In re Gosman, 2007 WL 707365 (Bankr.S.D.Fla. Mar 05, 2007)

One of the few cracks in the almost impenetrable fortress protecting Florida homestead property from creditors is the amorphous “equitable lien” doctrine.  There isn’t a lot of case law out there on equitable liens against Florida homestead, so this bankruptcy court order should be of interest to anyone whose practice involves homestead issues.

In this case the bankruptcy court said NO to a creditor seeking to impose an equitable lien on $22.5 million in net sales proceeds generated by the sale of former health care executive Abe Gosman’s Palm Beach mansion.  The court articulated the following two-part test for determining “the very narrow circumstances warranting the imposition of an equitable lien” on homestead property under Florida law:

  • that the money was obtained fraudulently or through egregious conduct, and
  • that the money obtained was utilized to invest in, purchase or improve the homestead. The Court finds that neither of the two prongs has been satisfied.

Here’s how the bankruptcy court summarized Florida’s equitable lien case law:

The Florida homestead exemption is construed liberally and the three exceptions to the Florida homestead exemption are construed narrowly and strictly. Havoco of America. Ltd. v. Hill, 790 So.2d 1018 (Fla.2001). A limited legal basis has been established for imposing an equitable lien on homestead. The first case from the Florida Supreme Court to impose an equitable lien determined that the imposition of a lien was proper due to the embezzlement of funds by an employee who, in turn, used the funds to make improvements to the home. Jones v. Carpenter, 106 So. 127 (Fla.1925). The Court in Jones elaborated that if the money had been obtained through a valid contract and then utilized to make home improvements, the imposition of an equitable lien would not be appropriate. Id. In Palm Beach Savings & Loan Association, F .S.A v. Fishbein, 619 So.2d 267 (Fla.1993), the Florida Supreme Court allowed an equitable lien against homestead property wherein monies were obtained fraudulently by use of a forged mortgage instrument and then utilized to satisfy a valid mortgage. In Chauncey v. Dzikowski, 454 F.3d 1292 (11 Cir.2006), the Eleventh Circuit Court of Appeals referenced the standard for imposing an equitable lien by stating that it may be necessary to reach beyond the literal language of the Florida homestead exemption to invoke an equitable lien against homestead property when funds were obtained through fraud or egregious conduct and utilized to invest in, purchase, or improve the homestead. Id. at 1294.