The Availability of Florida's Tenancy by the Entireties Exemption to Nonresidents for Property Located in Florida

Recently, a client who resides in another state inquired into its ability to claim a tenancy by the entireties exemption for property owned jointly by the client and the client's spouse, in order to protect the property from the claim of a creditor of the client individually. The research revealed a paucity of caselaw resolving the question to my satisfaction, thus making for an interesting topic for this blog.  A brief discussion of the questions follows.

Nature of the Entireties Exemption

Property held as a tenancy by the entireties possesses six characteristics: (1) unity of possession (joint ownership and control); (2) unity of interest (the interests in the property must be identical); (3) unity of title (the interests must have originated in the same instrument); (4) unity of time (the interests must have commenced simultaneously); (5) survivorship; and (6) unity of marriage (the parties must have been married at the time the property became titled in their joint names). Beal Bank, SSB v. Almand & Assoc., 780 So. 2d 45, 53 (Fla. 2001). When a married couple holds property as tenants by the entireties, each spouse is said to hold it “per tout,” meaning that each spouse holds the “whole or the entirety, and not a share, moiety, or divisible part.” Bailey v. Smith, 103 So. 833, 834 (Fla. 1925). Thus, property held by husband and wife as tenants by the entireties belongs to neither spouse individually, but each spouse is seized of the whole. Therefore, when property is held as a tenancy by the entireties, only the creditors of both the husband and the wife, jointly, may attach the property; it is not divisible on behalf of one spouse alone, and therefore it cannot be reached to satisfy the obligation of only one spouse. See Winters v. Parks, 91 So. 2d 649, 651 (Fla. 1956).

The tenancy by the entireties form of ownership exists with respect to real property and personal property. With respect to real property, “[a] conveyance to spouses as husband and wife creates an estate by the entirety in the absence of express language showing a contrary intent.” In re Estate of Suggs, 405 So. 2d 1360, 1361 (Fla. 5th DCA 1981). With respect to a bank account, “as between the debtor and a third-party creditor (other than the financial institution into which the deposits have been made), if the signature card of the account does not expressly disclaim the tenancy by the entireties form of ownership, a presumption arises that a bank account titled in the names of both spouses is held as a tenancy by the entireties as long as the account is established by husband and wife in accordance with the unities of possession, interest, title, and time and with right of survivorship.” Beal Bank, SSB, 780 So. 2d at 54. As such, when these elements are satisfied, the burden of proof is on the creditor to prove by a preponderance of the evidence that a tenancy by the entireties does not exist. Id.

All proceeds from the sale or rental of entireties property are also entireties property. Passalino v. Protective Group Sec., Inc., 886 So. 2d 295, 297 (Fla. 4th DCA 2004)

Application of the Entireties Exemption to Nonresidents

The tenancy by the entireties exemption is a creature of common law, not set forth in the Florida Constitution or in the Florida Statutes, and therefore not subject to their limitation to Florida residents. Beal Bank, SSB, 780 So. 2d at 53; In re Cauley, 374 B.R. 311, 316 (Bankr. M.D. Fla. 2007). The Cauley court reasoned:

“[The Florida Statutes do] not apply to tenancy by the entirety property and do[] not therefore preclude a non-resident of Florida from claiming property located in Florida as exempt as tenancy by the entirety. Additionally, the Court has not found any authority to support the proposition that an individual, claiming Florida real property exempt as tenancy by the entireties must be a resident of Florida. The Court finds that no such requirement exists.”

Accord Republic Credit Corp. I v. Upshaw, 10 So. 3d 1103 (Fla. 4th DCA 2009) (finding that judgment debtors could not claim a tenancy by the entireties exemption in Florida litigation for proceeds from the sale of real property located in California, because California law does not recognize such an exemption). This reasoning is consistent with the general principal that with respect to real property, the situs of the property dictates the laws that are applicable to it. See Connor v. Elliott, 85 So. 164 (Fla. 1920) (“So far as real estate or immovable property is concerned, the laws of the state where it is situated furnish the rules which govern its descent, alienation, and transfer, the construction, validity, and effect of conveyances thereof, and the capacity of the parties to such contracts or conveyances, as well as their rights under the same”).

Conversely, with respect to personal property, the domicile of the owners of the property dictates the laws that are applicable to it. See In re Estate of Siegel, 350 So.2d 89 (Fla. 4th DCA 1977). That means that if the proceeds from the sale of entireties property in Florida are removed to a jurisdiction that does not recognize the tenancy by the entireties form of ownership, the proceeds will lose their entireties protection. But it also means that they will not be subject to garnishment in Florida. See APR Energy, LLC v. Pakistan Power Resources, LLC, 2009 WL 425975 (M. D. Fla. Feb. 20, 2009); Skulas v. Loiselle, No. 09-60096-CIV, 2010 WL 1790439 (S.D. Fla. April 9, 2010).

Conclusion

Based upon the foregoing authority, it appears that Florida real property owned by a married couple as tenants by the entireties is not subject to execution to satisfy a debt owed by one spouse, no matter where the couple resides. Furthermore, any proceeds from the sale of said property will likely be protected by the tenancy by the entireties as long as the proceeds are located in Florida, and unreachable through a Florida garnishment once they are removed.

The Life of a Judgment (Lien) in Florida

A recent case decided by the Fifth District Court of Appeals discusses the statutory framework for perfecting and maintaining a judgment lien on real property in Florida. The opinion, Sun Glow Const., Inc. v. Cypress Recovery Corp., --- So. 3d ----, 2010 WL 4536803 (Fla. 5th DCA 2010) is found here.

According to Fla. Stat. § 55.10, a judgment becomes a lien on real property in any county when a certified copy of it is recorded in the official records or judgment lien record of that county and operates as a lien for an initial period of 10 years from the date of the recording; and the judgment creditor may extend the 10 year period by complying with Fla. Stat. § 55.10(2):

"The lien provided for in subsection (1) or an extension of that lien as provided by this subsection may be extended for an additional period of 10 years, subject to the limitation in subsection (3), by rerecording a certified copy of the judgment, order, or decree prior to the expiration of the lien or the expiration of the extended lien and by simultaneously recording an affidavit with the current address of the person who has a lien as a result of the judgment, order, or decree. The extension shall be effective from the date the certified copy of the judgment, order, or decree is rerecorded."

The question presented in the Sun Glow Construction case was whether the judgment creditor could rerecord its judgment after the expiration of the initial 10 year period, and thereby establish a new lien on real property. Because the statute doesn't specifically foreclose this possibility, the court allowed the judgment creditor to do so. According to the court, the only effect of the judgment creditor's failure to rerecord the judgment prior to the expiration of the initial 10 year period was to cause the judgment creditor to lose the priority over subsequent lienholders created by the earlier recording and to establish priority only over liens established after the later recording.

This ruling discusses the ability to maintain a judgment lien on real property for the life of the judgment, but it does not discuss the life of the judgment itself. That matter is contained in a separate statute- Fla. Stat. § 95.11(1), which sets a 20 year statute of limitations on judgment enforcement actions. But the analysis doesn't end there. There is caselaw allowing a judgment creditor to file an action on a judgment prior to its expiration and actually renew the judgment, by way of a new judgment, good for another 20 years. See Petersen v. Whitson, 14 So. 3d 300 (Fla. 2d DCA 2009). And presumably, based on the Petersen court's rationale, when the second judgment is set to lapse, the judgment creditor may file another new suit and obtain a third judgment (and so on).

Based on these statutes and cases, read together, a judgment in Florida can essentially be good forever. Likewise, a judgment lien can be good forever, limited by its recording only in terms of its priority. This analysis applies equally to judgments originating in Florida, judgments entered in other states recorded in Florida pursuant to the Uniform Enforcement of Foreign Judgments Act, see Haigh v. Planning Bd. of Town of Medfield, 940 So. 2d 1230 (Fla. 5th DCA 2006), and judgments entered in foreign countries recorded in Florida pursuant to the Uniform Foreign Money Judgments Recognition Act, see Nadd v. Le Credit Lyonnais, S.A., 804 So. 2d 1226 (Fla. 2001).

Upcoming Telephonic Seminar: Judgment and Fair Debt Collection Practices

Jorge Abril is scheduled to speak the afternoon of November 10 at a telephonic seminar sponsored by the Rossdale Group, entitled Judgment and Fair Debt Collection Practices. "This live telephonic seminar describes the laws governing the process [of judgment and debt collection] and outlines the best practices to avoid lawsuits from debtors. Our nationally recognized faculty will cover actions available to consumers and strategies for attorneys representing consumers. Our faculty will also discuss judgment collections, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, ethical rules, trust account procedures, other regulatory issues, and provide an opportunity for the audience to ask live questions." Jorge's lecture focuses on the following topics:

• Judgment Liens and Perfection of Liens
• Execution and Dormancy of Judgments
• Garnishment of Wages
• Compliance with Garnishment Laws
• Bank Accounts
• Obtaining Other Assets
• Domesticating Foreign Judgments

A complete agenda, including registration instructions, can be found here. We have prepared a slideshow outlining Jorge's discussion.

Seminar

View more presentations from Jorge M. Abril, P.A..

Recent Florida Appeals Court Decision Construes Assignment for the Benefit of Creditors Statute

In Moffatt & Nichol, Inc. v. BEA International Corp., --- So.3d ---- (Fla. 3d DCA 2010), decided last week, Florida's Third District Court of Appeal held that Florida's Assignment for the Benefit of Creditors statute, Chapter 727, Florida Statutes, precludes a creditor from bringing an action against a third party under the Uniform Fraudulent Transfer Act when an assignment has been filed. The case highlights recent amendments to the assignment statute aligning it with Federal Bankruptcy law. There have been few reported cases discussing the assignment statute, so this case presents a rare opportunity for practitioners to educate themselves on this apparently underutilized tool.

Chapter 727 allows a debtor to assign its assets to an assignee of its choosing for the purposes of liquidating the assets and satisfying the claims of its creditors from the proceeds, similar to Federal Bankruptcy law. A written assignment is executed between the assignor and the assignee in the statutory form, listing all known creditors and describing their claims, and a proceeding is commenced (in State court), where creditor claims, with certain exceptions, must be filed or be forever barred. The proceeding acts as a stay against levy, execution, attachment or the like in respect of any judgment against assets of the estate in the possession, custody, or control of the assignee, similar to the Bankruptcy Code's automatic stay provision, with the exception that unlike the Bankruptcy Code, the assignment statute does not stay foreclosure proceedings based upon a consensual lien. The court before which the assignment is pending is given numerous powers under Fla. Stat. § 727.109, including the power to adjudicate claim priority in accordance with the statute and to hear actions brought by the assignee to require third parties to turn over assets belonging to the estate and to avoid fraudulent conveyances.

Which brings us to the instant case. A judgment creditor of the assignor sought, in a case separate from the assignment action, proceedings supplementary to execution to implead third parties alleged to have received fraudulent transfers from the assignor. Under Chapter 726, Florida Statutes, Florida's Uniform Fraudulent Transfer Act, a debtor may not transfer assets to third parties with the actual intent to hinder, delay, or defraud current or known future creditors or without receiving reasonably equivalent value when the debtor knows it is insolvent or will soon become insolvent.

The creditor in this case argued that it should be allowed to proceed against third parties alleged to have received fraudulent transfers despite the existence of the assignment proceeding, because the assets sought in the third party action were not assets of the estate. The court disagreed. According to amendments to the assignment statute passed in 2007, "asset" as defined under Fla. Stat. § 727.103(1), includes "claims and causes of action, whether arising by contract or in tort, wherever located, and by whomever held at the date of the assignment." The court held based upon this definition that once an assignment proceeding is instituted in which all assets are assigned, only the assignee has standing to pursue fraudulent transfer claims on behalf of the estate. To hold otherwise, reasoned the court, would allow one creditor to improperly 'cut in line', in contravention of the spirit of the assignment statute. Analogy was drawn to Bankruptcy law, under which the trustee has exclusive authority to prosecute avoidance actions on behalf of the estate and its creditors.

In some instances, an assignment for the benefit of creditors provides an economical alternative to business bankruptcy, and businesses considering bankruptcy should explore this and all other options. Similarly, creditor's attorneys should familiarize themselves with their clients' rights under the assignment statute, as reorganization becomes necessary for more and more small businesses in this economy.

Out of Network Provider Payment and Balance Billing under the Patient Protection and Affordable Care Act

Reposted from Healthcare Provider Payment.

One of the most common issues we encounter between providers and payors is how the provider should be paid for treating a patient who is covered by a health plan that doesn't have a contract with the provider. We've previously written about it here, in the context of insurers' controversial use of the Ingenix database to calculate usual and customary rates, and here, in the context of a report issued by the Senate Commerce Committee detailing the affect these underpayments have on consumers who are billed the remaining balance.

This article discusses the issue in the context of the Patient Protection and Affordable Care Act (PPACA), the health care reform legislation signed by President Obama in March of this year. One of the lesser known provisions of this legislation requires Health and Human Services (the "Department") to implement rules addressing the amount to be paid to out of network providers who provide emergency services. The Department proposed its interim final rules in the Federal Register on July 28, 2010. According to the interim rules, which took effect August 27, 2010, health plans must cover emergency services without requiring pre-authorization, and they must reimburse the provider the greater of (a) the median in-network rate, (b) the usual and customary rate, calculated using the plan's formula, or (c) the Medicare rate.

The Problem

This is an important development for healthcare providers, health plans, and patients. In the absence of Federal law on point, the parties were forced to look to state law to determine who should be responsible for reimbursing the provider under these circumstances and how much should be paid. Unfortunately, state laws addressing these circumstances vary greatly, if they exist at all.

Some states have no laws addressing the situation, in which case the health plan will pay nothing, leaving the provider and the patient to fight amongst themselves about how much should be paid. This creates problems for the provider, who must hope that payment is collectable from the individual patient. It also creates problems for the patient, who assumed his or her services would be covered, and who is now stuck with a bill that is usually much higher than the amount the insurer would have paid, and often more than the patient can afford, leading to poor credit and/or Bankruptcy.

Other states have laws addressing how much the health plan should pay the provider. For instance, in Florida the health plan is required to reimburse the provider the lesser of the provider's charges (which are often significantly higher than the amount paid by contracted health plans), the agreed upon rate (which almost never exists), or the usual and customary rate, pursuant to Fla. Stat. § 641.513(5). This does not afford the provider a complete remedy, because the state law in question may be preempted by ERISA with respect to health plans obtained by the patient through his or her employer, and because even if the law is not preempted in a given case, it does not provide a minimum reimbursement amount, leaving the health plan with the option to unilaterally calculate the usual and customary rate in the manner most consistent with its own interests and thereby underpay the provider. [Aside: there is a bevvy of litigation concerning the appropriate method for determining the usual and customary rate, in the context of Workers' Compensation, Personal Injury Protection, and in this scenario; we are in the process of compiling this authority and publishing it separately, but opinions are fashioned faster than we can comment on them. See Baptist Memorial Hospital-Desoto, Inc. v. Crain Automotive, Inc., No. 08-6094 (5th Cir. 2010), which was decided while this article was being drafted. The usual and customary rate calculation was at issue in that case the context of an ERISA-governed plan. The court held that a plan administrator abused his discretion in making a determination of the usual and customary rate without a sufficient factual basis, which should include more than just a comparison to other claims received by the plan.]

However, many states with laws similar to this one don't prohibit balance billing for out-of-network providers, meaning the patient is left to pay the difference after the plan pays according to the statute. See this chart for a list of the many different state laws.

This creates an unacceptable uncertainty of terms between healthcare providers, health plans, and payors. Providers and payors are required to implement state-specific policies with regard to balance billing and payment rates (which can be costly). And patients are required to be intimately familiar with their plan documents, to ensure in advance that all providers from whom they seek treatment are in network, or to obtain the provider's charges in advance of treatment (which is impossible).

The Proposed Solution

The interim final rules propose to eliminate some of the uncertainties discussed above by setting forth a minimum amount that must be paid to an out-of-network provider for emergency services- the Medicare rate, and by providing for additional payment when either the usual and customary rate or the median in-network rate exceeds the Medicare rate. According to the Department, these regulations will significantly increase the amount health plans will be required to pay when their members go to the emergency room at a non-contracted facility, which will reduce the amount the patient is responsible for. The regulations, which do not apply to grandfathered health plans under PPACA (as discussed in this CRS Report), have already taken effect.

Remaining Issues

The interim rules set a minimum payment amount (the Medicare rate), but they do not eliminate the uncertainty associated with the usual and customary rate. First, by the language of the rules, the health plan is still charged with sole discretion to calculate the usual and customary rate, which will upset providers, who have considered themselves victims of underpayments by health insurers (i.e. Ingenix) for quite some time. See this letter filed by the American Hospital Association in opposition to the interim rules, which also argues that by setting a rate, the Department has eliminated the health plan's incentive to contract with providers. Additionally, and most important to consumers, the interim rules do not prohibit balance billing, which will still leave patients unexpectedly footing a substantial bill (albeit a little less than what they would be paying otherwise); and there remains doubt as to whether PPACA's express allowance of balance billing preempts state laws to the contrary. If so, the interim rules represent a step in the wrong direction for patients residing in states like California.

If nothing else, the above shows that without additional guidance, providers, payors, and patients should expect to continue to litigate out-of-network claims on an individual basis, notwithstanding the interim rules. If you are a provider, health plan, or patient, with an opinion relevant to this issue, please feel free to comment below. If you would like to retain the services of an agency or attorney in connection with an issue you are currently facing, please feel free to contact Medical Accounts Systems or Jorge M. Abril, P.A.