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What is a Homestead Exemption?

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  • Written By: Simone Lawson
  • Edited By: Jenn Walker
  • Last Modified Date: 31 October 2016
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A homestead exemption refers to a series of laws in the United States that protect homeowners from a forced home sale. It offers protection from tax collectors or creditors, provides an exemption from property taxes and protects a surviving spouse from foreclosure. Homestead exemptions vary widely according to the state of residence, so it is typically necessary to contact an attorney before attempting to file.

A homestead exemption generally applies only to a property used as a primary residence. While state laws vary, federal law states that exemption cases filed typically may not exceed $137,000 US dollars. In some cases, state law may be able to offer a higher exemption.

If the cost of equity is not covered by the homestead exemption, it is possible that a trustee could sell the home if Chapter 7 bankruptcy is filed. If this is the case, a Chapter 13 bankruptcy filing might be suggested instead. Filing under Chapter 13 would allow for a repayment plan that could span several years.

If there is no equity in the home, or if the equity does not exceed the determined exemption amount, it is possible to keep the home. Mortgage payments will still be required, and the home will likely be subject to foreclosure if payments are not met. These details are typically clarified once the state laws for homestead exemptions have been determined.

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A resident typically files state homestead exemptions in the state where he has resided for two years prior to the date of filing. If the resident has not maintained residence in a single state over the course of two years, the primary state of residence is generally used. This typically translates to the state where the resident lived the majority of that time. Otherwise, state exemptions may become obsolete and eligibility may be determined only by federal law.

When a property is threatened by foreclosure, the homestead exemption may be enacted by default in certain states. Most states, however, require the homeowner to file a claim within the state. Homeowners may become disqualified from homestead exemption if the property is abandoned, or if the primary residence is anywhere other than the property in jeopardy.

Many states do not allow homestead exemptions if the mortgage is in danger of defaulting with the bank or for defaulted mechanics liens. States also typically determine whether property is protected according to monetary value or acreage. If the amount owed exceeds the amount covered under the exemption, some states may allow for owners to collect a portion of the proceeds from the property sale.

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