Geraci ex rel. Geraci v. Sunstar EMS, — So.3d —- 2012 WL 2401793 (Fla. 2d DCA June 27, 2012)

Once again we have a homestead case where the key to understanding what went wrong is is recognizing that one word: “homestead;” is used in three very different ways in Florida’s constitution:

[1] Exemption from forced sale: Article X, §4(a) and (b)

[2] Descent and devise: Article X, §4(c)

[3] Taxation: Article VII, §6

Courts get into trouble when they rely on a line of homestead case-law authority developed to address one facet of Florida homestead law (e.g., taxes), to decide a case involving another facet of Florida homestead law (e.g., creditor protection). That’s what happened in a 3d DCA case I previously wrote about here.

Case Study:

This time around the confusion stems from In re Estate of Wartels, 357 So.2d 708, 710 (Fla.1978), in which the Florida Supreme Court held that the devise and descent restrictions applicable to homestead property (Article X, §4(c)) only apply to fee simple ownership interests in real property. Based on that authority, the probate judge ruled that the decedent’s condo, which was subject to a 100-year lease as of 1976, couldn’t qualify for Florida’s homestead creditor protection (Article X, §4(a) and (b)). In other words, the trial judge ruled that no matter what the facts are, a leasehold interest NEVER qualifies for Florida’s homestead creditor protection.

Wrong answer. According to the 2d DCA, whether or not your residence qualifies for Florida’s homestead creditor protection depends on whether you intend to make it your principal and primary residence, NOT what kind of ownership interest you may have. Fee simple, long-term lease, or co-op, it’s all creditor-protected homestead property if you intend to make it your principal and primary residence.

Article X, section 4(a) does not distinguish between the different kinds of ownership interests that are entitled to the homestead exemption against forced sale. In re Alexander, 346 B .R. 546, 549–50 (Bankr.M.D.Fla.2006); Cutler v. Cutler, 994 So.2d 341, 344 (Fla. 3d DCA 2008); S. Walls, Inc. v. Stilwell Corp., 810 So.2d 566, 571 (Fla. 5th DCA 2002). And the Florida Supreme Court has long since adopted the general rule that a fee simple estate is not necessary to this exemption. See Bessemer Props., Inc. v. Gamble, 27 So.2d 832, 833 (Fla.1946); Coleman v.. Williams, 200 So. 207, 209 (Fla.1941). In fact, “any beneficial interest in land” may entitle its owner to the exemption. Bessemer Props., Inc., 27 So.2d at 833.

In considering the exemption from forced sale, a court must instead “focus on the debtor’s intent to make the property his homestead and the debtor’s actual use of the property as his principal and primary residence.” In re Dean, 177 B.R. 727, 729 (Bankr.S.D.Fla.1995). When a lessee’s interest in a leasehold estate includes the right to use and occupy the premises for a long term and the lessee has made the residence his principal and exclusive residence, such an interest is entitled to Florida’s homestead exemption from forced sale. Id. at 729–30; see also In re McAtee, 154 B.R. 346, 348 (Bankr.N.D.Fla.1993) (finding a long-term lease to be subject to the exemption from forced sale because it constituted an interest in real property and was more than a “simple possessory interest”); S. Walls, 810 So.2d at 572 (finding a co-op to be subject to the exemption from forced sale because “a co-op owner owns the unit, pays valuable consideration for it, and has the right to the exclusive use and possession of it for the duration of the lease”). This construction of the homestead exemption from forced sale is consistent with “important public policy considerations such as promoting the stability and welfare of the state by encouraging property ownership and the independence of its citizens by preserving a home where a family may live beyond the reaches of economic misfortune.” In re McAtee, 154 B.R. at 347–48.

The waters remain muddy:

Don’t expect this case to be the last word when it comes to whether or not Florida’s homestead creditor protection can apply to long-term leases or co-op property. As the 2d DCA noted, there are a couple of opinions out there that seem to make the same mistake the trial judge made in this case: applying Wartels’ “if it’s not fee simple, it’s not homestead” rule, which only applies for devise and decent purposes, to creditor-protection cases. Until we have a few more published opinions getting this distinction right, expect continued confusion at your local court house.

The trial court’s decision is erroneous because the homestead protection at issue in this case is not that of descent and devise. . . . Instead, this case involves the application of the homestead exemption from forced sale as set forth in article X, section 4(a)(1), to satisfy the appellee creditors’ claims. Cf. Cutler, 994 So.2d at 344 (analyzing whether property held in trust that was devised to an heir constituted homestead property for purposes of determining whether it was protected from forced sale under article X, section 4(a)(1)). Thus, Wartels is inapposite, and the general rule that a fee simple estate is not necessary to the forced sale exemption applies. See Dean, 177 B.R. at 730; S. Walls, 810 So.2d at 572.

We recognize that at least two courts have refused to so distinguish Wartels. See In re Lisowski, 395 B.R. 771, 777 (Bankr.M.D.Fla.2008) (concluding that, under Wartels, the homestead exemption from forced sale applies only to improved land or real property that is owned by the debtor); Phillips v. Hirshon, 958 So.2d 425, 430 (Fla. 3d DCA 2007) (holding that a co-op did not qualify for homestead exemption for purposes of descent and devise because it was not an interest in realty under Wartels ). However, we do not find the reasoning of these cases persuasive because they do not adequately reconcile the supreme court’s decision in Wartels with the court’s jurisprudence extending the exemption from forced sale to other beneficial interests in land and not limiting the exemption to a fee simple interest.

An “insider’s” view:

For an insider’s view of this case, you’ll want to read this interview of one of the attorneys on the winning side of the case.

  • Jeff Goethe

    I think the trial judge was relying upon a line of PCA opinions in which the 2d DCA rejected the argument that a 99 year lease in cooperative unit is protected from creditor claims, citing the Wartels decision. The only way to reconcile the Wartels decision and the Southern Walls decision is to treat creditor protection and devise restrictions under a different standard. The Supreme Court dismissed jurisdiction in Philips v. Hirshon, a case which would have resolved this apparent conflict. I think the trial judge felt that she was following the decision of the Supreme Court in dismissing review of the apparent conflict.

    I handled an appeal in 2008 and Randall Reder handled a recent appeal in which we both cited the cases discussed in this new opinion as applicable to a leasehold cooperative. The 2d DCA issued a PCA in my case, citing Wartels, and denied Mr. Reder’s motion for rehearing just a few weeks before they issued this opinion. I’m having a hard time reconciling the cases, but I’ll take this current ruling as a good one and believe it should apply to leasehold cooperatives.

  • Andrew Hodes

    The Higgs v. Warrick case (994 So.2d 492) also discusses the use of a 98 or 99 year lease to secure a homestead exemption to protect property taxes from increasing.