Unwitting Recipient of Ponzi Money Loses Condo

(CN) - A woman who paid off her mortgage with money given to her by a Ponzi schemer cannot keep her condo, even though she was not aware of the fraud, the 5th Circuit ruled.

Wendy Silette received $328,000 from George Hudgins, who got the money by defrauding investors in a Ponzi scam.

A court-appointed receiver petitioned the court to take control of Silette's condo in order to sell it and distribute the proceeds to Hudgins' victims.

The district court granted the petition and imposed an equitable lien on Silette's property. She appealed, invoking Florida's homestead exemption, which protects homestead owners from forced sale.

Courts typically construe the homestead exemption liberally, in favor of homeowners. But the 5th Circuit said the exemption does not apply in cases of fraud.

"Silette retired the condominium's mortgage using fraudulently obtained money, yet she knew nothing of the scheme," Chief Judge Edith Jones wrote for the three-judge panel in New Orleans. "Sadly, both parties are innocent, and one party must lose."

Jones said an equitable lien "can be imposed on a homestead where an innocent party used fraudulently obtained funds to invest in the homestead."

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