PROBATE CORNER

By: David M. Garten, Esq.

ARTICLE: Equitable Liens On Homestead Property

Fla. Const. Art. X, § 4 reads in relevant part: “§4. Homestead; exemptions (a) There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person: (1) a homestead…”

Where equity demands it, the courts are not hesitated to permit equitable liens to be imposed on homesteads beyond the literal language of the Florida Constitution. An equitable lien may be awarded against homestead property: (a) when the proceeds from fraudulent or reprehensible conduct are used to invest in, purchase, or improve homestead property, or (b) to prevent unjust enrichment. See Havoco of Am., Ltd. v. Hill, 790 So. 2d 1018 (Fla.2001); Zureikat v. Shaibani, 944 So.2d 1019 (Fla. 5th DCA 2006); Palm Beach Savings & Loan Ass’n v. Fishbein, 619 So. 2d 267 (Fla. 1993); Flinn v. Doty, 2017 Fla. App. LEXIS 3103 (Fla. 4th DCA 3/8/17).

For example, in Fishbein, supra a bank took a mortgage on the marital residence after the husband forged his wife’s signature on loan documents. The bank was entitled to an equitable lien against the homestead, which was awarded to the wife in the divorce decree, to the extent that the bank’s funds were used to satisfy preexisting mortgages and taxes on the property, even though the wife had not been a party to the fraud. The court determined that to hold otherwise would have given the wife a windfall of nearly one million dollars and that the homestead exemption is to serve as a shield and not a sword.

In Jones v. Carpenter, 90 Fla. 407, 106 So. 127 (Fla. 1925), the trustee of a bankrupt company was entitled to an equitable lien against the homestead of the company’s former president where he embezzled corporate funds to make improvements on the homestead. The Court concluded that the trustee’s claims fell within the lien exception because the funds involved in this litigation were all spent for labor and improvements on the house.

In Craven v. Hartley, 135 So. 899 (Fla. 1931), a lender loaned money to the buyer so that she could complete the purchase of her homestead. The buyer promised the lender that she would execute a mortgage for the loan amount. However, after the buyer secured the deed, she refused to execute the mortgage. The lender was entitled to an equitable lien against the homestead for the amount of the loan.

In LaMar v. Lechlider, 185 So. 833 (Fla. 1939), the Plaintiffs were entitled to an equitable lien on the homestead where they made valuable improvements to the defendant’s homestead with the understanding that they were acquiring an interest in the property.

In Sonneman v. Tuszynski, 191 So. 18 (Fla. 1939), plaintiff advanced the defendant money and domestic services which the defendant used to purchase and operate a tourist camp with the understanding that he would take care of the plaintiff for the remainder of her life. The defendant reneged on his promise and Plaintiff was allowed an equitable lien against the defendant’s tourist camp equal to the amount of money and sweat equity she invested in the property.

In Flinn v. Doty, supra, the parents executed quit claim deeds to their daughter (“D”) on several properties. After the mother died and the father was declared incapacitated, the father’s guardian filed suit against D to recover the properties and monies she took from the sale of some of the properties, alleging both that the father had lacked mental capacity when he executed the deeds and that D had exercised undue influence over her parents in securing the properties. In one count, the guardian sought to impose an equitable lien on D’s property for the amount she used to pay off the mortgage on the property. D answered, but did not raise the fact that the property was her homestead. After a lengthy trial, the trial court found that the father lacked the capacity to execute the deeds. Among other relief, it imposed an equitable lien in the amount of $206,000 on D’s property, i.e., the amount that she used to pay off the mortgage on her property. It also declared an equitable lien in the amount of $185,000 for additional monies received by D from the sale of the parents’ properties. After the father died, his personal representative sought to foreclose on the equitable lien. The complaint alleged that the estate had an equitable lien in the amount of $206,000 against D’s property. D answered and again failed to raise her homestead exemption. The court conducted a trial and entered a final judgment foreclosing liens totaling $390,000 (the two liens combined), entered judgment for $421,428, including interest on both liens, and set a foreclosure sale. Several days after the final judgment was entered, D moved to cancel the sale and for the first time asserted that the property was her homestead. The court denied the motion, and D appealed.

On appeal, D alleged that the court erred in imposing an equitable lien on her homestead as it is exempt from forced sale pursuant to under Article X, section 4, of the Florida Constitution. The appellate court, citing Fishbein, supra, held that the lower court did not err in foreclosing on the equitable lien of $206,000 because it was imposed to prevent unjust enrichment by D, who used the proceeds of the sale of her parents’ property to pay off her pre-existing mortgage on her home. In response to D’s argument that there still must be a showing of egregious conduct on her part, the court held that Fishbein clearly rejects such a finding and that unjust enrichment is sufficient in these circumstances to permit an equitable lien against her homestead. However, the lower court did err in including the $185,000 lien as part of the foreclosure proceeding. First, the complaint did not seek to impose a lien against D’s home; it only alleged that it was entitled to enforce the $206,000 lien. And second, the $185,000 lien did not satisfy any pre-existing obligations on the home. In fact, it appears to be unrelated to the home. Therefore, the court held that it could not be imposed under Fishbein.

Practice Pointer: In Havoco of Am., Ltd. v. Hill, the Florida Supreme Court re-affirmed its limitation on the exception allowing an equitable lien on homestead to those cases where the owner of the property used the proceeds from fraud or reprehensible conduct to either invest in, purchase, or improve the homestead. Therefore, if your client intends to pursue an equitable lien on homestead property, he/she should allege some facts in support of fraudulent or reprehensible conduct used to invest in, purchase, or improve homestead property.