The Duffey Law Firm Blog

Wednesday, October 11, 2017

Can a lender foreclose on an equitable lien on a homestead property to prevent unjust enrichment?

The case of Flinn v. Doty, 214 So.3d 683 (Fla. 4th DCA March 8, 2017) involves a family dispute over real property. The Fourth District Court of Appeals, relying on an argument of “unjust enrichment,” allowed an equitable lien on the decedent’s daughter’s homestead property to the extent that the proceeds from the sale of the decedent’s real property were used to pay expenses related to the daughter’s homestead property. Notably, the court held that it is not necessary to show fraud or egregious conduct in order to foreclose on an equitable lien. 

The decedent and his wife deeded several properties to their daughter, Gail Flinn. Thereafter, the decedent’s wife died and the decedent became incapacitated. The decedent’s other daughter was appointed as guardian of the decedent, and filed suit against Flinn alleging that the decedent lacked the capacity to sign the deeds and that Flinn exercised undue influence over the decedent. The trial court placed two equitable liens on Flinn’s home: (1) a lien of $206,000, representing the amount which Flinn used to pay off the mortgage on her own property using the proceeds of the sale of the decedent’s property; and (2) a lien of $185,000 for the additional proceeds from the sale of the decedent’s property. The decedent died during the proceedings, and the personal representative sought to foreclose on the liens on behalf of the estate. The trial court ordered the foreclosure of the equitable liens, and Flinn appealed, claiming that the court erred by imposing the equitable liens on her homestead.  

The Fourth District Court of Appeals relied on a Florida Supreme Court decision, Palm Beach Savings & Loan Ass’n v. Fishbein, 619 So.2d 267 (Fla. 1993), to uphold the trial court’s enforcement of the first lien of $206,000. In Fishbein, a divorcing husband forged his wife’s signature to obtain a mortgage on their homestead property, which he used to pay off existing mortgages on the property. The Court relied on an “unjust enrichment” argument and allowed the lien on the homestead to the extent that the mortgage proceeds were used to pay the pre-existing mortgages. Notably, the Court held that it is not necessary to show fraud or egregious conduct in order to establish and foreclose on the lien.

Ultimately, in Flinn, the Fourth District Court upheld the first lien of $206,000 was proper on the basis of unjust enrichment. However, the court rejected the second lien of $185,000, as it did not satisfy any pre-existing obligations on Flinn’s home and was entirely unrelated to Flinn’s home.

The Takeaway?

Florida has a longstanding public policy of protecting homestead property from a homeowner’s creditors to “promote the stability and welfare of the state.” See McKean v. Warburton, 919 So.2d 341 (Fla. 2005). Notwithstanding this strong public policy, a claim of unjust enrichment can trump the homestead protection, even where there is no proof of fraud or egregious conduct.  

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