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Encumbrance of Homestead

Homestead of a person is the person’s interest, not exceeding $ 100,000 in value, in one of the following: (1)The person’s interest in real property in one compact body upon which exists a dwelling house in which the person resides; (2) the person’s interest in one condominium or cooperative in which the person resides; (3) a mobile home in which the person resides; (4) a mobile home in which the person resides plus the land upon which that mobile home is located.

Although the purpose of homestead statutes is to protect the value of the homestead from judgment creditors, the owner of a homestead has the right to encumber the homestead[i].

The mortgage of a homestead is not an abandonment of the homestead right.  An owner of a homestead is free to mortgage the property in the absence of contrary stipulations in a statute.  If there is a statutory prohibition as to the mortgage of a homestead, such mortgage shall be invalid[ii].  The mortgaged property may be subjected to sale under foreclosure.  However, if the mortgage covers both homestead and other property, the debtor may require the mortgagor to resort to the other property first.

The homestead right entitles the homesteader to redeem the property in the event it has been mortgaged[iii].

Courts generally disfavor alienation of homestead property.  Constitutional limitations on alienation of homesteads must be strictly construed in favor of the homestead claimant[iv].  A party challenging a homestead exemption claim has the burden to make strong showing that debtor is not entitled to the claimed exemption[v].

The law perceives the lease of homestead as an encumbrance and requires the consent of both the spouses.  However, law permits lease of a homestead in certain limited instances.  As such, one spouse may lease the homestead lands for a reasonable term without the consent of the other spouse, provided such lease does not interfere with the use of the property as the home of the family.  A lessee of a homestead cannot change the terms of a contract by entering into an agreement with only one spouse.

Consent of both the spouses is manifest through the signature of both the spouses on the instrument validating the encumbrance on a homestead.  The spousal signature is mandatory in all transactions pertaining to a homestead, except in the case of a purchase-money mortgage.  Thus, a court will not consider an answer by the nonsigning spouse, admitting the mortgage to be valid, and consenting to its foreclosure, as an equivalent to that spouse’s signature[vi].

Courts have repeatedly held that an encumbrance of a homestead, “if the owner is married, is not valid, unless and until the spouse of the owner executes the same or a like instrument, or a power of attorney for the execution of the same or a like instrument, and the instrument or power of attorney sets out the legal description of the homestead[vii].

Where a lien for purchase money exists against the homestead property, the premises can be reconveyed to settle the claim without the joinder of both spouses, provided this is done in good faith, and not for the purpose of depriving a spouse of homestead rights.  Homestead statutes endeavor to protect the ownership rights of the spouses and hence where the work performed on a homestead does not affect the homeowners’ ownership interest as contemplated by the statute, both spouses are not required to sign a contract[viii].

If the homestead property is encumbered by a spouse, without obtaining the consent of the other spouse, such encumbrance is generally inoperative.  However, such an encumbrance will become subsequently effective if the non consenting spouse abandon, or otherwise extinguish his/her right in the homestead[ix].

The law is different in different states in the matter of encumbering a homestead by the husband or wife of an insane spouse.  While some states do not permit such a transaction, some provide procedures by which the sane spouse may obtain a court order authorizing a conveyance.  In some states, alienation of the homestead of an insane person is allowed by joinder of the guardian with the sane spouse.

In some states, the husband and wife may convey their homestead by separate instruments or by a single instrument and an encumbrance of a homestead may not be valid under such statutes unless and until the owner’s spouse executes the same or a “like instrument” or a power of attorney for the execution of the same or a like instrument, and the instrument or power of attorney sets out the legal description of the homestead[x].  It is to be noted that the term “like instrument” has a restricted connotation which signifies that the spouse need not sign the same deed as the owner in order to join in the conveyance.  In some jurisdictions, a spouse can subsequently ratify such an instrument.

[i] Smith v. James A. Merrill, 64 Cal. App. 4th 94 (Cal. App. 4th Dist. 1998), Webb v. Trippet, 235 Cal. App. 3d 647 (Cal. App. 1st Dist. 1991).

[ii] Johnson v. Cherry, 726 S.W.2d 4 (Tex. 1987).

[iii] 55 Am Jur 2d Mortgages § 458.

[iv] In re Clements, 194 B.R. 923 (Bankr. M.D. Fla. 1996).

[v] In re Harrison, 236 B.R. 788 (Bank. M.D. Fla. 1999).

[vi] Countrywide Home Loans, Inc. v. Parker, 975 So. 2d 233 (Miss. 2008).

[vii] Beal Bank v. Siems, 670 N.W.2d 119, 123 (Iowa 2003).

[viii] Terminix Intern., Inc. v. Rice, 904 So. 2d 1051 (Miss. 2004).

[ix] Geldard v. Watson, 214 S.W.3d 202 (Tex. App. Texarkana 2007).

[x] Martin v. Martin, 720 N.W.2d 732 (Iowa 2006).

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