Florida is one of a handful of states that recognize the Enhanced Life Estate Deed -- commonly called a Lady Bird Deed. Used widely in Florida for Medicaid estate recovery planning and probate avoidance, this deed type allows a homeowner to retain full control of their property during their lifetime while ensuring it passes directly to their children or other beneficiaries at death without going through probate.
But what happens when the homeowner has a mortgage and falls behind on payments? The Lady Bird Deed does not insulate the property from foreclosure. Understanding the interaction between this estate planning tool and mortgage foreclosure is essential for Florida homeowners -- and their families.
How a Florida Lady Bird Deed Works
A Lady Bird Deed (enhanced life estate deed) conveys two interests simultaneously:
- A life estate to the grantor (homeowner), giving them the right to use, occupy, rent, and benefit from the property for the rest of their life
- A remainder interest to the beneficiaries (often adult children), which becomes possessory at the grantor's death
The "enhanced" feature -- what distinguishes a Lady Bird Deed from a traditional life estate deed -- is the grantor's retained power to sell, mortgage, lease, or otherwise encumber the property without the beneficiaries' consent during the grantor's lifetime. This retained power means the grantor is not constrained by the beneficiaries' interests while alive.
Florida does not have a specific Lady Bird Deed statute; the deed is recognized under common law principles. The deed must be properly drafted, executed with two witnesses and a notary, and recorded with the county clerk.
The Medicaid Estate Recovery Connection
The primary reason Florida seniors use Lady Bird Deeds is to protect the home from Medicaid Estate Recovery (MERP). Under federal law (42 U.S.C. 1396p(b)(1)), states must recover Medicaid long-term care costs from the estates of deceased Medicaid recipients. In Florida, the Department of Children and Families (DCF) has historically limited its MERP claims to probate assets.
Because a Lady Bird Deed causes the property to pass outside of probate (directly to the beneficiaries by operation of the deed), the property is not part of the probate estate and is generally not subject to Florida MERP claims under current practice. This is different from how Medicaid estate recovery interacts with other property transfers.
However, the home is generally still counted as a homestead asset for Medicaid eligibility purposes while the homeowner is alive, meaning it does not help with eligibility -- only with estate recovery after death.
Foreclosure and the Lady Bird Deed
A Lady Bird Deed does not protect the property from foreclosure. When the homeowner (grantor) took out a mortgage, they pledged the property as collateral and signed a security instrument (mortgage) that creates a lien on the property. The beneficiaries are not parties to this lien. If the homeowner defaults:
- The lender files a foreclosure complaint naming the homeowner as the primary defendant
- The remainder beneficiaries may be named as defendants because they hold an interest in the property that will be extinguished by the foreclosure
- If the foreclosure proceeds to a judicial sale, the buyer at auction receives free and clear title
- The Lady Bird Deed's remainder interest is extinguished -- the beneficiaries receive nothing
This is why it is critical for homeowners with Lady Bird Deeds to communicate with their remainder beneficiaries when financial trouble arises. The beneficiaries have a financial stake in preventing foreclosure.
Beneficiary Options When a Lady Bird Property Is in Foreclosure
Beneficiaries under a Lady Bird Deed have no legal obligation to pay the mortgage but have strong practical motivation to protect their expected inheritance. Options include:
- Fund a reinstatement: Contribute the funds needed to bring the loan current (arrears + fees). The grantor must submit the reinstatement payment; the servicer interacts with the mortgagor, not the beneficiaries. Learn more about Florida mortgage reinstatement.
- Help fund a loan modification: If the grantor qualifies for a modification but cannot make the trial period payments, beneficiaries can provide the funds. The grantor submits the application and makes the payments.
- Purchase the property themselves: If the grantor agrees, the home can be listed and sold. The grantor -- who retained the full power to sell -- can convey clear title to a buyer, including to the beneficiaries themselves if they choose to purchase.
What About Surplus Funds and Deficiency After Foreclosure?
If foreclosure proceeds to a sale, the surplus funds rules under F.S. 45.032 apply. If the property sells for more than the total debt, the grantor (as the owner of record at the time of foreclosure) has the right to claim surplus funds within 60 days. The beneficiaries' remainder interest was not a vested possessory interest, so they generally do not have an independent surplus funds claim -- those rights belong to the grantor.
Deficiency under F.S. 702.06 runs to the person who signed the promissory note -- the grantor homeowner, not the Lady Bird Deed beneficiaries. If the property sells for less than the debt, the lender has one year from the Certificate of Title to seek a deficiency in circuit court. A retrospective FMV appraisal can limit exposure.
Estate Planning Next Steps After Resolving Foreclosure
After resolving a foreclosure threat through a sale, short sale, modification, or other means, homeowners should review their estate plan with a Florida elder law attorney. If the Lady Bird Deed was used for Medicaid planning, a new deed should be executed after any property transfer or refinancing to restore the desired beneficiary designation. Homeowners can also explore Florida land trusts as an alternative estate planning and privacy vehicle.
About Barrett Henry
Barrett Henry is a Broker Associate at REMAX Collective with 23+ years of Florida real estate experience. He works with homeowners across all 67 Florida counties -- including seniors using Lady Bird Deeds and other estate planning structures -- to evaluate options when foreclosure threatens their home and their estate plan. Contact Barrett for a free initial consultation at flforeclosurehelp.com/contact.
