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

During this past week I met with a new client who had recently been subject to a money judgment from a credit card company. The client, retired, had a reverse mortgage on his homestead which money he used to pay his basic living expense. As most know, a reverse mortgage involves a bank providing a guaranteed monthly payment for the owner's life in exchange for the house title upon the owner's death. The retired client was concerned that his creditor could garnish his monthly reverse mortgage payments. I don't think a court would permit garnishment of reverse mortgage payments if the mortgaged property were currently the debtor's homestead. Protecting money received and deposited in the debtor's bank account is more difficult.

Lets start with the general rule that although your homestead is creditor exempt once you convert the homestead equity to cash by mortgage or sale the money is no longer protected by the constitutional homestead protection- the one exception is the continued exemption of sale proceeds intended to purchase a replacement homestead. Application of this general principal would lead to the conclusion that proceeds payable or paid from a reverse mortgage are not protected. I think a court would not permit the garnishment for two reasons. In my opinion there is a strong public policy protecting the money people rely upon for retirement, and in most cases, reverse mortgages are used to fund retirement of seniors who have managed to pay off their mortgage. A brief legal research session revealed no Florida cases on this issue.

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Retirement plans are protected from creditors in Florida, except when the "retirement plan" is not a retirement plan. Consider, for example, a client who told me about his "Senior Executive Retirement Plan (SERP)." Initially, I told him his plan is protected from creditors as a retirement or pension plan. Upon further review, it turned out that this employer benefit plan is not protected by Florida law.

Florida Statute 222.21 protects tax deferred retirement and pension plans including most IRAs. The statute refers to specific IRS Code sections, and the debtor's benefit plan must fit under one of the listed Code sections. After our initial meeting, this client sent me written information about his SERP. It turned out that the Senior Executive Retirement Plan was actually a deferred compensation plan. The employer withheld parts of the client's salary until after retirement. The company's plan did not fall under any of the IRS deferred taxation retirement plans listed in the applicable Florida Statute 222.21. The client suggested that his deferred compensation might be protected under Florida Statute 222.11 which protects from garnishment wages of a head of household. His current compensation consist of wages, and therefore, he argued that the same compensation paid after his retirement is also a form of protected wages.

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A judgment creditor threatens the debtor to garnish her alimony payments she receives from her ex-husband on a monthly basis. The debtor depends on the alimony to pay her mortgage an other household expenses. The debtor asks if the alimony is exempt from garnishment under the Florida statutes.

There is no statutory exemption of alimony or child support receipts. However, Florida courts have not allowed judgment creditors to garnish the debtor's alimony payments. Garnishment is permitted only where the garnishee (alimony payer) and the debtor have a debtor-creditor relationship. A Florida court many years ago held that alimony was not a "debt" in the traditional sense, and that alimony therefor could not be subject to garnishment. The court also held that public policy prohibited the garnishment of alimony from one ex-spouse to the other. No court has disagreed. The same court also found that alimony is not a form of wages which could be exempt under Florida's protection of head-of-household earnings.

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A good percentage of my clients over the past three years have been trying to save homes from foreclosure by modifying their mortgages. Successful modifications are becoming more common, but still, the vast majority of people who call me state that their mortgage lender is not willing to modify their loan in a way that would permit the borrowers to maintain the mortgage until the housing market recovers. Clients wonder, and they asked me, why their mortgage company would rather force them into foreclosure than modify the mortgage so that the loan can be paid. Why, clients asked, would the bank want their vacant property rather than whatever amounts of money the clients can afford to pay.

I just read an interesting article by Mr. Richard Kessler, CEO of a web based company called www.cancelthemortgage-now.com, about the mortgage lending industry's loan modification policies. Mr. Kessler suggests several reasons why mortgage service companies have difficulty entering into flexible mortgage modifications and why they have rational reasons to foreclose delinquent mortgages. His article tries to explain the difficulty you may experience trying to modify your own home mortgage. Rather than try to paraphrase the article, I offer selected portions for your own reading:

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The 2009 Nevada legislature passed an interesting estate planning statute designed to increase the effectiveness of family limited partnership (FLP) and family limited liability companies (FLLC) for estate tax planning. The bill, SB 350, went into effect on October 1, 2009. An article about the new law appeared this week in Lawyersusaonline.com. Lawyers USA Online. I was intervied by the author, Correy Stephenson,  in order to discuss the bill's effect on asset protection planning.

The bill provides for new business entities called Nevada Restricted Limited Partnerships and Nevada Restricted Limited Liability Companies. The "restriction" aspect means that the LP or LLC is restricted from making distributions to its partners (members) for a period of up to ten years. The restrction against distributions effectively locks money inside these entities. In theory, the applicable restrctions warrant greater valuation discounts from fair market value of assets held in these new entities. For families with taxable estates a greater valuation discount means lower estate tax bills. Estate tax planning is the primary benefit of the Restricted LP and LLC.

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I would like to ask you, the blog readers, to help a reporter who is investigating  practices in the mortgage modification programs. A national business publication is investigating overly aggressive second mortgage lenders. The reporter, Mr. Robert Berner (312-451-7149), is looking at situations where a second mortgage lender sues a homeowner after the homeowner has already entered into a modification agreement with the first mortgage. The second mortgage gets a judgment against the homeowner and then garnishes the owner's bank accounts or salary which causes the homeowner to default under the first mortgage modification agreement. These second mortgage lenders are sabotaging the modification programs set up and encouraged by the government to help homeowners. In some cases where the same bank holds the first and second mortgage the bank modifies the first mortgage and then sells the second mortgage to a third party investor which then agressively collects the second or even sues the homeowner for delinquent second mortgage payments. These mortgage lenders appear cooperative in modifying their first mortgages but then undermine the same modification by collecting or selling the second mortgage.

A related mortgage issue I have heard about from my own clients occurs when a homeowner has checking accounts at the same bank that holds his home mortgage. Some clients have reported that when they missed a mortgage payment the bank invaded their checking account and pulled the mortgage payment out of their checking account without notice. I have previously posted my general advice which is to move your accounts out of the bank that holds your home mortgage if you miss a mortgage payment.

Please get involved. If you have had a mortgage modification plan ruined by a second mortgage holder who sued you during the modification process, or if you have had your mortgage lender grab mortgage payments from your checking account at the same back before a foreclosure or other lawsuit was even filed, call Mr. Berner (312-451-7149) and discuss your experiences.

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From time to time people call me and state that a title search discovered a judgment lien on their homestead. They ask how a judgment can encumber their homestead property if homestead is exempt from creditors.

A title search does not answer the question of whether there are enforceable judgment liens on your homestead. The search will tell only what filing appear on the public record. Any civil judgment against you will appear when you do a title search of any property in your name. Whether a recorded judgment acts as a lien on your homestead is a separate legal issue that takes into account the Constitutional homestead exemption.

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