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A Florida appeals court has ruled that funds available but not yet withdrawn from a reverse mortgage line of credit are protected under the state’s homestead exemption and cannot be garnished.
The March 25 decision by the Fourth District Court of Appeal found that a creditor could not force a homeowner to access unused funds from a Home Equity Conversion Mortgage (HECM) to satisfy a judgment. The decision is related to a previous case, Jhelum Enterprises LLC v. Desmarais.
Jhelum Enterprises LLC won two judgments totaling $54,863.89 against Oceanside Automotive Service and Towing LLC. In 2011, a Palm Beach County court found that Oceanside’s sole officer, Norman Desmarais, fraudulently transferred the company’s assets to himself and a new business to avoid paying the judgment, and held him personally liable for the full amount.
In 2018, Desmarais took out a HECM line of credit and refinanced it in 2022, leaving roughly $62,000 available by January 2024.
According to the decision, the creditor sought to garnish the funds, arguing that prior draws had been used for personal expenses rather than home repairs.
The court rejected that argument, ruling that just because a homeowner has access to funds through a HECM doesn’t mean those funds can be garnished until the homeowner actually requests a draw.
“The undistributed funds are accessible only when requested by the homeowner,” the court wrote.
Florida’s constitution broadly shields homestead property from forced sale or creditor claims, with limited exceptions. The court said that protection extends to undisbursed reverse mortgage funds because they are not yet in the borrower’s possession and may never be accessed.
But the ruling draws a distinction once funds are withdrawn. The court upheld a separate order requiring Desmarais to turn over $250 held in a bank account, finding those funds had lost homestead protection after being disbursed.
The opinion also noted that outcomes could differ in cases involving reverse mortgages that provide automatic monthly payments. In these scenarios, payments already owed to the borrower may be subject to garnishment.
“In conclusion, the trial court properly found the undistributed funds in the reverse mortgage line of credit were protected by Florida’s constitutional homestead exemption,” the decision read.
The ruling marks a question of first impression in Florida, offering new legal clarity on how reverse mortgage credit lines are treated in creditor disputes. The decision noted that it is “not final until disposition of timely-filed motion for rehearing.”
How silly to expect a different result.
The HECM LOC (Line of Credit) does NOT belong to the borrower; this court decision proves that point. That the idea is even promoted by the HECM industry reflects the false conclusion of those who know little about what an asset is and the basics of HECMs. The HECM LOC is neither an asset nor a buffer asset of the borrower, although it may work kind of, sort of like a buffer asset. To be clear only an adjustable rate HECM can have the HECM LOC.
Even if an active CPA, I would never sign off on a personal financial statement reflecting the HECM LOC as an asset unless it is either immaterial or there is a stated exception calling out its inclusion and such inclusion is not misleading (hard to imagine how, if material, it would not be).
The HECM LOC amount itself is simply a notation as to how much additional money the lender is willing to lend the borrower under the terms of the mortgage agreement. If properly not reported as an asset, it could be shown in the notes to the financial statements as a contingent source of additional cash inflow AND as a result contingent additional debt (dollar for dollar).
There are a number of things that can block access to the HECM LOC. For example, a surviving spouse of a borrower who is a non-borrower can never have access to the HECM LOC even if that spouse has the right to defer the amount due and payable on the death of the borrowing spouse. Other times include the period after the time for completing repairs has been exceeded without satisfactory completion of such repairs or when the HECM note is in the due and payable status.