When a borrower defaults on a payment obligation, whether a mortgage payment, credit card payment, signature loan, student loan, or any other type of repayment agreement, their first concern is normally asset protection, "will the creditor take my house away from me?". Our response differs based on the type of debt and whether the borrower has a homestead residence. When they hear this, some clients respond "I did not file for the homestead exemption. Is that going to be a problem?"
That depends on which homestead exemption we're referring to during the consultation...
The Florida Constitution, Article X, Section 4(a)(1) provides: There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien there on, except for the payment of taxes and assessments there on, obligations contracted for the purchase, improvement or repair thereof, or obligations contract for house, field or other labor performed on the realty, the following property owned by a natural person: a homestead ...
Florida Statutes section 222.01 clarifies the process by which a Florida homeowner can file a document in the county public records providing notice to all creditors that the house is protected homestead under Florida's Constitution. The statute goes on to provide that it does not apply to: (a) liens for the payment of property taxes, (b) liens for the purchase of property, i.e. mortgages, and (c) liens for improvements to the house. In addition, under well-established case law, the Internal Revenue Service (IRS) can lien homestead property.
This is the "homestead exemption" that prevents most creditors from taking away a person's homestead property. In this context, "homestead property" is the same as "primary residence." To determine whether someone's property is their "primary residence" we look at many different factors which could include, but are not limited to:
- Where does the person sleep at night?
- Where do they keep their clothes?
- Where do they get mail?
- Where do they get credit card and utility bills?
- Where are they registered to vote?
- Where do their kids attend grade school?
- What address is on their driver's license?
- Where are they registered to vote?
- Is this the only house they own?
- What address do they list on the tax return?
- What address do they list on their W-2, 1099, or other evidence of income?
Finally, one question we ask is whether they applied to the County where the house is located for a "homestead exemption." This is the second context in which "homestead exemption" is referenced in Florida and, typically the one that causes confusion for the homeowner when they're being chased by a creditor to repay debt.
Florida law provides certain other protections to homestead property. One protection is a reduction (of between $25,000 - $50,000) to the taxable value of the property by the property tax assessor / tax collector. Another protection is that the property value for calculation of property taxes is limited to a 3% increase year to year. The third most common protection is that any property tax benefit accrued against the property can be carried over to a new homestead property - this is called portability.
Homeowners acquire this homestead benefit by filing an application with the county property appraiser and tax collector. The application can only be filed for properties owned as of January 1 of the tax year, and must be filed before March 1 of the tax year. For example, someone who bought property on November 1, 2015, would have to file their application before March 1, 2016, to qualify for the homestead exemption in 2016. However, someone who bought their house on February 1, 2016, would not qualify for the 2016 homestead exemption, but could file an application anytime prior to March 1, 2017, to qualify for the homestead exemption in 2017. In both examples, almost immediately (depending on the facts) that property is protected from all creditors except the mortgage company, a contractor who did improvements to the house, the property tax collector, and the IRS.
Back to the introduction to this blog; when a client asks if it is a problem that they have not filed for their homestead exemption with the county, our answer is "probably no" from an asset protection perspective, and "yes" from a property tax perspective. Filing for the tax reduction is not fatal to protection of the house from creditors, but if the tax collector is offering a $50,000 reduction to the taxable value of the house the homeowner should immediately take advantage of those tax savings!
For more information on the homestead exemption or selling or buying a home, please subscribe to the Yesner Law Podcast, on iTunes and Stitcher. Specifically, Episode 15 of the podcast deals with the topic of this blog. If you prefer, please contact us to schedule a free initial consultation to discuss your options at 813-774-5737 or email me directly at firstname.lastname@example.org.
Shawn M. Yesner, Esq., is the founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate debt by providing options, so they can live the lifestyle of their dreams. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.