How Does the Homestead Exemption Concept Apply to Judgments?

You might be familiar with the homestead exemption concept as it applies to local property taxes. With a homestead exemption applied, a property owner’s taxes are reduced or eliminated. But did you know that a similar concept can be applied in other areas? Civil judgments are just one example.

A civil judgment is a decision rendered in civil court. Judgments often involve monetary awards of some sort. When an award is relatively small, the losing party (also known as the judgment debtor) might be able to pay up right away. Things could be different with a sizable award.

The homestead exemption comes into play when a winning party (also known as the judgment creditor) either attaches a judgment lien to the debtor’s personal property or petitions the court for a writ of seizure.

Liens and Writs of Seizure

Judgment liens and writs of seizure are two advanced tools for collecting from deadbeats who have the means to pay but are failing to cooperate. A closer look at each one reveals their differences.

1. The Judgment Lien

The judgment lien works like any other lien. It attaches a financial interest to the property in question. That property cannot be sold or transferred without satisfying attached liens. There are exceptions in some states where judgment liens are concerned.

2. The Writ of Seizure

The writ of seizure is a court order giving the local sheriff authority to seize a debtor’s assets, sell them, and forward the proceeds to the creditor. Writs of seizure are almost always enforced against real estate, though other types of property are in play.

Applying the Homestead Exemption

With an understanding of judgment liens and writs of seizure, let us apply the homestead exemption concept. In a property tax situation, the property owner’s homestead exemption dictates that a certain value of his property is not counted when determining his tax bill.

Let’s say he has a $100,000 exemption on a home worth $150,000. That means the total value of his home subject to property tax calculations is $50,000. We can apply the same concept to judgment liens and writs of seizure.

In a state with a homestead exemption, a certain value of a person’s property is protected against debt collection. Again, let us choose an arbitrary value of $100,000. If a property with a judgment lien attached sold for $200,000, only half of the sale proceeds could go toward settling the debt.

In a writ of seizure scenario, the property could be seized and sold to satisfy an outstanding judgment. But the first $100,000 of the proceeds would be off-limits. They would go to the debtor or whoever actually owns the property in question. Any money left over would go to the creditor.

Making Collection a Bit More Challenging

The collection experts at Salt Lake City’s Judgment Collectors say that homestead exemptions can make collection a bit more difficult. However, judgment creditors and their collection agencies have other options. Some of the options can mitigate the need to file judgment liens or request writs of seizure, thereby taking the homestead exemption out of the equation entirely.

As for the exemption itself, it is almost always reserved strictly for a debtor’s primary residence. I personally do not know of any states that would apply the exemption to a vacation home, an investment property, or even a business.

Now you know how homestead exemptions apply to judgments. If you ever find yourself on the losing end of a judgment, you may find at least some protection against collection in a homestead exemption.