Opinion ID: 76367
Heading Depth: 2
Heading Rank: 4

Heading: The Forfeiture Cases

Text: 69 In Tramel v. Stewart, 697 So.2d 821 (Fla.1997), the Florida Supreme Court considered whether homestead property is forfeitable under the Florida Contraband Forfeiture Act. In Tramel, the homeowners used their property for a sophisticated marijuana growing operation and were engaged in selling marijuana. The homeowners sought to rely on the homestead exemption to prevent forfeiture of their homestead under the Forfeiture Act. Relying on the case of Butterworth v. Caggiano, 605 So.2d 56 (Fla.1992), wherein the Florida Supreme Court held that Article X, Section 4(a) of the Florida Constitution prohibits civil or criminal forfeiture of homestead property used in the course of racketeering activity in violation of Florida's Racketeer Influenced and Corrupt Act, the Florida Supreme Court declined to recognize an exception to Article X, Section 4(a) based on the use of a homestead as an instrument to commit criminal activity. Tramel, 697 So.2d at 823. 70 Neither Tramel nor Butterworth involve efforts by creditors to recover fraudulently obtained or stolen funds which were used to purchase or improve homestead property. Rather, they involve the completely separate issue of whether a homestead may be forfeited to the state based on the criminal activity of the homeowner which may be unrelated to the acquisition or the improvement of the homestead. As this Court has previously recognized, the Florida Supreme Court gave no hint in Tramel or Butterworth that it was reconsidering or retreating from its position in Jones. Mesa, 232 B.R. at 513. 71 In Bank Leumi Trust Co. of New York v. Lang, 898 F.Supp. 883 (S.D.Fla.1995), the debtors fraudulently converted nonexempt property to exempt property. After Bank Leumi filed suit to recover a $1.8 million loan guaranteed by the debtors the debtors sold their New Jersey home and used the proceeds to purchase a Florida home. Bank Leumi obtained a judgment against the debtors and sought to enforce the judgment against the Florida home. The district court concluded that the debtors had fraudulently converted non-exempt to exempt assets however, in relying on the Butterworth decision, concluded that the Florida homestead did not except property acquired for the sole purpose of hindering and defeating creditors' claims. 72 In In re Lane, 190 B.R. 125 (Bankr. S.D.Fla.1995) a bankruptcy trustee commenced an adversary proceeding for turnover of homestead property, alleging that the debtor had fraudulently transferred settlement proceeds. The trustee did not argue that the funds used to purchase the homestead were fraudulently procured. Thus, in light of Bank Leumi, the bankruptcy court concluded that the homestead exemption could not be disallowed solely on the basis that the debtor committed a fraudulent transfer. 73 In this case, the majority of funds obtained by First R&R were undisputedly obtained by fraud. Such a finding has already been made. First R&R then used those funds to purchase the El Caballo Property. 74 The Defendants argue however that Tramel, Butterworth and its successors are applicable to this situation to prevent the imposition of a lien against the homestead because the funds to purchase the El Caballo Property were not embezzled by Levy and therefore are only related to the criminal activity of FinFed. This argument however, simply ignores the fundamental issue that the funds to purchase the home came directly from the FinFed fraud. In fact, this argument would seem to infer that the El Caballo Property was not purchased with fraudulently obtained funds but rather was simply used as a base from which the fraud was operated just as in Tramel and Butterworth. If the facts were so, the forfeiture cases would apply to prevent the imposition of an equitable lien. This is not the case however. Rather, the undisputed evidence clearly reflects that the El Caballo Property was purchased by First R&R with funds directly obtained from the FinFed fraud. 75 As an additional argument, the Defendants in this case assert that the Tramel, Butterworth, Lane and Bank Leumi cases are controlling because: (1) the funds that were transferred to First R&R were for commissions and therefore property of Ray Levy and (2) the fraudulent transfers to First R&R and U.S. Benefits cannot be used to obtain a lien against the homestead. The Defendants' argument however, is based on the presumption that First R&R and U.S. Benefits obtained their funds in exchange for providing some value to the Debtor and therefore Kozyak's efforts are more similar to an action under 11 U.S.C. § 550(a). This presumption is flawed. This Court has already found that First R&R and U.S. Benefits gave no consideration in exchange for funds fraudulently transferred to it by the Debtor. Thus, unlike in Lane and Bank Leumi, where the debtors did own the funds which were transferred, the Defendants in this case did not merely convert non-exempt assets which they owned to exempt but rather invested the fraudulently obtained funds directly into homestead.