. A judgment lasts for up to 20 years. Finding that the homestead protection provision in the state constitution should be *liberally construed,* the Florida Supreme Court held that homestead protections against judgment creditors extend to the proceeds from the sale of the homestead if all the following conditions are met: ‘ “31 The Court examined the statutory language “would have been entitled” and reasoned that it must refer to an exemption the debtor would have enjoyed but for the lien at issue. Surrounded the intent to help them remove a homestead exemption is … M.D. at 1838. The issue was whether proceeds from the sale of a debtor’s homestead retain their Article X, Section 4 Florida constitutional protection against a writ of garnishment when the funds were divided into multiple accounts, including a brokerage account investing in mutual funds and stocks? That’s true even if the homestead is titled in only one person’s name and even if it was bought entirely with money that is or was separate property. Pa. 1987). 1981), was decided under Florida’s 1885 Constitution, which like current art. Outstanding irs to florida homestead protection judgment or disabled person objecting to fully convert the value. Not necessarily, as it turns out, under Florida law regarding attachment of liens and federal law regarding lien avoidance. at 1022-23; Piambino, 45 B.R. at 1831. 8 Pursuant to 11 U.S.C. Under the caselaw, to many practitioners’ surprise, a different result is indicated. Fla. 1989). S.D. Most judicial liens withstanding attack under §522(f)(1) will do so because they did not fix on a property interest of the debtor as defined by Farrey. In other words, a judgment creditor of a non-resident co-owner of property can force the property to be sold at auction, so it is smart to make sure that homesteaded property is occupied by all owners of the property. 616 (Bankr. 15 In re Inman, 131 BR. Divorce decrees had imposed the liens on the debtors’ exempt property to protect debts owed the ex-spouses as part of a court-ordered property division. This section provides: ‘Not-withstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled. The homestead exemption is the highest form of asset protection because it is embodied in Florida’s Constitution and statutes, and it has been rigorously and consistently upheld by the courts. See also In re Valdes, 81 B.R. Florida's debtor protection homestead provision is one of the broadest in the United States.The value of the property that can be protected is unlimited, so long as the property occupies no more than one-half acre (2,000 sq m) within a municipality, or 160 acres (650,000 sq m) outside of a municipality. 126-27(1977), U.S. Code Cong. M.D. Ct. 1833 (1991). However, there is a misconception that a creditor who obtains a judgment cannot record or perfect that judgment against the borrower’s homestead property. The creditor sued the Cuneos in Florida seeking a declaratory judgment that the Cuneos’ transfer of funds to purchase the Florida homestead was fraudulent because the Cuneos were attempting to take advantage of the Florida homestead exemption to hinder, delay and defraud present or future creditors by transferring their assets into the Florida property. 28 Id. M.D. M.D. 16 Id. The Florida Supreme Court has held that it is permissible to use non-exempt, unprotected assets to purchase a homestead or reduce the mortgage held on a homestead, even though the transfer was clearly made to place assets beyond the reach of existing creditors. Because Owen clearly involved no such “race to the courthouse,” the court determined that §522(f)(1) avoidance of this long-standing enforceable lien was inappropriate.28, The Supreme Court, however, reversed this decision.29 The Supreme Court held that preexisting judgment liens on homestead property could be avoided under §522(f)(1), even though they do not “impair” the Florida homestead exemption.30 The Court assumed without deciding that the lien in Owen fixed “on an interest of the debtor in property,” as required by §522(f)(1). 1838. 616, Valdes, 81 B.R. Florida’s asset protection laws apply to permanent residents of Florida and people in other states who own property in Florida. Many Florida judicial lien creditors and debtors reading the text of §522(f)(1) would conclude that it allows a debtor in bankruptcy to avoid any judicial lien encumbering the debtor’s homestead property since Florida has declared homestead property to be exempt from the bankruptcy estate.8 Judicial lien creditors should not give up the fight yet, however. All Rights Reserved. on an interest of the debtor,” as clarified by the Court, may surprise many practitioners. Your client calls and says that the defendant, an individual, has just purchased a new parcel of real property in an adjoining county where you (with obvious foresight) have recorded the judgment. at 172. Its purpose is to protect the sanctity of the home by providing a shelter for the owner and his family immune from the money judgments of creditors. free and clear title) goest to any children of the original owner. 27 Owen v. Owen, 877 F.2d 44, 47 (11th Cir. X, §4 exempted homestead property from forced sale and provided that no judgment or execution would be a lien thereon. Fla. 1985); see also In re West, 54 B.R. Second homes and investment properties don’t qualify for protection either. 141, and Raskin, 78 B.R. at Florida homestead law protects a Florida resident’s primary home from levy and execution by their judgment creditors. However, the meaning of “fixing.. . An informal poll of Florida lawyers would probably reveal a consensus that judgment liens do not attach to homestead property. 855 (Bankr. Worse still, the judgment debtor has filed a bankruptcy petition and moved to avoid the lien your recorded judgment appears to create on his or her homestead.1. The Florida Constitution grants homestead protection to a personal residence on up to one-half acre within a municipality (i.e. See also F. S. 732.401, 732.4015 (a) There shall be exempt from forced sale under process of any court, and no judgment, decree or In Farrey v. Sanderfoot, 500 U.S. 291, 111 S. Ct. 1825 (1991), the Supreme Court held that a debtor wishing to avoid a lien under §522(f)(1) must “have possessed an interest to which [the) lien attached, before it attached, to avoid the fixing of the lien on that interest.”38 The Court interpreted the statutory language “fixing of a lien” to refer to the timing of a lien’s attachment, and reasoned that the “fixing” of a lien “presupposes an object onto which the [lien] can fasten.”39 Because §522(f)(1) defines that object as “an interest of the debtor in property,” the Court concluded that “unless the debtor had the property interest to which the lien attached at some point before the lien attached to that interest, he or she cannot avoid the fixing of the lien under the terms of §522(f)(1).”40, The Court supported its conclusion by referring to the purpose behind §522(f). Property that is not occupied by the owner is not protected under Florida’s homestead laws. The nondischargeable debt in In re Stebbins, 105 B.R. 2d 188, 190 (Fla. 3d D.C.A. 111 S. Ct. 1833 (1991). In McDermott, a judgment creditor and the I.R.S. One section of the declaration imposed a lien on the property for payment of assessment fees. ~ From the Rules Regulating The Florida Bar, Nancy S. Freeman and James Edward Cheek, III, The American Influence on International Commercial Arbitration: Doctrinal Developments and Discovery Methods. This is known as the homestead protection law. Ga. 1989), the debt stemmed from the debtor’s willful and malicious injury to the lienholder’s property. Noting that this lien would prevail over the homestead exemption outside bankruptcy, the 11th Circuit held that the debtor could not avoid the lien in bankruptcy through §522(f)(1). 20 In re Calandriello, 107 B.R. Ct. 1833 (1991), federal courts in Florida disagreed on whether certain judicial liens impaired a debtor’s homestead exemption. 1984). James Edward Cheek III is a shareholder of the firm of Winderweedle, Haines, Ward and Woodman, P.A. Fla. Const. In addition, Florida’s Constitution extends the homestead protection to the homeowner’s spouse. Interestingly, proceeds from the sale of Florida homestead are also protected to the extent that they are intended to be used for the purchase of a new Florida homestead within a reasonable time. (S.D. Fla. 1989). Fla. 1988). 858 (Bankr. 2 The U.S. Supreme Court recently recognized the viability of “floating judgment liens” in United States v. McDermott, __ U.S. __ 113 S. Ct. 1526, 61 U.S.L.W. This article also does not deal with the issues involved in claiming, postbankruptcy, that the debtor’s purported “homestead” is not “homestead” at all under Florida law, and is thus not exempt from your client’s judgment lien. Therefore, the Court concluded that Florida’s exclusion of preexisting liens from the scope of its homestead exemption does not affect §522(f)(1) avoidance of those liens in bankruptcy.34 Even though a lien may fall outside the scope of an exemption, it will be found to impair” the exemption if avoidance of the lien would render the debtor’s encumbered interest exempt. Starting with Florida, we need look no further than to the state's constitution. ‘To inculcate in its members the principles of duty and service to the public, to improve the administration of justice, and to advance the science of jurisprudence.’ The provision was intended to discourage creditors from bringing legal action when they sense an impending bankruptcy by allowing a debtor “to undo the actions of creditors that bring legal action against the debtor shortly before bankruptcy.”41 This concern simply is not implicated when a pre-existing floating judgment lien attached to a property interest later acquired by the debtor, or when a judicial lien attached to a property interest before the debtor even acquired it. Because the liens remained statutory or equitable, even when enforced by judgments, they fell outside the scope of §522(f)(1).14 Call us: (877) 727-1092 Fla. 1989); In re Goodwin, 82 B.R. of restrictions. The homestead exemption protects a certain dollar amount of the equity in a debtor’s homestead from judgment creditors. 527 (Bankr. Accord, In re Bradlow, 119 B.R. One of the allowed exemptions in Florida is homestead property. What liens or judgments are considered "non-equity"? 1986) (en banc). Fla. 1990); In re Watson, 116 B.R. Google+: MWPatton Asset Protection, Serving Clients Nationwide However, apparently unnoticed by the Hampton court, the Ewiak court held that this “unpalatable result” was a matter for Congress to address and avoided the lien under §522(f)(1). 9 In re Borman, 886 F.2d 273 (10th Cir. 32 Id. © 2020 The Florida Bar. Your client is out of luck, right? Fla. 1989), was for an award of alimony; in In re Hampton, 104 B.R. The Third District Court of Appeal faced the issue of whether floating judgment liens attach to after-acquired property in Bowers v. Mozingo, 399 So. In Owen, the judgment creditor recorded her lien against the debtor in 1976—eight years before the debtor acquired the subject property. 330 (Bankr. Like the judgment liens in Farrey and Owen, your client’s lien does not satisfy the §522(f)(1) fixing requirement because it was a preexisting floating judgment lien which attached to the debtor’s property interest simultaneously with the acquisition of it. 527, 528 (Bankr. at 1830. X, §4. Fla. 1989) (vendors’lien); In re Piambino, 45 BR. These three requirements give lienholders three bases on which to argue that §522(f)(1) does not allow avoidance of their liens. To be presently enforceable on a debtor’s homestead, a lien must have attached either before, or simultaneously with, the debtor’s acquisition of an interest in the property. Homestead protection attaches immediately upon the first day of occupancy of a property that is intended to be a permanent Florida homestead. The court reasoned that “Congress did not intend through section 522(f). at For one, a homestead cannot be sold without the consent of both spouses. A lien fitting this description will be found nonavoidable under §522(f)(1) on the ground that it did not fix on an interest of the debtor. Interest accrues every year as set by the Comptroller of the State of Florida. sets forth the infamous exemption: Article X, Section 4 of the Florida Constitution states that a judgment creditor cannot force the sale of your home to satisfy the creditor’s money judgment. Your timely recording of the judgment has allowed the judgment lien to survive the bankruptcy process.47. 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