You Sell Your Homestead… Are the Proceeds Exempt From Creditors?
As I have discussed in prior blogs, one of the advantages of owning a home is creditor protection provided by the Florida Constitution. The homestead has to meet certain requirements but once those requirements are met, the homestead is a valuable asset protected from creditors. But what happens if a creditor has a judgment against you, you sell your homestead and then buy another homestead? Are the proceeds from the sale of the homestead, as opposed to the actual homestead, protected?
In a recently decided case, JBK Associates v. Sill Bros, Inc., JBK Associates (“JBK”) obtained a $740,487.22 judgment (the “Judgment”) against Patrick Sills (“Patrick”) in 2010. In 2014, JBK served garnishment writs directed at accounts Patrick had at Wells Fargo Advisors, LLC. In October, 2013, pursuant to a divorce decree, Patrick and his wife sold their homestead. Patrick placed his proceeds in an account at Wells Fargo Advisors, LLC titled the “FL Homestead Account”, which was later divided into one cash account and two security accounts. Patrick asserted the funds were homestead funds and were not subject to garnishment and the trial court agreed.
On appeal, JBK argued that Patrick lost his right to the homestead protection from creditors because Patrick purchased securities with the homestead proceeds. Securities’ accounts are not consistent with the purposes of homestead; thus, such proceeds lost their protected status.
In Orange Brevard Plumbing & Heating Co. v. La Croix, the Supreme Court of Florida held that “the proceeds of a voluntary sale of a homestead [are] exempt from the claims of creditors just as the homestead itself is exempt if,and only if, the vendor shows, by a preponderance of the evidence an abiding good faith intention prior to and at the time of the sale of the homestead to reinvest the proceeds in another homestead within a reasonable time”.
The appellate court found that there are no constitutional provisions or statutes that describe what a “reasonable” time is. The appellate court found that the securities in Patrick’s account were not risky, the homestead proceeds were kept separate and apart from Patrick’s other funds and thus, were exempt from the claims of JBK.
The court did note that, because an argument regarding the appreciation on those securities was not raised, the court did not answer that question.
ADVICE: If you do sell your homestead and plan on buying another homestead, put those proceeds in an earmarked account and purchase the new homestead in a reasonable amount of time. Obviously, there is no clear cut answer as to what is reasonable but if you are not looking for a new homestead (i.e., hiring a realtor) and put a purchase off for too long, those proceeds could be subject to creditor claims.
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New word… Numismatics…the study or act of collecting of coins, paper money and medals