Opinion ID: 76367
Heading Depth: 2
Heading Rank: 3

Heading: Equitable Liens

Text: 56 In Jones v. Carpenter, 90 Fla. 407, 106 So. 127 (Fla.1925) the Supreme Court of Florida, established the principle that the homestead cannot be employed as a shield and defense after fraudulently imposing on others. Id. at 130. Jones, the trustee of a bankrupt bread company, sued Carpenter, the former president of the debtor, asserting a claim for an equitable lien on Carpenter's homestead. Carpenter had caused the debtor company to pay for various improvements to his homestead, and the trustee Jones asserted that Jones the debtor was therefore entitled to an equitable lien on Carpenter's home. The Florida Supreme Court concluded that Jones' claims fell within the exception to the homestead exception and ruled that, Jones as trustee was entitled to an equitable lien on the property. In so doing, the Court said: 57 Appellant [Jones], 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. 58 Jones, 90 Fla. at 416, 106 So. at 130. In denying the homestead exemption, the Court stated: 59 Appellee in other words takes the position that as president of the Jacksonville Bread Company ... he can then fraudulently or surreptitiously extract from its assets the sum of $535.84 in cash and use the same to improve his home thereby contributing to the bankruptcy of the Bread Company to the detriment of innocent creditors and then claim immunity from re-paying the funds or assets so taken by virtue of his homestead exemption. 60 Purely from a standpoint of commercial or business ethics it would be difficult to state a set of facts constituting more reprehensible conduct, and while this court has repeatedly held that organic and statutory provisions relating to homestead exemptions should be liberally construed in the interest of the family home, they should not be applied so as to make them an instrument of fraud or imposition upon creditors. 61 Jones, 90 Fla. at 414, 106 So. at 130 (citations omitted). 62 The rule stated in Jones that a homestead cannot be employed as an instrumentality of fraud has been restated by the Supreme Court of Florida in numerous cases to impose an equitable lien against homestead property. See, Craven v. Hartley, 102 Fla. 282, 135 So. 899 (Fla.1931); LaMar v. Lechlider, 135 Fla. 703, 185 So. 833 (Fla.1939); Sonneman v. Tuszynski, 139 Fla. 824, 191 So. 18 (Fla. 1939). 63 In 1993, the Florida Supreme Court again emphasized its rule pronounced in Jones, in Palm Beach Savings & Loan Association, F.S.A. v. Fishbein, 619 So.2d 267 (Fla.1993). In Fishbein, the Florida Supreme Court allowed the imposition of an equitable lien against homestead property where the debtor obtained a loan and used the loan to satisfy three existing mortgages on the homestead property. Specifically, Mr. Fishbein obtained a loan for $1.2 million from a Palm Beach bank secured with a mortgage on the house he owned with his wife. Unbeknownst to the bank and Mrs. Fishbein, Mr. Fishbein forged his wife's name on the mortgage deed, and used approximately $930,000 from the proceeds of the loan to satisfy three existing mortgages and taxes on the property. Thereafter, Mr. Fishbein and his wife divorced. In the divorce proceedings, Mrs. Fishbein obtained the house under the apparent assumption that the house was owned free and clear. Subsequently, Mr. Fishbein defaulted on Palm Beach bank's loan and the bank instituted foreclosure proceedings. The Florida Supreme Court agreed with the trial court and ruled that although the bank could not foreclose on the fraudulently obtained mortgage, the bank was entitled to an equitable lien to the extent the funds fraudulently procured from the bank were used to satisfy existing mortgages and therefore benefitted the home. The Supreme Court pronounced in Fishbein Where 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. 64 The United States District Court for the Southern District of Florida has also applied Fishbein and awarded a judgment creditor an equitable lien in a situation when judgment debtor satisfied a third party's mortgage with the proceeds of a fraudulent transfer. In Babbit Electronics, Inc. v. Dynascan Corp., 915 F.Supp. 335 (S.D.Fla.1995) the plaintiff sought the award of an equitable lien against the homestead property of the judgment debtor's daughter and son-in-law. The court, finding that the transfer made to the mortgage company on behalf of the daughter and son-in-law was a fraudulent transfer, awarded an equitable lien to the judgment creditor in the amount of the transfer. In so doing, the court cited to Fishbein and specifically stated that the daughter and son-in-law stand in no worse position by the imposition of an equitable lien than they stood before the fraudulent transfer of funds. Babbit, 915 F.Supp. at 338 (opinion of Garber, Magistrate Judge). 65 In In re Mesa, 232 B.R. 508, 512-513 (Bankr.S.D.Fla.1999) this Court applied the rule pronounced in Jones and its predecessors to impose an equitable lien against a debtor's homestead. In Mesa, the debtor fraudulently obtained funds from Travelers Indemnity Corp. (Travelers) using the funds to pay for home improvements. The debtor then sought to exempt the home as his homestead. Travelers objected seeking the imposition of an equitable lien. Relying on Jones, this Court imposed an equitable lien against the debtor's homestead in the amount of fraudulently transferred funds finding that the case involved the investment of fraudulently obtained funds directly into a homestead not merely the use of a homestead to hinder, delay or defraud creditors or the conversion of non-exempt assets. Mesa, 232 B.R. at 513. 66 The Florida Supreme Court, in its most recent opinion in Havoco of America, Ltd. v. Hill, 790 So.2d 1018 (Fla.2001) stated its continued approval of its rule pronounced in Jones specifically stating that the equitable lien as imposed in Jones was still a viable remedy for creditors in cases where funds obtained fraudulently were used to purchase, invest in or improve a homestead. Unlike Jones, Fishbein, Mesa and the other equitable lien cases, Havoco involved a debtor's conversion of nonexempt assets into a homestead with the specific intent to hinder, delay and defraud the debtor's creditors. The Florida Supreme Court, considering the issue on a certified question from the Court of Appeals for the Eleventh Circuit, held that Article X, Section 4 of the Florida Constitution did not prohibit such a conversion of assets, and upheld the debtor's assertion of his homestead exemption. However, the court specifically distinguished Jones and other cases which imposed equitable liens when the homesteads were purchased with the fruits of fraudulent activity: 67 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. 68 Havoco, 790 So.2d at 1028 (emphasis added) (footnote omitted). Thus, the Havoco decision has upheld the equitable lien cases where the funds obtained through fraud or egregious conduct can be directly traced to the investment, purchase or improvement of homestead.