Constructive Trust: An Alternative To Creditor Equitable Lien Upon Homestead

Creative creditors and their attorneys are looking for ways to get around debtor’s unlimited Florida homestead protection. There are exceptions to unlimited homestead protection.

One exception is when a debtor acquired money by fraud and used the proceeds of the fraud to buy a homestead. If the creditor can prove that the debtor purchased the homestead with the intent to protect the money from creditors the court may put an equitable lien on the homestead. The court will not force the sale, but the creditor will have a lien on proceeds of a sale or refinance.

What does the creditor do if he is unable to prove the elements of fraudulent conversion. For example, the debtor may have invested the proceeds of fraudulent activity in a house, but the debtor may be able to demonstrate that he did not buy the house to protect the money from creditors. Maybe the debtor could not have anticipated the fraud allegation when he bought the house, or maybe the debtor could show financial reasons why he need to avoid or minimize a mortgage.

An alternative to the equitable lien for fraudulent conversion of fraud proceeds is the remedy of a constructive trust. Courts may impose a constructive trust on property to achieve fair and equitable relief. Constructive trusts are used to remedy unjust enrichment, fraud, and duress. If a creditor can show that proceeds of civil fraud flowed into a debtor’s homestead the court can impose a constructive trust on the property for the benefit of the defrauded creditor notwithstanding the fact that the debtor did not invest in the homestead with primarily to shield the fraud proceeds.

 One of my clients asked me what was the applicable statute of limitations for claims for imposition of a constructive trust. There is no statute of limitations for constructive trust. Statutes of limitations apply to claims and causes of action. A constructive trust is an equitable remedy and not a cause of action. A court can use a constructive trust over a homestead property any point during the twenty year lifetime of a Florida judgment.

Last updated on May 22, 2020

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