Homeowners' Lack Of Knowledge, Confusion About Complex Homestead Protection Laws Against Certain Creditors Creates Opening For Sleazy Debt Collectors

The New York Times reports:

• [E]ven though homestead exemptions have been on the books since the late 1800s, many people do not know about them. Tax officials, consumer credit counselors and bankruptcy lawyers said homeowners often fail to claim rightful deductions on their property taxes and are unaware that a homestead, or a significant portion of its value, is often legally protected from creditors unless the house itself is collateral on a debt like a mortgage.

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• The degree to which homesteads are shielded from creditors [] varies by location and sometimes by age, marital status and number of children. Homesteads in Florida, for example, are almost entirely protected from seizure by unsecured creditors (those without a lien), which is why O.J. Simpson’s home there remained in his possession even after he had several judgments against him. Had he declared his homestead in New Jersey, Maryland or Pennsylvania, his creditors could have taken his house because those states have no homestead exemption.

• In between these extremes are states like New York, where the homestead protection from creditors is $50,000. In California, the limit is $75,000 for those younger than 65 and $175,000 for seniors and the disabled. Other states, like Kansas and Iowa, cap homestead protections at a certain amount of acreage rather than a dollar amount.(1)

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• Complicating things further is that in some states, such as Kentucky and New Hampshire, the homestead protection from creditors is usually a default right, while in others, such as Idaho and Washington, a legal filing is required in some instances.

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• Unscrupulous credit collection agencies may add to the confusion by threatening to evict debtors from their houses when that’s not legally possible. “It appalls me how many people are scared to death that they are going to be thrown out on the street because they have never heard of the homestead exemption,” said Nina Parker, a consumer bankruptcy lawyer in Winchester, Mass. Whether it’s for the tax break or protection from creditors, she said, “Best practice is to register your homestead when you buy your house.”

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• “It’s hard to communicate what people’s homestead rights are because the laws are so complicated and there are debt collectors out there spreading misinformation,” said Katherine Porter, a professor at the University of Iowa College of Law. “Unfortunately, a complex right can be a worthless right to the consumer.”

For more, see Home is where the exemption is (if link expires, TRY HERE).

(1) Likewise in Texas and Florida.