Nevada has a very generous $550,000 homestead exemption. The purpose of this article is to explain what a homestead is, how it can be secured, what is covered, and what is not covered by a homestead.
What is a homestead exemption?
The Nevada homestead exemption laws are set forth in NRS 115. It is purely statutory, meaning that the homestead law is created by statute and cannot be modified by a court or an administrative act. It’s here to stay.
In general, the Nevada homestead law protects your home from foreclosure by any general civil creditor of yours, such as for medical bills, credit card debt, business and personal loans, liabilities arising from a car accident, and even a bankruptcy filing. This means that if you are sued for any liability listed above, the creditor can lien your home, but he can’t foreclose on it.
The policy behind this law is to protect Nevada residents from losing their home in the event of some unforeseen catastrophe.
What does a homestead cover?
A homestead will apply to your primary residence and all other buildings in your property and the land upon which it sits (provided that there is just one deed that all structures are on).
For example, if your home is on a five-acre plot of land with other buildings, all of these are covered by your homestead.
If you have a casita attached to or separate from your home, it’s covered as well.
If you own a four-plex and live in one unit as your primary residence, all four units are protected.
Can I record a homestead for more than one property?
No. A homestead only protects your primary residence. By definition, you can only have one primary residence.
What if my second home/vacation property is worth more than my primary residence?
Too bad. A homestead only protects your primary residence.
Can I protect my second home?
Absolutely. Hold it in a limited-liability company (LLC).
How do I secure a homestead exemption for my home?
It’s really quite easy. You simply fill out a Declaration of Homestead form, have it notarized and record it with the Clark County Recorder. A copy of the form which can be used can be obtained from the Clark County Assessor office at www.clarkcountymv.gov/assessor/services/page/homestead.aspx
The form must be printed in black ink only. You have to be very careful not to write in any margins, or the recorder’s office will not record it. The recording fee is $40.
Can I record a homestead exemption on a condominium?
Yes, provide it’s your primary residence.
What about a mobile home?
Yes, provided it is your primary residence.
Must I own the land to secure a homestead for my mobile home?
No. You can secure the homestead exemption for your mobile home only. If you also happen to own the land, it is also protected by your homestead.
What is the dollar amount of the homestead exemption?
Under current Nevada law, a whopping $550,000 of equity is protected by your homestead.
For example, your home is worth $300,000, and there is no mortgage. Your equity is $300,000. No creditor of yours can foreclose on your home because up to 550,000 of equity is protected.
Say your home is worth $800,000. You have a first mortgage of $450,000 and a second mortgage or a secured line of credit for $150,000. Your encumbrances total 600,000. You, therefore, have $200,000 of equity. Since $200,000 is less than $550,000, your home is protected.
If your home is worth $800,000 and you have no mortgage, or your mortgage is less than $250,000, your equity exceeds $550,000, and your home can be foreclosed. Yikes!
If I have over $550,000 of equity in my home, can I protect it by creating an LLC and holding my home in it?
Not advised. One of two bad things will happen if you do this: either it won’t work for asset protection, or you will unnecessarily trigger a huge income tax liability for yourself.
Can I protect my home if I have over $550,000 of equity?
Absolutely. Look for an article in next month’s issue on how you can effectively “supersize” your homestead exemption to provide unlimited protection.
What if I’ve already been sued? Can I still record a homestead declaration?
Yes, you can record a homestead any time, and it’s effective immediately regardless of when the liability arose.
Do I need to record a new homestead declaration if I transfer my home into my trust?
No. NRS 115.020 (5) explicitly provides that your homestead is not extinguished simply by transferring your home into a trust you created for yourself.
If you are married, must both spouses sign the homestead declaration?
No, only one spouse needs to sign the declaration. NRS 115.020(i).
Can each spouse record a homestead declaration and double the protection?
No. The $550,000 of equity protection applies to a single person or a married couple.
Can two unmarried persons who jointly own their home each record a homestead and double the protection?
Yes. While this makes no sense to me as a disincentive to be married, Nevada law allows each unmarried person to record his or her own homestead declaration. NRS 115.030.
What if I move to a new home, must I record a new homestead for the new home?
Yes. Each homestead applies only to the property for which it was recorded. If your new home will be your primary residence, then a new homestead must be recorded for that property. Your homestead on your prior home will no longer be effective as its no longer your primary residence.
Are there any creditors that can lien and foreclose on my home?
Yes. The Nevada homestead exemption protects your home from general civil creditors. It will not prevent the government from foreclosing on a tax lien. It similarly won’t protect against claims for alimony or child support, from a Medicaid recipient’s benefits received during the owner’s life which the government seeks to collect after his or her death.
What if I don’t pay my mortgage? Will my homestead protect my home from my lender, foreclosing?
Absolutely not. When you bought or refinanced your home, you authorized the lender to proceed against the collateral for the loan, namely your home. If you don’t pay your obligation on the note, your homestead doesn’t stop the lender from foreclosing. This applies to all lenders on your property, whether a first or second lienholder.
Does my homestead protect me against mechanic’s liens?
No. Anyone who has supplied materials to improve your home or has furnished labor has the statutory right to lien your home for the value of materials supplied or labor performed. If the debt is not satisfied, they can foreclose on your home.