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matter important to you. We give you the facts, the latest
information and the truth, and remain dedicated to continuing
education in the area of homestead, real property and homeowner
protection of the individual homeowner so that they can live the
"Great American Dream". We are the foremost authority on
Florida homestead issues. We
are also a referral service for attorney's who specialize in asset
protection and estate planning. If you need help, contact us and we
will help you to find the best of the best.
State
Homestead Laws
The origin of state homestead
laws
The
federal Homestead Act, which was enacted in 1862, offered free
160-acre parcels of land to anyone willing to settle on them. After
five years, these "homesteaders" would become the owners
of the land, as long as certain conditions were met (such as
building a house and living on the property). Though this act was
repealed in 1976, many states have enacted their own homestead laws.
If your state has one, it may protect some or all of the equity in
your home against certain creditor claims.
Caution:
A homestead filing will protect your home from most debts
(including judgments) that arise after the homestead becomes
effective. It generally will not protect a home from debts
incurred before the homestead status attaches. While the homestead
laws in some states may substantially protect your residence from
unsecured creditor claims, even through a bankruptcy filing, this
is not always the case. You should consult an attorney about the
protection offered by your state's homestead laws and other asset
protection strategies.
What
homestead laws do
State
homestead laws vary widely from state to state. Some offer property
tax relief or other specific tax considerations to real estate
owners. Generally speaking, however, most state homestead laws allow
you to exempt a specified amount of the equity in your homestead
property from attachment and seizure efforts by certain unsecured
creditors. The intent of these laws is to ensure that you won't be
forced to sell your home if you're otherwise unable to pay certain
debts.
How to obtain homestead law protection
The
process of acquiring homestead law protection varies from state to
state. Some states require you to live in the state for a certain
length of time before you become eligible for homestead law
protection. In a few states, coverage is automatic. In most states,
however, someone who is named on the deed to the property and who
lives there must file a notarized declaration of homestead form with
a local government office, such as a registry of deeds. Generally,
the property you homestead must be property that you own and occupy
as your primary residence. In most states, property eligible for
homestead law protection includes a single-family or multifamily
home (and its lot), a condominium unit, or a mobile home.
Protection limits
Homestead
laws exempt from attachment a certain amount of the equity value in
the homestead property. A few states offer unlimited protection; in
Florida, for example, the homestead law completely exempts a
multimillion-dollar mansion's total value from attachment by certain
unsecured creditors. Most states, however, assign a limit to the
amount of protection offered by their homestead laws. These limits
vary widely. For instance, an individual homeowner in California may
be eligible for only $50,000 in exemption protection, while the same
homeowner in Massachusetts would receive $500,000 in protection.
Example:
You are a single individual, your home is valued at $450,000, and
it carries a mortgage lien of $200,000 against it. Your equity is
then $250,000 ($450,000 - $200,000). If you live in California,
you may use the homestead law there to protect $50,000 of that
equity, leaving $200,000 unprotected. However, if you live in
Florida or Texas, your state's homestead declaration exempts all
$250,000 of your equity from unsecured creditor attachment.
It's
important to note that the homestead laws do not automatically
prevent a forced sale of your primary residence to satisfy a
creditor claim. In the example above, if you live in California, the
sale of your home could be forced to satisfy such a claim, since the
creditor could be paid from the sale's equity proceeds over and
above the amount the homestead law exempts from attachment. If you
live in Massachusetts, however, the homestead law would exempt up to
$500,000 of a sale's equity proceeds from attachment; in this case,
there would be no point in a creditor forcing a sale of the property
to satisfy a claim.
Caution:
If the equity value of your property increases over time (as your
mortgage balance decreases and/or property values rise), it may
exceed the exemption protection allowed by your state's homestead
law. In that event, should a forced sale occur to satisfy a
creditor claim, the homestead law would protect some, but not all,
of the equity in your home.
Some
creditors are not subject to homestead law protections
Homestead
laws do not protect your home from all creditors. Generally, these
laws exempt a portion of the equity in your principal residence from
attachment by creditors to whom you owe unsecured debts (e.g.,
medical bills, credit card balances, and personal loans), even if
the creditor has obtained a court judgment against you. Other debts
are simply not subject to the exemption protection homestead laws
offer. These include:
-
Mortgages,
second mortgages, home equity loans or lines of credit secured
by the property ·
-
Mechanic's
liens for labor and/or materials provided to construct, alter,
improve, or repair the property
-
Federal,
state, or local income taxes; property taxes; or other
assessments
-
Debts
owed to government agencies, such as federal student loans or
state Medicaid liens
-
Court-ordered
support of a spouse or minor children
Homestead laws and bankruptcy
State
homestead laws can profoundly affect whether or not you may keep
your home in bankruptcy. In bankruptcy, you may not be required
to surrender exempt property to satisfy the claims of creditors.
This federal exemption can vary significantly from what you may
be allowed to keep under your state's exemption laws.
Some states require you to follow their exemption laws when
filing for bankruptcy. In such cases, you'll have no choice
about the amount of your home exemption; you'll be able to keep
what your state's homestead law allows. Other states allow you
to choose between the federal and state exemption laws. In
states where you have a choice, your decision about how to file
for bankruptcy may turn in part on which set of rules allows you
to keep the greatest amount of your home's value. In such cases,
if your state homestead law allows a more liberal home exemption
than the one allowed by the federal law, filing for bankruptcy
under the state exemption laws may increase the probability that
you'll keep your home, particularly if you have substantial
equity in it.
Example:
Jimmy, a single individual, lives in Georgia, where he owns a
modest home valued at $100,000. When he files for bankruptcy
against $97,000 in unsecured debt, he is required to do so
under the Georgia exemption laws, which allow him to keep a
homestead worth only $5,000. Since the value of his home
exceeds that amount, he must sell his home, keep $5,000 of the
sale proceeds as allowed by the state exemption laws, and
distribute the remainder to the creditors named in his
bankruptcy petition to partially satisfy their claims.
Meanwhile, George, a single individual, lives in Texas, where
he owns a ranch valued at $750,000. When he files for
bankruptcy against $325,000 in unsecured debt, he is allowed
to elect either the federal or the state exemption laws. Since
Texas homestead law exempts a residence of unlimited value,
George chooses to file under the state exemption laws. He is
not required to sell his ranch to raise money to satisfy the
creditors named in his bankruptcy petition.
For
bankruptcy filings made on or after April 20, 2005, the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(2005 Bankruptcy Act) imposes certain restrictions on state
homestead exemptions, as follows:
-
Even
if your state allows for a larger exemption, you may only exempt
up to $125,000 if you acquired your home within the 1,215-day
period (about 3 years, 4 months) prior to filing bankruptcy.
This limit does not apply to equity you rolled over from one
home to another within the same state during this period.
-
If
you made an addition to your home in the 10-year period prior to
filing with the intent to hinder, delay, or defraud creditors,
your allowable exemption is reduced by the value of the
addition.
-
An
absolute cap of $125,000 applies if you (a) have been convicted
of a felony that demonstrates that the bankruptcy filing is
"abusive," or (b) owe a debt arising from violations
of securities laws, fiduciary fraud, racketeering, or crimes or
intentional torts that caused death or serious bodily injury in
the preceding five years. This provision, however, will not
apply if the homestead is reasonably necessary for your support
and the support of your dependents.
Caution:
For bankruptcy filings made on or after October 17, 2005,
there is a two-year residency requirement for using state
homestead exemptions. Specifically, to use a state's
exemption, you must have resided there for 730 days (about 2
years) prior to filing bankruptcy. If you resided in more than
one state during this 730-day period, the governing exemption
law will be of the state in which you resided for the majority
of the 180-day period (about 6 months) preceding the 730-day
period.
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