by Stephen Speiser, Esq.
The Speiser Law Firm P.A.
Florida’s homestead exemption is one of the most powerful asset protection laws available anywhere in the United States. Moreover, it is not just statutory law: It is written into the Constitution of the State of Florida. That makes Florida’s homestead law a constitutional right.
Article 10, Section 4 of the Florida Constitution provides that an unsecured creditor cannot force the sale of your primary residence to satisfy their judgment. This means that, if you lose a lawsuit, the plaintiff cannot take your home to satisfy their judgment; your home is exempt.
“Florida’s homestead law is a constitutional right…. This means that if you lose a lawsuit, the plaintiff cannot take your home to satisfy their judgment.”-STEPHEN E. SPEISER, ESQ.
Under Florida’s homestead law, there is no limit on the value of your home, or the amount of equity you can have in your home, or its size or square footage, in order to enjoy full protection. Here are a few examples of the unlimited scope of Florida’s homestead exemption:
Example 1: Walter and Wendy are married and own a home in Tampa that measures 2,000 square feet and is worth $200,000. It is their primary residence and they live in the house with their five children.
Analysis: The house is protected under Florida’s homestead law.
Example 2: Sadly, Walter and Wendy get divorced. Walter gets the house in the divorce. Wendy, who had a better lawyer, gets all their bank accounts, stocks, bonds and other marital assets, which she uses to purchase a new 3,000 square foot house worth $300,000. Walter chooses to live by himself in his $200,000 house. Wendy and their five children move into the $300,000 dollar house she just purchased.
Analysis: Wendy may claim her new house as her new homestead, which will be protected under Florida’s homestead law. Walter’s may continue to claim his house as his homestead.
As the above examples illustrate, Florida does not limit the dollar value or the size of a house that may be protected under its homestead law. Most other states place a cap on the amount of equity you can have in your home. In fact, only eight other U.S. jurisdictions have an unlimited (100%) homestead exemption – Arkansas, District of Columbia, Iowa, Kansas, Oklahoma, Puerto Rico, South Dakota and Texas.
By contrast, in Colorado and Connecticut, the first $150,000 in equity is protected from creditors if the home is jointly owned by a couple, and $75,000 if owned by an individual. This means that if a husband and wife own a home in Connecticut, a judgment creditor cannot force the sale of the property unless their equity exceeds $150,000. The following examples illustrate the disparities between Florida’s unlimited homestead exemption and those of other states that have limits:
Example 3: Noel and Nikki reside in Connecticut, where they own a house worth $500,000 and which has a mortgage of $400,000. The net equity in the house is $100,000.
Analysis: Since the Connecticut homestead exemption is $150,000 (which is greater than the equity that Noel and Nikki have in their house), a creditor holding a judgment is out of luck and cannot force the sale of the home.
Example 4: Same as Example 3, except the house is worth $800,000. If we subtract the mortgage ($400,000) and the Connecticut homestead exemption amount ($150,000), there is excess equity in the home of $250,000.
Analysis: In this case, the creditor would have the right to force the sale of the home and go after the $250,000 in equity to satisfy its claim.
Other states provide no homestead exemption at all (e.g., New Jersey and Pennsylvania). If you reside in one of these states and get sued, you’re out of luck. A creditor can force the sale of your home. (Note: There is a small federal exemption available in bankruptcy of $27,900 for an individual homeowner and $55,800 for married couples.)
“Under Florida’s homestead exemption law, there is no limit on the value of your home or equity you have in your home or its size or square footage.”-STEPHEN E. SPEISER, ESQ.
What Qualifies as a Homestead?
The Florida Constitution defines a homestead as one’s primary, permanent residence. You cannot have more than one primary residence, and it must be located within the State of Florida to enjoy this protection.
A homestead is not, however, limited to just single-family homes. Florida case law has interpreted the exemption to extend to condominiums, co-ops, mobile homes, and even recreational vehicles. (Note: While the Florida Constitution does not protect a modular or mobile home if they are on a leased lot, there is a statute that fills the gap. Section 222.05 of the Florida Statutes extends homestead exemption protection to mobile and manufactured homeowners who lease their lots).
“A homestead is not limited to just single-family homes. It also extends to condominiums, co-ops, mobile homes and RV’s.”-STEPHEN E. SPEISER, ESQ.
Limitations on the Amount of Land a Homestead Can Sit On
While there is no limitation on the size or square footage of a home or its fair market value or the amount of equity you may own in your home, there are limits on the amount of land that is protected under the Florida homestead law. If a residence is located within a municipality, then only lot sizes of up to one-half acre will be protected. If a residence is located outside of a municipality, then a home sitting on up to 160 contiguous acres will be protected. It does not matter if the land is made up of separate tax lots, or if the land has different legal descriptions, provided all 160 acres are contiguous.
If the homestead exceeds either the one-half acre or the 160 acre size limit, then Florida homestead protection will be pro-rated based on the percentage by which the land exceeds these limits. The following example illustrates this:
Example 5: Deborah is a Florida resident who owns a house on one acre of land in the City of Orlando. The house is worth $1 million. Because the homestead exemption is limited to one-half acre for city dwellings, the homestead exemption is capped at one-half the value of Deborah’s residence, i.e., $500,000.
Analysis: A creditor could force the sale of Deborah’s home, and one-half ($500,000) of the proceeds would be available to satisfy the creditor’s claim. The other $500,000 would be homestead protected and paid to Deborah.
Qualifying for the Homestead Exemption
In order to claim the Florida homestead exemption, you must meet four requirements:
- You must be a natural person, as opposed to a legal entity;
- You must be a permanent resident of the state of Florida;
- You must intend the homestead property to constitute your primary residence; and
- You must actually reside in the property.
The following discussion provides more detail about each of these requirements.
Natural Person Requirement vs. Holding Title in an Entity or Trust
Requirement #1 is that you must be a natural person to claim the Florida homestead exemption. If you transfer your title into a legal entity such as a limited partnership, a limited liability company, a corporation, or an irrevocable trust, the homestead exemption will be lost. Title must be held in your personal name.
There is, however, one important exception concerning trusts. Several court cases have held that you can place your home into a revocable trust (such as a living trust or marital trust) for estate planning purposes and it will be granted homestead protection. Additionally, there is also a Florida statute that says land trusts qualify for the homestead exemption as well.
Permanent Residency Requirement
Requirement #2 is that you must be a permanent resident of the State of Florida. People who own vacation properties in Florida or who are seasonal residents will not qualify.
Primary Residence Requirement
Requirement #3 is that the property must be your primary residence. As noted above, the homestead property must constitute your primary residence. Another way of saying this is that you cannot claim the homestead exemption for a property that is not your primary residence. You can only have one primary residence, and whether the home is your primary residence is a question of fact that an aggressive creditor can challenge in court. As a consequence, second homes, vacation homes, and property rentals do not qualify for protection under Florida’s homestead exemption.
This requirement poses a problem for people who own more than one home or spend a significant amount of time out of state. It is a good idea, therefore, to immediately do the things a typical person would do when they move into a new home (e.g., file a change of address with the post office, change your driver’s license and registration, update your voter registration, etc.). This way you have documentary evidence in the event an aggressive creditor attempts to challenge the primary residence requirement of the homestead exemption.
There is a Florida statute which allows you to file a “Declaration of Domicile” with a court, but this is not required to qualify for the homestead exemption. Nevertheless, if one is concerned about an aggressive creditor, filing a Declaration of Domicile is not a bad idea.
“Second homes do not quality for protection under Florida’s homestead exemption.”-STEPHEN E. SPEISER, ESQ.
Claiming the Florida Homestead Exemption
There are no special forms that need to be filed to qualify for the Florida homestead exemption. All you need to do is move into your new home. Provided it is your primary permanent residence, the exemption automatically applies.
Likewise, there is no minimum amount of time you must reside in the property for the exemption to attach. The second that you move into your home with the intention of making it your primary permanent residence, it becomes fully protected [However see “Effect of Bankruptcy On Homestead Exemption” below].
Effect of Bankruptcy On Homestead Exemption
Under the Supremacy Clause, Article VI, Clause 2 of the U.S. Constitution, federal law takes precedence over state law. Where federal and state law conflict, federal law governs. One area where this can occur is federal bankruptcy law.
While Florida law provides that the homestead exemption attaches the second you move into your new home, bankruptcy law says that you will lose that protection if you purchase a home and then file for bankruptcy (or are forced into an involuntary bankruptcy by your creditors). In bankruptcy, there is a requirement that you must have lived in your homestead for a continuous period of at least forty (40) months prior to filing (i.e., 1,215 days to be more precise) if you want your state homestead exemption to apply. You can include the ownership period of any previous homestead properties to satisfy this requirement, provided the total period is continuous and uninterrupted. If you cannot satisfy this requirement, your Florida homestead exemption will not be available to protect your home from creditors in bankruptcy.
This continuous 40-month period can be a particular problem for out-of-state expats who move to Florida. This waiting period creates a rather long window of vulnerability for such an important asset. If you can’t meet this 40-month requirement, speak with a qualified asset protection attorney before purchasing a homestead.
Another problem can arise where the bankruptcy debtor (i.e., the person filing bankruptcy) uses non-exempt assets such as cash, stocks, bonds, etc. to purchase a homestead or pay down a mortgage within ten (10) years of the bankruptcy filing. If the court finds that the bankruptcy debtor converted these assets to take advantage of a homestead exemption and avoid paying their creditors, the bankruptcy trustee can recover these transfers as a fraudulent conversion of assets. The key distinction here is not the use of non-exempt assets, rather, it is the intent of the debtor that is controlling. Outside of bankruptcy, however, using non-exempt assets to purchase a Florida homestead is perfectly acceptable and is not deemed a fraudulent conversion of assets (see below).
Conversion of Unprotected Assets into a Homestead Property
The Supreme Court of Florida in Havoco of America, Ltd., v Hill, 790 So.2d 1018 (Fla. 2001), held that using unprotected personal property to purchase a homestead – even if done with the intent to frustrate a creditor – is not a fraudulent conversion of assets. In most other states, this would be deemed a “fraudulent conversion of assets” and disallowed.
As confirmed in Havoco, the homestead property can be purchased at any time, even after a lawsuit has been filed and a judgment entered (provided the judgment has not been recorded in the county before the homestead property is purchased). Another unique feature of Florida’s homestead law is that a person can also use unprotected assets to reduce the principal balance of an existing mortgage. The following example illustrates the important benefit of this rule:
Example 6: Jason owns a house in Orlando, which is his primary and permanent residence. He bought the house several years ago for $500,000 and financed the purchase with a $400,000 mortgage. The house is now worth $800,000. Jason also has a investment account that holds $200,000 worth of stocks and bonds.
Last year, Jason suffered a judgment on a personal guaranty for a business loan that went into default. Jason is concerned that a creditor may reach the equity in his house or his investment account. Following a meeting with his attorney, Jason elects to liquidate his investment account and pay down his mortgage with the $200,000 in investment account proceeds.
Analysis: Under Florida’s homestead exemption law, the house is protected. Further, under the Florida Supreme Court ruling in Havoco, Jason’s use of the investment account proceeds to pay down his mortgage cannot be set aside under Florida law.
Exception: Criminal Conduct
The only exception to the conversion of unprotected assets in Florida is where a debtor tries to use money obtained via criminal conduct, fraud, or other improper means to purchase a homestead property. The homestead exemption is intended for use by the honest debtor. If a creditor can prove that the homestead was purchased with proceeds obtained by means of criminal conduct, fraud, or other egregious conduct, the creditor can place a lien on the homestead and force the sale of the property via foreclosure.
A judgment based on allegations of fraud is not enough to defeat the homestead exemption. Rather, the creditor must demonstrate that the property owner used the tainted proceeds to purchase the homestead in order to overcome the protection of Florida homestead law.
“Using unprotected personal property to purchase a homestead – even if done with intent to frustrate a creditor – is not a fraudulent conversion of assets.”-STEPHEN E. SPEISER, ESQ.
Certain Debts NOT Covered by the Florida Homestead Exemption
While the Florida homestead exemption will protect you from an unsecured judgment creditor, the Florida Constitution specifies several types of debts that are NOT covered by the homestead exemption:
- Voluntary Liens that are placed on the property by you (such as a mortgage or a home equity loan);
- Mechanics Liens for goods and services provided by contractors you hire to work on your home;
- Prior Liens that were recorded against the property before you purchased your home (such as HOA dues, special assessments, etc.);
- Governmental Taxes and Liens (e.g., municipal property taxes, state taxes, IRS tax liens, etc.).
Pending and Prior Judgments
If you lose a lawsuit and a judgment is pending, it is not too late to avail yourself of Florida’s homestead law provided you purchase your property and move in before the judgment is recorded in your county. If you already have an outstanding judgment, you should not purchase a property in any county where the judgment has been recorded. Recorded judgments are a lien and may very well have priority over your homestead exemption. If you have pending or outstanding judgments, consult competent legal counsel before attempting to buy a homestead.
Example 7: Same as Example 5, except that the judgment creditor records a lien against Jason with the county. Sometime thereafter, Jason decides to sell his house for $800,000, pocketing $600,000 after paying off his mortgage, and purchases a $600,000 townhouse to become his new primary, permanent residence.
Analysis: Because Jason acquired the new house after a judgment had been recorded in his home county, the Florida homestead exemption law will not prevent the creditor from going after Jason’s new house.
As noted above, Requirement #4 of the Florida homestead exemption is that you actually reside in the house. If you are building a home, the homestead exemption will not attach until the home is complete and you move in. In the meantime, if a creditor obtains a judgment and records it in your county, a lien will attach to the property and the home will not be protected even if you subsequently move in.
For those with second homes, we are often asked “How much time can we spend outside of Florida?” The legal answer is straightforward: “As much time as you want.” There is no minimum residency period under Florida’s homestead law. Living outside of Florida for significant periods of time may, however, raise a question of fact as to whether your Florida property is your primary residence.
If one prefers to live in New York 364 days a year and only returns to Florida 1 day a year, the optics don’t look great. Nevertheless, where one calls “home” remains a matter of intent. For example, if one were to be transferred to Japan for business and could not return to the States for several years, one would still be entitled to the protection of Florida’s homestead exemption provided he or she maintains the requite intent.
Property Tax Reduction Statutes
For purposes of clarity, it should be noted that the homestead exemption under discussion in this article should not be confused with Florida laws that provide property tax relief to homeowners. Confusion often arises out of the fact that both sets of laws are designated “homestead exemptions.” In this article, however, we are only addressing creditor protection, i.e., the right of a Florida homeowner to exempt their primary residence from seizure by a judgement creditor.
The Florida homestead tax exemption is a state law that reduces the assessed value of your home by up to $50,000. Since real property taxes are calculated on the assessed value of your home, a reduction in assessed value will translate into a reduction in the amount of tax you must pay. For example, if the assessed value of your home is $125,000, the homestead exemption would reduce that assessment to $75,000. If the applicable tax rate was 1.5%, your property taxes would go from $1,875 ($125,000 x 1.5%) to $1,125 ($75,000 x 1.5%), an annual real estate tax savings of $750.
A second tax benefit of the Florida homestead exemption is the “Save Our Homes” statute which limits the amount the assessed value of your home can increase in any year to 3% or the annual Consumer Price Index, whichever is less. To take advantage of the homestead tax exemption, you will need to file paperwork with the County.
Out-Of-State Income Tax Obligations
It should also be mentioned here that Florida’s homestead exemption will not necessarily protect someone from out-of-state income tax obligations. The general rule is that one must live in Florida for more than 180 calendar days per year to avoid the imposition of income tax by a state where you reside part of the year.
We have heard many anecdotal horror stories of former New York residents who moved to Florida but kept their New York home in order to have a place to stay when they returned to visit family and friends. It appears that New York State has become quite aggressive in going after expat New Yorkers who move to Florida. This tax issue is well beyond the scope of this article; if it is a concern of yours, you should seek competent state tax counsel.
Proceeds from Sale of Homestead
Proceeds from the sale of your Florida homestead will continue to be protected from creditors provided you roll them into a replacement property. If you sell your homestead but don’t have a replacement property, your proceeds remain protected provided you can demonstrate that you possess the requisite intent to reinvest the proceeds in a replacement homestead. To satisfy this requirement, you must do two things:
- Be able to prove that you are actively looking for a new home; and
- Keep your sale proceeds in a separate “homestead account.”
The best way to document the separate handling of homestead sales proceeds is to simply deposit the proceeds into a new bank account and keep them separate from all other funds. There is no definitive time limit on how long you have to purchase a replacement homestead. The only guidance we have on the subject comes from a Florida Supreme Court ruling that says you have a “reasonable” amount of time to purchase a replacement property. What the Florida Supreme Court determines to be “reasonable” will “be determined from the facts and circumstances of each case.”
Florida courts have found four months to be reasonable, and some court decisions have even held that two years was reasonable under the circumstances. On the flip side, other Florida courts have found four or more years to be too long. It all comes down the particular facts of the case.
Homestead Protection Does Not Terminate Upon Death of Homeowner
Death does not terminate homestead protection. This means that proceeds from the sale of the home remain exempt and will pass to the homeowner’s heirs free and clear of the claims of any creditors that may exist at the time of the homeowner’s passing. Similarly, creditors cannot force the sale of the decedent’s homestead in a probate proceeding to pay their claims.
Jointly Owned Property
Jointly owned property is fully protected under Florida’s homestead law provided all the owners occupy the property as their primary residence. Co-owners do not need to be married to enjoy this protection.
Issues Involving the Primary Residence Requirement
Problems can arise where one of the co-owners does not occupy the homestead as their primary residence. Whether this is because they moved out, or never occupied the homestead as their primary residence, their ownership interest in the property is not homestead protected. If a judgment is entered against a co-owner who does not occupy the property as their primary residence, a lien can be placed on their ownership interest, and their creditor can force a sale of the entire property. The remaining co-owners who occupy the homestead as their primary residence will receive their pro-rata share of the sale proceeds (which proceeds are homestead protected) but, unfortunately, they will still be forced to move when the judgment-creditor forces the sale of the property.
If, on the other hand, a judgment is entered against a co-owner who does occupy the property as their primary residence, then their interest is homestead protected and their creditor cannot force the sale of the property. Accordingly, the risk arises where one or more co-owners do not live at the property.
No Protection Against Partition Sales
The Florida homestead exemption only bars a creditor from forcing the sale of a homestead to collect on its judgment. It does not prevent other interested property owners from compelling a sale. For example, absent a written agreement between co-owners of jointly-owned property stating otherwise, one of the co-owners could force the sale of the jointly-owned property.
Example 8: Becky and Gina jointly buy a house together in Jacksonville for $200,000 as their primary permanent residence. The deed notes that they are co-owners of the property, but there is no written agreement governing their joint ownership. Shortly after purchase, Becky borrows $50,000 from her parents in order to make extensive renovations to the property.
Two years later, Gina takes a job in Naples. Needing funds to buy a new house there, she asks Becky to list the Jacksonville house with a real estate broker. Becky objects and does not want to sell the house, noting that the current value of the house ($220,000) is not enough to enable Becky to recoup the $50,000 in improvements she has made to the property with money borrowed from her parents.
Gina hires a Florida lawyer, who files a suit for a partition action, asking the court to order the sale of the house. Becky objects to the forced sale on the basis that the house should be protected under the Florida homestead exemption.
Analysis: Becky’s Florida homestead exemption does not prevent Gina from obtaining a court-ordered sale in a partition action.
There is no question that the Florida’s homestead exemption is one of the most powerful asset protection tools available to residents of the state. As you can see from the discussion above, however, how best to take full advantage of this exemption is not always clear or straightforward. Proper implementation of the exemption will depend on your situation and may require the guidance of a skilled practitioner.