How to Protect Proceeds of Homestead Sale in Florida

Florida’s homestead exemption has been interpreted to provide protection not only for the physical homestead property, but also for both the cash and non-cash proceeds from a voluntary sale of the homestead as well. A financial account comprised of homestead sale proceed has often been described as a “homestead account.” Many clients have heard of homestead accounts, but they are unsure of the legal requirements and length of protection of homestead account funds.

The Florida Supreme Court has explained the exemption of homestead sale cash proceeds. The Supreme Court said that: (1) there must be a good faith intention, prior to and at the time of the sale, to reinvest the proceeds in another homestead within a reasonable time; (2) the funds must not be commingled with other monies; (3) the proceeds must be kept separate and apart and held for the sole purpose of acquiring another home.

A judgment debtor must demonstrate a continuing intent to find a new home. The debtor should keep a record of potential homes visited with a realtor, or alternatively, his direct contacts with home sellers. Courts have not imposed a firm time limit on the purchase of a replacement homestead. The “reasonable time” requirement will be interpreted in light of current market circumstances, interest rates, and the buyer’s reasonable size and location needs.

Homestead proceeds cannot be deposited in to the debtor’s existing financial accounts. The money must be completely segregated from other funds. The debtor must open up a new account to maintain only the homestead sale proceeds. Most people keep homestead money in their bank account. It is also permissible to have a homestead account at a financial institution and to invest the proceeds in marketable securities such as stocks and mutual funds.

Money in a homestead account may be withdrawn during the homestead search and spent on things other than a replacement homestead; however, the debtor should never deposit in the account money from any source other than the homestead sale. After a debtor purchases and occupies a new homestead any money in the homestead count loses its exemption from creditors.