At a closing, everyone who is buying a home as their principal residence in Minnesota is informed about how to homestead their new property. People are generally more than willing to homestead a property as they feel that it will keep their property taxes lower. While this is true, it is not the only reason to homestead a property.
The Homestead Law is meant to protect a family from a forced sale (foreclosure) on their home by unpaid creditors. In a nutshell, it's a safe haven for your money.
There are several stipulations that are mandated in order for a property to be homesteaded. The easiest description is that your homestead needs to be your principal residence. There are other rules involved, but this rule of thumb covers about 99% of all situations.
What does homesteading a property protect you from?
The Homestead Law protects home owners against foreclosure of their home by unpaid creditors. It does not protect a home owner from foreclosure due to lack of property tax or special assessment payments, mechanics liens (work performed by contractors on the property), lack of payment to mortgage company, or failure to pay association dues. All of these items are attached to your property and will supersede the Homestead Law. Rule of thumb: The banking institutions and the government will always get their money.
This also brings up a very good point about having good title work done on a property prior to closing the sale. You do not want any outstanding liens for assessments or lack of payment to a contractor to make you lose your newly purchased house to foreclosure. I won't go into this here; It's a different topic for a different day.
There are also a couple of limitations to the amount of money that is covered by Homestead Law. In Minnesota, homestead protection is limited to 160 acres and $300,000 for a residential homestead ($750,000 for an agricultural homestead).
Please note that these figures are for Minnesota Homestead Laws and do not entail what other States utilize as their guidelines. I've heard that the old CEO of Enron moved into a property in Florida when his business came under attack. The reason, there is no limit to the value that homesteading can protect in that State. He can shelter millions of dollars against judgments in court about his business practices.
If you are in question about homestead law, seek competent legal advice. I don't pretend to be a lawyer that knows everything related to real estate law, but I know enough to get me in trouble. If you'd like, post your questions and comments here. If I don't know the answers, I know someone who will.
Jason Tangen, GRI - Real Estate Broker Associate with Edina Realty St Cloud
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