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

People with potential judgments are often concerned about their household furniture. An attorney defending a judgment creditor sent me an email question concerning an aggressive collection action. The creditor took his client’s deposition as a first step in collecting a civil judgment He said the client testified under oath that while most of his household furnishings were owned jointly with his non-debtor spouse, he did own some antiques which he had inherited from his grandparents. Nothing happened for a couple weeks after the deposition.

One day, while away from home on Christmas vacation, the debtor received an urgent call from a neighbor. The neighbor said that a sheriff and deputies had parked a van in front of the debtor’s house, had broken into the house, and were taking things out of the house. The neighbor also reported that the sheriff showed him a court order authorizing the break in with a title from the collection lawsuit. The creditor’s attorney had obtained a court order at an ex-parte hearing where the debtor’s attorney did not have the opportunity to appear. There was no advance notice to the debtor or to the debtor’s attorney of the hearing or the sheriff’s taking of the debtor’s property.

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Florida statutes state that earnings of the "head of household", including wages, salary, and commissions, are exempt from garnishment. This statutory exemption will not protect Florida debtors if they owe money to a federal government agency. Federal agencies can garnish up to 15% of your earnings even if you are exempt from garnishment under Florida law. Most people are aware that the IRS has extraordinary collection tools, but this super wage garnishment powers are available to the federal government to collect all non-tax debts.

A federal agency may, without court order, order an employer to withhold 15% of your salary or, garnish distributions from your own business to satisfy a non-tax debt even if state law does not permit wage garnishment. However, a federal agency may not garnish your wages if you have not been in your current job for at least 12 months and you were involuntarily separated from your previous job.

I learned about the federal government's wage garnishment rights in the course of defending a client against a federal agency's judgment. The client is being represented in court by a south Florida attorney named Peter Homer. Mr. Homer specializes in defending business people  against federal agency civil lawsuits. He is an expert in the federal government's debt collection powers and its collection practices.

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Client from Montana with the usual collection of real estate problems. He guaranteed a multi-million dollar loan on a failing real estate project, and the very unhappy partners were threatening legal action. I invited the man and his money down to Florida. We discussed the typical asset protection plan including a big and expensive homestead, joint accounts, and places to legally park money where its difficult for creditors to touch it.

At the end of the conversation the client asked me what would happen in the event his creditors sought an involuntary bankruptcy. I told him that an involuntary bankruptcy would be bad news because the bankruptcy court could set aside his homestead protection (homestead rules are different in bankruptcy court), and the trustee could force him to turn over other assets that would be protected, at least difficult to get, in a state court collection.

The client was somewhat upset that my asset protection suggestions could not protect him against all possible creditor outcomes, and particularly, he demanded that I give him a way to avoid the consequences of involuntary bankruptcy. I told him to buy time by fighting all civil lawsuits, but I could not protect his planning from a bankruptcy trustee.

In the end, I was able to convince this client that involuntary bankruptcy was highly unlikely with his particular fact situation. I explained that involuntary bankruptcy is like the swine flu. Remember that earlier this year people on TV were warning us about the millions of people who could die from the worldwide swine flu epidemic, and political commentators complained about vaccine shortages; and here we are during flu season, and the TV horror stories are gone. I saw another TV story where there is a surplus of swine flu vaccines- they can’t give the stuff away.

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Just a few days ago I posted an article about banks luring homeowners into signing  false deeds in lieu of foreclosure. Here's the first example. Friday, I received the following email from an attorney who has an active and successful mortgage defense practice:

"I had a client retain me with a deficiency judgment suit this morning. Peoples Bank. They offered him a deed in lieu telling him it would resolve the claims. He signed the deed. Although the DIL started with language which said "this deed is an absolute conveyance in satisfaction of the mortgage", it had one sentence hidden in the document which says "Grantee acknowledges that Grantee reserves the right to proceed with a deficiency decree".

In the old days, a deed in lieu was an exchange of property for a release. Today, many banks are using the "deed in lieu" as a way to avoid the time and expense of foreclosure without releasing the homeowner from anything. They are presenting deed in lieu offers to homeowners who are not represented by attorneys  that the offer does not include a true release of the homeowner. In signing a deed in lieu you will lose all your foreclosure defenses which you need to negotiate favorable settlements with the mortgage company.

So, I warn all you people with upside down houses and delinquent mortgages- if your lender offers you a deed in lieu of foreclosure make sure you read all the fine print when they send you the documents. Better yet, consult an experienced real estate attorney who has been helping people defend foreclosures (not me; I don't do that type of work).

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Here's a couple short questions and answers I dealt with during the past few days. First questioner states that he owns an investment property through his self-directed IRA. Payments are late and the bank started foreclosure. He knows that IRA assets are exempt from creditors. He asks if his IRA property ownership provides any foreclosure protection. I think not. The IRA has entered into a contractual agreement to pay back a loan and has voluntarily granted the lender a mortgage as security.

There is no statutory exemption against mortgages voluntarily entered into by the IRA to secure a money loan. If the debtor had another judgment from a third party, the IRA and the assets it owns would be exempt from the third party's judgment.

Another reader from New Jersey states that he owns a Florida condo subject to a first mortgage with a New Jersey lender. Payments are in arrears. The New Jersey bank has sued the owner in New Jersey based on the underlying mortgage note. The lender has not instituted a foreclosure action in Florida. He asked whether the lender can sue on the note rather than foreclosing and thereafter seeking a deficiency. I think the lender is properly electing the sue on the note in New Jersey.

Any mortgage lender may sue to collect an unpaid mortgage note in lieu of foreclosure.

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Why won't my mortgage company offer me a reasonable mortgage modification? Why would they choose to foreclose when with just a little help I can pay the mortgage. These are questions I hear all the time from clients concerned about deficiency liability following a prospective mortgage foreclosure.

I usually advise the questioners that their mortgage lender will not agree to a workable mortgage modification (despite Washington's modification program) because the mortgage service company is not able to provide a reasonable modification or its not in their self-interest to modify.
I saw a blog post from bankruptcy attorney Craig Andresen that sheds some light on the modification problem. He writes:

None of the sources referred to here discussed what could be the real reason for the astonishingly small number of modified mortgages: most mortgages owed on the homes of American consumers are owned by securitized trusts. The trustees of these trusts may lack the authority to compromise on the amounts due under the terms of the mortgages. Having no authority to modify these mortgages, none are being modified. Instead, meaningless "trial modifications" are being offered as window dressing. Thankfully, the real story is beginning to emerge

This make sense. Borrowers should keep in mind that the mortgage industry build a very complicated "house of cards." A result of the complicated financial structure is that is difficult for the lenders to focus on one mortgage at a time and make unique settlement modifications based on the facts of each borrower's circumstances. I've been told by attorneys representing the lenders in foreclosure suits that their biggest frustration is finding people working for their own clients with authority to approve settlements. Mr Andresen's blog post is consistent with my clients' experiences.

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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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