Opinion ID: 1848390
Heading Depth: 1
Heading Rank: 5

Heading: fishbein and the equitable lien cases

Text: In Palm Beach Savings & Loan Ass'n v. Fishbein, 619 So.2d 267 (Fla.1993), this Court allowed an equitable lien against homestead property in favor of a lender, where the debtor husband fraudulently obtained a loan and used the loan to satisfy three preexisting mortgages on the homestead property. Specifically, in March of 1998, Mr. Fishbein borrowed $1.2 million from a Palm Beach bank, securing the debt with a mortgage on the house he owned with his wife. Prior to his marriage, Mr. Fishbein owned the house subject to two mortgages. Following their marriage, Mr. and Mrs. Fishbein received a third mortgage in which they acknowledged the existence of the prior mortgages. In securing the $1.2 million loan, Mr. Fishbein, while engaged in dissolution proceedings with his wife, forged his wife's signature on the mortgage. Mr. Fishbein used approximately $930,000 of the loan to satisfy the three existing mortgages and taxes on the property. In August of 1998, the Fishbeins entered into a property settlement, in which Mr. Fishbein agreed to buy his wife a $275,000 home and pay her $225,000 in exchange for her relinquishment of any interest in the Palm Beach house. As collateral, Mr. Fishbein gave his wife's attorney a quitclaim deed conveying the Palm Beach house to his wife and himself. Mr. Fishbein represented that the house was clear of all liens except for those claimed by his mother and sister. He failed to comply with the property settlement agreement, and the Palm Beach house went into default. After the bank initiated foreclosure proceedings, Mrs. Fishbein moved back into the house. Mrs. Fishbein was awarded the house nunc pro tunc after the judge in the dissolution proceeding set aside the property settlement agreement for fraud in the procurement. In the foreclosure proceeding the trial judge allowed an equitable lien on the property to the extent that the loan proceeds were used to satisfy the existing mortgages and property taxes. On appeal, the Fourth District held that the bank was not entitled to an equitable lien because Mrs. Fishbein was not guilty of fraudulent or egregious conduct. We agreed with the trial court and allowed the bank an equitable lien against Mrs. Fishbein's homestead, accepting the bank's argument that although it could not foreclose on the mortgage under the literal language of the exemption it should be entitled to a lien under the doctrine of equitable subrogation as its loan proceeds were used to satisfy the prior liens against the home. Fishbein, 619 So.2d at 269. Stated differently, we allowed the Palm Beach bank to stand in the shoes of the prior mortgagees who would have been entitled to proceed against the Fishbeins' homestead under the express terms of article X, section 4. As we emphasized in Fishbein, the imposition of an equitable lien in circumstances suggesting the use of fraud in the acquisition of the homestead was not a remedy of recent vintage: [W]here equity demands it this Court has not hesitated to permit equitable liens to be imposed on homesteads beyond the literal language of article X, section 4. Fishbein, 619 So.2d at 270. In Jones v. Carpenter, 90 Fla. 407, 106 So. 127 (1925), this Court allowed the trustee of a bankrupt bread company to have an equitable lien against the homestead of its former president where the former president embezzled corporate funds to make improvements on his homestead. [10] The Court concluded that the trustee's claims fell within the exceptions to the exemption: The funds involved in this litigation were all spent for labor and improvements on the house which appellee seeks to exempt and are clearly within the qualifications to his homestead as above enumerated. Jones, 106 So. at 130. As in Fishbein, we employed the doctrine of equitable subrogation to accommodate the trustee's claim within the exceptions to the exemption: Appellant, who steps into the shoes of the bread company, cannot follow said funds or materials into Carpenter's home and recover them, they having been so converted, but he can subject the home to the repayment or restoration of said funds. Id.; see also Greta K. Kolcon, Common Law Equity Defeats Florida's Homestead Exemption, 68 Fla. B.J., Nov. 1994, at 54, 55 (Equitable subrogation, a sister remedy to the equitable lien, places one party to whom a particular right does not legally belong in the position of the right's legal owner.). [11] Six years later in Craven v. Hartley, 102 Fla. 282, 135 So. 899 (1931), we again approved the imposition of an equitable lien against homestead property where Hartley loaned Craven money to complete Craven's purchase of a home from a third party in exchange for a promise by Craven that she would execute a mortgage in his favor for the amount loaned as security. Craven, however, failed to execute the mortgage to Hartley once she secured her deed and Hartley then filed suit obtaining an equitable lien against Craven's home and a judicial sale to satisfy the amount loaned. Craven then filed suit seeking to have her land declared exempt from judicial sale as her homestead. We phrased the issue as follows: It is agreed by both parties that the sole question presented here is whether or not under the facts stated the loan of $625 can be held to be an obligation `contracted for the purchase of said property' within the terms of section 2 of article 11 of the Constitution relating to married women's property. Id. at 900. The Court followed Jones, once again invoking equitable principles to countenance Hartley's claim within the exceptions: [W]hen she borrowed the $625 from appellee and made the final payment thereon, the said loan to all intents and purposes became the price of property purchased by her, and that said lands immediately became charged in equity for the payment of said loan. When appellant declined to execute the mortgage according to her promise, appellee was within his rights in seeking to have an equitable lien impressed on said lands under the doctrine announced by this court in Jones v. Carpenter, 90 Fla. 407, 106 So. 127, 43 A.L.R. 1409. This holding is in harmony with spirit and terms of section 1 of article 10 of the Constitution relating to homestead exemptions, as it is there provided that no property shall be exempt from any contract for the purchase price thereof, nor can the homestead exemption supersede prior judgments or liens. Pasco v. Harley, 73 Fla. 819, 75 So. 30 [Fla.1917]. Hartley, 135 So. at 901. In LaMar v. Lechlider, 135 Fla. 703, 185 So. 833 (1939), we again allowed an equitable lien where the plaintiffs made valuable improvements to the defendant's homestead with the understanding that they were acquiring an interest therein. Recognizing, as we did in Jones, that the plaintiffs' claims did not come within the literal terms of the exemption, we nonetheless indirectly accommodated their claims within the exceptions to prevent the unjust enrichment of the defendant: This Court holds that the lien of plaintiffs is enforceable against the homestead of defendants, upon the theory that since the plaintiffs have innocently, and in the belief that they had the right to do so, with the consent of the holder of the legal title, placed on his land permanent and valuable improvements, it would be inequitable to permit the owner to retain the improvements without compensating the parties who placed them there for their reasonable value; that so to permit him to retain them would be unjustly to enrich him. LaMar, 185 So. at 836. Similarly, in Sonneman v. Tuszynski, 139 Fla. 824, 191 So. 18 (1939), we imposed an equitable lien in favor of the plaintiff, an elderly woman who advanced the defendant money and domestic services which the defendant used to purchase and operate a tourist camp with the understanding that the defendant would take care of her for the remainder of her life. The defendant reneged on that promise and we allowed an equitable lien against the defendant's tourist camp, concluding that the plaintiff was entitled to the same on the strength of the money and sweat equity she invested in the property: It may be reasonably inferred from the testimony adduced in this case that the money advanced by the plaintiff to the defendant was used by him in purchasing the tourist camp near Tampa during the month of January, 1934. Her services and labor were factors that aided the defendant in accumulating the money placed into the tourist camp and it appears from the evidence that an equitable lien exists in her behalf on the tourist camp property for the money advanced and the work and labor by her performed for the defendant. Id. at 20. The petitioner argues that this Court through its equitable lien jurisprudence has created a fourth exception to the homestead exemption excepting homesteads claimed in the furtherance of fraud from the protection of article X, section 4. The petitioner is not alone in this belief. See In re Tabone, 247 B.R. 541, 544 (Bkrtcy.M.D.Fla.2000) ([T]he Florida Supreme Court has already engrafted an exception to the homestead provision in the Florida Constitution in order to prevent unjust enrichment.); In re Lazin, 221 B.R. 982, 988 (Bkrtcy.M.D.Fla.1998) (reading Fishbein to create fourth exception where nonexempt funds are fraudulently obtained and used to acquire a homestead or pay off a mortgage on the homestead). In fact, several bankruptcy courts have relied on Fishbein and the cases preceding it to deny homestead claims or impose equitable liens where the evidence established that the transfer of assets to the homestead was accomplished with the intent to shield assets from creditors or with fraudulently obtained assets. See In re Tabone, 247 B.R. 541 (M.D.Fla.2000) (denying homestead exemption to the extent the homestead was purchased with funds impermissibly converted from nonexempt to exempt assets); In re Grocki, 147 B.R. 274 (S.D.Fla.1992) (imposing equitable lien against debtor's homestead where funds used by debtor to acquire homestead could be traced to those fraudulently obtained from plaintiff creditor); In re South Florida Title, Inc., 104 B.R. 489 (S.D.Fla.1989) (imposing equitable lien in favor of bankruptcy trustee where debtors used improperly appropriated corporate funds to satisfy mortgage on homestead); In re Gherman, 101 B.R. 369 (S.D.Fla.1989) (denying homestead exemption where debtor used funds stolen to acquire exempt property); see also In re Pomerantz, 215 B.R. 261 (S.D.Fla.1997) (denying debtor's discharge from bankruptcy where evidence established that debtor, a New York resident, transferred nonexempt assets into a Florida homestead for the purposes of defrauding creditor); In re Bandkau, 187 B.R. 373 (M.D.Fla.1995) (denying homestead exemption to the extent debtors converted nonexempt assets into the homestead for purposes of shielding their assets from a creditor); In re Coplan, 156 B.R. 88 (M.D.Fla.1993) (denying homestead exemption to Wisconsin residents who moved to Florida and purchased homestead shortly before their business filed for bankruptcy to the extent the debtors received a greater benefit under Florida law than would have been available to them under Wisconsin's exemption laws). Nevertheless, in Caggiano we cautioned that our equitable lien jurisprudence should not be read too broadly: All of the cases cited by the State where a court has actually imposed a lien on the homestead in question, however, are either factually or legally inapposite. Virtually all of the relevant cases involve situations that fell within one of the three stated exceptions to the homestead provision. Most of those cases involve equitable liens that were imposed where proceeds from fraud or reprehensible conduct were used to invest in, purchase, or improve the homestead. See, e.g., Jones v. Carpenter, 90 Fla. 407, 415, 106 So. 127, 130 (1925); La Mar, 135 Fla. 703, 711, 185 So. 833, 836. Other relevant cases cited involve situations where an equitable lien was necessary to secure to an owner the benefit of his or her interest in the property. See, e.g., Tullis v. Tullis, 360 So.2d 375, 377 (Fla.1978) (We hold, with the First District, that our constitutional provisions allow the partition and forced sale of homestead property upon suit by one of the owners of that property, if such partition and forced sale is necessary to protect the beneficial enjoyment of the owners in common to the extent of their interest in the property.). In particular, Tullis involved a marital situation with joint homestead property. In no other case has this Court imposed a lien on a homestead beyond one of the three stated exceptions in the constitutional provision. The Court in Bessemer [v. Gersten] specifically did not address the issue of whether the lien came within one of the stated exceptions to the homestead exemption. 381 So.2d [1344] at 1347 n. 1 [(Fla.1980)]. Caggiano, 605 So.2d at 60 n. 5. We reiterated that position in Tramel in rejecting the State's attempts to extend our holding in Fishbein to allow the forfeiture of homestead property and do so again today. Tramel, 697 So.2d at 824; see also Smith v. Smith, 761 So.2d 370, 373 (Fla. 5th DCA 2000) ([T]he supreme court has limited the exception allowing an equitable lien on homestead to those cases where the owner of the property has used the proceeds from fraud or reprehensible conduct to either invest in, purchase, or improve the homestead.). Moreover, although we have not had the occasion to answer the precise question before us today, we have previously intimated that the use of the homestead exemption to shield assets from the claims of creditors is not conduct sufficient in and of itself to forfeit the exemption under the express terms of article X, section 4. In Heddon v. Jones, 115 Fla. 19, 154 So. 891 (1934), Heddon loaned Jones money, taking as security a mortgage on property owned by Jones. Id. at 891. Jones defaulted on the mortgage and Heddon brought suit thereon. Shortly after the suit was initiated, Jones acquired title to property distinct from the aforementioned property mortgaged to Heddon. Id. Jones claimed this new property on which he had previously held only a purchase money mortgage, as his homestead. Id. Heddon contended that Jones did so for the express purpose of defrauding [him] by acquiring a homestead right in the property before [he] could reduce his $6,000 debt to judgment. Id. We rejected Heddon's claims and explained: The fact that the appellee may have moved on the homestead property prior to judgment for the express purpose of homesteading it is not legal fraud which per se affords ground for holding the homestead claim subordinate to the lien of a judgment rendered in a suit pending prior to the time the homestead character attached. Id. We reached a similar conclusion in Quigley v. Kennedy & Ely Insurance, Inc., 207 So.2d 431 (Fla.1968), where the Quigleys purchased a vacant tract of land adjacent to their homestead shortly after having a judgment entered against them and declared the additional tract as part of their homestead. This Court allowed the Quigleys' homestead claim to stand, rejecting the Third District's decision to deny the claimed exemption as to the additional tract: The suggestion of the District Court that a judgment debtor should be restricted to land he already owns as his homestead to prevent him from depositing his funds or surplus out of the reach of his judgment creditor for the purchase of additional homestead lands appears contrary to the clear intent of the homestead provision of the Constitution. Id. at 433. In sum, we conclude that we must answer the certified question in the affirmative. The transfer of nonexempt assets into an exempt homestead with the intent to hinder, delay, or defraud creditors is not one of the three exceptions to the homestead exemption provided in article X, section 4. Nor can we reasonably extend our equitable lien jurisprudence to except such conduct from the exemption's protection. We have invoked equitable principles to reach beyond the literal language of the exceptions only where funds obtained through fraud or egregious conduct were used to invest in, purchase, or improve the homestead. [12]