The Meaning of Homestead

Homesteading was a way for home ownership for previous generations.

Webster's defines homestead, when used as a noun, as home and land occupied by a family, ancestral land or land acquired by the United States after settling and developing the property. As a verb, homestead is defined as the act of settling on land to establish a homestead. In real estate law, the term homestead applies to a legal life estate a family has in the home they occupy.

History

Congress passed the Federal Homesteading Act in 1862. This act encouraged settlement of wilderness areas. Establishing a homestead involved living on the land for a specific amount of time and adding improvements. Homesteading was a way to establish property ownership without purchasing the land outright. Except for Alaska, the program ended in 1976. Ten years later the act expired for Alaska. In 2010, homesteading a property refers to establishing a legal life estate.

Benefits

The Federal Homesteading Act helped families financially by giving them land in exchange for improving the property. A homestead exemption in 2010, when referring to the definition as a legal life estate, is another way to help families financially. In this instance, it guarantees the family will retain some portion of their monetary interest in the property, should a circumstance threaten their home ownership. The funds will help the family make a new start, just as the Federal Homesteading Act gave families a new start in previous generations.

Features

State law creates the legal life estate or homestead. Because of this, the extent of the homestead protection varies by state. In some instances, the family receives a specific amount after a court sale of the home. Protection applies to the entire property in some other states. In these instances the family receives all the funds, which pay family debts, beginning with secured debts.

Function

In essence, the exemption protects a portion of the property from creditors. State law determines the extent of protection. This protects a percentage of the property from creditor judgments, excluding property tax and mortgages secured by the property.

Considerations

A family can only have one homestead exemption at a time. Not all states have laws establishing the homestead exemption. In some states, the exemption is automatic for a family living in a home which they either lease or own. Some states require the family to file for the exemption. Failure to file will result in no protection.

References

• Department of Natural Resources: Homesteading
• Modern Real Estate Practice; Galaty, Allaway and Kyle; 2006