Assignment of Homestead Insurance Proceeds Allowed

 In a recent case, an owner of homestead property assigned post-loss insurance benefits to a third-party contractor. The  insurance company challenged the assignment, asserting it was not allowed by Article X, section 4(c) of the Florida Constitution - apparently not an authorized alienation of a homestead interest by mortgage, sale or gift. Reversing the trial court on a motion for summary judgment, the Fifth District Court of Appeal held that the Florida Constitution does not bar such an assignment.

Article X, section 4(c) provides in relevant part that "[t]he owner of homestead real estate, joined by the spouse if married, may alienate the homestead by mortgage, sale or gift." The appellate court appears to base its holding on an assignment of post-loss insurance benefits not constituting an "alienation" of the homestead - as such, section (4)(c) does not apply and there is no prohibition. Under Black's Law Dictionary, alienation is defined as the conveyance or transfer of property to another. Since the assignment here was not a transfer of real property, then there was not a transfer of title to real property  - thus, there is no alienation subject to section 4(c).

 

This seems off the mark to me. Insurance benefits relating to damage to a homestead are recognized as protected homestead property. Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 2d 201 (Fla. 1962); Quiroga v. Citizens Prop. Ins. Corp., 34 So. 3d 101 (3rd DCA. 2010). Black's says that an alienation is the transfer of property. Clearly, the insurance proceeds are property. Are they being transferred? That would appear to be the case, as there was an assignment of the proceeds. Thus, there is an alienation of homestead property and the limitations of section 4(c) should apply.

 

While not focused on in the opinion, section 4(c) of Article X does use the terminology "homestead real estate" (emphasis added), and not just the single work "homestead" as used elsewhere in section 4. Perhaps this is the basis of the court's reading that section (4)(c) only applies to a transfer of title to real property, notwithstanding case law that treats insurance proceeds from the damage of homestead real property as being homestead property. However, note that section 4(c) also uses the shorthand phrase "homestead" without "real estate" four times, including in the sentence addressing alienation by mortgage, sale or gift - so it is uncertain if the alienation provision relates only to real estate. Even if the intent was to describe real estate alienations in that provision, the equating of damage insurance proceeds to the homestead property itself (which is of course real estate) would mean that the alienation restriction should likewise apply to the insurance proceeds. Thus, we have here both an alienation (i.e., transfer of property) and the transfer being of constitutionally protected property.

 

Note that the appellate court did not believe Article X, section 4(a) of the Florida Constitution to be involved. That provision prohibits a lien from being imposed against homestead property except in the circumstances listed therein (as well as protecting from forced sale). The court did not interpret the assignment as creating a lien. Note that section 4(a) and section 4(c) do interrelate - while section 4(a) prohibits a lien, section 4(c) authorizes a mortgage. Thus, section 4(c) operates in part as an exception to section 4(a), at least if one reads a mortgage as imposing a lien. Section 4(a) also does not allow its prohibitions to be waived through an unsecured agreement.  While at first glance one might believe the cases of Chames v. DeMayo, 972 So. 2d 850 (Fla. 2007) and  Quiroga to have direct relevance to this case, the appellate court noted that those cases relate to liens under section (4)(a).

 

The appellate court appears to have some doubt on the issue, since it certified the following question to the Florida Supreme Court as one of great public importance:

 

Does Article X, section 4(c) of the Florida Constitution allow the owner of homestead real property, joined by the spouse, if married, to assign post-loss insurance benefits to a third-party contractor contracted to make repairs to the homestead property?

SPEED DRY, INC. V. ANCHOR PROPERTY AND CASUALTY INSURANCE COMPANY, 5th DCA, Case no. 5D19-3055 (August 21, 2020)

Single Family Home Still Homestead Property Even Though Bedrooms Are Rented Out

In a recent opinion of the 2nd DCA, the appeals court reversed the trial court and held that an entire single family residence qualified as homestead for creditor protection purposes, even though three of the four bedrooms were rented out.

The court applied a two-part test to determine if the commercial use portion can be severed from the non-commercial use portion, such that the property could be divided into homestead and non-homestead property. The court's analysis was as follows:

In First Leasing, this court suggested a two-part analytical framework in determining if the homestead exemption extends to the entire property: first, the court must determine whether the debtor's residence is a fraction of the entire property; and second, the court must determine whether the property can be severed -- that is, by using an imaginary line the residence can be severed from the remainder of the property. 591 So. 2d at 1153. Applying this test to the single-family residence at issue here, the answer to each question is no. Mr. Anderson's father resided in the home and, like the tenants, shared the common areas of the house. Further, the rented bedrooms in the home cannot be severed from the residence by an imaginary line without destroying its utility as a single-family residence.