Florida Asset Protection Law Blog | Attorney Jon Alper

Many of my Florida clients need asset protection planning to protect themselves against claims in another state. A creditor that obtains a judgment in another state can enforce the foreign judgment through Florida’s courts to collect money from the debtor residing in Florida. A few people have asked me whether there is a time limit on the enforcement of foreign judgments in Florida. How long does a creditor have to domesticate and enforce a foreign state judgment against a Florida resident?

There seems to be two ways, and two corresponding time frames, by which a creditor can enforce a foreign judgment in Florida. The old way is a common law procedure referred to as “an action to enforce a foreign judgment.” The common law way entails the creditor filing a new lawsuit in Florida based upon the foreign judgment. This procedure is referred to as “an action on a judgment.” . The creditor asks the Florida court to issue a new Florida judgment in order to enforce the prior foreign judgment.  A creditor has five years to institute an action on a foreign judgment pursuant to Florida Statute 95.11(2)(a). The court would issue a new Florida judgment which survives for up to 20 years.

The new way to enforce a foreign judgment is to record and domesticate the judgment pursuant to Chapter 55 of the Florida Statutes. The statutes adopt a uniform statutory method of enforcing foreign judgments in various states. If a creditor domesticates a foreign judgment he can use the Florida courts to enforce the judgment, but he does not get a new Florida judgment. The only time limit on recording a foreign judgment is that the judgment must be recorded prior to the expiration of that judgment under the laws of the forum rendering that judgment. For example, if a creditor gets a judgment in New York against a Florida resident the creditor has twenty years to record and enforce the judgment in Florida because New York judgments are good for twenty years.
 

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“Homestead accounts” come up on may of my asset protection meetings. To review, a so-called homestead accounts refers to bank accounts containing exclusively proceeds from the sale of an exempt homestead property. Courts have exempted this money from creditors if, and to the extent,  the money is intended to be reinvested in a new homestead. The definition of homestead account leads to many questions about how long the money is protected and what things the debtor must do to ensure protection. The most frequent question involves time: for how long will a homestead account be afforded exempt status?

I read a  bankruptcy case from the Tallahassee Division which  provides explanation by example. The bankruptcy court exempted money in a homestead account 13 months after the debtor sold his former homestead. Thirteen months seems like a long time to replace a home. But, the court noted that during this time period the debtor looked seriously at 6-12 houses and made written offers on three houses, none of which resulted in a purchase. The offers were for reasonable amounts consistent with a serious attempt to purchase the home. One offer failed to close only because an inspection revealed structural problems.

This case shows that time is not the only issue. The court focused on whether the facts indicated the debtor’s serious and ongoing intent to replace his former homestead. It seems that there may be no outside time limit on maintaining a homestead account when the debtor is engaged in an ongoing active search for a new home. In re Fling: Case No. 10-40454.

 

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A large percentage of my asset protection clients are concerned about mortgage deficiency judgements . Many of these people hire attorneys other than myself to defend foreclosure actions in state court. One such client last week told me about his foreclosure attorney’s theory of defense against a deficiency claim asserted by a private party mortgagee who had sold a commercial property to my client with owner financing. In other words, the previous seller financed the purchase price and no third party lender was involved.

The client’s attorney believes that a lender cannot get a deficiency judgment based on owner financing when the lender takes back the property in a foreclosure. The attorney’s argument is that when the seller/lender takes back the property he has effected a recision of the sale contact. The seller is in the same or better position than he was when he sold the property and took back a mortgage; he has his same house back and the buyer’s payments to date. The seller cannot, the attorney contends, sue the buyer for additional money after he has been restored to his initial financial situation.

The equities are different when the lender is a third party. An the beginning of the transaction the lender has a sum of money no property; the lender is not restored to its initial position unless it gets back the money it loaned to the buyer. In deficiency proceedings the buyer argues that the value of the house acquired by the lender is equal to or more than the money loaned.   

I am interested to find out whether this client and his attorney are successful using this argument to defeat the seller’s deficiency claim in their court case.

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Here is a straight forward, frequent question from one of my asset protection clients. There is a civil judgment against my client in the state of Tennessee. The client moved to Florida where he resides and works at his new job. The creditor attorney in Tennessee sent the client a notice of taking the client’s deposition in Tennessee to discovery his assets. Here, this is called discovery in aid of execution. The client wants to know if the creditor can force him to travel to Tennessee to sit for his deposition there, or if the creditor has to first domesticate the judgment in Florida and take his deposition in the Florida county where he resides.

In my experience, the answer varies depending upon the judge in the case. Some judges in the debtor’s former residence will issue an order requiring attending in the former state given that his court has established jurisdiction over the debtor. Non-compliance with the order would subject the debtor to contempt sanctions. Other judges will refuse to compel the debtor to return to his former residence and instruct the creditor to pursue collection in Florida. If a court does order the debtor to travel to the former residence the debtor might request the creditor pay travel expenses.

If foreign court compels attendance at a post-judgment deposition the debtor should comply whether or not the court permits travel reimbursement. The debtor will eventually have to subject himself to post-judgment asset discover. The debtor’s assets and his answers to the creditors questions should be the same wherever the discovery takes place.

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Many small business loans from banks are secured by the business’s tangible personal property including office furniture, equipment, and inventory. The lender typically records a UCC 1 to give public notice of its lien and security interest in the debtor’s property.

I had a small business client who stated his business was in financial difficulty. He knew the business would have to shut down shortly. He asked whether he could sell the business’s inventory and equipment before he shut the doors. He knew someone in the same business who was willing to buy his property at a reasonable price. He asked whether his creditors could sue the buyer to recover the goods assuming he did not discuss with the buyer  the loan agreement and security agreement.

In the first place, Florida statutes make it a misdemeanor criminal office to sell  personal property subject to a security interest without the secured party’s consent. The offense is punishable regardless of whether the debtor had criminal intent, and the law applies as well to the buyer.
 

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Sometimes there is no alternative to  a single member LLC, or you just can’t find anyone you trust to be a second member in your business. One example is where a husband and wife establish a LLC owned as tenants by entireties which I believe would be considered a single member LLC (although there is no case on the issue). The LLC may have worked well for some time  to protect the LLC interests against the creditors of one spouse, but now the owners unexpectedly confront a joint creditor, and find it difficult to include another member. Is there anything a single member LLC can do to achieve some asset protection.

What about reorganizing the LLC in a state such as Delaware or Wyoming with statutes that protect single member LLCs from creditors because the state law provides the charging lien is the exclusive creditor remedy to attack all LLCs regardless of number of members. I’ve stated previously on this blog that I do not think a Florida court would apply the foreign state’s LLC statute when considering the collection remedies of a Florida creditor against a Florida debtor. I don’t think moving your LLC out of state will work.

Last month I spoke at the Florida Bar’s annual asset protection seminar in Ft. Lauderdale. One of the other speakers, attorney Alan Gassman, suggested a way for a single member LLC to protect itself from its owner’s creditors. Alan said that he writes LLC agreements which appoint the initial manager permanently and state that the members cannot vote to remove and replace the manager. If a creditor or the creditor’s assignee becomes a substitute member he would own an interest in an LLC managed by the initial manager appointed by the debtor. In most cases, the debtor himself would be the permanent  manager.

 

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Creditors cannot garnish wages paid to a person who is head of household. I have written previously about state court decisions which denied this exemption to debtors who were paid from a small business the debtor owned and controlled. State courts have made if it difficult for business owners to pay themselves exempt wages. Now, a Florida bankruptcy court has issued a decision on this topic, finding once more that a business owner could not exempt wages he received from his own business.

Theoretically, self-employed debtors are not prohibited from exempting that part of compensation denominated as wages, salary, or commissions. The problem arises when the business owners pattern and practices make their compensation look more like business profits rather than a steady wage. A business pays its employees in most cases a consistent periodic wage. Payments look more like profit distributions when the payments  vary with the profit and cash flow of the business. Profit distributions to a head of household are not exempt. Increasing the debtor’s salary at the expense of profit distributions shortly before a judgment is entered also makes suspect the wage characterization.

 

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It is easier for debtor’s to assert  head of household exemption from wage garnishment after a ruling by a Florida court. I read about this decision on the Florida Collection Law Blog edited by Jorge Abril. Mr. Abril’s blog post explains that under Florida statutes once a debtor asserts that his wages are exempt from garnishment because he is head of household a creditor has only two days to file with the court an affidavit denying the exemption. In the past, the creditor’s attorney would sign the affidavit on behalf of his client.

The appellate court said that the creditor attorney may not submit the denial affidavit on behalf of the creditor. The affidavit must be signed by the creditor. Mr. Abril writes that, “As a practical matter, given the strict time constraints for filing the sworn denial - 2 days - the requirements imposed by this case will make it difficult for the attorney who represents a hard to reach client to defeat a claim of head of household exemption regardless of the claim's merit.”

From the debtor’s prospective a debtor may be able to defeat a wage garnishment simply by submitting an affidavit of head of household. Another practical matter: the debtor’s attorney should not advise his client to submit a head of household affidavit the attorney knows, or has reason to suspect, is not true. The debtor attorney should do nothing more than inform his client of the laws and the applicable procedures.
 

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