It is the little things we do which can make a huge difference during emergencies. Like making sure to have enough bottled water available or an emergency heater in case the heating goes out in winter.
One of the simplest things that people can do to protect their home is file a Homestead Declaration. Despite how easy and powerful a Homestead Declaration is, few people know what it is or have taken advantage of the protection it offers.
Why You Need a Homestead Declaration
As preppers who believe in self-reliance, we don’t just prepare for end-of-the-world scenarios. We also prepare for all of the personal disasters which could occur.
This includes racking up debt and being kicked out of your home by creditors.
Let’s say that you suddenly get a diagnosis of lung cancer. I shouldn’t have to tell you how messed up our healthcare system is and how diseases can quickly wipe out your entire savings even if you have health insurance (but let’s not go on a political rant here please!).
There are also plenty of other ways that debt can rack up – even if you’ve been responsible with your spending.
When you have unpaid debt it is only a matter of time before creditors start demanding their money back.
Here is how creditors could take your home:
- You fall behind on your bills
- The creditor files a lawsuit
- The creditor obtains a judgment against you
- Now the creditor can come and take your stuff
- The creditor could foreclose your home to pay off the debt
If the creditor obtains a judgment against you in court, they can take your bank savings. They can garnish your wages. They can even take the appliances in your home.
But, with a homestead declaration, creditors can’t take your home.
What Is a Homestead Declaration?
A Homestead Declaration is a legal protection that some states have. It basically prevents you from getting kicked out of your home because of unpaid debt.
Note that a Homestead Declaration is different from a homestead exemption which gives you a break on taxes.
What Is Protected with a Homestead Declaration?
A homestead declaration protects the value of your home (up to a certain amount) from creditors. That means that no matter how much you owe, creditors can’t take your home.
What Is NOT Protected?
A Declaration of Homestead only protects your home from unsecured creditors. It will not protect you from:
- Mortgage creditors
- Tax debts
- Child support debts
- Any loan where you put your home up as collateral
- A person who performed repairs or other work on your home
Further, a homestead declaration isn’t absolute. There are still some situations where a creditor can get a judgment forcing the sale of your home. However, this rarely happens because the creditor must prove to a judge that the sale of the home would be sufficient to repay the loans. Once you subtract any mortgage remaining on the home, the value of the home often isn’t enough to repay debts so a judge denies sale.
In the unlikely situation that a judge does approve the sale, a homestead declaration ensures that you get the real value of your homestead from the sale, and you’ll get the money from the sale before the creditor does.
*If a creditor obtains judgement against you before you have a homestead declaration, the homestead declaration might not protect you! So don’t wait until you’ve fallen in debt to file a declaration!
Homestead Protection Is Automatic!
In states which offer protection, homestead declaration is almost always automatic. That means you don’t have to do anything to get protection against creditors.
However, there are legal differences between an “automatic homestead” and a “declared homestead.”
For example, let’s say that you own a home in California and have fallen into debt. If you voluntarily decide to sell your home but don’t have a declared homestead, creditors could take the money from the sale of the home.
However, if you had a declared homestead and voluntarily sold your home, creditors can’t touch any of the proceeds for 6 months. The idea is that the money is to be used to reinvest in a new home.
There are other legal differences between an automatic homestead and declared homestead. However, the differences have too much fine-print legal jargon for me to talk about here (and I’m not a lawyer!).
What you do need to know is don’t rely on automatic homestead protection. Declare your homestead to get extra protection.
What Counts As a Homestead?
Luckily, the legal definition of homestead isn’t the same as ours. 🙂
It varies a bit depending on the state, but a homestead is usually considered:
- A home and the property around it
- It can be a home, mobile home, or condominium
- Includes certain parts of the property, like fencing and installed systems
- Does NOT include furniture and appliances within the home
- Only your primary dwelling qualifies. If you own multiple properties, only the one you live at gets protection.
States with Declaration of Homestead Protection
There are no homestead rights under the federal law. It is up to the states to enact these laws. Right now, there are at least 27 states which have homestead declaration protection laws in place. These include:
- North Carolina
- North Dakota
- South Dakota
- West Virginia
How Much Is Protected under Homestead Declaration?
If you have a very valuable property, not all of it may be protected against creditors. The amount of protection depends on the state as well as some personal factors.
- Montana's maximum homestead protection amount is $250,000.
- In California, the amount is $75,000 for individuals, $100,000 for couples, and $175,000 for the elderly and disabled.
- Massachusetts automatically protects $125,000. If you filed a homestead declaration, then up to $500,000 is protected (one more reason to actually file the declaration rather than hoping for automatic protection!).
Calculating How Much You Are Protected For
The homestead declaration will protect the equity part of your home. To find out the equity:
- Find the fair market value of your home and property
- Subtract all mortgages and home equity loans you have on it
- The remaining amount is your equity.
Let’s say that you live alone in California. After subtracting mortgages, your equity is $120,000. Since California only protects you to $75,000, creditors could grab at the remaining $45,000. To do this, they could go before a judge and ask the judge to partition your land and sell it.
If the land can’t be partitioned, then the entire property might be sold. In this case, the homestead declaration ensures you get the full protected amount from the sale.
How to File a Homestead Declaration
Everyone hates filling paperwork, but the Declaration of Homestead is actually quite simple (much less annoying than going to the DMV!). The process varies depending on what state you live in, so you’ll have to check. But, in general, these are the steps:
- Fill out the Declaration of Homestead form for your state. You can usually find these online. It is pretty easy to fill out. The only confusing part is that you may need to find the “plat number” of your address.
- Notarize the form. Your spouse and anyone whose name is on the deed should notarize the form too. Remember to bring your ID to the notary office!
- Go to the clerk and recorder’s office (or the Registry of Deeds clerk) in the county where the homestead is.
- File the form. It usually costs about $7-$10 per page to file the form, or a flat fee of about $35.
In total, filling a Homestead Declaration shouldn’t cost more than $50. The Declaration of Homestead might not protect you against every worst case scenario, but it is a really simple thing you can do to get extra protection.
Have you filed a Declaration of Homestead? How did it go?
I am NOT a lawyer. None of the information provided is meant to serve as legal advice. Consult a lawyer for information pertaining to homestead declarations.