Homestead Exemption

A homestead exemption is a legal concept based upon the premise that a citizen should be able to be reasonably secure in his residence, and that his creditors should not be able to force him from his home by selling the home at sheriff's sale.

So how does this all work?

Most states have some form of this type of protection. The protection in Nevada is found in two places in the Nevada Constitution:

Article 1, §14 of the Nevada Constitution states, in part:

"The privilege of the debtor to enjoy the necessary comforts of life shall be recognized by wholesome laws, exempting a reasonable amount of property from seizure or sale for payment of any debts or liabilities hereafter contracted. . . ."

Article 4, §30 of the Nevada Constitution states in pertinent part:

"A homestead as provided by law, shall be exempt from forced sale under any process of law, and shall not be alienated without the joint consent of husband and wife when that relation exists; but no property shall be exempt from sale for taxes or for the payment of obligations contracted for the purchase of said premises, or for the erection of improvements thereon. . . ."

The Nevada Legislature has implemented these Constitutional provisions in Chapter 115 of Nevada Revised Statutes. To research this chapter, click here.

Here are the highlights of Chapter 115:

• "Homestead" is defined as "a quantity of land, together with the dwelling house thereon. . . ." The term also includes "a mobile home whether or not the underlying land is owned by the claimant," and a condominium. The term further requires the owner residents to select and identify the property as their family home. See NRS 115.005.
• Subject to some important exceptions, the equity in the designated property up to $550,000 is exempt from forced sale by a creditor. See NRS 115.010.

The exceptions to the exemption include:

1. Obligations incurred to purchase or improve the property.

2. Deeds of trust or mortgages recorded against the property.

3. Homeowners' Association liens or other obligations arising out of recorded CC&RS.

4. Property taxes.

5. Mechanics liens.

6. Liens claimed by the State for Medicaid benefits.

The exemption selection is claimed by recording a written Declaration with the local County Recorder. The Declaration must state:

1. That the claimant(s) are residing on the property with their family. The wording changes depending on whether the claimant is a single person or the claimants are married.

2. That the claimant(s) intend to use and claim the property as a homestead.

3. The Declaration must be signed and acknowledged (notarized) by the claimant(s).

The exemption rights are not lost by conveying the property to a family living trust. Likewise a trustee of a family living trust may also sign and record an exemption declaration.

To obtain a Homestead Declaration form, click here.

What happens if there is more than $550,000 equity?

Under NRS 115.050 if a judgment creditor believes there is more equity than $550,000, and he or she swears an affidavit to that effect, the Court is required to appoint 3 disinterested appraisers to report an opinion of value.

If it appears from the appraisers' report that there is more than $550,000 in equity, the Court will first determine if it is possible to physically divide the property to split off a parcel which can be sold without impairing the $550,000 in equity.

What happens if there is a bankruptcy filed?

Under U. S. Bankruptcy Law, a claimant may only be able to claim $125,000 in equity exemption if the claimant acquired the homestead property within 1215 days before the filing of the bankruptcy petition.

Bankruptcy law is a highly specialized area of law. If there is any question about the applicability of the exemption as affected by bankruptcy, it is critically important to consult an attorney who practices in Bankruptcy Court. Our firm claims no expertise in bankruptcy law.

Talk to the Small Business Law Mentor. . . For a no-charge 1/2 hour consultation with Dave Guinan about homesteads, click here.

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