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

Today, April 30, 2009, the Wall Street Journal published an article on Short Sales. The Journal report is consistent with items previously posted on this Blog. Foremost, the Journal warned that most lenders accepting short sales are not waiving personal liability or deficiency judgments. These lenders require the homeowner to sign a new promissory note for the short amount. I previously posted my opinion that short sales are a trap for homeowners. The buyer, lender, and real estate agent each gain from a short sale, whereas the homeowner is left with the same liability he would face if he let the property go to foreclosure. Actually, the homeowner is in worse shape- in the case of a foreclosure the lender would have to prove the property's fair market value in order to pursue a deficiency judgment. Proof of value takes time and money invested in attorneys fees and appraisals. When the borrower agrees to a short sale and signs a new note the borrower has liquidated value, that is, he has consented to a property value equal to the sale amount. Short sales still affect your credit, and even if the credit impact is less than foreclosure, you should consider whether the credit benefit is worth the liability. The Journal tells of one homeowner who walked away from a short sale ready to close when the bank insisted he sign a promissory note for the forgiven value.

There is another article in today's Journal about short sale which makes interesting reading for distressed homeowners. A Short Sale May Not Mean You're Home Free - WSJ.com. This article explains the potential income consequences from a short sale. Its a relatively clear and comprehensive explanation of taxation issues in mortgage debt foregiveness. I learned new things about the tax consequences of foreclosure. Read the article before you consider foreclosure or short sale, and always talk with your CPA to make sure you understand your situation. A bank may not chase you to collect  a deficiency judgment, but the Internal Revenue Service will likely pursue collection of income taxes triggered by debt foregiveness.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

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An attorney called me to discuss whether a debtor could protect as homestead a house they owned which was occupied by their children. The case involved a divorced woman (the client) which children and her mother. The client and her mother each owned and occupied a Florida home. The client is in the process of leaving her home and moving in with her mother to help care for her, and she is also adding her name to the legal title of her mother's home for estate planning purposes. The client gave permission to her two sons to occupy her home after she moved in with the mother. The client filed for homestead tax exemption on the home she owned; her mother claim a homestead tax exemption for her home. The client was being sued and anticipated a judgment being entered against her. She asked her attorney, and the attorney asked me, if the client/debtor could protect her home occupied by her son as a homestead property.

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As a general rule, a creditor cannot challenge as a fraudulent conveyance any transfers of assets made more than four years ago. I use the four year statute of limitation applicable to fraudulent transfers and conversions as a planning guideline and do not advise most clients to consider additional asset protection tools to protect transfers four years in the past. There are, however, exceptions to this general rule which permits creditors to challenge older asset transfers. Specifically, Florida Statute 726.110 provides that a creditor can challenge as fraudulent an asset transfer to avoid pre-existing creditors for one year after the creditor was or could reasonably have been discovered by the creditor under certain conditions. This Statute gives some creditors the ability to challenge a conveyance no matter how ancient for a period of one year after the creditor's actual or constructive discovery.

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Many people in Florida serve as trustees of family trusts where the beneficiaries are other family members and their respective children. Serving without compensation as a trustee for other family members at the bequest of a family trustmaker is not a problem as long as all family members get along. However, when disagreement and dissension arises within the family the job of trustee is a liability trap. Disgruntled family members, sometimes motivated by their spouses, ma

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I have reported recently that some second mortgage lenders have become more aggressive by suing defaulting homeowners personally. I recently received an email from a litigation attorney representing New York residents who purchased an investment home in Florida subject to a first and second mortgage. I had referred the client for mortgage foreclosure defense. If the second mortgage holder (Chase Mortgage) had pursued a deficiency claim in the foreclosure proceeding they would have had to domesticate the Florida judgement in New York in order to pursue a personal claim against the New York residents. In this case, the second mortgage is pursuing a more aggressive (and more effective) attack against the borrowers by proceeding directly against the mortgage's underlying promissory note.

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When a small family business encounters business problems they do everything they can to preserve money. One of the first steps usually is reducing or deferring salary payable to the owners. Some businesses borrow money from other family members to pay bills. Some business cannot recover nor can they obtain enough capital to survive a recession, and eventually, they recognize that the business must shut down. I have often been asked by owners of failing businesses whether they can use what money is left in the business to pay themselves deferred salary or to repay their family members. The owners would prefer to pay themselves and their family rather than expose what money remains in the business to creditors. The owners think its fair to pay what are legitimate obligations to themselves or family. Unfortunately, payments from a failing business to owners or their family may be subject to reversal under Florida law.

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