Homestead Exemption

Let’s say you’re married, and your spouse owns the house, with you guys paying off the mortgage. Then your spouse unexpectedly dies from laughing to death, cuing the lender to come after you. Uh-oh.

The homestead exemption is for cases like this. The homestead exemption is a legal shield residents of a home can use against creditors and property tax collectors when the homeowner spouse dies.

In the U.S., the homestead exemption is not federal, but issued by state. Some states give automatic homestead exemptions, while others require you to file a homestead exemption claim.

So what happens if you make a claim for homestead exemption? Well, it doesn’t mean you just get to keep the house forever for free. Usually, a good chunk of the assessed value (like $50k) is knocked off, but the surviving people living in the home must still pay property taxes on the remaining value (for states that do property taxes). You may or may not be protected from a forced sale depending on how pricey the house is (how much you owe the bank), but even then, you might be able to keep some of the money from the home’s sale under the homestead exemption if a forced sale ends up happening.