Florida Homestead Protection from Creditors

By Morris Law Group

One of the key protectionary measures provided to Florida residents is the Homestead Creditor Protection as provided in Article X Section 4 of the Florida Constitution. As a brief background, Florida’s Homestead Protection provides that your “homestead” property is exempt from levy and execution by judgment creditors. Simply stated, a creditor cannot force the sale of your homestead to satisfy a judgment.

Your homestead is defined as your primary place of residence (assuming you are a permanent resident of Florida). Furthermore, homestead is limited to up to one-half acre within a municipality and up to 160 contiguous acres outside a municipality. If you have more than one home in Florida, you can only declare one of the properties as your Homestead property.

However, there have always been three undisputed exceptions to this protection. The three scenarios in which the homestead protection will not protect you from a creditor are 1) claims resulting from IRS tax liens; 2) claims resulting from mechanic’s liens associated with maintenance or construction of the specific homestead property; and 3) liens related to mortgages and Home Owners Association dues. These classes of creditors can attack your homestead property and force a sale to satisfy a judgement.

Unfortunately, it appears that a recent case in Bankruptcy Court for the Middle District of Florida, Tampa Division (Wiand v. Lee) may have created a de facto fourth exception. Such exemption would be the “Ponzi Scheme” exception.

The facts of Wiand v. Lee involve an innocent victim of a Ponzi scheme who used funds received from the Ponzi scheme to purchase a homestead. Further, it was undisputed that the victim did not engage in any fraudulent conduct, had no knowledge of such Ponzi scheme, nor was he accused of any wrongdoing. Nonetheless, the Court ruled against the victim’s homestead protection claim and imposed an equitable lien on the home, so that the home could be sold to satisfy the lien.

The Bankruptcy Court, in its decision to rule against the homeowner, looked to four previous cases in which Florida Courts have done the same. However, each of the four previous cases involved a Homestead owner who actively obtained funds through fraud or egregious activity. Even though there was no fraud or egregious conduct from the homeowner in Wiand v. Lee, the Court still determined that a lien can be attached to the homestead property.

This decision is extremely troubling and sets a bad precedent by essentially adding a fourth exception to the longstanding Florida Homestead Creditor Protection. Additionally, it exposes innocent individuals to the forfeiture of their Homestead.

Although this is a unique situation and likely not a common occurrence, it is nonetheless an important development. Please stay tuned for updates as this decision is currently being appealed.