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What is a declaration of homestead?
New homeowners are often overwhelmed by the paperwork and efforts of coordination that a new property purchase requires. When they subsequently receive information about making a declaration of homestead it is often lost in the shuffle. In fact, the opportunity to declare homestead is a legal act with a deadline.
A declaration of homestead is a way to protect a portion of a primary home’s value from creditors, specifically those creditors that might get a court order to sell the house for debt repayments, such as medical bills or personal debt. Declaring a homestead requires filing the necessary paperwork with the county register of deeds.
More than 25 states have adopted the Homestead Act. If your state does not have a homestead act, you may be protected under the federal homestead act.
In Massachusetts, homeowners are automatically protected for $125,000 of their home’s value, but if a declaration is filed officially, the value increases to $500,000. The value can be higher for elderly or disabled residents. In Los Angeles County, declaring a homestead exempts the home from the first $7000 in property tax.
According to some sources, Florida’s homestead act applies to homes on a half-acre or less in an urban area and up to 160 acres elsewhere in the state in part because the system had been abused in the past by wealthy people with big homes and properties who bought homes then declared bankruptcy. Under the Homestead Act, a creditor cannot force the sale of a home if a person declares bankruptcy. The law was amended to protect only those who have lived in their primary homes for at least 40 months.
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How it works
If creditors seek to force the sale of a home for nonpayment of bills, the homestead exemption protects the owners from losing all of the equity they’ve built. A homestead exemption protects up to the value that the state’s homestead act allows (look up your state here). If the home value exceeds the amount of the homestead act protection the owners may retain proceeds of the forced sale up to the state’s allowable limit.
What is exempted from the homestead declaration?
Most states’ homestead acts will not protect homeowners against debts accrued for nonpayment of child support, mortgage, taxes, or a mechanics lien. The type of debt that the act protects against includes personal debt, unpaid medical bills, and bankruptcy. A spouse is separately protected and cannot be forced to sell the home as long as he or she resides there.
The property that is protected is always the owner’s primary residence, and homestead act provisions do not extend to mobile homes, other vehicles, or rental property. In some cases renting a home to another person may cancel homestead act eligibility. Check on requirements in your state.