Waiver of Homestead Exemption in Loan Agreement

Some institutional loan documents suggest that that the debtor’s default entitles the creditor lender to a lien on the debtor’s homestead. Can you indirectly pledge your  homestead to secure a guarantee of a commercial loan?

A client borrowed several million dollars from Bank of America for his family business. The loan was secured on business owned real estate and other business assets. The client’s business and personal checking accounts were at BOA. BOA also held the first mortgage on the client’s homestead.

The bank required the client to sign a personal guarantee. The guarantee agreement provided in part that the guarantee was secured by any assets in which the bank had or acquired a security interest. Since BOA already had a security interest in the debtor’s homestead by virtue of the home mortgage the client is concerned that a default under the guarantee would give BOA the right to put an additional lien on the homestead and to foreclose this lien to enforce the guarantee default.

I do not think BOA can enforce a lien against the client’s homestead if the client should default under the commercial loan guarantee. The Constitution exempts Florida homestead from creditor liens and forced sale with specified exceptions. One exception is referred to as “consent liens.” A home mortgage is a consensual lien because the owner agrees to pledge the home to secure the mortgage funds. So, did the client consent to a lien on his homestead when he signed the commercial guarantee? The Constitution defines a consensual lien more precisely as an obligation contracted for the “purchase, improvement, or repair” of a homestead. The BOA guarantee does not relate to the homestead purchase, improvement, or repair, and therefore, it is not a consensual lien subjecting the home to forced sale.

Secondly, other than consensual liens the Florida courts have held that a person cannot waive his homestead protection from creditors. Even if a person could waive this important protection, the waiver would have to be clear and conspicuously presented in the loan documents.

For these reasons, I do not believe that the client’s guarantee of the BOA loan subjects his homestead to risk in the event of default.