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MR. RUBIN DISCUSSES RUTH MADOFF’S HOMESTEAD EXEMPTION, as reprinted from the Palm Beach Post

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Florida law may shield Madoff mansion

Financier’s wife could keep home in Palm Beach

March 23, 2009|By Charles Elmore The Palm Beach Post

Ruth Madoff’s $9 million Palm Beach mansion sits on property that appears too big to protect it entirely from creditors, if she tries to shield it with homestead protection – and manages to fend off federal prosecutors who want to seize it.

But that may provide only a small sliver of comfort to burned investors trying to get money back from her husband Bernard Madoff’s massive Ponzi scheme.

The property, at 410 N. Lake Way, covers 0.54 of an acre, according to the Palm Beach County Property Appraiser’s Office. Under the Florida Constitution, up to half an acre can qualify for protection as a person’s primary residence within a municipality, in this case the town of Palm Beach.

So what happens to a property that is too big? Creditors can come after the part greater than half an acre, but not the rest if the owner otherwise qualifies for homestead protection, said Steve Rubin, a Boca Raton attorney who leads the Palm Beach County Bar Association’s real estate continuing education committee.

“If it’s over a half-acre, the creditor would be able to at least claim that portion of the property which is over the half-acre,” Rubin said. “It would be up to a court to decide how to equitably enforce that.”

If previous cases are any guide, there are many ways the issue could be sorted out in civil court. Among the possibilities, according to Rubin: A court could order her to sell off a small piece of the property if it is easily divisible, or she could agree to write a check for a settlement amount, or the court could order a sale of the whole property and divide the proceeds proportionally.

In the end, she could wind up keeping the vast majority of the value of a property assessed at $9.4 million in 2008.

Federal prosecutors are trying to make the homestead and half-acre issues moot. They served notice on March 16 that they want to seize a vast array of assets in Ruth Madoff’s name, including the Palm Beach home. Federal officials could try to pierce state homestead protection by arguing that the money used to buy the home in 1994 came from fraud or other criminal activity and that federal law is pre-emptive, but that might not be a fast or easy process, Rubin said.

Ruth Madoff, 67, has not been charged with a crime. Her attorneys are expected to argue that she is entitled to keep nearly $70 million in assets in her name, which they say are unrelated to fraud. Her attorney, Peter Chavkin, was not available to comment Friday.

The Palm Beach home was purchased for more than $3 million in 1994 in Ruth Madoff’s name, nearly a decade and a half before Bernard Madoff’s scheme came to light. She has had a Florida driver’s license since November 2006 and is registered to vote in Florida. In January, she was granted a homestead exemption for tax purposes on the property.

Some attorneys for Madoff investors say there are reasons to believe she won’t be able to keep the house in the end.

“It seems to me that the federal prosecutors are fairly confident that they will be able to demonstrate that Mrs. Madoff used the proceeds of a criminal enterprise” to buy the home, said New York attorney Richard Greenfield, who said he represents a group of Palm Beach investors. “They may employ RICO, a law aimed at racketeers to obtain the proceeds of the enterprise. They are already contending, contrary to Madoff’s contention that the scheme began in the 1990s, that it began at least in the 1980s, well before she purchased the home.”

A spokeswoman for the U.S. attorney’s office in New York declined to comment.

The case law upholding homestead protection is not particularly encouraging for creditors, Dania Beach attorney Harry Hipler said.

Florida’s homestead exemption “is one of the most protective in the United States” and “grants nearly absolute protection from forced sale from the claims of creditors,” Hipler wrote in a Florida Bar Journal article last summer.