Florida Asset Protection : Asset Protection Law & Planning in Florida - Florida Homestead Exemption

One of my asset protection client introduced me to an attorney in Tampa, named Mike, who has a very large and successful practice defending mortgage foreclosures and negotiating mortgage modification. I spoke with Mike and asked him about his client’s experiences during court-ordered mediation with their mortgage lender during foreclosure litigation.

Mike said that mediation in state court proceedings is usually a waste of time for his clients. He listed several reasons why foreclosure mediation infrequently results in successful mortgage modification and foreclosure forbearance. For example, he said that there are so many foreclosure mediation that lenders usually send a foreclosure "clerk" with minimal authority to offer anything other than the lenders "in-the-box" standard modification packages for which, he said, few clients qualify. He said that the lender’s attorney see mediation as a temporary hurdle in their march toward foreclosure judgment and possession of the property. There are so many different state court judges with their own procedures that there is little uniformity how trial court’s treat mediation.

Mike said he is having success in mediation ordered by the appellate court. When an appeal is filed our appellate court (the Fifth District Court) orders almost all foreclosure cases to mediation. No briefs are due until mediation is completed. The attorney says lenders send more senior representatives to appellate mediation and they take more seriously mortgage mediation ordered by an appellate court. Appellate mediation is uniform because there is just one appellate court in our district.

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The Orlando bankruptcy court is preparing to adopt a rule providing for mandatory mediation between homeowners and their mortgage companies to facilitate mortgage modification. Congress rejected a change in the bankruptcy code that would have empowered Chapter 13 debtors to force reduction in their first mortgage principal to their residence’s current fair market value.

This proposed procedural rule will not circumvent the bankruptcy code law and will not force reduction of first mortgage principal. What the Orlando local rule will do is enable Chapter 13 debtors by motion filed with the Orlando bankruptcy court to compel a bank representative with full authority to modify their mortgage to meet with the debtor and an independent mediator to negotiate in good faith a possible modification of the debtor’s first mortgage terms. This bankruptcy rule should make Chapter 13 bankruptcy attractive to homeowners who want to save their homes provided they can obtain a reasonable modification of their mortgage.

The Florida Supreme Court is requiring mediation in state court foreclosure cases. This state court rule is helpful, but the bankruptcy court rule could be better for homeowners. In state court procedures the homeowner has to be in a foreclosure case before having the opportunity to mediate with a bank agent with full authority. The homeowner first has to stop paying the mortgage for at least three months, wait for the bank to file a foreclosure lawsuit, hire a civil attorney to answer the lawsuit, proceed for several months in civil litigation, and then at some point, arrange for a court ordered mediation.

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Mortgage foreclosure defense has become a good business for attorneys. Many real estate attorneys who made money on real estate closing and putting together large real estate investment deals have found that most of their business in the past few years has come from clients wanting to defend against bank foreclosures and suits on personal guarantees of commercial loans. As in any area of law there just a few attorneys with special experience and credentials which enables them to do the best work. This past week I met an attorney (name withheld upon request) who seems uniquely qualified to defend bank collections of large real estate debt.

This individual formerly worked for a government task force which prosecuted banks for improper lending practices. His government agency enforced actions against lenders for their violations of the many technical regulatory requirements and consumer protection rules applicable to mortgage or commercial. He uses this experience today in private practice to defend bank lawsuits by raising technical defenses based on the bank’s failure to comply with same applicable rules and regulations he previously enforced on the government’s behalf. He states that there are so many rules and regulations applicable to bank lending that in almost every loan or guarantee the plaintiff bank is in violation of some government requirement. He said he can find a bank violation in almost every bank lawsuit and use the violation as an effective defense or even threaten the bank with a counter-claim.

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The state of Massachusetts is serious about collecting corporate income taxes. An owner of a bankrupt Massachusetts corporation learned about Massachusetts corporate tax collection when he tried to renew his Florida drivers’s license. At attorney wrote me an email about one of his clients who was a principal owner of a Massachusetts corporation doing business in that state. The business owed corporate taxes to the state. The client owner owed no personal taxes. The attorney’s client resides permanently in Florida.

Massachusetts law enables the state to suspend your driver’s license if you don’t pay state taxes. The law makes principal owners of a corporation liable for the corporation’s income tax. After this client’s corporation filed bankruptcy owing state corporate income tax the state of Massachusetts listed the individual principal on a national registry of corporate tax deadbeats. It turns out that Florida checks the national registry, and our state respects suspensions imposed by other states for tax liability. This unsuspecting owner of a failed Massachusetts business finds himself unable to drive in Florida or Massachusetts until he pays his bankrupt corporation’s state income tax.

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There was a recent post about a conversation with a debt collection attorney concerning what he believed were, and were not, effective collection tools. I reported that this collection attorney did not find wage garnishment to be a good collection tool because wage garnishment often drove debtors into bankruptcy.

I received different opinion from another experienced collection attorney from the Tampa area who writes:

 This attorney's  opinion is consistent with my own experiences in bankruptcy practice. I have a few bankruptcy clients who say they are filing bankruptcy because their wages have been garnished, but I don’t find that wage garnishment is a primary cause of bankruptcy. Most bankruptcy debtors I deal with anticipate collection. In other words, most people file bankruptcy before a creditor gets a judgment which would subject their wages to garnishment. If a creditor attorney garnishes wages then in most cases the debtor cannot file Chapter 7 bankruptcy for one reason or another.

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Effective asset protection planning requires anticipation of what creditors’ attorneys may and will do to collect their judgments. The best way to learn creditor attorney strategy is to ask them. My social relationships with creditor attorneys are very valuable to me professionally, as well as personally, because they give me the opportunity to learn about their methods.

I recently had a lunch with one of Orlando’s preeminent collection lawyers. We discussed collection practices and asset protection strategy, and I found some of his comments to be interesting. I asked him what was the most effective debt collection tool. His answer was, without hesitation: bank account garnishments. Bank garnishments, he explained, was the only way to capture a significant amount of a debtor’s cash quickly and without lengthy legal proceedings. Bank accounts are where the money is. Bank garnishments strike a surprise blow to debtors which freeze their funds and usually force them to settle the remaining debt.

I next asked him whether wage garnishments were effective assuming the debtor is not head of household. He said that garnishments were not a good collection tool. First, the creditor collects small amounts of money each month toward the judgment, and his clients are not interested in long-term payback. Next, he explained, that wage garnishments usually force debtors to file bankruptcy because debtors will not work for an indeterminate future for the benefit of creditors. Wage garnishment, he felt, usually backfire against his clients' debt collection.

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A husband and his wife are jointly liable on a real estate bank loan and could not afford to continue payments. After they stopped making monthly payments the bank  sued both spouses to collect the full loan balance. Both spouses worked and were concerned that the bank would garnish their wages after getting a judgment.

In Florida, a judgment creditor cannot garnish wages of a debtor who is head of household. In a traditional family setting only one spouse can be head of household where there are minor children. The general rule is that the higher earning spouse provides the majority of support for the children and is head of household, and the lesser earning spouse is vulnerable to wage garnishment. In this particular case, both spouses thought they were head of household in their family.

The facts in this case were unusual. Theirs was a second marriage. Each spouse had children from a prior marriage. Because they worked at jobs in different Florida  cities each spouse lived in their own house  with one or more of their own children. Each spouse supported their respective children in their homes. Each spouse owned their own home individually. Each spouse contended that they should be head of household and exempt from wage garnishment. Can there be two heads of household, exempt from wage garnishment, in the same family?

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A judgment creditor can levy upon a debtor’s stock in a corporation. After gaining possession of the stock the creditor can take all the assets of the corporation, such as bank accounts and accounts receivable, and the creditor can close the corporate business. This past week I consulted with a professional who owned his own professional business in the form of a professional corporation; a P.A. The professional owner was concerned that an existing creditor could close his P.A.’s business cut off his income.

I consulted a creditor collection attorney who practices in another city about the practicalities of a creditor levying on the stock of a professional corporation. The creditor attorney agreed that P.A. stock is subject to levy, but he explained that there are often practical obstacles to his levy upon the stock of a debtor’s professional business and the garnishment of the P.A. receivables. For example, it is difficult to garnish receivables of a medical P.A. because of HIPAA privacy regulations which protect patient identity. A creditor would find it difficult to collect medical receivables without breaching patient confidentiality. The same privacy issues are involved when a creditor levies upon an attorney’s stock in his professional corporation. A creditor’s inspection of the law firm billing records and files would impinge upon attorney-client privileges.

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The Orlando Sentinel ran a front page article in this Sunday's paper about short sales and foreclosures. The author stated that while the housing crisis affects all central Florida neighborhoods the wealthier neighborhoods fare better because the homeowners have money to maintain payments while negotiating short sales with the lenders, whereas in less affluent neighborhoods the homeowners are forced to abandon properties and suffer foreclosure. The author states that foreclosures are worse than a short sale for the homeowner because foreclosures have a more damaging and longer lasting effect on the homeowner’s credit rating.

I have never spoke to any attorney who recommends their clients pursue short sales. Not one. I have almost never recommended short sales to my own clients. Credit rating is not a legal issue, but in terms of their legal effect, and particularly asset protection, I rarely see an advantage to a short sale. In the "old days" a short sale arrangement included a release of liability; the lender would accept less than the full mortgage balance and release the mortgage and the underlying promissory note. In today’s mortgage environment a homeowner who negotiates a short sale must remain liable on the promissory note. No release.

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