Homestead Exemption Not Applicable In Florida

Surplus Funds unavailable to homeowner in Florida

In re MICHAEL L. DEZONIA, Debtor.

Case Law
Case No. 6:05-bk-16146-ABB, Chapter 7
UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF FLORIDA, ORLANDO DIVISION
347 B.R. 920; 2006 Bankr. LEXIS 1826

July 27, 2006, Decided
July 27, 2006, Filed

Facts: The Debtor defaulted in the payments due the first mortgage holder (the "Bank") and foreclosure was commenced on January 26, 2004. The Debtor did not file an answer to the foreclosure complaint and a Final Judgment of Foreclosure was entered on March 10. 2004. A foreclosure sale was scheduled for April 10, 2004. The Debtor entered into a repayment plan with the Bank prior to the sale and the sale was canceled. The Debtor defaulted. For over a year and a half the Debtor entered into numerous repayment plans with the Bank reinstating the mortgage several times. The Debtor paid the Bank over $ 20,000 during this period of time and the foreclosure sale was reset several times.

A foreclosure sale was conducted on September 23, 2005. South Investment Properties, Inc. ("SIP") submitted the highest bid of $ 241,000.00. The Debtor was unaware of any surplus proceeds. The Debtor has expressed his intent to reinvest the surplus proceeds into another homestead. The proceeds have been maintained in a separate trust account and not commingled with any other funds. After a foreclosure sale of the debtor's home, the surplus proceeds from the sale were deposited into a trust account pending the bankruptcy court's determination of the homestead exemption. The issue was whether the surplus proceed were exempt. The trustee argued that the debtor lacked the requisite intent to reinvest the proceeds into another homestead until after the bankruptcy case was filed.

Issue: Whether the surplus be exempt

Ruling: No. The funds were not commingled, and the debtor was not required to know before the sale that there would be surplus proceeds in order to intend to reinvest them in another homestead. Moreover, the debtor's failure to file pleadings in the foreclosure sale had no bearing on his intention to reinvest, and his failure to file amendments to his schedules reflecting the existence of the proceeds for approximately three months was no indication of his intent to reinvest. Although the debtor's failure to provide timely federal tax returns shifted the burden of proof to the debtor, he had sustained that burden by rebutting any evidence or inferences made by the trustee for his failure timely provide the returns.

Lesson Learned:: It is well established that Florida's homestead exemption should be liberally construed in favor of the exemption. The purpose of the homestead exemption is to protect and preserve the family home. A challenge of the homestead exemption requires a strong showing that the debtor is not entitled to the exemption.

Written by Kevin Levonas and Jerry L.