What Does The Texas Homestead Exemption Protect?

By: Ameen Kamadia

The Homestead Exemption in Texas prevents the homestead from being subject to attachment, execution or forced sale by creditors. The homeowner is protected if they creditor does not fall in one of the nine exemptions. The exemptions are entitled to the sale of the property in order to repay the debt of the homeowner.

The nine exemptions include:

Purchase Money Liens: A purchase money lien is the lien that secures the purchase price on the property. These are not subject to the homestead exemption and the homestead may be foreclosed on upon default of the homeowner.

Ad Valorem Taxes: An Ad Valorem Tax lien is attached to the property the first year that property taxes are owed. The homestead may be sold to satisfy delinquent tax debt.

Mechanics and Materialman Liens: These liens are connected with improvements that are performed to the homestead. They are valid against the homestead if the written contract was executed before the commencement of improvements and/or delivery of supplies, if both the husband and the wife signed the contract and if the contract was properly recorded.

Owelty of Partition Lien: An Owelty of Partition lien arises when there is an unequal division of the property in co-tenancy. For example, if there is an unequal division of the homestead in a divorce where the land on which the family lives is larger than the remaining portion of the land. The house cannot be cut in half, sot the land will be partitioned unequally to keep the home in tact. Without the unequal partition, the land would be sold and then the proceeds are to be divided up equally. Upon unequal division, the individual with the lesser-valued portion of property may place a lien against the other individual for the difference of the value. The homestead is not exempt from this type of lien.

Refinancing: If a bank were to purchase a money lien against a home with a six percent annual interest rate, the bank is allowed to offer the homeowners the option of refinancing the lien at an additional five years at a five percent annual interest rate without risking the loss of the lien on the homestead. The homestead may be burdened by the refinancing of a valid lien against it. This includes federal tax liens that are incurred due to unpaid taxes.

Home Equity Loans: A home equity loan allows the homeowner to use the existing home as collateral for a loan based on the property value. This was not possible in Texas until 1998. The amendment allowing this permits home equity loans to place restrictions on the borrowers use of the money. Because the money is not required to be used on the homestead, the homestead is not protected against a valid home equity loan. The Texas Constitution has several extensive requirements that a creditor must meet in order to obtain a valid lien against the home.

Reverse Mortgages: A reverse mortgage is, essentially, a home equity conversion that allows the homestead to be used as collateral for a loan in which the homeowner receives a sum of money or payments in exchange for the home equity. The mortgage is due upon the death of the borrower or the abandonment of the home. Before 1997, the use of the homestead as collateral in a reverse mortgage was not allowed. Today, the homestead that is used as collateral for a reverse mortgage is not protected against foreclosure to satisfy the mortgage debt.

Manufactured Home Refinancing: The homestead may be converted and refinanced as a personal property lien that is secured by a manufactured home to a lien on real property that includes the refinancing of the purchase prices of the manufactured home as well as the cost of installing the manufactured home on the property and the refinancing of the purchase price of the property.

Preexisting Lien: This is a lien that existed against the property before it became a homestead.

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