I wrote recently about the hurdles a judgment creditor recently had to jump through to enforce a Georgia judgment against a Florida defendant. In a similar vein, the 5th DCA recently issued an opinion dealing with a California court’s attempts to force the sale of Florida homestead property that had been placed under a constructive trust.
While a court in another state does not have in rem jurisdiction to convey Florida real estate, it can have personal jurisdiction over a Florida resident so as to force the Florida resident to convey the real estate.
The fact that the property is being used as a home will not necessarily qualify it for Florida homestead protection if it was acquired as a result of constructive fraud. “Constructive fraud” may include breach of fiduciary duty by someone other than the Florida homeowner.
1992 – Richard and Edith, a married couple residing in California, create a Trust and transfer their marital home into it. The Trust provides that:
- The Trust will be divided into a Survivor’s Trust and a Residuary Trust after the death of the first spouse.
- The surviving spouse will serve as sole trustee of both the Survivor’s Trust and the Residuary Trust.
- The surviving spouse is entitled to both principal and income of the Survivor’s Trust.
- The surviving spouse cannot access the principal of the Residuary Trust unless all of the survivor’s assets are fully depleted.
1996 – Edith dies. The marital home is divided, with 75 percent going to the Residuary Trust and 25 percent to the Survivor’s Trust.
1998 – Richard remarries to Ann. He transfers the prior marital home from the Residuary Trust to himself at a time when his assets have not been fully depleted. He then sells the prior marital home and uses the proceeds to purchase a new home with Ann.
2003 – Richard dies. Ann sells the California home and uses the proceeds to buy a home in Kissimmee, Florida.
After Richard’s death, the successor trustee of the Trust discovers Richard’s inappropriate transfer of the original marital home from the trust to himself. The trustee brings suit in California to compel Ann to refund 75 percent of the proceeds from the sale of the original marital home.
The California court holds that Richard’s conveyance of the original marital home to himself was a breach of fiduciary duty. The California court places a constructive trust over the Kissimmee property to prevent Ann from dealing with the property until the constructive trust is satisfied.
The trustee domesticates the California judgment in Florida. Ann claims that the judgment was unenforceable since the property qualified for Florida homestead protection. The Florida trial court doesn’t rule on the homestead argument, though, since the California order did not order a change in ownership of the Florida property.
The California court issues a “Postjudgment Order” requiring Ann to convey the Kissimmee property to a court-appointed receiver so that the property can be sold. When Ann does not comply with the Postjudgment Order, the California Court has a quitclaim deed executed on Ann’s behalf conveying the property to the receiver.
- Real estate is governed by the laws of the jurisdiction in which it is located. No state has jurisdiction over real estate located in another state.
- Unlike property jurisdiction, one court can have jurisdiction over a person that is living in another state. This jurisdiction over the person allows a court in one state to compel a person to convey property that is located in another state.
- Florida’s (generous) homestead exemption prevents a court from forcing the sale of or otherwise encumbering property that meets Florida homestead requirements.
- There is an exception to the Florida homestead exemption for constructive fraud. “Constructive fraud is the term typically applied where a duty under a confidential or fiduciary relationship has been abused, or where an unconscionable advantage has been taken. Constructive fraud may be based on misrepresentation or concealment, or the fraud may consist of taking an improper advantage of the fiduciary relationship at the expense of the confiding party.”
- Since the California court did not have jurisdiction over the Florida property, the quitclaim deed that the California court had executed is not enforceable in Florida.
- Since the California court did have jurisdiction over Ann, the California order requiring her to convey the property to the receiver is enforceable in Florida.
- Richard’s breach of fiduciary duty was a “constructive fraud” that prevented Ann from taking advantage of Florida homestead protection. (Note: Richard’s breach of fiduciary duty defeated Ann’s homestead protection.)
Remanded to the trial court with instructions to force Ann to convey the Kissimmee property in accordance with the California order.
Hichert Family Trust v. Hichert, 36 Fla. L. Weekly D1290b (Fla. 5th DCA June 17, 2011)