The state of Texas is unique in its application of homestead protection. Although this protection is very substantial, it presents serious limits on the ability of a homeowner to mortgage his/her homestead.
The urban residential homestead consists of a lot or lots of 10 acres or less that is located within a city or town. There is no limit on the value of the land and its improvements entitled to homestead protection. Rather, what is defined as homestead is based solely on the size or acreage of the land involved.
The Texas homestead exemption began as protection for the wives and children of the early settlers in the event the man of the house was lured into a not-so-honest game of chance or decided he needed a few dollars more to continue a night out on the town. More seriously though, the wives and children of a deceased breadwinner were secure in their home(stead) and could not be removed because of some improper or manufactured claim of debt.
As a state constitutional protection, it has withstood the test of time and remained virtually unchanged as we have moved from the 19th century through most of the 20th century.
The practical protections of the homestead laws prevent any creditor (except for the mortgage holder, a taxing authority, or the holder of a note created for a home improvement loan) from forcing the sale of the homestead to satisfy nonpayment of a debt. It is difficult to "abandon" the homestead protection to borrow against its equity. An owner who wants to maintain property ownership and be able to borrow against its equity would have to move out of the property and demonstrate it is now being used as rental/income- producing real estate and that he or she has established a new homestead elsewhere.
It is interesting to note that home equity loans were not available in Texas until the constitution was amended, effective January 1998. Home equity loans in Texas involve numerous restrictions and requirements that may not exist for such loans made in other states. The amount of a home equity loan plus the balance of the first mortgage may not exceed 80% of the value of the property, thus leaving a 20% equity cushion at the time of the second lien.
For further information on the Texas Homestead Exemption
For applications contact your county's Central Appraisal District:
Larry Regen, a Broker-Associate, received his Masters of Science degree in Finance in 1985 from the University of Texas at Dallas. He maintains close contact with the most knowledgeable and best-organized lenders in the Dallas area. Some of the above information is courtesy of Allegiance Land Title Company.
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