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Creditor Protection Offered by the
Texas Homestead Exemption
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's 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's value. This was not possible in Texas until
1998. The amendment allowing this permits home equity loans
to place restrictions on the borrower's 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's 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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