Equitable Liens On Homestead Under The Havoco Case
The well-known case of Havoco v. Hill decided by the Florida Supreme Court in 2001 is the basis upon which debtors can protect non-exempt assets from existing creditors by converting the assets for the purchase or improvement of Florida homestead. The Havoco case permitted an exception to homestead protection where funds invested from the property came from fraud or other egregious circumstances. In such cases, the Supreme Court stated that the aggrieved creditor could get an equitable lien on the homestead although the creditor still could not force the sale of the house. The "fraud exception" in Havoco has lead to some court decisions in the past few years which have clarified the exception to fraudulent transfers into the homestead shelter. Some creditors believed, or at least have argued, that blatant fraudulent transfers, where the fraudulent conversion of money to the homestead is obvious and timed solely to avoid debts, are sufficiently "fraudulent" or "egregious" so as to warrant an equitable lien on homestead property.
Courts have clarified the fraud and egregious circumstance exception to Havoco to show that an equitable lien is appropriate only where the funds converted were obtained through fraudulent activity . For instance, in the Florida appeallate case of Willis v. Red Reef, Inc, the District Court of Appeal held that equitable liens are limited to situations where homesteads are purchased with the fruits of fraudulent activity, and that fraudulent diversion of legally obtained money to homestead is not the type of activity which calls for an equitable lien. In the bankruptcy case of In re Chauncey the eleventh circuit federal court of appeals held that diverting to homestead money obtained from a personal injury settlement on the to avoid creditors' attack against the settlement proceeds could not warrant an equitable lien. However, the same fraudulent transfer, although not impairing the homestead, did warrant a denial of the debtor's bankruptcy discharge because the debtor had transferred funds to avoid creditors.
Equitable liens are appropriate only where the money invested in the homestead was directly obtained by the debtor's fraudulent or egregious conduct other than the conduct of fraudulent conversion of the same money into the debtor's homestead.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida.
