Proceedings supplementary in Florida how to use them and how to avoid them

When can a judgment holder use proceedings supplementary After a final judgment is entered by a court the judgment holder or judgment creditor can utilize proceedings supplementary to pursue property of the judgment debtor that is in the possession of a third party. Chapter 56 of the Florida Statutes governs and regulates proceedings supplementary. Rule 1.570 on enforcement of final judgments also references proceedings supplementary and defers to Chapter 56.

When a party in a lawsuit obtains a final judgment that party has the ability to conduct discovery into the assets of the debtor that the judgment holder ordinarily would not be able to learn during the lawsuit. If the judgment holder discovers that the debtor previously had property that is now in the hands of a third party the creditor may be able to use proceedings supplementary to pursue that property.

But not all transfers of property are improper such that proceedings supplementary applies. If a debtor sells property for market value then that transfer would not likely trigger the need or ability to use proceedings supplementary. But if the debtor transferred the property for less than fair value or for nothing to a family member or close friend so the creditor could not execute the judgment against the property then proceedings supplementary would be the proper procedural mechanism by which to reach that property in the hands of that third party. What is the process for proceedings supplementary When a judgment creditor identifies property that the judgment debtor owned and transferred to third party for less than fair value or for nothing the judgment holder can use proceedings supplementary to effectively extend the judgment to that property. Section 56.29 of the Florida Statutes outlines the process the judgment holder must apply in order to initiate proceedings supplementary.

The judgment holder must first file a motion in the lawsuit to start proceedings supplementary which must be supported by an affidavit made under oath. If the allegations qualify then the judge must issue a notice to appear to the third party. The judgment holder must then serve the third party as if it is a new lawsuit because the third party is entitled to full due process.

After the third party is served with the notice to appear that party has the right to reply to the notice by filing an affidavit regarding the allegations of the transfer of the property. Oftentimes statements about the transfer will also include allegations of a fraudulent transfer under Chapter 726 of the Florida Statutes. Not all transfers of property are fraudulent but Florida’s Uniform Fraudulent Transfer Act found at Chapter 726 of the Florida Statutes defines when transfers can be fraudulent based on a number of badges of fraud as they are termed that are identified in the statutes. How to avoid getting dragged into proceedings supplementary when you buy property   Title Searches As a third party who buys property you have an interest in not getting dragged into the post judgment dispute of the seller. The best way to avoid that is due diligence. When you purchase real property you can perform due diligence through a title search. If a judgment holder records a certified copy of the judgment it operates as a lien on real property in the county where it is recorded by law in Florida. Consequently performing a title search on real property before closing will reveal whether any judgment liens apply to that particular parcel of property.

For personal property our judgment lien registry in Florida is where judgment holders can file their judgment liens against personal property of the debtor. Before buying personal property you can search the registry by the name of the debtor to see if any judgment liens apply to the personal property of that party.   Appraisals Appraisals of property whether personal or real can also be a useful insulator against being drawn into post judgment fights in proceedings supplementary. The standard used to determine the value for fraudulent transfer purposes in Florida is whether the purchaser paid a reasonably equivalent value for the asset. An appraisal can help to establish whether or not such reasonably equivalent value was paid for the property.   What is a bona fide purchaser Under Florida law a purchaser who buys property for fair value without notice of any claim to the property is known as a bona fide purchaser. But to qualify as a BFP the purchaser must undertake a search of the property title because Florida law infers notice based on the ability of the buyer to determine whether any claim to the property existed prior to the purchase. This inference is known as implied actual notice and is predicated on the principle that a party may not avoid information and then claim lack of notice.

As to notice the proper recording or filing of a judgment places the public on notice of the claim to certain property by the judgment holder. Thus searching title records before closing on a purchase helps to determine whether any claim exists to the property. Naturally maintaining copies of your appraisal and title search can also help guard against being drawn into proceedings supplementary and can support an affidavit in response to a notice to appear. Conclusion In Florida proceedings supplementary is a process that strengthens judgments and prevents parties against whom a judgment is entered from transferring their assets to avoid the judgment. Without this statutory process parties could breach contracts or commit business torts with impunity and simply transfer their assets to a relative or a new business placing them beyond the reach of the judgment.

Proceedings supplementary does not prevent judgment debtors from disposing of their assets after the entry of a judgment as long as they do so for fair or reasonably equivalent value. So for both judgment holders and purchasers of property the key to determining whether a transfer is subject to proceedings supplementary is the value given for the property.