During hard times, home can be a refuge from the pressures of the world – a place to find shelter, security, and love. And for Florida residents experiencing financial difficulties, home can also serve as a safe haven from creditors due to the many Florida homestead advantages to be discussed in this article.
THERE’S NO PLACE LIKE A FLORIDA HOMESTEAD
Due to the powerful homestead protections afforded by the Florida Constitution, home can provide not only a source of emotional relief, but also a vital financial safety net and a solid foundational asset upon which to rebuild your economic life.
Florida’s Homestead Act is built into the state Constitution at Article X, Section 4, which protects a homeowner’s primary residence from attachment by creditors. This means that in Florida, subject to a few exceptions, creditors cannot force the sale of a homestead to satisfy debts or even involuntarily place a lien on a homesteaded property. Even more, Florida provides special property tax exemptions and caps designed to keep homeowners from losing their homes as a result of rapidly increasing property values.
Florida has unquestionably made safeguarding its residents’ homes a priority, but that raises the question: what exactly is ‘home?’
What Qualifies as a ‘Homestead’ in Florida?
At the most basic level, a ‘homestead’ is real estate you own and in which you primarily reside, whether a house, condo, or mobile home. To be protected under the Florida Constitution, the residence must be located within the State of Florida, and the owner must live at the residence at the time the exemption is claimed. If a home is within a municipality, the protection includes up to one-half acre of the land on which the home sits. Outside of town, up to 160 contiguous acres are protected. Acreage subdivided into separate lots is included as long as the lots touch one another.
Most jurisdictions provide homestead exemptions, but Florida’s law has several features that make it particularly powerful from a Florida asset protection standpoint. Significantly, Florida has no cap on the amount of homestead protection. In most states, there is a limit on the value of a property that can be homesteaded. In California, for instance, most property owners can only claim a maximum of $75,000 in homestead protection. So, if you own a residence worth $200,000, a creditor could force a sale, pay you the $75,000 exemption amount, and use the balance to satisfy a debt. In Florida, there is no limit; as long as the property qualifies as a “homestead,” it is 100% protected.
Florida also stands out because it does not prevent residents from transferring assets into a home to take advantage of the unlimited homestead exemption. So, you could theoretically liquidate some or all of your assets, use the proceeds to purchase a qualifying residence, and be protected from creditors. Or, you could use liquid assets to pay off a mortgage on a homesteaded property. Many states have laws making these kinds of transfers voidable if they appear designed to frustrate creditors’ claims. Florida has a mechanism for setting aside “fraudulent” transfers made to stymie creditors, but only in limited circumstances such as if the property converted into the homestead was obtained through fraud or criminal conduct.
Who Can Claim a Florida Homestead Exemption?
Florida’s homestead exemption is available to “natural persons” who reside in Florida. “Natural person” just means an actual human being. A corporation in Florida, a Florida LLC, or irrevocable trust in Florida cannot claim homestead protection. However, residences owned by revocable trusts in Florida, including trusts declared under the Florida Land Trust Act, can be eligible for homestead protection as long as the beneficiary of the trust meets the other requirements.
A property owner is a Florida resident for purposes of Florida’s homestead law if he or she intends to occupy a Florida residence permanently. There’s no minimum period of occupation – a property qualifies as a homestead when you move in, as long as the circumstances suggest you intend to stay there long-term. However, federal bankruptcy law does include a minimum period of residence within a state to qualify for that state’s homestead exemption.
Co-owned properties are protected to the extent of each owner’s eligibility. If a home is owned by two people who both permanently reside there, the property is fully protected. On the other hand, if only one owner qualifies for the exemption, a creditor of the other owner could potentially attach the non-resident owner’s interest.
There are a few types of debts and liens which are not subject to Florida’s homestead exemption. Most significantly, mortgages, tax liens, mechanic’s liens, and most HOA liens (depending upon the language and recording date of the declaration) are all outside the scope of the homestead exemption, as are liens which pre-date the property’s qualification as a homestead.
How Does Florida’s Homestead Exemption Affect a Bankruptcy?
Florida’s homestead exemption can be extremely valuable in bankruptcy because any property protected by the exemption cannot be liquidated by a bankruptcy trustee to pay creditors. Notably, though, federal bankruptcy law requires at least forty months of residence within a state to claim the state homestead exemption in a bankruptcy case. Thus, if you purchase and move into a Florida home, the property is immediately protected from creditors generally, but you cannot use Florida’s homestead exemption in bankruptcy unless you have lived in Florida for the prior forty months. Bankruptcy filers in Florida who do not meet the federal law’s residency requirements can still claim the federal homestead exemption in the amount of $146,450 (doubled for joint filers).
Federal bankruptcy law also allows trustees to challenge transfers of assets into a homestead if the transfer was made within ten years of filing and appears intended to avoid creditor claims. As a result, a filer who liquidates assets to pay down a mortgage right before filing bankruptcy runs the risk of the court setting aside the payment and using the money to satisfy creditor claims.
What Property Tax Advantages does Florida Provide to Homesteads?
Also incorporated into the Florida Constitution, the homestead property tax exemption allows Florida homeowners to exempt up to $50,000 of a home’s value from property tax calculations. To be eligible, the home must be your primary residence, and you must live there as of January 1 of the tax year for which the exemption is claimed. You can claim the exemption by filing an application with the appraiser of the county in which the home is located.
Because property taxes are calculated as a percentage of a property’s assessed value, the homestead exemption reduces taxes by decreasing the amount subject to assessment – similar to an income tax deduction. The first $25,000 of a home’s value is completely exempt from property taxes. Another $25,000 exemption, applying to the home’s value between $50,000 and $75,000, is available for non-school property taxes. So, a homestead with a true market value of $100,000 would be assessed as if it were only worth $75,000 for school-related taxes and $50,000 for all other property taxes.
Enacted in response to rapid increases in Florida real estate values, the Save Our Homes Amendment further reduces property taxes by limiting annual assessed-value increases to the lesser of three percent or the rate of inflation, as measured by the Consumer Price Index (CPI). Even if a home’s market value increases dramatically from year to year, the value used to calculate property taxes cannot go up by more than three percent. A taxing authority can still raise rates, and any improvements to the property are added to the assessed value. But the law minimizes increases in property taxes resulting from rising home values – a particularly important protection for homeowners on fixed incomes.
Perhaps the most unique feature of the Save Our Homes Amendment is that the cap on increases is “portable,” meaning you can take it with you if you move to another Florida residence. It works like this: say you sell a home worth $250,000 but with an assessed value of $200,000 (a “homestead assessment difference” of $50,000). Then, you purchase another home valued at $300,000. By transferring the $50,000 homestead assessment difference from the first home to the new home, you can reduce the assessed value to $250,000, thereby reducing your property tax liability. Then, any future increases are subject to the three-percent cap.
Limitations on Transfers of Florida Homesteads
Florida law acknowledges that a home’s significance isn’t limited to whoever’s name is on the deed, and, therefore, spouses and minor children are also taken into consideration whenever a homesteaded property is transferred. If the owner of a home is married, both spouses must consent to a transfer or mortgage, even if only one spouse legally owns the property. If a deceased homeowner has a surviving spouse or minor child, a homestead cannot be devised by will. Instead, Florida elective share law says that a surviving spouse is automatically entitled to a life estate, with the remainder going to the decedent’s children. A spouse can choose to waive the automatic life estate or to receive a fifty-percent interest instead, but minor children can never waive an interest in a deceased parent’s homesteaded property.
The Roman philosopher and statesman Pliny the Elder declared, “home is where the heart is.” For Floridians, home is also where the exemption is. With powerful homestead protections against creditors, and with valuable property tax exemptions and caps on assessment increases, Florida provides a legal climate designed to safeguard the homes of its residents. If you need advice on the many advantages provided to homeowners in Florida, you should speak with a knowledgeable Florida trust and estates attorney experienced in Florida’s homestead exemptions and Florida asset protection laws.
Steve Gibbs, Esq.