Cooperatives as Homestead Real Property after

Walters v. Agency for Health Care Administration – Where are We Now?

 

After decades of uncertainty and conflicting decisions within the Second, Third and Fifth District Courts of Appeal, it was hoped that questions concerning the protected status of a leasehold cooperative unit as homestead would be put to rest. The stars did not align and, despite the efforts of Rohan Kelley and the Hon. Frank A. Shepherd, as amicus counsel, to obtain a ruling that would provide consistency for cases under Article X, s. 4, of the Florida Constitution, the certified question presented to the Florida Supreme Court did not allow for a resolution.  The pending appeal in Waters v. Agency for Health Care Administration  was dismissed on June 23, 2021.   

Case Law Relating to “Interests In Real Property”

Ownership Under Article X, Section 4

Article X, section 4(a) grants an exemption to “property owned by a natural person” meeting certain size and contiguity requirements. The exemption is limited to “the residence of the owner or his family.”  The words, “owned” and “residence” have been consistent since the 1868 Constitution.

The 1868 Constitution extended the exemption to the “residence and business house” of the owner within a municipality. The 1969 Constitution restricted the exemption to the “residence of the owner or his family” when the homestead was within a municipality.

            The Southern Walls Decision – 4(a) Creditor Protection

In 2002, the Fifth District held that an interest in a leasehold cooperative is protected from the claims of creditors during the owner’s lifetime.[1] The court examined the nature of ownership through a leasehold cooperative:

 Under the cooperative form of ownership, the owner receives shares in the cooperation and a long term lease as evidence of his or her title rather than a deed of conveyance. For purposes of the homestead exemption, we find that this is a distinction without a difference. What is significant is that a co-op owner owns the unit, pays valuable consideration for it, and has the right to the exclusive use and possession of it for the duration of the lease. Thus, if a life estate interest qualifies for the exemption, King; Hill, and ownership of a condominium qualifies for the exemption, King, so too should a co-op.[2]

            The Geraci Decision – 4(b) Inurement of Creditor Protection

The Geraci decision marks the third opportunity for the Florida Supreme Court to review the Southern Walls decision. The Second District declined to apply the holding in Wartels.

In considering the exemption from forced sale, a court must instead “focus on the debtor’s intent to make the property his homestead and the debtor’s actual use of the property as his principal and primary residence.” In re Dean, 177 B.R. 727, 729 (Bankr.S.D.Fla.1995). When a lessee’s interest in a leasehold estate includes the right to use and occupy the premises for a long term and the lessee has made the residence his principal and exclusive residence, such an interest is entitled to Florida’s homestead exemption from forced sale. Id. at 729–30; see also In re McAtee, 154 B.R. 346, 348 (Bankr.N.D.Fla.1993) (finding a long-term lease to be subject to the exemption from forced sale because it constituted an interest in real property and was more than a “simple possessory interest”); S. Walls, 810 So.2d at 572 (finding a co-op to be subject to the exemption from forced sale because “a co-op owner owns the unit, pays valuable consideration for it, and has the right to the exclusive use and possession of it for the duration of the lease”). This construction of the homestead exemption from forced sale is consistent with “important public policy considerations such as promoting the stability and welfare of the state by encouraging property ownership and the independence of its citizens by preserving a home where a family may live beyond the reaches of economic misfortune.” In re McAtee, 154 B.R. at 347–48.[3]

The court went on to distinguish Wartels:

We recognize that at least two courts have refused to so distinguish Wartels. See In re Lisowski, 395 B.R. 771, 777 (Bankr.M.D.Fla.2008) (concluding that, under Wartels, the homestead exemption from forced sale applies only to improved land or real property that is owned by the debtor); Phillips v. Hirshon, 958 So.2d 425, 430 (Fla. 3d DCA 2007) (holding that a co-op did not qualify for homestead exemption for purposes of descent and devise because it was not an interest in realty under Wartels). However, we do not find the reasoning of these cases persuasive because they do not adequately reconcile the supreme court's decision in Wartels with the court's jurisprudence extending the exemption from forced sale to other beneficial interests in land and not limiting the exemption to a fee simple interest.

On October 28, 2013, the Florida Supreme Court dismissed jurisdiction, after review accepting jurisdiction and receiving initial briefs.

  The Wartels Decision – 4(c) Devise Restrictions

In re Estate of Wartels[4] involved a leasehold cooperative owned by Mr. Wartels. The court held that “homestead property must consist of an interest in realty,” citing Pasco v. Harley[5]; Hill v. First National Bank[6]; Milton v. Milton.[7]  The Pasco, Hill, and Milton decisions did not hold that a leasehold interest is not an “interest in realty.” Also, the Florida Supreme Court cited an annotation that said a leasehold cooperative unit owner does not “hold any type of proprietary interest…”[8]

Philips v. Hirshon – 4(c) Devise Restrictions

In Philips v. Hirshon,[9] the Third District Court of Appeals later felt constrained to follow Wartels.  This case involved a cooperative apartment and the restrictions on devise in section 4(c) of Article X.  The Third District certified a conflict between Wartels and Southern Walls. The Florida Supreme Court initially accepted jurisdiction,[10] but then declined to exercise its jurisdiction and dismissed the appeal.[11]

Walters v. Agency for Health Care Administration - 4(c)?

The trial court held that the shares of stock owned by the decedent could not qualify as protected homestead.  The appellate court applied the Wartels decision, but certified the following question:[12]

DOES THE FLORIDA SUPREME COURT'S DECISION IN IN RE ESTATE  [*1218]  OF WARTELS V. WARTELS, 357 So.2d 708 (Fla. 1978), HAVE CONTINUING VITALITY IN LIGHT OF THE ADOPTION BY THE FLORIDA LEGISLATURE OF THE COOPERATIVE ACT, CHAPTER 76-222, LAWS OF FLORIDA?[13]

During oral arguments, counsel for the appellant was unable to identify changes in the leasehold cooperative statutes that took effect after the death of Mr. Wartels which would change the outcome of the pending case.  The Florida Supreme Court adhered to stare decisis and declined to overrule or recede from Wartels by dismissing the appeal in case number SC20-21 on June 23, 2021.  

            What to Expect in Court After Walters v. AHCA?

The Florida Supreme Court has had overrule opportunities to overrule Southern Walls and hold that Wartels applies to cases involving the constitution exemption from creditor claims, the application of Wartels is limited to cases under Article X, section 4(c) involving the restrictions on the devise and alienation of homestead.  Since both protections are within Article X, section 4, Wartels and Southern Walls are not consistent.  This appears to be contrary to the Florida Supreme Court’s conclusion that the definition for all of the protections under Article X, section 4 is the definition in subsection 4(a).[14]

There is a continuing split amount the district courts in Florida.  It is important to look at the issues as presented to the trial and appellate courts:

	Affected Party	Protection	Outcome
S. Walls v. Stilwell Corp., 810 So. 2d 566 (Fla. 2d DCA 2002), rev. den. 829 So. 2d 919	Creditor	4(a)	Protected
Geraci v. Sunstar EMS, 93 So. 3d 384 (Fla. 2d DCA 2012), rev. dismissed 129 So. 3d 1069.	Creditor	4(b)	Protected
In re Wartel’s Estate, 357 So. 2d 708 (Fla. 1978)	Spouse	4(c)	Not Protected
Phillips v. Hirshon, 958 So. 2d 425 (Fla. 3d DCA 2007), rev. dismissed 980 So. 2d 1053.	Minor	4(c)	Not Protected
Walters v. Agency for Health Care Admin., 288 So. 3d 1215, 1217-18 (Fla. 3d DCA 2019), rev. dismissed June 23, 2021.	Creditor	4(c)	Not Protected

Take-aways from the District Court decisions to apply in a proceeding to determine homestead status:  

·  Heirs should always focus on the possessory interests, not the stock! All cooperatives are not created equally and some come with a surveyed lot and a perpetually-renewing proprietary lease.

·  Heirs should always focus on the 4(b) protections.  If the homestead was validly devised, how could the devise and restrictions control the determination of creditor claims? 

·  Creditors should argue that all of the protections for surviving spouses and creditors should be based upon the same definition of “real property.”  (As argued in the amicus brief by Rohan Kelley and Frank Sheppard in the Supreme Court in Walters v. Agency for Health Care Administration.)

Statutory Provisions

            The Florida Supreme Court has recognized that the term “real property” can be defined by statute and take different meanings in different contexts.

At common law the term ‘real property’ was deemed coextensive with lands, tenements, and hereditaments, corporeal and incorporeal. See Thompson on Real Property (1964), Vol. 1, s 22, p. 93. The meaning and application of the term ‘real property’ are generally declared by statute, and the term may be defined in different statutes or for different purposes. See 73 C.J.S. Property s 2, p. 152. For example, Fla.Stat., s 421.03(12), F.S.A. defines ‘real property’ for the purposes of the housing authorities law; Fla. Stat., s 475.01(11), F.S.A. defines ‘real property’ for the purposes of the real estate license law; Fla. Stat., s 713.01(14), F.S.A. defines ‘real property’ for the purposes of the mechanics lien law. These definitions vary, because the statutory definitions usually apply only to the term as used in the particular statutory provision.

Ammerman v. Markham, 222 So.2d 423, 425 (Fla. 1969).

The Florida Probate Code

The Probate Code includes both definitions and implementing statutes that affect the application of Article X, section 4. Section 6 of Article X in the 1885 Constitution provided, “The Legislature shall enact such laws as may be necessary to enforce the provisions of this Article.” This clause was removed when the 1968 Constitution was adopted. 

Confusion often arises in the context of a probate proceeding. Such proceedings frequently involve a review of the validity of a devise of homestead, the descent of invalidly devised homestead, and the inurement of the exemption from claims against the estate of the deceased owner. The following statutory provisions apply to these issues.

731.201. General definitions.

Subject to additional definitions in subsequent chapters that are applicable to specific chapters or parts, and unless the context otherwise requires, in this code, in s. 409.9101, and in chapters 736, 738, 739, and 744, the term:  

(33) "Protected homestead" means the property described in s. 4(a)(1), Art. X of the State Constitution on which at the death of the owner the exemption inures to the owner's surviving spouse or heirs under s. 4(b), Art. X of the State Constitution. For purposes of the code, real property owned as tenants by the entirety or in joint tenancy with rights of survivorship is not protected homestead.

                The Cooperative Act

The 1963 Condominium Act

Statutory provisions relating to the ownership of cooperative apartments were not originally included in the 1963 Condominium Act. The 1963 Condominium Act, for the first time, provided statutory recognition for the condominium form of ownership.

                                1970 Amendments

The 1970 amendment to the Condominium Act included §§ 711.30, 711.31, and 711.32, which referred to cooperative apartment owners as “unit owners,” and governed the creation of the cooperative, the duties of the developer in selling units, and the transfer of the association to the unit owners. In 1974, Part III was added to the Condominium Action. Section 711.61 read, “The provisions of part III apply to condominium ownership and to cooperative ownership.”

                              1974 Amendments

As amended in 1974, § 711.42(15) defined a Unit Owner as “the person holding a lease or other muniment of title…” Subsection (14) defined “unit” was defined as “…part of the cooperative property which is to be subject to private ownership…”  The 1974 Act even recognized a “residential cooperative” consisting of units “… which are intended for use as a private residence, domicile, or homestead.”  Mr. Wartels died while the 1974 amendments were in effect and prior to the next round of amendments.

                               The 1977 Cooperative Act

The Cooperative Act was adopted as a chapter separate from the Condominium Act, with an effective date of January 1, 1977.[15] Section 719.102 reflected that the intent was not to change the nature of cooperative ownership, but to recognize it by statute:

719.102 Purpose. – The purpose of this Chapter is to give statutory recognition to the cooperative form of ownership of real property. It shall not be construed as repealing or amending any law now in effect, except those in conflict herewith, and any such conflicting laws shall be affected only insofar as they apply to cooperatives.

Did this mean ownership by the unit owners, or by the cooperative association, or both?

                              Current Law

The current provisions of the Cooperative Act indirectly recognize that a unit owner holds an “interest in real property.”

719.103. Definitions

As used in this chapter:

(14) "Cooperative parcel" means the shares or other evidence of ownership in a cooperative representing an undivided share in the assets of the association, together with the lease or other muniment of title or possession. A cooperative parcel is real property.

(22) "Residential cooperative" means a cooperative consisting of cooperative units, any of which are intended for use as a private residence. A cooperative is not a residential cooperative if the use of the units is intended as primarily commercial or industrial and not more than three units are intended to be used for private residence, domicile, or homestead, or if the units are intended to be used as housing for maintenance, managerial, janitorial, or other operational staff of the cooperative. If a cooperative is a residential cooperative under this definition, but has units intended to be commercial or industrial, then the cooperative is a residential cooperative with respect to those units intended for use as a private residence, domicile, or homestead, but not a residential cooperative with respect to those units intended for use commercially or industrially. With respect to a timeshare cooperative, the timeshare instrument as defined in s. 721.05 shall govern the intended use of each unit in the cooperative.

(25) “Unit” means a part of the cooperative property which is subject to exclusive use and possession. A unit may be improvements, land, or land and improvements together, as specified in the cooperative documents.

(26) "Unit owner" or "owner of a unit" means the person holding a share in the cooperative association and a lease or other muniment of title or possession of a unit that is granted by the association as the owner of the cooperative property.

        Chapter 2021-99, s. 15

Effective July 1, 2021, the definition of a unit has been amended to address the constitutional issues presented to the Florida Supreme Court, reconciling the split among district courts:

  Section 15.  Subsection (25) of section 719.103, Florida Statutes, is amended to read:

  719.103  Definitions. – As used in this chapter:

  (25) “Unit” means a part of the cooperative property which is subject to exclusive use and possession.  A unit may be improvements, land, or land and improvements together, as specified int eh cooperative documents.  An interest in a unit is an interest in real property.

 

            Other statutes specifically treat a leasehold cooperative unit as real property:

·         §201.02(2), Fla. Stat. – documentary stamp taxes

·         §196.031, Fla. Stat. – homestead tax exemption

Since Homestead Status is determined at the moment of death, the amendment to §719.103, Fla. should apply to make a leasehold cooperative eligible for protected homestead status where the owner dies on or after July 1, 2021.  The previous chart should now be adjusted:

	Affected Party	Protection	Before 7/1	After 7/1
S. Walls v. Stilwell Corp.	Creditor	4(a)	Protected	Protected
Geraci v. Sunstar EMS	Creditor	4(b)	Protected	Protected
In re Wartel’s Estate	Spouse	4(c)	Not Protected	Protected
Phillips v. Hirshon	Minor	4(c)	Not Protected	Protected
Walters v. Agency for Health Care Admin.	Creditor	4(c)	Not Protected	Protected

 

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[1] Southern Walls, Inc. v. Stilwell Corp., 810 So. 2d 566, 570 (Fla. 5^th DCA 2002), rev. den. 829 So. 2d 919.

[2] Southern Walls, Inc. v. Stilwell Corp., 810 So. 2d 566, 572 (Fla. 5^th DCA 2002), rev. den. 829 So. 2d 919.

[3] Sunstar EMS v. Geraci, 93 So. 3d 384 (Fla. 2d DCA 2013), rev. dis. 129 So. 3d 1069.

[4] In re Wartels’ Estate, 357 So. 2d 708 (Fla. 1978). Mr. Wartels died prior to January 1, 1977. The legislature created The Cooperative Act to be effective January 1, 1977. S.6, Ch. 76-222, Laws of Florida. 

[5]  73 Fla. 819, 75 So. 30 (1917).

[6]  73 Fla. 1092, 75 So. 614 (1917).

[7] 63 Fla. 533, 58 So. 718 (1912).

[8] In re Wartels’ Estate, 357 So. 2d 708, 709 (Fla. 1978).

[9] Phillips v. Hirshon, 958 So. 2d 425 (Fla. 3d DCA 2007).

[10] Phillips v. Hirshon, 963 So. 2d 227 (Fla. 2007).

[11] Levine v. Hirshon, 980 So. 2d 1053 (Fla. 2008).

[12] Walters v. Agency for Health Care Admin., 288 So. 3d 1215 (Fla. Dist. Ct. App. 2019), rev. dismissed June 23, 2021, Case No. SC20-12.

[13] Walters v. Agency for Health Care Admin., 288 So. 3d 1215, 1217-18 (Fla. Dist. Ct. App. 2019).

[14] Holden v. Estate of Gardner,  420 So. 2d 1082, 1085 (Fla. 1982).

[15] S. 6, Ch. 76-222, Laws of Florida.