Florida is often called a debtor’s haven. One of the biggest reasons Florida has a reputation for being a debtor’s haven is because of the homestead protection. Homestead is the number one creditor-protected asset in Florida, and Florida offers unlimited homestead protection against the vast majority of creditors.
Homestead protection against creditors is written into Florida’s state constitution. It is considered by many Florida asset protection attorneys to be one of the safest ways for a Florida resident to protect their money from a potential lawsuit. Since the protection is written into the state constitution, it is doubtful that it will ever be changed.
The homestead protection here in Florida works like this: when your property is considered protected homestead, a creditor who sues you will not be able to touch your homestead property. The homestead could be worth $100,000 or $10,000,000—the homestead is protected up to an unlimited amount. Several very wealthy people have taken advantage of Florida’s generous homestead laws and have used the homestead laws to protect millions of assets.
This Article will cover the definition of Florida homestead, how the homestead creditor protection works, and the few exceptions to the homestead creditor protection. We will also cover several common homestead questions regarding creditor protection for people.
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What is Florida Homestead?
Florida homestead is defined as your primary residence. The homestead can only be located here in Florida. Whether property is considered homestead depends on three key factors: (1) whether a natural person owns the property, (2) whether the owner made or intended to make the real property their permanent residence, and (3) whether the property must meet specific size requirements. This section will discuss the three elements for determining homestead.
A natural person means that an individual must own the homestead. The homestead cannot be owned by a corporation, partnership, limited liability company (LLC), or most irrevocable trusts. If a non-natural person owns the homestead, there will be zero creditor protection. Many people fall into this trap of placing a homestead into an LLC, only to find out later that their homestead is no longer protected under Florida law.
Example: Jose owns a million-dollar condo in Miami. The condo is Jose’s primary residence and qualifies as his homestead. However, he receives terrible legal advice and places the condo into a Florida LLC. Jose is in a bad car accident, where he is at fault, and faces a very high liability lawsuit.
Result: Jose’s condo lost its homestead when he placed the condo into his Florida LLC since the LLC is not considered to be a natural person. If the lawsuit exceeds Jose’s insurance, then the creditor may be able to go after Jose’s condo, which the Florida LLC owns. Jose would have been better off leaving the homestead in his name.
You can still maintain homestead ownership in Florida when a revocable trust owns the property. However, the revocable trust must contain particular homestead language that gives the owner a present possessory right in the homestead for the homestead to be protected in the revocable trust.
Note: Many older Florida and out-of-state revocable trusts do not contain this homestead language. If you place your homestead into your revocable trust, confirm with your lawyer that the correct language is in your revocable trust.
The homestead must also meet specific size requirements. Homes on lots that are too large may not qualify for the total homestead creditor exemption. If the homestead is located in a Florida municipality, then the homestead exemption will only apply to a homestead located on one-half acre of contiguous land. If the homestead is located outside a municipality, then the homestead exemption will apply to up to 160 acres of contiguous land.
The exception to the one-half-acre rule for homesteads located in a municipality would be for a homestead that was purchased before the property became part of a municipality. Suppose the homestead was purchased after the area became a municipality. In that case, the new owner cannot protect all of the homestead property if it is larger than one-half acre.
Note: a municipality is a city, town, or village in Florida incorporated through a formal legal process. If you live in an unincorporated area of Florida, this would not be considered a municipality.
Example: Darla purchased a large homestead on three acres in 1960 in Sarasota that was not considered a municipality. Her property was incorporated in 1980. Darla was sued after a construction worker was injured on her property.
Result: because Darla purchased the three-acre farm before the area was incorporated and became a municipality, the entire value of her three-acre farm would be protected from the lawsuit.
The last important element when determining whether a property in Florida is considered homestead is the owner’s intent to reside there. Florida courts will examine whether you intended to make the property your primary residence and whether you reside on the property when determining whether the property is protected homestead.
The homestead tax benefit differs from the homestead creditor protection benefit for creditor protection purposes. The homestead tax benefits only apply after you apply for the homestead designation with your local property appraiser’s office. The homestead creditor protection benefit—different from the homestead tax benefits—attaches immediately to the property where you intend to make the property your permanent residence and when you reside on the property.
Example: Frances and his family purchased a multi-million dollar condo in South Florida. They moved from North Carolina to Florida. Shortly after moving to the new South Florida condo, Frances was found at fault for a terrible car accident that killed two people. Frances was sued, and the creditor argued that Frances’ homestead should not be protected since the family had just moved to Florida.
Result: The court will likely find that Frances’ multi-million dollar South Florida condo is a protected homestead since Frances’ family intended to make it their homestead, and the family resided in the homestead.
How the Homestead Creditor Protection Works
Homestead protections were written into the Florida state constitution to promote the protection and preservation of the family’s interests by securing a place for the family to live even in the face of financial misfortune. The homestead is considered the best creditor protection you can get here in Florida because it would take 60% of Floridians to vote to remove this protection from the State Constitution. It is doubtful that homestead creditor protection will ever go away.
Once your property in Florida qualifies as your homestead, you have unlimited creditor protection against most creditors. This is why many celebrities and wealthy business owners purchase extremely expensive homesteads in Florida. The homestead is protected in Florida whether the property is worth $10,000 or $10,000,000.
Example: OJ Simpson purchased a very expensive Florida condo and made the condo his homestead shortly before he faced a substantial multi-million dollar financial judgment.
Result: OJ’s homestead was completely protected from the financial judgment.
When is the Florida Homestead Vulnerable to Creditors?
There are several exceptions to Florida’s outstanding homestead creditor protection laws. The first exception is that monies used to purchase a Florida homestead are not protected if the funds stem from fraud or egregious conduct. If illegally earned money is placed into the homestead, then the homestead will not be protected.
Example: Bozo ran a notorious Ponzi scheme in New York. Bozo decided to use $30m of the money he earned from the Ponzi scheme to purchase a lavish Florida homestead down in South Florida. Bozo is eventually sued when his Ponzi scheme falls apart, and he has several financial creditors exceeding more than a hundred million dollars.
Result: Bozo’s Florida homestead will not be protected since he used money from his illegal Ponzi scheme to purchase the property.
Here are several other common exceptions to the Florida Homestead creditor protection:
- Mortgage Foreclosure. Homestead is not protected from a mortgage foreclosure. If a homestead owner is behind on mortgage payments and the lender initiates foreclosure proceedings, the lender can foreclose on the homestead.
- Federal Tax Liens. The Federal government can attack protected homesteads when the homeowner owes outstanding federal tax bills. The Federal government is a super creditor and can always defeat the homestead creditor protection.
- Mechanic’s Liens. If you hire someone to work on your homestead—such as a roofer or a plumber— and they are not compensated for their services, the worker who performed them on your homestead can file a mechanic’s lien. The mechanic’s lien can then allow the worker to force the sale of the homestead if the lien is not resolved.
- Property Taxes and Assessments. Unpaid property taxes and HOA fees can cause the homestead to lose its protected status.
- Spousal Claims. Many do not realize that Florida law provides several protections for surviving spouses regarding the homestead. There are many situations where a surviving spouse can claim a decedent’s homestead, even if the homestead was only in the deceased spouse’s name and acquired before marriage.
Common Homestead Questions
Rental/Commercial Use
Homestead property can be rented and remain homestead as long as it is rented for less than thirty days per year. If the homestead is rented for more than thirty days for two consecutive years, then the homestead will no longer be considered homestead for tax benefits purposes.
Whether a homestead is still creditor-protected when rented is much more complex and fact-intensive. The courts will consider whether the homestead was abandoned when determining whether it was lost for creditor protection purposes.
If you’re concerned about losing your homestead tax and creditor protection benefits, you may be wise not to rent the homestead. It is just not worth the possibility of losing the homestead creditor protections.
Can a Lot Qualify As Homestead?
The Florida Supreme Court held that a vacant lot without a dwelling cannot qualify for homestead. Even when the vacant lot is purchased and a dwelling being built on the property, the lot will likely not qualify as a homestead until the dwelling is livable. However, if you buy a lot and place a mobile home on the lot, then the lot will likely qualify as a protected homestead.
Separate Homestead for Spouses
Separated spouses may potentially be allowed to have two separate homestead properties. The spouses must legitimately live separately and not have any financial or emotional connections.
Example: Jorge and Samantha are married but have been separated since 2005. They share no finances and have no connection to each other except that they have children together and sometimes communicate on the phone or via email. Jorge and Samantha would both be able to qualify for separate homesteads here in Florida since they live entirely separately.
How to Establish Residency for Homestead
There are several factors that courts will look at when determining whether someone resides here in Florida for homestead creditor protection purposes. Some of the factors are:
- Voter registration;
- Place of business;
- Driver’s license and automobile registration;
- Location of professionals that the individual uses, such as lawyers, financial advisors, doctors, and CPAs;
- Where the individual pays taxes;
- Participation in the local community, such as churches and volunteer organizations; and
- Location of spouse and family.
There is not one definitive factor that the court will look at when determining residency. However, the more factors that favor you residing in Florida, the more likely the court will decide that you are a Florida resident and your homestead should be creditor-protected.
Can a Homestead be Sold and Funds Reinvested in Another Homestead
Yes, funds from the sale of a Florida homestead can be protected if they are timely reinvested into another Florida homestead. The Florida Supreme Court held that the seller of the homestead must sell and purchase another homestead property in good faith for the funds to be protected. The new homestead must be purchased within a reasonable amount of time. Additionally, the funds from the sale of the homestead must not be commingled with other non-homestead funds before the new homestead is purchased.
Example: Sheila is being sued for millions after hitting someone on a bicycle. Her main asset is her homestead, which has $500,000 in equity in the home. She needs to sell the homestead and purchase another property in another Florida city because her job has moved. Sheila sells her house, places the $500,000 in a new bank account, and then purchases another homestead with the $500,000 within three months.
Result: The courts will likely find that the $500,000 is entirely creditor-protected because Sheila had a good-faith reason for selling the homestead and buying another homestead. Additionally, she placed the $500,000 from the sale into a separate account and reinvested the proceeds into another homestead within a reasonable amount of time (three months).