Florida Homestead Exemption Lost Due to Contract for Sale

The District Court for the Southern District of Florida, in the case of Carpenter v. Brown, 13-CV-61183-KMM (SD Fla. 2013), addressed the issue of whether the placing of a property on the market for sale or the entering into a sales contract constitutes the abandonment of the homestead exemption.    In this case, the debtor closed on a contract for the sale of his property eight days after filing for chapter 7 relief.  In the case, the District Court upheld the Bankruptcy Court's disallowance of the exemption of the real property as a homestead as it found that the debtor did not have the intent to remain permanently in the property on the date the bankruptcy case was filed.

Article X, section 4 (a)(1) of the Florida Constitution provides for the homestead exemption. The Court explained that the definition of a "homestead" is liberally construed to protect homeowners. In re: Brown, 165 B.R. 512, 514 (Bankr. MD Fla. 1994).  But the Court noted, that at the same time, the Court must "take care to prevent it from being an instrument of fraud."  Once a property is established as a homestead it does not lose that status until it is "abandoned".  The Court explained that a "homestead has been abandoned when it is no longer a 'bona fide' home and place of permanent residence."  The Court noted that the main consideration in the determination of whether a homestead has been abandoned is the "owner's intent" and the physical absence from the property is "not determinative." 
In this case, the District Court, which was acting in its appeals capacity of the Bankruptcy Court's decision, upheld the Bankruptcy Court's finding that the debtor failed to satisfy the "intent prong" of the homestead exemption. The Bankruptcy Court found that the debtor did not possess the requisite intent to live permanently at the property on the date of the filing of the bankruptcy case and that he had therefor abandoned the property as being his homestead. 
The District Court rejected the debtor's argument that despite the contract for the sale of the property, the homestead was still intact as he still lived there.  The District Court cited a prior rulings in other cases which held that the placing of property on the market for sale or lease may constitute the abandonment of the intent to use and occupy the property as a permanent place of residence. The property would no longer qualify for the homestead exemption unless the debtor had the intent or ability to use the proceeds to establish a new homestead. Smith v. Hamilton, 428 So. 2d 382, 384 (Fla. Dist. Ct. Appl. 1983). 
In this case, the District Court stated that the debtor did not display an intention to reinvest the sales proceeds in a new homestead. The debtor noted that the spent a portion of the sales proceeds on moving expenses and moved to Massachusetts.  The Court reviewed that the sales proceeds of a sale of a homestead are only exempt if "the seller 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." Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 201, 206 (Fla. 1962). The Court noted that here is was undisputed that the debtor did not have the intention to reinvest the proceeds in another homestead. 
if the property is not exempt as a homestead, the sales proceeds(305) 891-4055 - Jordan E. Bublick is a Miami Bankruptcy Lawyer with over 25 years of experience in filing Chapter 13 and Chapter 7 Bankrkuptcy Cases.