Florida is known for having broad and expansive homestead protection schemes — among the best in the country. The Florida Constitution provides that, subject to certain physical size limitations, the value of property that can be protected is unlimited. The scope of the homestead protection afforded by Florida is much broader than other states. Accordingly, it is not uncommon for individuals with large debt-loads or significant court judgments against to come to Florida and purchase expensive estates to protect their assets (for example, O.J. Simpson). A line of case law expands upon the protections given by the Florida constitution by extending homestead protection even to the proceeds from the sale of homestead property in certain cases.
On March 11, 2015, in the recent case of JBK Associates, Inc. v. Sill Bros., Inc., No. 4D14–3049. (Fla. 4th DCA 2015), the Florida Fourth District Court of Appeals reaffirmed an age-old doctrine established by the Florida Supreme Court in 1962 which provides that “the proceeds of a voluntary sale of a homestead [are] exempt from the claims of creditors just as the homestead itself is exempt if, and only if, the vendor shows…a good faith intention…to reinvest the proceeds thereof in another homestead within a reasonable time.” The court ruled that the investment in securities was not so inconsistent with the purposes of homestead that the funds lost their protected status.
In Sill Bros., the debtor had sold his home and invested the proceeds in mutual funds. His creditors then tried to garnish the funds held in the debtor’s mutual funds investment account, but the Court held that the money was protected as proceeds from sale of his homestead and that his creditors could not reach the funds. The Court based its ruling in part upon the fact that the debtor had demonstrated a good faith intent to reinvest the proceeds into a new homestead within a “reasonable time” and he did not commingle the funds with other cash or invest the funds in a risky venture, i.e., that he intended to keep the funds “safe”. Those factors taken together established that the funds were entitled to homestead protection. In other words, non-cash proceeds of a sale of a homestead “can be eligible for exemption, so long as they serve the same function that cash proceeds do, i.e., a temporary form of the homestead, to be reinvested, to be converted back into real-property homestead within a reasonable time period.”
This is great news for debtors. If a debtor can establish that a homestead was sold with the purpose of reinvesting the proceeds into a new homestead — and not in a high-risk investment — then those funds will be beyond the reach of creditors.
Berger Firm, P.A. did not represent any party in the above matter. However, we felt that it was important to bring this case to the attention of debtors interested in selling their homestead property.