Texas homestead protection laws protect property owners from the seizure of their property by the claims of creditors in the event of a foreclosure or change in economic circumstances. When it comes to the creation of a loan for a borrower based on a homestead, the distinction between a homestead vs non-homestead property has considerable implications on the validity of the loan. Here are two important distinctions between homestead and non-homestead properties:
Homestead vs Non-Homestead
A property can only be designated as a homestead if it is owned by an individual or family and is the owner’s principal residence. All other properties where the owner does not hold principal residence are non-homestead properties, leaving a person who owns multiple properties only able to designate one as a homestead. In summary, a homestead is an owner-occupied, residential property that serves as the owner’s principal residence.
Rural vs Urban
When designating a property as a homestead, the property must also be designated as an urban or rural homestead. A rural homestead is limited to a maximum of 200 acres for families and 100 acres for a single adult.
A homestead is considered to be urban if the property is located within the physical or jurisdictional limits of a municipality or within a platted subdivision, served by police and/or paid or volunteer fire protection, and at least three of the following services are provided by a municipality or under contract to a municipality: electric, natural gas, sewer, storm sewer, and/or water. The size limit for an urban homestead is 10 acres with improvements, and the entirety of the property must lie within adjacent parcels. An urban homestead may be a home, a place of business, or both. If the total acreage of a property exceeds the maximum acreage for a homestead, the excess acres beyond the homestead are still susceptible to seizure by creditors.
The distinction between an urban and rural homestead affects issues such as whether the property can qualify as an urban business homestead and the amount of acreage subject to a homestead exemption.
Additional Distinctions
In addition to the distinctions and specifics regarding the designation of a homestead property mentioned above, there are other situations and circumstances that can complicate the legal process. For example, the difference between where a person currently resides and where that person intends to live in the future affects what will legally be considered that person’s homestead. Another common issue has to do with life estates for widows and widowers, wherein the rights of ownership of a property are altered once the owner passes away. Additionally, if a married couple is looking to borrow money there is a requirement for the lien to be within a written contract and signed by both spouses.
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Looking for clarification on the legal implications of a homestead vs non-homestead property in terms of the creation of a loan? Need help in mending a situation in which the homestead vs non-homestead designation of a property was not noted prior to the creation of a loan?
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Sources: Tex. Prop. Code § 41.002; Tex. Prop. Code § 11.13; Tex. Prop. Code § 53.254; Silvers v. Welch,127 Tex. 58, 62, 91 S.W.2nd 686, 687 (1936); Wilcox v. Marriott, 230 S.W.3rd 266, 270; In re Kang, 243 B.R. 666, 669; and Farrington v First Nat’l Bank, 753 S.W.2nd 248, 250-51