The Florida Supreme Court has ruled that debtors can purchase a Florida homestead ito avoid creditors’ judgments and the creditor cannot undo the home purchase under Florida’s fraudulent conveyance statute. This well-known exception to fraudulent conveyance liability has exceptions The Court stated that if a judgment arises from acts of fraud or other egregious circumstances then the creditor can have placed an equitable lien on the homestead for the amount of money fraudulently converted into the debtor’s home. The equitable lien cannot force the debtor to sell his homestead, but if an when he does sell, the creditor gets paid the amount of his judgment lien.
There are few, if any, court decisions about what acts constitute egregious circumstances justifying an equitable homestead lien under the Supreme Court’s pronouncement. Recently, I consulted with a client whose actions as alleged probably fits under the definition of egregious circumstances. The debtor in this case was appointed personal representative of an estate.
The will declared that the same personal representative could live in the decedent’s house as long as he wanted, but when he sold the house the proceeds were to be held in trust for other heirs. The personal representative sold the house, and believing that the other heirs had waived their interest in the home, invested most of the sale proceeds in a Florida homestead.
Although the facts alleged in this case may not constitute fraud, they sufficiently allege a breach of fiduciary duty which is a close relative of common law fraud. Allegations in a complaint are a far distance from proof, yet the situation alleged probably is an example of a situation where a Florida homestead is not a viable asset protection solution.