## Facts

- Alberto V. Mesa filed a Chapter 7 bankruptcy case and claimed a Florida constitutional homestead exemption in his Fort Lauderdale residence.
- Mesa and Keith S. McKay bought the residence in June 1996 as tenants in common for $215,000.
- At filing, the home was valued at about $250,000 and encumbered by two NationsBank mortgages (about $157,000 and $67,649.55).
- The second mortgage, although described as for improvements, was used to fund a business started by McKay.
- The residence underwent extensive renovations (including kitchen and bathroom remodeling) funded by checks McKay caused Mesa, Mesa’s mother, and contractors to receive.
- Travelers Indemnity Company, McKay’s employer and Mesa’s creditor, alleged the renovation funds were proceeds of McKay’s fraud against Travelers and objected to Mesa’s homestead claim.
- Mesa asserted he believed the funds were legitimate and denied knowing participation in any fraud.

## Issues

1. Whether a debtor may claim Florida’s constitutional homestead exemption when the home was substantially improved with funds traceable to a third party’s fraud against a creditor.
2. Whether Florida law permits a constructive trust or equitable lien against homestead property in these circumstances, notwithstanding Article X, Section 4.
3. Whether the debtor’s alleged lack of actual knowledge or participation in the fraud defeats a creditor’s equitable request to reach homestead equity.

## Decision

- The court overruled Travelers’ objection and allowed Mesa’s homestead exemption.
- The court held that Florida’s homestead protection is broad and that recognized equitable exceptions are narrow and did not apply on these facts.
- The court declined to impose a constructive trust or equitable lien based on tracing fraud proceeds into homestead improvements absent proof that Mesa himself committed or knowingly participated in the fraud.
- Mesa’s interest in the residence remained exempt from administration for Travelers’ claim in the bankruptcy case.

## Legal Principles

- Florida’s homestead exemption under Article X, Section 4 is liberally construed for the homeowner and strictly construed against creditors.
- The constitutional exceptions to homestead protection are limited; judicial equitable remedies that reach homestead (equitable lien/constructive trust) are narrowly confined.
- An equitable lien against homestead generally requires circumstances comparable to Florida precedents where the homeowner’s own wrongful conduct directly produced the benefit to the homestead.
- Tracing wrongfully obtained funds into homestead improvements, without establishing the debtor’s knowing wrongdoing or active participation, is insufficient to override Florida homestead protection.
- Bankruptcy courts applying Florida exemptions must apply Florida’s substantive limits and should not create broader, non-textual exceptions to the homestead exemption.

## Conclusion

The court upheld the debtor’s Florida homestead exemption and rejected a creditor’s attempt to reach homestead equity through constructive trust or equitable lien theories where the alleged fraudulent source of renovation funds was attributable to a co-owner’s misconduct rather than proven, knowing fraud by the debtor.


In re Mesa, 232 B.R. 508 (Bankr. S.D. Fla. 1999)