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Florida Court Rules That Debtors Can Shield Assets in Homes, Even to Cheat Creditors

People who owe money can shield assets by buying Florida homes -- even if they do it purposely to cheat creditors, the Florida Supreme Court ruled. The provision in the Florida Constitution that shields homesteads from foreclosure and forfeiture also protects homes bought by debtors "with the specific intent to hinder, delay, or defraud creditors," the court said.

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People who owe money can shield their assets by buying Florida homes — even if they do it purposely to cheat creditors, the Florida Supreme Court ruled Thursday. The provision in the Florida Constitution that shields homesteads from foreclosure and forfeiture also protects homes bought by debtors “with the specific intent to hinder, delay, or defraud creditors,” the court said. In the 6-1 ruling, the justices said they were reluctant to suggest the constitution protected wrongdoing but there was no way around the language of the provision. Under the “homestead exemption,” people cannot be forced to sell their homes to pay debts except to taxes or to settle debts incurred to acquire or improve the property. Because of that provision, Florida has gained a reputation as a haven for debtors who flee other states and shield their assets in fabulous homes. They then declare bankruptcy, leaving creditors helpless. O.J. Simpson’s Los Angeles home was sold after a civil court jury found him responsible for the 1995 killings of his ex-wife and her friend in a $33.5 million judgment. Simpson, who has said he cannot pay the sum, has said Florida law will protect the Miami-area home he purchased last year. The asking price for the home was $625,000. The ruling came as part of a lawsuit between Elmer Hill, a retired Tennessee coal broker who now lives in Destin, Fla., and Havoco of America. A decade ago, Hill lost a $15 million lawsuit to Havoco over a coal contract with the Tennessee Valley Authority. A week and a half after that verdict, he bought his waterfront Destin home, paying $650,000 in cash. He spent another $75,000 to furnish it. Hill later filed for bankruptcy, claiming the home and its furnishings were shielded from Havoco, regardless of his intent. He won in bankruptcy court, prompting Havoco’s appeal to the 11th U.S. Circuit Court of Appeals, which asked Florida’s high court to clarify the scope of the homestead exemption. “While we are certainly loathe to provide constitutional sanction to the conduct alleged by the petitioner …, this Court is powerless to depart from the (constitution’s) plain language,” Justice Leader Shaw wrote in the ruling. J. Nixon Daniel III, a Pensacola lawyer representing Havoco, said he was disappointed by the ruling: “It’s now clear Florida is a haven for people who want to come and commit fraud on their creditors.” The Florida Bankers Association and the Florida Retail Federation both filed briefs in the case supporting Havoco. “The question of whether Florida is going to be a debtor’s haven or not is implicated,” said lawyer Virginia Townes, who represented the bankers and retailers. “If there is a problem with the decision, it has to be addressed by constitutional amendment,” she said. Three years ago, the Constitution Revision Commission, a group created every 20 years to review the Florida constitution, rejected a proposal that would have excluded homes bought purposely to cheat creditors from the protection now provided to all homes. Townes said Florida was more of a debtor’s haven than most states. “An unlimited homestead exemption has got to get us pretty close to the top,” she said. “We get a lot more rich bankrupts down here than they do, say, in Wyoming.”

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