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

An attorney emailed me with a question about a prospective bankruptcy client who is in the real estate sales business. The real estate salesman has a few contracts in the pipeline- sales contracts are signed subject to financing contingency and other conditions. If the sales close the realtor will earn a commissions. The question is whether the salesman has to value and report these future earnings on a Chapter 7 bankruptcy petition either as an asset or as income. The attorney wonders whether the debtor should discount the present value of the future commissions based on their probability and timing.

There have been many blog posts dealing with tenancy by entireties bank accounts. I have often explained that accounts opened by married couples as joint tenants with rights of survivorship are presumed to be owned tenants by entireties under Florida law. I advise clients to open accounts specifically titled as tenants by entireties so they don't have to rely on the legal presumption that creditors can overcome and rebut under some circumstances. There is nothing to rebut or overcome if the account is titled as an entireties accounts.

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The Florida statutes exempt retirement pensions from creditor claims. Courts have protected pension distributions after they were deposited in financial accounts. This week a Florida resident with an English accent called me with asset protection questions. On of his assets is a pension from an English company which he earned while working for many years in England. He assumed that his English pension is safe from creditors. I told him I disagreed, and that I think his creditors could garnish the pension ( they may have to go to England to do so), or his creditors could levy upon pension payments after they were deposited in a U.S. checking account. Why is an English pension not a protected pension?

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Annuities are exempt in Florida, and so are annuity proceeds. A client consulted with me today regarding assets which include a bank account, in his own name, which account contains $20,000 of annuity proceeds. There is no money in this bank account other than these annuity proceeds. Florida courts have protected annuity proceeds after they have been deposited in the debtor's financial account as long as the money is traceable to an annuity. The annuity proceeds in this debtor's bank account represent a final payment of an annuity purchased by his mother in New York for the debtor's benefit. The debtor/son was the sole annuity beneficiary. The money is exempt, right? I thought so until I re-read the annuity statute. Now, I'm not so sure the money is protected from the son's creditors.

Florida's annuity statute, Section 222.14, exempts "the proceeds of annuity contracts issued to citizens or residents of the state, upon whatever form...." My client is a Florida resident and the only annuity beneficiary, but the annuity was not issued to my client. The annuity was issued to his mother who was a resident of New York. I don't think the annuity qualifies for exemption under the statute because it was not issued to a resident of Florida, and therefore, I do not believe the annuity proceeds are exempt from the client's creditors.

However, there is a 1996 court decision the Jacksonville Division of the Middle District of Florida wherein the bankruptcy judge disagreed with my interpretation of the statute. This judge found that the statute requires only that the "proceeds" of the annuity contract be issued to Florida residents. In re Allen, 203 B.R. 786.

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I read an article in the N.Y. Time Week in Review section about the government's expansion of tax breaks to home builders. The government is permitting builders to amend tax returns and use losses incurred during the past two years to offset income reported as far back as 2004. The Times characterized this policy as a "gift.". I have had builder clients over the past few months who have told me they expect huge tax rebates coming from the government's retroactive tax loss program.

My clients who expect a large income tax rebate usually have current creditor problems. Usually the problems concern commercial loans which have been called or may be called in the near future. In most cases, the tax refund from the retroactive loss program is not enough to pay off the problem bank loans.

I explain to these clients that these prospective tax refunds, even though not receivable until the client files his next return or amends prior returns, is an asset today. When the law passes, the client/debtor is immediately entitled to claim the money from the government. Today's creditor can levy upon the tax refund and collect the refund when claimed. This happens every day in bankruptcy court. The Chapter 7 bankruptcy trustees typically gets debtors to provide their 2009 tax return when filed. The trustee may take any refund due to the debtor for his income prior to filing bankruptcy in 2009, when the debtor files his income tax return in April, 2010.

If you are a builder or developer with potential retroactive tax refunds you need to consider how you can protect these tax refunds from current creditors. Or, you will need to protect the cash you ultimately receive from your potential future creditors.

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One of my asset protection consultations this week was with a military attorney. Hisjob is traveling around to military sites, both domestic and in combat areas, to advise soldiers about their V.A. benefits. Interesting job. In any event, my client had some civil creditor problems. Hispersonal assets included a "Thrift Savings Plan" with the government and a stream of disability payments from a V.A. disability insurance policy. Neither of these assets are not clearly exempted in the Florida statutes.

The client's V.A. disability policy could be exempt under Florida Statute 222.18 which protects, "disability income benefits under any policy or contract of life, health, accident, or other insurance.... I think a creditor attorney could argue that V.A. benefits are not protected by this statute because they are not due pursuant to a disability "policy or contract" as they are automatic benefits given to all military employees by virtue of their service. I think most courts would reject that distinction. Nevertheless, the providing to V.A. disability to our soldiers provides independent protection. The federal V.A. laws provide that benefits administered by the V.A. are exempt from claims of creditors before or after receipt.

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The more I speak with or read articles by other bankruptcy and asset protection attorneys the more I realize that our clients ask us all the same questions. One very common client concern is rebuilding credit after a bankruptcy. Credit is not a legal issue, and repairing credit scores is not within my professional expertise. I look to my clients experiences and writings by other experts to learn what I can about credit repair. I recently saw an interesting blog post on rebuilding your credit by Texas bankruptcy attorney Brian Fears.

One suggestion in Mr. Fears' article is making sure you promptly pay loans that survive bankruptcy such as student loans or reaffirmed secured debt. The debts Mr. Fears refers to must be paid.

However, too often, my own clients want to reaffirm unsecured credit cards in order to help rebuild their credit score. This is usually a bad idea. I don't think its worth obligating yourself to pay those credit cards that can be wiped out in your bankruptcy case. Good credit scores are helpful; cash is even more helpful. I try to convince clients to minimize post bankruptcy obligations even if it means taking longer to prove credit worthiness. Mr. Fears correctly advices that you should build post-bankruptcy credit scores based only on those debts which cannot legally be discharged in bankruptcy.

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One of this week's new clients was a man living in New York City who had over $20 million of mortgage debt, including a $3 million first mortgage owed to Fifth Third bank secured by a Florida property. Fifth Third foreclosed on the Florida mortgage, and immediately after the foreclosure sale, the lender filed a motion for a deficiency judgment. The client said he did not defend the deficiency motion (he should have defended), and court entered a $1 million personal judgment. This is one of the few cases I know of where a first mortgage lender pursued a deficiency judgment. There is nothing unusual about this client's situation other than, perhaps, the large amount of the mortgage debt. Time will tell is this lawsuit indicates a more aggressive policy by mortgage lenders in Florida.

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The Florida statutes exempt retirement pensions from creditor claims. Courts have protected pension distributions after they were deposited in financial accounts. This week a Florida resident with an English accent called me with asset protection questions. On of his assets is a pension from an English company which he earned while working for many years in England. He assumed that his English pension is safe from creditors. I told him I disagreed, and that I think his creditors could garnish the pension ( they may have to go to England to do so), or his creditors could levy upon pension payments after they were deposited in a U.S. checking account. Why is an English pension not a protected pension?

The Florida statutes do not include a blanket exemption of all pension and retirement accounts as they do for all annuities. The applicable statute exempts only those statutes authorized by a list of specific Internal Revenue Code sections. The list of Code sections applies to certain retirement plans which are tax deferred under the Code. The U.S. revenue law has no tax deferral provisions for retirement plans established in other countries under their own tax laws. Pension plans set up pursuant to England’s tax law are not referred to in Florida’s laws, and therefore, this caller’s English pension and the payments therefrom are not exempt in Florida.

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

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A man called me the other day with a question about his car which had been  seized by his creditor. The sheriff towed the car. The creditor told this man that the car would be sold at an auction. The man had learned that Florida law exempts $1,000 of car equity. He asked me if I knew how he could claim his exempt $1,000 from the car auction proceeds. I did not know the answer. My experience with car exemption is through Chapter 7 bankruptcy cases, and I am not familiar with auction and exemption claims outside of bankruptcy court.

I posed this question to Larry Kosto, Esq., of Kosto and Rolella, P.A., a prominent collection and bankruptcy law firm. Mr. Kosto has repossessed many cars during his legal career. He explained that the procedures for car levy and sales is set forth in Florida Statute 222.061. The Statute provides, in part, that after a court issues a judgment and writ of execution the debtor can file with the court an inventory of exempt personal property. A debtor’s inventory would include the claim of a $1,000 car exemption. If the creditor objects to the filed exemption the court will hold a hearing. The prevailing party may get attorneys fees. It’s a complicated procedure. I usually recommend that people defending a judgment collection retain an experienced collection attorney, such as Mr. Kosto, to assert their exemptions in court.

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

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The Florida Bar is trying to do something to help relieve the foreclosure logjam in Florida courts. The Florida Bar News reports that the Bar’s foreclosure task form is urging the Florida legislature to adopt the Bar’s “managed mediation program.” The mediation program administers foreclosure cases under a separate case management program and which requires mediation between homeowner and lender in contested foreclosure cases. The program calls for the lender to pay the $750 mediation fee.

The managed mediation procedure makes it possible for courts to handle foreclosure cases more efficiently. The Bar article states that foreclosures constitute about 75% of civil court dockets. More importantly, mediation procedure mandates participation by a lender representative with authority to settle foreclosure cases.

I have found that one of biggest problems my own clients  have experienced dealing with troubled real estate is their inability to communicate with a lender employee who has the authority to make decisions on mortgage modification, short sale, deeds in lieu, and other settlements. When mediation is required, the homeowner is assured his opportunity to communicate with a lender agent with authority to make a decision. Mediation, I think, helps upside down homeowners negotiate release from liability or a meaningful mortgage modification.
 

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

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An attorney asked me for my opinion about his debtor client who was put on the legal title to his parents’ house. His mother and father added the client, their only son, to their homestead deed as a joint tenant with rights of survivorship for estate planning purposes. When both parents die the title automatically passes to the surviving son. (Title would vest in the son anyway under Florida’s homestead laws without the son being on title.). The parents paid off the mortgage. The son never paid any money toward the purchase or maintenance of the parent’s house. The son does not live in the house with his parents. One of the son’s creditors got a civil judgment against him. The attorney wants to know if the son’s creditors can levy upon the son’s interest in the house and force a sale of the home.

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Each week I talk to several people about negotiating a deed in lieu of foreclosure with their mortgage lenders. Like so many people around the county, these clients are experiencing problems paying mortgages on their upside down real estate. I typically tell people that as long as they are current on their mortgage they are wasting time trying to convince a mortgage lender to accept a deed in lieu. Banks will not consider a deed in lieu, short sale, modification or any other work out proposal until the borrower is in default, and usually not until loan payments are at least three months past due. My clients report that it is impossible to negotiate a deed in lieu until the property is in foreclosure; one reason is that until a foreclosure lawsuit is started and both sides are represented by attorneys it is difficult for you or your attorney to reach a bank representative who has authority to negotiate a deed in lieu or modification.

So I was surprised today when a client reported that his mortgage lender readily accepted a deed in lieu on one of his upside down rental homes after he was only two months behind in mortgage payments. Was it true, and were lenders finally beginning to accept owner's offers to voluntarily deed back properties in lieu of foreclosure? Not exactly.

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