Understanding the Declaration of Homestead: A Guide for Homeowners

A home is more than just a long-term investment. It is a personal sanctuary that you build your life around, factoring into decisions like starting a family and where to work. However, creditors, banks, and debt collectors can threaten property due to missed payments. A Declaration of Homestead allows homeowners to safeguard themselves from such risks.

What Is a Declaration of Homestead?

A Declaration of Homestead is a legal document that records that a property is used as a principal dwelling and is afforded certain protections. This exemption prevents creditors from utilizing the debtor's home to cover outstanding debts. Depending on the state, getting a homestead declaration may also provide property tax reductions.

These declarations protect families from losing their dwelling due to financial hardship, prioritizing homestead protections over creditor protections. That said, homeowners should not rely on a declaration of homestead to justify poor financial choices, as it typically does not protect the entirety of the home's equity.

Purpose and Benefits of a Declaration of Homestead

Homeowners submit a Declaration of Homestead to prevent credit entities from excessively damaging their home equity in the event of defaulted debts or bankruptcy filings.

A creditor may sue a homeowner for defaulting on a debt. If the creditor is successful in court, then the judgment amount can be collected in various ways, such as wage garnishment, bank account levies, or taking a lien against your home.

A homestead declaration prevents the resulting lien from giving the creditor complete control of the property and forcing a sale. However, in most states, the homeowner's equity is not completely preserved. The declaration only protects up to a certain amount, calculated as a flat dollar amount or as a percentage of the homestead's appraised value.

This means that a lien still goes onto the property, causing all the usual problems. The creditor is entitled to a portion of the earnings from the homestead's sale, up to the value of the lien. Additionally, a lien may harm the homeowner when applying for a home equity loan (second mortgage) due to the creditor's involvement.

Another benefit of a homestead declaration is the potential tax exemptions. Many states allow primary residences to claim reduced taxes on property tax subsets.

For example, Texas allows a $100,000 exemption on school district taxes, meaning that a $500,000 homestead will be taxed at $400,000.

Who Can File a Declaration of Homestead?

In most cases, a Declaration of Homestead can be filed by any homeowner who uses the property as their primary residence. The homeowner typically refers to the person whose name is on the property title.

The term “primary residence” references the unit that a homeowner lives in more than any other property. So, if someone owns multiple homes, apartments, or other dwelling types, only the one they stay at the most is eligible for a homestead declaration.

There are some scenarios in which the homeowner does not have to live on site, such as if their spouse resides on the property, but these exceptions vary widely.

If the homestead is co-owned or the owner is married, then the filing may require multiple persons' names and social security numbers. However, some states only require one owner to provide their information.

How To File a Declaration of Homestead

Declaration of Homesteads are most commonly filed with the county recorder's office where the primary residence is registered. However, filing may not be necessary, depending on your location and circumstances.

Filing a Declaration of Homestead is often a painless process:

• Finding the Right Form: Homeowners should find their form available for download on their local county recorder's website. If not, the office should have copies available to fill out in person.
• Filling out the Form: Homestead declaration forms typically ask for the applicant's name, a government ID number, contact information, home equity, and property information. This information may be required from all parties with equity, so applicants should confirm with the recorder's office.
• Submitting the Form: Homeowners can file in person at their county recorder's office. Many counties also accept mail submissions with the mail and money order details found on their website. Mailed declarations should include all required fees.
• Pay any Applicable Fees: Jurisdictions set varying recording fees on homestead declarations. Some, like Collin County, Texas, provide it as a free service to all taxpayers. While others, such as Sacramento County, California, charge both a recording and per-page fee.

Filing the Declaration of Homestead in Property Records

Filing the Declaration of Homestead at the county recorder enters it into the public record. This provides government protection to your property and prevents creditors from damaging your home equity to an extent.

Any creditors seeking action against the homeowner will be legally notified that a portion of the property cannot be touched. This will not stop creditors from seeking a judgment in other ways, such as garnishing wages, but it will protect the homestead.

Homeowners can typically access or verify their declaration by contacting the recorder's office or checking an online database if the jurisdiction offers that service. A public records request may also come with an additional fee.

Homestead Exemptions and Limits

Property taxes are commonly calculated as a percentage of the home's appraised value. A homestead exemption reduces your taxes by removing a portion of the home's value from the appraisal calculation.

For example, counties can offer a $10,000 homestead exemption to veterans. This exemption would cause a $100,000 homestead to be only taxed at a lower appraised value of $90,000.

Each jurisdiction maintains separate rules for homestead exemptions. Some of the most common types of homestead exemptions include:

• School District Exemptions
• Farm-to-Market Road Exemptions
• Age 65 or Older Exemptions
• Disability Exemptions
• Veteran and Disabled Veteran Exemptions
• Surviving Spouse Exemptions

Another significant limit on property taxes is a residential homestead cap. This exemption prevents homeowners from being priced out by rising home prices and the resulting increased property taxes.

For example, a county may set a homestead cap of 10 percent. So, a house that suddenly increased from $100,000 to $240,000 can only be taxed at a 10 percent increase from last year's price, meaning $110,000.

Understanding your local homestead exemptions is essential to ensuring you are taxed fairly and budgeting home expenses.

When and Why to File a Declaration of Homestead

Homeowners must file their homestead declaration before their local deadline. Each jurisdiction may set different filing periods, but most will fall within the first third of the calendar year.

In most counties, homeowners only have to file once, unless some government body requests a renewed application. Many jurisdictions also allow late declarations that can affect delinquent property taxes.

Failing to file within the accepted period can have severe consequences. It becomes significantly more challenging to get deductions on your property taxes. You also leave yourself with home equity that is vulnerable to creditors.

Additionally, there may be specialized filing periods for non-general exemption declarations, which are commonly utilized when the homeowner changes, such as a surviving spouse or child exemption.

Lastly, homestead declarations should be filed before falling behind on debt. A homestead recorded after a court judgment is not legally protected from creditors.

How the Declaration of Homestead Protects Against Creditors

Judgment creditors are entities that successfully sue debtors for financial damages. These debts can include anything from unpaid credit cards to severe medical bills. If the debts are large enough, then the creditor may place a lien on your home, potentially forcing a sale.

A homestead declaration limits the amount of home equity a creditor can access. This protection varies by state. Texas and Florida both fully cover the homeowner's equity, while some states like Virginia go as low as $5000.

A homestead is not protected against all types of debt. A homestead declaration cannot protect loans secured by placing the home as collateral. People behind on mortgage payments or property taxes are also at higher risk.

Differences Between Automatic and Declared Homestead

Many jurisdictions maintain local homestead laws that automatically protect the homeowner's equity. However, these automatic homesteads often refer to the state's most general protections, with greater protections available to people who file for specific circumstances.

For example, Massachusetts's Homestead Protection Act provides a default home equity protection up to $125,000. The act also allows homeowners to file for further protections up to a million dollars.

A declared homestead will typically come with higher protection limits on your home equity and is required for non-general claims, such as those used by surviving spouses or disabled veterans. These types of declarations also offer a more robust legal defense if creditors seek a court judgment.

Revoking or Changing a Declaration of Homestead

In the past, homeowners only had to file their declaration of homestead once. However, some states have started passing laws that may require homeowners to reverify every few years to ensure that the system is not abused.

Other situations that might require someone to refile are if the owner changes or passes away, or if the dwelling no longer serves as a principal residence.

Homeowners in these situations should visit their local county recorder's office and inform them that the previous homestead declaration should be changed or renewed. The office will help edit any public record information or guide you to the necessary paperwork.

Additional paperwork may be required, depending on the requested homestead exemption. Proof such as a marriage certificate, death certificate, or property deeds may be requested alongside proof of ID.

Common Misconceptions About the Declaration of Homestead

Homestead declarations have numerous benefits, but can be confusing. Many homeowners mistakenly believe the homestead is protected from all debt-related threats and do not bother checking local statutes.

Some of the biggest myths surrounding a declaration of homestead include:

Protects against Foreclosure

A declaration of homestead does not protect against foreclosure. A declaration protects the homestead from outside creditors and not those that have a secured interest in the property. This means that defaulting on a mortgage lender can still lead them to foreclose, even if you have a homestead declaration.

My Homestead Declaration Lasts Until I Move

In many states, a declaration does not have to be renewed, but some others require homeowners to reverify their principal residence at specified intervals. Additionally, surviving spouses and children do not always automatically take over a previous homestead declaration and may need to reapply.

A Declaration of Homestead covers any Property

No, a declaration of homestead only covers the homeowner's principal residence. This term is defined as the dwelling in which they live more than any other. So, if you own five properties, then only the one that you stay at most frequently is eligible.

Legal Variations by Jurisdiction

Homestead laws and protections differ significantly by jurisdiction. Changes occur in determining what properties qualify, how much home equity is secure, and whether the declaration is automatic.

Unlimited and Automatic Homestead Declaration

Texas has some of the most favorable homestead laws in the US. The declaration is automatic for Texas residents and covers the homestead's full value.

Similarly, Florida has unlimited protection on residents' home equity. However, it is not granted automatically, as is the case in Texas. Homeowners must apply for the exemption the first time, but the state renews it each year.

Rural vs Urban Declarations

Many states separate homestead protection and qualifications based on whether the property is in a rural or urban area. Rural family homesteads are typically much larger than their urban counterparts.

The exact requirements for rural versus urban declarations will vary between jurisdictions. In Texas, a rural family homestead exemption applies to properties up to 200 acres, while urban homesteads only go up to 10 acres.

In Arkansas, urban homesteads apply to quarter-acre lots, and rural ones go up to 80 acres.

Adjustable Homestead Laws

California offers an adjustable homestead exemption based on the median home price in the county. These calculations are also annually adjusted, accounting for inflation, which creates some of the most homeowner-friendly homestead laws in the country.

A declaration of homestead not only protects your home equity from creditors, but it can also significantly reduce the long-term costs of homeownership. Check with a local attorney or your jurisdiction's government website to understand the specific rules that apply to you.

Conclusion

A Declaration of Homestead is an important tool that helps homeowners keep their primary residence safe from creditors and reduce tax obligations. The provided coverage is not all-powerful, but it can preserve a significant portion of your home's equity. Homeowners should familiarize themselves with their state's homestead laws to know precisely what exemptions and protections are available to their home.