A
Review of Nevada and
California Homestead Laws
Nevada's
homestead law is of constitutional origin. Article 1, § 14 of the
Nevada Constitution states, in part:
The privilege
of the debtor to enjoy the necessary comforts of life shall be recognized
by wholesome laws, exempting a reasonable amount of property from seizure
or sale for payment of any debts or liabilities hereafter contracted[.]
More to
the point, Article 4, § 30 of the same document deals specifically
with homestead exemptions:
A homestead
as provided by law, shall be exempt from forced sale under any process
of law, and shall not be alienated without the joint consent of husband
and wife when that relation exists; but no property shall be exempt
from sale for taxes or for the payment of obligations contracted for
the purchase of said premises, or for the erection of improvements thereon[.]
The above
constitutional provisions are not self-executing. Instead, the conditions
upon which a homestead in Nevada may be granted have been left entirely
to the legislature. See Roberts v. Greer, 22 Nev. 318, 40 P. 6 (1895).
To this end, the legislature has enacted several statutes that concern
the homestead exemption. These will be reviewed first, followed by a
look at how the courts have interpreted the laws. With one glaring exception,
the courts have supported the intent of the legislature.
The main
homestead statutes are found in chapter 115 of NRS. A "homestead"
is a quantity of land, together with the dwelling house thereon and
its appurtenances; a mobile home, whether or not the underlying land
is owned by the claimant; or a unit of real or personal property selected
by the claimant. NRS 115.005 (2). The amount of the homestead is the
amount of equity in the property which does not exceed $125,000. NRS
115.010 (2). The homestead is not subject to a forced sale on execution
or any final process from any court, with specific exceptions. NRS 115.010
(1). These exceptions, which allow a creditor to attach the homestead,
are for enforcement of the payment of obligations contracted for the
purchase of the property, or for improvements made thereon (including
any mechanic's lien lawfully obtained); or for legal taxes; or for any
mortgage or deed of trust thereon executed and given; or for any lien
to which prior consent has been given by the property owner(s). NRS
115.010 (1), (3).
To be effective,
a declaration of homestead must be made in writing, and recorded as
a conveyance affecting real property. NRS 115.020 (1), (3). A homestead
can be declared by either a husband or wife, or both of them, or a single
person, NRS 115.020 (1), and also by tenants in common. NRS 115.030.
A homestead cannot be mortgaged or alienated in any way by one spouse
when a married couple has declared a homestead. Rather, both must agree
and sign the mortgage or alienation. NRS 115.040 (1). Furthermore, a
homestead can only be abandoned by a declaration in writing which is
recorded in the same manner and the same office in which the homestead
declaration was recorded. NRS 115.040 (2).
If the
equity in a homestead property exceeds $125,000, a judge can order the
property sold. The owner(s) of the homestead receive $125,000 from the
sale, and the rest is applied to the satisfaction of the judgment creditor
who executed against the homestead. NRS 115.050 (1), (2).
If the
property declared upon is community property, the homestead is also
considered community property, with a right of survivorship. Upon the
death of one, the property vests absolutely in the survivor. NRS 115.060
(1). If the property declared upon as a homestead is the separate property
of either spouse, the homestead protection is joint while both spouses
are alive. When one spouse dies, if the homestead was the separate property
of the survivor the homestead exemption continues. If the homestead
was the separate property of the decedent, the exemption continues as
to any debt or liability existing against the spouses, or either of
them, at the time of the death of the decedent, but ceases as to any
subsequent debt of the survivor. NRS 115.060 (2). These rules regarding
married couples and homesteads can be altered by a premarital agreement.
NRS 115.060.
If a single
person who held a declared homestead dies, the homestead exemption continues
as to any debt or liability existing against him at the time of his
death and as to any subsequent debt or liability against a person who
was living in the house at the time of the death, if that person continues
to reside on the homestead property and is related to the decedent by
consanguinity or affinity. NRS 115.060 (3). If two or more unrelated
persons declare a homestead as tenants in common, upon the death of
any the homestead continues until the last tenant in common dies, so
long as they continue to reside on the property. NRS 115.060 (4).
The last
statute in chapter 115 concerns taxes:
Property
not exempt from sale for taxes. Nothing in this chapter shall be so
construed as exempting any real or personal property from sale for taxes.
NRS 115.080.
The above
is the basic statutory scheme of the homestead exemption in Nevada.
However, a few other statutes touch upon the issue, and must be mentioned.
NRS 21.090 (1) and (m) make it clear that homestead property is exempt
from execution. NRS 100.010 and 100.020 concern "preferred labor
claims," which gives laborers preferred claims against the property
of a judgment debtor. However, "[n]othing contained in NRS 100.010
and 100.020 shall be construed to affect any homestead claims . . .
created and existing before the claim of such laborer accrued."
NRS 100.030. Under Nevada's partnership statutes, a partner has certain
rights in specific property of the partnership. NRS 87.250. To this
end:
A partner's
right in specific partnership property is not subject to attachment
or execution, except on a claim against the partnership. When partner-ship
property is attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner, cannot claim any
right under the homestead or exemption laws.
NRS 87.250
(c)(emphasis added).
Most important
is NRS chapter 146, entitled "Support of family; small estates."
Under this chapter, surviving spouses and minor children are entitled
to a homestead and certain provisions, as well as the personal property
of the decedent which is exempt by law from execution. NRS i46.010,
146.020. A homestead created in this manner is denominated a "probate
homestead," and does not have to be declared to be effective.
These are
the significant statutes relating to homestead in Nevada. Case law interpreting
them have furthered the benevolent purpose of the constitutional clauses
quoted above, and in one case, has gone beyond the clear wording of
a statute to reach an equitable result.
The Nevada
Supreme Court has recently reiterated the purpose of the homestead laws:
The purpose
of the homestead exemption is to preserve the family home despite financial
distress, insolvency or calamitous circumstances, and to strengthen
family security and stability for the benefit of the family, its individual
members, and the community and state in which the family resides. These
values are of greater importance to the polity than the just demands
of those who may be financially disadvantaged as a result of the homestead
exemption.
Herndon
v. Grilz, 112 Nev. 873, 878, 920 P.2d 998 (1996)(quoting Jackman v.
Nance, 109 Nev. 716, 718, 857 P.2d 7 (1993)). To this end, the homestead
exemption is to be construed liberally in favor of the persons for whose
benefit it was created. Jackman, supra; Roberts v. Greer, 22 Nev. 318,
40 P. 6 (1895). However, since the homestead exemption was unknown to
the common law, it is limited by the constitutional and statutory provisions
which created it. Jackman, supra; Smith v. Stewart, 13 Nev. 65 (1878).
To gain
the benefit of the homestead exemption, one must substantially comply
with the applicable statutory provisions. McGill v. Lewis, 61 Nev. 28,
111P.2d 537 (1941). Once this occurs, the homestead exemption is absolute
up to the constitutional and statutory limits. Hawthorne v. Smith, 3
Nev. 182 (1867).
To further
the purposes of the homestead exemption, the courts have often extended
the reach of the exemption. For example, the right of homestead is not
limited strictly to a residence. If a dwelling is used for a business
purpose, but it also serves as a bona fide residence, homestead rights
still attach. Jackman, supra; Smith v. Stewark, supra; Clark v. Shannon,
1Nev. 568 (1865).
The courts
have also been quite liberal on issues concerning the timing of the
filing of a homestead declaration. In Myers v. Matley, 318 U.S. 622
(1943), the United States Supreme Court had to apply Nevada's homestead
laws in the context of bankruptcy. It held that the settled law of Nevada
entitles a property owner to his homestead exemption if the declaration
and recording occurs at any time before actual sale under execution.
Other cases leave no doubt as to this conclusion. See, e.g., In re Zohner,
156 B.R. 288 (D. Nev. 1993); Massey-Ferguson Inc. v. Childress, 89 Nev.
272, 510P.2d 1358 (1973); Hawthorne v. Smith, supra; Smith v. Stewart,
supra, Lachman v. Walker, 15 Nev. 422 (1880); Hemdon v. Grilz, supra;
In re Estate of Walley, 11 Nev. 260 (1876); Nevada Bank of San Francisco
v. Treadway, 17 F. 887 (D. Nev. 1883). This rule was extended to its
ultimate reach in Herndon v. Grilz, supra. Here, the Nevada Supreme
Court, just 3 years ago, held "that when the right to claim a homestead
and a judgment lien attach simultaneously to a piece of property, the
homestead right prevails." 112 Nev. at 878 (emphasis added). Thus,
a declaration of homestead will defeat a prior lien of a creditor in
Nevada, so long as the declaration comes before the property is executed
against.
Concerning
the issue of the mortgage, alienation or abandonment of a homestead,
the courts have strictly applied the requirements of NRS 115.040, supra.
This protects the interests of the spouse who does not agree to mortgage
or abandon the property. See, e.g., Goldman v. Clark, 1 Nev. 607 (1866);
First Nat'l Bank v. Meyers, 39 Nev. 235, 150 P. 308 (1916); Mullikin
v. Jones,
7] Nev. 14, 278 P.2d 876 (1955); Allen v. Hernon, 74 Nev. 238, 328 P.2d
301 (1958); In re Lemons & Assocs., Inc., 69 B.R. 360 (D. Nev. 1987).
The courts also use the approach in construing NRS 115.060, supra, upholding
the homestead rights of survivors upon the death of a person who had
previously declared a homestead. See, e.g., Smith v. Shrieves, 13 Nev.
303 (1878); Roberts v. Greer, supra; In re Estate of Cook, 34 Nev. 217,
117 P. 27 (1911); In re Am. Business Mech., Inc., 6 B.R. 166 (D. Nev.
1980).
The lone
instance of the Nevada Supreme Court creating an equitable exception
to the homestead laws occurred in Breedlove v. Breedlove, 100 Nev. 606,
691P.2d 426 (1984). Here, the parties had five children during the course
of their marriage, which ended in divorce. The wife received custody
of the children and the husband was ordered to pay child support amounting
to $175 per week. This occurred in Indiana. The husband defaulted on
his payments, moved to Nevada, and re-married. The wife obtained a judgment
from an Indiana court awarding her approximately $90,000 in child support
arrearages. She filed the judgment in the Clark County District Court,
and the husband had notice of this fact.
Shortly
thereafter, the husband filed for a homestead exemption on his home
in Nevada, which he shared with his second wife and her children from
a previous marriage. The first wife moved in the district court to have
the homestead exemption ruled inapplicable to her judgment, arguing
that public policy requires an exception to the homestead laws when
a party is seeking to enforce a child support award against the homesteader.
The district court denied the motion. The supreme court reversed. The
court acknowledged that, on its face, the homestead law is enforceable
against any party seeking to execute on the homestead, unless that party
can demonstrate that she comes within one of the statutory exceptions.
See NRS 115.010; Article &, § 30 of the state constitution.
The first wife could not do this. However, the court believed that interpreting
the statute as written would lead to an absurd result and contravene
the legislature's clear intent in enacting the statute. The court stated:
Homestead
laws in this country were designed for the purpose of protecting families
and making families secure in their homes for creditors they are unable
to pay. As such, when an ex-wife or child attempts to enforce court-ordered
support payments, the rationale behind upholding the homestead exemption
can no longer be said to apply since the policy of protecting the family
would no longer be served by such an application, A former family member
attempting to enforce a support judgment can hardly be said to be a
creditor of the sort against which the legislature sought to protect
the homesteader, and it would be extremely unfair to permit the homestead
to be used as a shield under these circumstances to insulate the father
from being forced to pay the support that is owed to his children.
I-d. at
608 (citations omitted).
One justice
dissented, on the ground that if any exception is to be created in the
homestead law for child support payments, it should be the legislature
which does it, and not the court. The dissent is correct, for if the
court can create equitable exceptions to the homestead law, no debtor
is protected by the law which is designed for that very purpose. Furthermore,
since the law was designed to protect families from creditors, why was
Mr. Breedlove's second family not worth protecting? The court merely
pointed out that he owed his first family a duty of support before his
second marriage arose, and applying the law to protect the second family,
at the expense of the first, was not a result intended by the legislature.
This is weak reasoning, given that the legislature has never addressed
the issue. Breedlove is a good example of the maxim that "hard
cases make bad law." Although the result was just, the homestead
law is no longer as secure as it was prior to this decision.
As to so-called
"probate homestead," see NRS chapter 146, supra, the courts
have consistently interpreted the statutes to effectuate the intent
of the legislature to provide for the security of widowed spouses and
minor children. See, e.g., Estate of Walley, supra; Estate of Cook,
supra; Luria v. Zucker, 87 Ney. 471, 488 P.2d I159 (1971); In re Estate
of Lavendol, 46 Nev. 181, 209 P. 237 (1922); In re Foster's Estate,
47 Nev. 297, 220 P. 734 (1923); Hunter v. Downs, 53 Nev. 132, 295 P.
438 (1931); In re MacDonnell's Estate, 56 Nev. 346, 53 P.2d 625 (1936);
French v. French, 91 Nev. 248, 533 P.2d 1357 (]975).
In summary,
the homestead laws of Nevada have been promulgated and interpreted (with
one exception) with the intent to provide the constitutional protection
for debtors as mandated by Article 1, § 14 and Article 4, §
30. The courts have aided in this by interpreting the law liberally
in favor of those persons for whose benefit it was created. California
also uses this approach to its homestead laws, which will now be summarized.
To be more concise, only the differences between California and Nevada
will be emphasized.
California
has a bifurcated homestead law. California's Code of Civil Procedure
(C.C.P.) §§ 704.710 to 704.850 concerns the state's "automatic
homestead exemption." C.C.P. §§ 704.910 to 704.995 covers
the "declared homestead exemption." These will be discussed
seriatim.
The protection
provided by the automatic homestead exemption is separate and distinct
from the protection afforded by a declared homestead. In re Mulch, 182
B.R. 569 (N.D. Cal. 1995). To use this automatic exemption, there must
be a forced sale of the debtor's property. As interpreted by the courts,
the only time this can occur is in the context of bankruptcy, when the
trustee in bankruptcy has a hypothetical levy on the debtor's homestead
property. In re Wilson, 90 F.3d 347 (9th Cir. 1996); In re Mulch, supra;
In re Amiri, 184 B.R. 60 (B.A.P. 9th Cir. 1995); In re Hsia, 183 B.R.
201 (N.D. Cal. 1995). When the automatic homestead provision is used,
the amounts exempted are the same as for declared homesteads in California.
(These amounts are discussed infra.) It must be emphasized that this
type of homestead exemption exists is the absence of any recorded homestead
declaration. In re Morse, 11 Cal. 4th 184, 900 P.2d 1170, 44 Cal. Rptr.2d
62D (1995); In re Sanford, 8 B.R. 761 (N.D. Cal. 1981); In re Wilson,
supra.
Like the
situations regarding declared homesteads, the automatic homestead exemption
has been broadly construed. For instance, in In re Arrol, 207 B.R. 662
(N.D. Cal. 1997), the court held that the automatic homestead exemption
was available to a Chapter 7 bankruptcy debtor whose residence was not
situated in California, since the statute did not limit this type of
homestead to dwellings located within the state. This is because the
automatic homestead exemption does not vest the debtor with any interest
in the real property. (Rather, the debtor only has the right to a specified
amount of money after the sale of the homestead, and not a right to
retain the homestead itself. Cf. In re Bernard, 40 F.3d 1028 (9th Cir.
1994)). Thus, interstate comity is not affected by a California court
applying the automatic homestead to property located in another state.
Another
instance of liberal construction is demonstrated by In re Hsia, supra.
Here, the court held that where family members hold property in joint
tenancy, each family member is entitled to a full homestead exemption
for his partial ownership. This allows for more than one homestead exemption
being applied to the same property.
One last
example is demonstrated by In re Moffat, 107 B.R. 255 (C.D. Cal.), aff'd,
959 F.2d 740 (9th Cir. 1989). Here, the court held that a debtor was
entitled to the automatic homestead exemption on property he no longer
owned, but in which he continued to reside, as the settlor and beneficiary
of a revocable trust.
The liberal
construction of the law applies to declared homesteads as well. See,
e.g., In re Jones, 106 F.3d 923 (9th Cir. 1997); In re Shelley, 184
B.R. 356, afl'd, 109 F.3d 639 (B.A.P. 9th Cir. 1995); Haaland v. Corporate
Management, Inc., 172 B.R. 74 (S.D. Cal. 1989). A declaration of homestead
protects property up to the level of exemption. Tassone v. Toyar, 33
Cal. Rptr.2d 786, 28 Cal. App.4th 765 (1994). The current exemption
amounts are:
1) $50,000,
unless the judgment debtor or his/her spouse who resides in the homestead
is described in paragraph 2 or 3;
2) $75,000,
if the judgment debtor or his/her spouse who resides in the homestead
is at the time of the attempted sale of the homestead a member of a
family unit, and there is at least one member of the family unit who
owns no interest in the homestead or whose only interest in the homestead
is a community property interest with the judgment debtor;
3) $125,000,
if the judgment debtor or his/her spouse is a person 65 years of age
or older; or a person physically or mentally disabled and as a result
of that disability is unable to engage in substantial gainful employment;
or a person 55 years of age or older with a gross annual income of not
more than $15,000 if single or $20,000 if married, and the sale is an
involuntary sale.
C.C.P.
§ 704.730. As can be seen, unlike Nevada, California has different
levels of exemptions for different people. However, similar to Nevada,
a declaration of homestead must be made and recorded to gain the benefits
of the declared homestead laws. See, e.g., In re Amiri supra; In re
Wilson, supra.
Another
major difference between. California and Nevada declared homestead law
is the presence of C.C.P. § 704.960. This statute exempts the proceeds
of a voluntary sale of a declared homestead for 6 months, If the proceeds
are used for a new dwelling, the new dwelling may be made a declared
homestead within the 6 month period. If this is done, the declaration
of the new dwelling's homestead is backdated to that of the dwelling
which was sold. This statute allows someone to sell their home, yet
retain their declared homestead exemption if they roll the proceeds
over into a new home within 6 months, with the proceeds protected from
attachment (because of the backdating) even when there is no homestead
in existence. See In re Mulch, supra. This rule is only available for
declared homesteads, which makes this rule the most significant difference
between California's automatic homestead and its declared homestead.
Id.
Another
difference between California and Nevada homestead laws concerns judgments
for child, family or spousal support. Wherein the Breedlove court, supra,
created an exception to Nevada's law, California's exception for such
judgments is statutory. C.C.P. § 704.950 (b). This is the preferred
method for such an issue.
Another
difference is also of importance. In Nevada, a declared homestead will
defeat a judgment lien so long as the declaration occurs before the
property is executed against. In California, the declaration only defeats
the lien if it was recorded prior to the time the judgment was recorded
to create the judgment lien. C.C.P. § 704.950 (a)(1). Thus, Nevada
provides more protection for the tardy homesteader.
Lastly,
there is a difference in the area of abandonment of a declared homestead.
Whereas in Nevada such an intention must be declared in writing and
recorded to be effective, in California abandonment can be implied when
a homeowner establishes another dwelling as his personal residence,
even if there is no declaration of homestead made on the second property.
Webb v. Trippet, 286 Cal. Rptr. 742, 235 Cal. App.3d 647 (1991).
The above
review shows the prominent features of Nevada and California homestead
laws. There are numerous differences between them. However, if the rules
are followed, both will provide protection against judgment creditors.
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