How protective are the homestead laws?
The state homestead laws may partly or fully creditor protect the home's
equity. Nine states
totally homestead protect the home; however, most state homestead laws only partly
creditor shield the home. The state homestead laws vary greatly in how
much home equity they protect. Homestead laws, in all instances, apply
only to the home or primary residence. You must own
and occupy the property as your home. Other restrictions may limit your homestead
protection. For example, Florida protects an unlimited home equity; however,
the acreage must fall under certain limits. Lot size is a common restriction.
If your home qualifies for
some homestead protection, you must determine how much equity it protects.
Most states lawsuit-proof between $5,000 and $50,000 in equity. So forhomes
with a large equity, the homestead laws may be nearly worthless. However,
if you live in Texas, Florida or other states that fully homestead protects
the home, you have an exceptionally strong firewall. A number of states
generously homestead up to $500,000 or more in equity.
The homestead laws can raise more questions than they answer. For instance,
Florida recently ruled that one property used for a home, commercial farm
and guest house qualified the entire property for homestead. But is a
houseboat homestead protected? To answer these questions you have to thoroughly
check your state statutes and case law.