Legal for Life

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Homestead exemption is something that every homeowner wants, but does not necessarily understand why they want it, other than, “my Realtor/lawyer/neighbor told me to do it”. I’m here to tell you what it is all about and why you want it.

First things first: What is a homestead?

A homestead, for the purposes of this statute, is defined as a dwelling with its land and buildings, occupied by the owner as a home and exempted by a homestead law from seizure or sale for debt. The exemption works in three primary ways: prevent creditors from forcing you out, protecting a surviving spouse and giving them a place to live and (drum roll please) property tax breaks! Some states you must formally designate the property as your homestead, but it is not mandatory in Texas, just recommended. For designation, you must provide a full legal description and a statement from the claimant, designating that property as their homestead.

What kinds of properties are exempt? Is my property exempt??

The Texas Property Code classifies what a homestead is and breaks it down into sub-classes. The first class, urban, is defined by the Code as property which is located within a municipality, is served by police and fire protection, and at least three municipality services (electric, gas, sewer, storm sewer, water), at the time of designation, but is limited to 10 acres. This usually covers city-folk and most of suburbia.

Some of suburbia may be covered in the second class of rural, which is the same as urban, but is limited to 200 acres. There is not a specific section where the Code defines rural, but it is assumed to mean the homes outside of the urban definition.

The third class is not technically a class at all. Texas used to provide a business homestead, but the law changed to define the urban homestead to include both home and “a place to exercise a calling or business”. Basically, it must function as both a home and a business. A great example would be running your real estate business out of your home office. No, sleeping at your cubicle won’t count for exemption. It must have other home-y touches such as a throw pillow or two, and a separate address from your boss’s TPS reports.

Who is eligible for a homestead? Do I count?

There are currently 5 classes of exempt homeowners: Family, Single Adult, Surviving Spouse, Surviving Minor Children and Unmarried Adult Children Remaining with the Family. Let’s jump right in and break those down:

• Family: Must function as a home. Family is relation by blood, marriage or adoption and must consist of independent(s) supporting dependent(s). You can break in down further, but that is a blog post for another time.
• Single Adult: At the time of designation, the claimant must be single and over the age of 18. A person who does not live with their spouse does not qualify, since they are still legally married. A divorced parent may not claim this either, since they are supporting dependents (see family above). A widow may not claim this, because they have their own class (see spouse below).
• Surviving Spouse: Upon the death of a husband or wife, the remaining spouse is entitled to a constitutional survivor’s right for life, or as long as they choose to remain in the home. For example, husband and wife live in a home and the husband passes away. The husband’s interest in the home passes to his children from a previous marriage. The children cannot force the wife out of the home, even though they have inherited a share. As long as she chooses to remain the house, she has a right to maintain it as her homestead.
• Surviving Minor Children: Upon the death of both parents, the homestead property will pass according to the parent’s will, or descent and distribution. However, just like the Surviving Spouse, the children are entitled to a constitutional survivor’s homestead until a time they choose to not live at the home.
• Unmarried Adult Children Remaining with the Family: The most recent class, as of 2005, acts much like the Surviving Minor Children one, but the unmarried, adult children must have lived with the parents at the time of death.

What are the actual benefits? What does this do for me?

The first major protection is asset protection. While a claimant is alive, a creditor may not force the sale of the home in order to pay debts. If a claimant deceases, their exemption is passed to the survivor (see above) and the creditors may not force the sale to pay the debts of the decedent. However there are nine exceptions where the creditor may collect in both cases. The nine are as follows:

• Purchase Money Liens
• Ad Valorem Taxes
• Mechanic’s/ Materialman’s Liens
• Owelty of Partition Lien
• Refinancing
• Home Equity Loan
• Reverse Mortgage
• Manufactured Home Refinancing
• Preexisting Lien

Please note: if a creditor wrongfully files against the homestead, both the creditor and the creditor’s law firm may be held liable, so be informed! Please seek legal advice from a local attorney with experience in these matters.

Another benefit is special occupancy rights. As described above, if a claimant passes away, the survivors are protected from heirs forcing them out.

The final benefit, and the benefit everyone is waiting for, is tax savings! Here is the breakdown of the amount exempt:

• $3,000 of the assessed value for single adults and families
• $15,000 of the assessed value for an adult in relation to school taxes
• $25,000 of the assessed value for disabled adults or those over the age of 65

Please consult an attorney or tax appraiser for your personal exemptions.

What if I move? Does it stay on that property?

In short, no. If you keep that property, but make another your primary residence, you lose the exemption on the first property. You do have the option do make the second property your homestead, but must do so within six months to avoid creditors coming after the second property.

If the property is abandoned, you may lose the homestead exemption. A challenger must prove that the claimant discontinued use and intended to permanently abandon the property.

What if I rent out the property?

You may keep an exemption even if you are renting out the property, unless you acquire another homestead property.

Ok, I still have questions. Can you help me?

Absolutely! If you are in the Dallas/Ft. Worth area, please use the links to contact us. If you are out of the area, please consult your local attorney, or local bar association to find an attorney in your area.