There are three different concepts in Florida Law that all go by the name, “Homestead”. In general, a Homestead is a parcel of real property on which its owner permanently resides, otherwise known as an owner-occupied house. In Florida, and in some other states, Homestead real property receives some very valuable benefits and protections, as compared to non-homestead real property.
1. Exemption For Creditor’s Claims
The first Homestead concept is that a Homestead is exempt from the claims of creditors. In general, this means that if a homeowner owes money to a creditor, based on things like a personal or business loan from a bank, a credit-card account, unpaid medical bills, or other similar claims, and the homeowner is not able to pay, the creditor cannot collect from the homeowner’s Homestead, either by putting a lien on the property, or by forcing the sale of the property in order to pay the creditor’s claim. The public policy underlying the Homestead Exemption is to prevent poverty and the need for public assistance, and to protect debtors, and their families, from their own poor decisions. Courts have consistently held that the Homestead Exemption should be liberally construed in favor of protecting the family home and those whom it was designed to protect.
The Homestead Exemption exempts the Homestead from the claims of creditors both during the homeowner’s life, and upon the homeowner’s death. With very few exceptions, the Homestead is exempt from forced sale by any court and no judgment shall become a lien on Homestead property. The main exceptions are as follows: (a) real property taxes and other assessments levied by the government on the Homestead; (b) consensual liens that are agreed to by the homeowner, such as a mortgage, or fees owed to a homeowners’ or condominium association; and (c) obligations agreed to by the home owner for the improvement or repair of the house, or house, field, or other labor performed on the property, such as construction liens. In addition, because Federal Law trumps state law, Federal Tax Liens, and perhaps other Federal Judgments, can impose a lien on a Florida Homestead, and the Florida Homestead Exemption provides reduced protection in Federal Bankruptcy proceedings.
Upon the death of the owner of the Homestead property, the Homestead Exemption continues to exempt the property from the claims of creditors so long as the deceased homeowner leaves the property to any of their heirs. Heirs are those persons who would be entitled to inherit property for a decedent if the decedent did not leave a Will. Unsurprisingly, heirs are the spouse, descendants, parents, siblings, descendants of siblings, grandparents, and descendants of grandparents of the deceased homeowner.
There are a number of requirements that the property must meet in order to qualify for the Homestead Exemption. The primary requirement is that the property must be actually used as the homeowner, or their family’s, primary residence, along with the actual intent to continue to reside on the property as a permanent residence. The property must also be owned by a natural person, meaning a human being, as opposed to a corporation, limited liability company, or partnership. In addition, if the property is located within a municipality, then the maximum amount of land that can be exempt Homestead is one-half acre. If the property is located outside of a municipality, then the maximum amount of land that can be exempt Homestead is 160 acres.
Once the requirements for the Homestead Exemption have been met, the property automatically qualifies for the Homestead Exemption. Thus, there is no application to submit in order to qualify for the Homestead Exemption. This is in contrast to the tax benefits discussed below, which do require the homeowner to file certain applications in order to qualify for the tax benefits. This helps to illustrate the fact that these really are distinct concepts, as it is possible for a home to qualify for the Homestead tax benefits discussed below, but to fail to qualify for the above-described Homestead Exemption, and vice versa.
2. Homestead Tax Benefits
The second Homestead concept is that a Homestead receives certain tax benefits. In general, the owner of real property in Florida pays taxes each year based on the value of the real property. However, if the property is Homestead property, then $50,000 of the value of the Homestead is exempt from real property taxes.
In addition, since the value of real property may increase from year to year, the homeowner’s tax burden may also increase from year to year. However, if the property is Homestead property, then the amount by which the homeowner’s tax burden may increase from one year to the next is capped at 3% of the prior year’s assessment, or the percent change in the Consumer Price Index, whichever is less. So, even if the real estate market has sky-rocketed, from one year to the next, and the value of the Homestead has increased by 20 or 30%, the owner’s tax burden will still only increase by a maximum of 3% per year, or the percent change in the Consumer Price Index, whichever is less. This cap on the increases in taxes from year to year for Homestead property is known as the Save Our Homes Amendment.
Finally, this Save Our Homes tax savings that may accrue over time, or a portion thereof, up to $500,000 in savings, can be transferred to one Homestead to another if the homeowner sells their Homestead and buys another Homestead. Please note that in order to obtain the tax benefits associated with owning Homestead real property, the homeowner must complete and submit certain applications. These benefits are not obtained automatically. However, once obtained, certain of these tax benefits do automatically renew from year to year, with certain exceptions.
3. Restrictions on Transfers of the Homestead
The third Homestead concept is that there are restrictions on the ability of the owner of Homestead property to transfer the Homestead to others during the homeowner’s life or upon the homeowner’s death. In general, these restrictions apply for the benefit of the spouse and/or minor children of the homeowner, so that the homeowner cannot transfer or leave the Homestead to someone else, which could cause the spouse and/or minor child to lose their home. Note that these restrictions generally apply in a situation in which the Homestead is owned by one spouse only. If, as is often the case, the Homestead is owned jointly by both spouses, then, generally, upon the death of one spouse, the Homestead property will be owned by the surviving spouse.
One such restriction is that upon the death of the homeowner, if the owner is survived by a spouse or minor child, then the homeowner cannot leave the Homestead to anyone other than the spouse, and can only leave the Homestead to the spouse if there is no minor child. If the homeowner is survived by a spouse and minor child or children, then, by operation of law, the Homestead will be inherited as follows: the spouse will inherit a life estate, which means the right to live in the property for the duration of their life, and the homeowner’s descendants will inherit a remainder interest, which means that they will own the property following the death of the surviving spouse.
In the alternative, the surviving spouse will have the option to elect to inherit an undivided one-half interest in the property, instead of a life-estate, with the other one-half interest being inherited by the homeowner’s descendants. If the surviving spouse makes this election, then the surviving spouse will own a one-half interest in the property, and the homeowner’s descendants will own the other one-half interest collectively. So, if there are 2 descendants, then each of them will own a one-fourth interest in the property, for a total of two-fourths, which equals one-half.
Thus, in order to protect the surviving spouse and minor children, the deceased homeowner is not entitled to leave the Homestead to a friend, a business partner, a paramour, or anyone else. Any provision in a Will or Trust which purports to leave the Homestead to someone other than the spouse and minor child is void and unenforceable.
If a deceased homeowner is survived by a spouse and no minor child, then the homeowner may leave the Homestead to the spouse. Otherwise, if the homeowner is survived by a spouse and one or more descendants (which are not minor children of the homeowner), then the Homestead property will be inherited as described above (life estate to the spouse, remainder to the descendants, and the spouse will have the option to inherit a one-half interest instead of a life estate, with the other one-half interest going to the descendants).
If a deceased homeowner is not survived by a spouse or a minor child, then they may leave the Homestead property to anyone they choose. However, as discussed above, if they choose to leave the Homestead property to one of their heirs, then the Homestead property will pass to the heir free of the claims of any of the creditors of the deceased owner. On the other hand, if they choose to leave the property to someone who is not an heir, such as a friend, business partner, or paramour, then the Homestead Exemption will be lost, which means that creditors of the deceased owner will be entitled to force the sale of the property in order to collect their debts before the property passes to the non-heir.
In addition, during the life of the owner of the Homestead property, the owner cannot transfer or mortgage the property unless the deed or mortgage is signed by the owner’s spouse. So, even though the spouse is not an owner of the property, they are protected by Florida Homestead Law from their spouse transferring or mortgaging away their home.
4. Homestead Issues
There are many complicated issues that can arise in relation to Homestead property. And, since the family home is, for most of us, the most valuable asset that we own, these issues can be very consequential. Just a few examples of such issues include whether you are entitled to the Homestead Exemption:
a) if you live on the property for only part of the year;
b) if you rent out part of the home;
c) if you have multiple structures built on one property;
d) if title to the property is held by a trust;
e) if you own a life estate, an enhanced life estate, a remainder interest, or a one-half or other fractional interest in the property;
f) if you have combined, and built your home on, multiple lots;
g) if you are living temporarily away from your home;
h) if you sell your home and buy another one; or
i) if your home is destroyed by a fire or other casualty and is covered by insurance;
As discussed above, Florida Homestead Law provides Florida home owners with many valuable benefits and protections. If you have any questions about the benefits and protections that may be available to you, consider contacting a knowledgeable Florida real estate attorney in order to ensure that your interests are protected.
Please note that this article is intended for informational purposes only, and that nothing contained in this article may be relied upon as legal advice. Every situation is unique and requires unique attention and legal advice.
If you have any questions or concerns about the benefits and protections that may be available to you under Florida Homestead Law, please contact our office to schedule an appointment to discuss your unique situation.
This article is for general information only and is not intended as and does not constitute legal advice or solicitation of a prospective client. It should not be relied on for legal advice in any particular factual circumstance.