STATE HOMESTEAD EXEMPTIONS AND THEIR EFFECT ON FEDERAL BANKRUPTCY LAWS

Real Property, Probate and Trust Journal, Spring 2004 by Rivera, Ryan P

The only exceptions restricting a debtor's right to the Florida homestead exemption are specifically enumerated in the state constitution, and those exemptions are to be strictly construed in favor of the debtor.123 The Butterworth court stated that the Florida Constitution does not create an exception for criminal activity, and "neither the legislature nor this [c]ourt has the power to create one."124 To prevent the legislature or the court from creating an exception to the exemption, the burden is on the creditor to establish by a preponderance of the evidence that debtors are not entitled to the exemption claimed.125 Florida's narrow reading of the exceptions, and its imposition of the burden on creditors to prove debtors are not entitled to the exemption, is a manifestation of Florida's commitment to protecting debtors through the homestead exemption.

Strict construction of Florida's exceptions to the homestead exemption will even extend to a debtor who has acquired a homestead in Florida "for the sole purpose of defeating the claims of out-of-state creditors."126 In Havoco of America v. Hill evidence was presented showing the debtor purchased a retirement home in Florida for approximately $650,000 in cash, which was part of a larger scheme by the debtor to defraud his creditors through bankruptcy. The Supreme Court of Florida, in its strict construction of the exceptions to the homestead exemption, found no exception for real property that is acquired in the state of Florida for the sole purpose of defeating the claims of out-of-state creditors.128 Although only three exceptions to Florida's homestead exemption have been delineated,129 the Hill court noted a possible fourth exception.130 Florida courts have invoked equitable principles to reach beyond the strict construction of the exceptions "where funds obtained through fraud or egregious conduct were used to invest in, purchase, or improve the homestead."131 Thus, where equity demands it, Florida courts will permit equitable liens132 "on homesteads beyond the literal language of [Florida's constitution], article X, Section 4."133

Florida "courts have always held that homestead laws should be construed liberally in the interest of the family and in favor of the person entitled to them."134 In 1962, the Florida exemption laws existed to preserve certain things necessary to earn a livelihood for unfortunate citizens and their families.135 These laws encouraged property ownership in Florida for the head of a household.136 Today, Florida's homestead exemption encourages property ownership in Florida. The exemption encourages wealthy debtors to move to the "Sunshine State" and invest their equity in expensive homes before filing for bankruptcy.

2. Texas

The first Texas constitutional provision relating to homesteads was passed in 1845 and provided an acreage limitation for rural homesteads and a value limitation for urban homesteads.137 In the mid-nineteenth century, the homestead exemption conferred on the debtor "a home as an asylum-a refuge which cannot be invaded nor its tranquility or serenity disturbed."138 The exemption, which protected citizens and their families, was designed "to cherish and support in the bosoms of individuals, those feelings of sublime independence which are so essential to the maintenance of free institutions."139