Asset Protection Issues in Florida

      I often get calls asking me to assist a client with asset protection. Many people believe they need a revocable trust in order to obtain asset protection. However, a revocable trust, which allows the grantor to retain control of their assets as trustee of the trust, provides no creditor protection to the grantor trustee, and is simply a tool for estate planning purposes. In order to use a trust for creditor protection the grantor must give up control of their assets and appoint a separate trustee the who is not legally obligated to act as directed by the grantor.

    However, in Florida, there are many methods of asset protection that occur simply by residing as a citizen of this State. The primary protection lies in the Florida Constitution.  Article X, Section 4 provides: 

There shall be exempt from forced sale under process of any court and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty..” 

   This means that if you own a home, whether married or single, with or without children, condominium or cooperative, regardless of value and regardless of whether you have a mortgage, a judgment creditor cannot foreclose their judgment against your homestead property. Even a municipality is unable to foreclose a code enforcement lien on homestead property. This protection extends past the death as long as your property descends to your spouse or children.  Note that if you file bankruptcy, the Florida exemption preempts State law, requiring that you must have resided at the property as your homestead for at least forty months to obtain full protection.  Prior to forty months of continuous residency, the cap is approximately $160k.  In addition, homestead property is limited to one-half acre in a municipality and one hundred sixty acres in unincorporated areas. 

   If you have a judgment and wish to sell or refinance a  homestead property, Florida law allows clearance of those claims by giving the creditor a forty-five-day notice of homestead, which gives the creditor a limited window to challenge the homestead claim.  In addition, after sale, the homestead sale proceeds remain protected as long as the proceeds are used to purchase a new homestead. We recommend placing same in a homestead trust rather than commingling the funds after any such sale while searching for a replacement homestead property.

   Florida also recognizes a special estate, called tenants by the entireties. This is property owned by married couples, such as real property (non-homestead), bank accounts or brokerage accounts.  Under common law in Florida the claims of individual creditors cannot reach properly-created entireties property.  In the eyes of the law, property owned by a married couple is treated as one, hence not reachable by creditors or divisible without both spouses conveying the interest.

  Special rules exist to create property as tenants by the entireties.  It must be received as a married couple, each must hold title to the property, each must have equal use and possession of the property, must remain married and have an equal interest therein.  Failure to meet each of these criteria invalidates the entireties protection.  Also, the judgments are not invalid, only inchoate, which means that upon breaking of the entirety’s estate (by death, divorce, or transfer), a creditor’s judgment immediately attaches to the asset.  Also, judgments against both spouses may still reach entireties property (so no fighting over the steering wheel).

   Judgment creditors have another tool to obtain payment of claims against Florida debtors.  They have the right to garnish up to twenty-five (25%) percent of a person’s wages and bank accounts.  However, debtors who serve as the head of a household (married couples and single parent with children or dependent relatives) may not have these assets garnished.  A head of household is the person that provides at least fifty percent of the living expenses for the household.  A debtor, when served with the garnishment notice, must file notice of this exemption within twenty days.

   A favorite method of asset protection is the limited liability company.  For example, if you own a rental property and a tenant or guest is hurt, you are liable for any damages, even if owned as entireties property.  Any claims in excess of insurance coverage would be a judgment against all other assets exclusive of homestead.  However, if the property is owned in a limited liability company, the claims would only be against the company and its assets.

   Limited liability companies have a second benefit.  Creditors can reach shares held in a corporation, but membership units in a multi-member LLC cannot be taken away, only the available distributions may be reached (which distributions are frequently controlled in closely held companies.

   Asset protection is an important tool, but if deployed improperly may result in unnecessary expenses and consequences, so working with a good estate and asset protection attorney is key to obtaining the best results.\

Michael J Posner, Esq., is a partner in Ward, Damon, Posner, Pheterson & Bleau, P.L. a mid-sized real estate, estate planning and business-oriented law firm serving all of South Florida, with three offices in Palm Beach County.  They specialize in estate planning and asset protection. They can be reached at 561.594.1452 or at mjposner@warddamon.com

Anatomy of a House Sale

     Due to a combination of low interest rates, Covid-19, the desire for more space and the ability for many workers to work remotely in new locations has led to a very active and robust residential real estate market. Selling a residence is a multi-step process that involves a team of professionals including Realtors, attorneys, title agents, lenders, and government officials, all of which are necessary to conduct and complete a typical house sale.

    The beginning of the process is the decision on how to market and sell the property. Traditionally most people interview and hire a local real estate agent to handle this portion of the transaction. While most Realtors utilize a standard form for a listing agreement, promulgated by their local Board of Realtors, this form is negotiable and does not have to be signed as presented. Some issues to consider include the length of the listing, whether the listing automatically renews, the terms and conditions of the sale such as allowing VA or FHA financing, or the offering of both leasing and sale.

     The biggest issue is the Realtors commission. The person listing the house is known as the listing agent and the person who brings the buyer to the transaction is known as the selling agent (because the seller indirectly pays that agent). Traditionally both agents were paid a 3% commission. This is negotiable especially if the listing agent has both sides of the transaction or if the homeowner locates a buyer on their own. For example, a common reduced commission is known as the 5-2-1. listing.  In this type of listing, the listing agent gets 5% if they have both sides of the transaction; 2% if they are the listing agent with 3% going to the selling agent; and only 1% if the seller finds the buyer on their own.

    Once a house is listed for sale it will be subject to viewing both online as well as possibly in person especially once the Covid-19 pandemic ends. This includes the placement of a lockbox on your home which allows Realtors access for showings when you are not home. As a precaution, any valuables or medicine should be securely locked to prevent any question of loss during such visitations. While those risks are small, they do occasionally happen.

   When a Buyer decides to make an offer, they will submit a contract to your agent for review and approval. The most common contract used is called the FAR/BAR Contract. Most attorneys, Realtors and title companies are familiar with this contract and its riders.  The contract can either be an “as-is contract” wherein the Buyer gets a set number of days to complete an inspection and determine whether to cancel the contract for any reason or proceed to close regardless of the property’s issues, or a limited repair contract which requires the Seller to make certain repairs up to a fixed percentage (usually a maximum of 3%) and if the Seller makes the repairs the Buyer cannot cancel the contract. In practice, 90% of the contracts I deal with are the as-is contract, with a fixed inspection period and free right to cancel.

   Once the contract is fully executed a closing agent must be selected. Please note it is the Seller’s or Buyer’s choice not the Realtor’s choice as to whom to utilize and I highly recommend that a real estate attorney be chosen instead of just a non-attorney title company. An attorney can provide greater protection and address more issues should they arise, and answer more questions regarding the purchase and sale.

   In Palm Beach County, the closing agent is customarily selected by the Seller. In Broward and Miami-Dade Counties, the closing agent is customarily selected by the Buyer.  Usually the person selecting the closing agent also pays the cost of the title premium. The other large cost customarily paid by the Seller is the Florida Documentary Stamp Tax due on the transaction, which is based on a rate of $7 per thousand in real property value. For example, a home that sells for $300,000 will have doc stamps in the amount of $2,100 due and payable from the Seller at closing.

   Once the inspection period passes, and any financing contingency has been met (the buyer has obtained loan approval) the deposit becomes nonrefundable and the parties move towards closing. The closing does not have to be formal and in most cases today closing is done through an escrow transfer with the Sellers signing separately from the Buyers and the sale documents exchanged for the net proceeds to the Seller and access to the property for the Buyer. This includes frequent remote notarization of the Buyers or Sellers signatures on closing documents though many lenders still require a wet signature on mortgages and notes.

    After closing, the title agent will issue a final Title Insurance Policy, insuring the Buyer and the Buyer’s lender have insurable and marketable title to the property. If the Buyer intends to reside at the property, the Buyer should then make an application for homestead with the property appraiser in order to obtain the tax benefit provided by Florida law.

   Because selling or purchasing a home is complicated and is also generally the most expensive transaction a party will participate in, having an experienced real estate attorney assist you in the transaction is, in my opinion, a wise investment. This choice can save you money (for example by requiring a seller to provide a survey affidavit in lieu of a new survey) and protect you should issues arise such as improper disclosures, title defects, unknown liens and encumbrances and other issues that may be missed by the title agent or Realtor.

Michael J Posner, Esq., is a partner in Ward, Damon, Posner, Pheterson & Bleau, P.L. a mid-sized real estate and business-oriented law firm serving all of South Florida, with three offices in Palm Beach County.  They specialize in real estate law and can assist sellers and purchaser with closing and financing of residential and commercial real estate including remote closings.  They can be reached at 561.594.1452 or at mjposner@warddamon.com