Homestead Sale Proceeds in Florida

Florida’s homestead exemption protects more than the physical property. When a homeowner sells a qualifying homestead, the sale proceeds retain the same constitutional protection from creditors as the home itself, provided the homeowner satisfies three requirements established by the Florida Supreme Court in Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So.2d 201 (Fla. 1962). The proceeds must be held with a good faith intention to reinvest in a new homestead within a reasonable time, the funds must not be commingled with other money, and the proceeds must be kept separate and apart for the sole purpose of acquiring another home.

The Three Requirements

The Orange Brevard test governs every situation in which a Florida homeowner seeks to protect sale proceeds from judgment creditors. Each element is independently necessary.

The first requirement is intent. The homeowner must have a good faith intention, existing before and at the time of the sale, to reinvest the proceeds in a replacement Florida homestead within a reasonable time. This intent must be genuine and demonstrable. Courts look for objective evidence of an active home search, including records of online searches, property inspections, communications with real estate brokers, and pre-approval letters from mortgage lenders. A debtor who sells a homestead and makes no effort to find a replacement home will lose the protection.

The second requirement is segregation. The sale proceeds must not be commingled with other money from any source. As a practical matter, this means the debtor should open a new and separate bank account and deposit only the net sale proceeds into that account. These accounts are commonly described as “homestead accounts,” though there is no official bank designation by that name. The label is simply a convenient description of a segregated account holding only homestead sale proceeds.

The third requirement is purpose. The segregated proceeds must be held for the sole purpose of acquiring another home. This means the debtor cannot use a homestead account as a general-purpose checking or savings account. However, the Florida Supreme Court has recognized that a debtor may withdraw funds from the account for living expenses during the home search without automatically forfeiting the exemption. The critical point is that no non-homestead funds should ever be deposited into the account.

What Counts as a Reasonable Time

Florida courts have not imposed a fixed deadline for reinvestment. The Florida Supreme Court has stated that whether proceeds are reinvested within a reasonable time “must be determined from the facts and circumstances of each case.” Courts have found periods of four months to one or two years to be reasonable under particular circumstances. Courts have also found periods of four years and ten years to be unreasonable.

The reasonableness inquiry takes into account market conditions, interest rates, the buyer’s size and location needs, and any personal circumstances that explain delay. A debtor who is actively searching in a tight housing market with limited inventory will receive more latitude than one who shows no urgency. The debtor should maintain a documented record of the search effort throughout the interim period.

Investing Proceeds During the Search

A significant question is whether a homeowner can invest the sale proceeds in interest-bearing accounts or securities while searching for a replacement homestead. The Florida Supreme Court addressed this directly in JBK Associates, Inc. v. Sill Bros., 191 So.3d 879 (Fla. 2016).

In JBK Associates, the debtor sold his homestead and deposited the proceeds into a Wells Fargo brokerage account designated as a “homestead account.” The creditor argued that investing the proceeds in securities demonstrated an intent to use the money for purposes other than purchasing a new homestead. The Florida Supreme Court rejected this argument. The Court held that placing exempt proceeds in a safe investment account did not by itself defeat the debtor’s intention to reinvest in a new homestead. The Court observed that in the current economic climate, traditional bank accounts do not generate significant interest earnings, and requiring judgment debtors to leave proceeds in non-interest-bearing accounts would be impractical. The debtor in JBK Associates did eventually purchase a new homestead within a reasonable time.

The JBK Associates decision is important because it confirms that a debtor may place homestead proceeds in a brokerage or investment account without losing the exemption, provided the account remains segregated and the debtor maintains a genuine intent to purchase a replacement homestead. The debtor should still designate the account as a homestead account and avoid depositing any non-homestead funds into it.

Partial Reinvestment and Surplus Proceeds

Only the portion of the sale proceeds that the debtor intends to reinvest in a new homestead is exempt. If a debtor sells a $1,000,000 homestead and intends to purchase a $700,000 replacement, the remaining $300,000 loses its homestead protection as soon as the debtor acquires the new home. Before the purchase, the entire amount may remain exempt if the debtor has not yet determined the exact amount to reinvest. But once the new homestead is purchased and occupied, any funds remaining in the homestead account are no longer protected.

This rule creates an important planning consideration: a debtor who downsizes from a more expensive home to a less expensive one will expose the difference to creditors at the moment of purchase. The debtor should account for this exposure in advance and consider whether the surplus funds can be directed toward other exempt assets, such as retirement accounts or annuities.

Reverse Mortgage Proceeds

Proceeds from a reverse mortgage on a Florida homestead raise a different analytical question. A reverse mortgage is not a sale. The homeowner retains title to the property and continues to occupy it as a primary residence. The lender advances funds to the homeowner secured by a mortgage on the homestead.

Florida courts have recognized that a creditor cannot force a homeowner to mortgage or refinance a homestead to satisfy a judgment. In In re Goldberg, 229 B.R. 877 (S.D. Fla. 1998), the bankruptcy court held that when a debtor refinanced his homestead and the cash proceeds were delivered directly to a third party, the transaction did not constitute a fraudulent conveyance because no creditor could have forced the debtor to mortgage the homestead in the first place. The court reasoned that the creditors were not harmed by a transaction they had no right to compel.

The same logic applies to reverse mortgage proceeds. Because a creditor cannot compel the homeowner to take out a reverse mortgage, the voluntary decision to do so does not create a fraudulent conveyance. However, once the reverse mortgage proceeds are in the homeowner’s hands, they are cash rather than homestead property. If the funds are deposited into a general bank account and commingled with other money, they lose any arguable homestead character. The homeowner who wishes to preserve an argument that the proceeds retain some protected status should segregate the funds and, if possible, direct them toward other exempt assets.

Selling First, Buying Second

For homeowners with existing judgments, the sequence of transactions matters. The safest approach is to sell the existing homestead first and then purchase the replacement. During the interim period, the sale proceeds are protected under the Orange Brevard framework as long as the three requirements are met.

The reverse sequence is riskier. If the debtor purchases a new homestead before selling the old one, the debtor may briefly own two properties but can claim homestead protection on only one. The property that the debtor occupies as a primary residence is protected; the other is not. If a creditor records a judgment lien during the period when the old homestead is vacant and no longer occupied as a primary residence, the lien may attach to that property.

The practical advice is to close on the sale of the existing homestead first, deposit the proceeds into a segregated homestead account, and then close on the purchase of the replacement homestead using funds from that account. Any proceeds not reinvested in the new homestead lose their protection once the debtor occupies the replacement property.

Foreclosure Proceeds

The Orange Brevard framework applies to voluntary sales, but Florida law has not clearly distinguished voluntary sale proceeds from foreclosure sale proceeds. When a homestead is sold at a foreclosure auction and the sale price exceeds the mortgage balance, the surplus belongs to the former homeowner. Because the homestead exemption is liberally construed, and because no case has drawn a distinction between voluntary and involuntary sale proceeds, the surplus from a foreclosure sale should retain homestead protection if the former owner intends to reinvest in a new homestead and satisfies the segregation requirements.

Practical Steps for Protecting Sale Proceeds

A homeowner planning to sell a Florida homestead while facing an existing judgment or potential creditor exposure should take several concrete steps to preserve the exemption. Before the sale, the homeowner should document the intent to purchase a replacement homestead through communications with a real estate broker, mortgage pre-approval applications, or written statements of intent. At closing, the homeowner should direct the title company to wire the net proceeds into a new, dedicated bank account that holds no other funds. During the search period, the homeowner should maintain records of every property viewed, offer submitted, and broker communication. The homeowner should never deposit non-homestead funds into the homestead account, even temporarily. And once the replacement homestead is purchased, the homeowner should understand that any funds remaining in the account are no longer exempt and should be directed toward other protected assets or used to pay down obligations.