File a Declaration of Homestead

You can help protect your property against financial disaster, and perhaps save money now:

A Declaration of Homestead is a simple legal document which can help to protect your house and property in times of economic hardship. It has nothing to do with the process of filing a claim for unused government holdings . . . rather, it's a short form that can sometimes prevent the attachment of your land and dwelling by creditors.

Homestead rights don't exist under common law, but they have been enacted in at least 27 states: Alabama, Arizona, Arkansas, California, Florida, Georgia, Idaho, Illinois, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. If you own, and live on, property in any of these states, you should definitely take the hour or so necessary to file this important document. The fee for doing so is nominal, the forms are easy to fill out (they're usually available at stationery stores), and no lawyer is necessary.

Though they vary from one state to another, homestead statutes are similar in intent. They're designed to preserve family homes, which might otherwise be taken in times of monetary misfortune or upon the death of the head of the household. In general, this protection is available only if the declaration is filed in advance of such a catastrophe.

Of course, a legal judgment resulting from business losses, auto accidents, or suddenly inherited debts could take a family's savings . . . but with the safeguards provided by homestead statutes, their house and land would be protected up to the amount of exemption allowed by their state.

Say, for example, that your state has a $12,000 homestead exemption law, and your creditors are demanding $9,000. If your property is worth $12,000 or less, they can't attach your home as payment for this debt. On the other hand, if you owe $15,000 and your home is worth $20,000, your creditors can get a court order that forces you to sell. Even then, you still have some protection, since—after the sale—you'll get the $12,000 covered by your homestead exemption, and your creditors will receive only the remaining $8,000. You must, however, apply that $12,000 to the purchase of another home, usually within six months to a year, or your creditors can demand the additional $7,000 you owe them!

Furthermore, some kinds of debts must be honored . . . with or without a Declaration of Homestead: If you've put your property up as collateral on a loan, for example, the homestead exemption does not apply. Other debts not covered include property taxes and special assessments. And if you fail to pay someone you've hired to make improvements on your house or land, he or she can place a mechanic's lien on your property and have it sold in order to collect the money.