It is often said that a person’s home is his most valuable investment. I cannot disagree. A home is more than just a place to live. It is also more than a place to make memories with family members and friends. There is a lot of financial value hidden in a person’s home. Take the homestead exemption.
A homestead exemption is represented by a local or state law that protects a certain value of a person’s property against different types of attachments. It can be applied in any number of ways. Homestead exemptions impacting property taxes is one of the more common examples.
A Certain Value Is Not Taxable
Property taxes are based on the assessed value of a home. The higher the value of a home, the higher the property taxes on that property. But a homestead exemption exempts some of the property’s value from the tax assessment. Let’s arbitrarily make up a number.
Let us say the homestead exemption in a particular state is $20K. That amount is exempted for tax purposes. So a home assessed at $100K has its property taxes based on a value of just $80K. The total value of the property was reduced by the homestead exemption for the purposes of assessing property tax.
Homestead Exemptions and Money Judgments
Another common example of the homestead exemption’s benefits lies in money judgments. A money judgment is a civil judgment involving a monetary award. In most states, judgment creditors cannot go after a judgment debtor’s primary residence for payment. But in other states, the homestead exemption applies.
In such a state, a creditor could still go after the debtor’s primary residence. But a certain value of the property, equal to the state’s homestead exemption, cannot be taken for payment. Let us look at our previous example.
Just like the first $20K is exempt from a property tax assessment, that same amount would be protected against seizure in the event a debtor’s house is sold to pay an outstanding judgment. The creditor would only get $80K.
Of course, this assumes that the property sale garnered the full $100K value and that there was no outstanding mortgage on the property. An outstanding mortgage takes the first lien position, meaning the bank would be paid before the judgment creditor.
Creditors Look at Other Assets
In states that exempt a debtor’s primary residence completely, it is not even a question. Creditors cannot go after debtor homes for payment. But even in states with homestead exemptions, there may not be enough value in a debtor’s primary residence to make going after it worthwhile. What are a creditor’s other options?
Salt Lake City, Utah’s judgment collection brand says creditors look at other assets. In terms of real estate, they can look at:
- Rental properties
- Vacation properties
- Business properties
Basically, any type of real estate that does not constitute a debtor’s primary residence is potentially up for grabs. Judgment Collectors once worked on a case involving an airplane hangar. Just the threat of the property being subject to a judgment lien or writ of execution was enough to get the debtor to pay.
Other potential assets include jewelry, collectibles, boats, and RVs. Creditors will look at any asset with enough value to make seizure and sale worthwhile.
As for the homestead exemption, it can be a debtor’s best friend when debt collectors come calling. Homestead exemptions protect homeowners from losing their primary residences to all sorts of attachments. That’s why they are so valuable. It is also why homeowners, as voters, appreciate when state lawmakers enact homestead exemption laws.
