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Homestead Exemption with HELOC

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    Homestead Exemption with HELOC

    Hi - I have a 70k homestead exemption and a 48k HELOC - can someone explain how this would work if I sold my home? Thank you!
    PS - this website is fantastic... and addictive!

    #2
    If you sell your house, the exemption does not apply.

    As with any home sale, in order to pass clear title to the buyer, all liens (Mortgage, HELOC, tax liens, judgments, etc) must be satisfied (i.e. paid, or otherwise resolved).

    Please clarify your question, I think what you are trying to ask is not what you typed.

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      #3
      I guess I am confused as to what the homestead exemption is then?? I am wondering if mortgage and HELOC are satisfied can I come away with any profit or does this all go to the trustee?

      Comment


        #4
        Assuming your home is worth more than the mortgage and HELOC, then yes, you can walk away with some money.

        For example, if your house sells for $230,000 and your mortgage and HELOC, combined, are only $190,000, you would walk away with $40,000 (minus any realtor commission, etc).

        Generally speaking, you don't sell your house during an active BK. In fact, technically, you can't because the house belongs to the BK estate until the BK is discharged or the trustee purges the house from the BK estate.

        The homestead exemption exists to protect you from unsecured creditors. The exemption prevents unsecured creditors (and the BK trustee) from force-selling your home to liquidate that equity to pay unsecured claims. The exemption is meaningless vis-a-vis any secured interest in the house, e.g. mortgage, heloc, etc.

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          #5
          this is what I just read on another site:
          "After paying your mortgage, property taxes, and certain other liens, you can keep the portion of the proceeds which represents your homestead....
          Your homestead is the amount the law allows you to retain, from the sale proceeds, to reinvest in another homestead."

          is this the 70k homestead exemption? (for couple with minor dependents)

          "Your escrow agent will remit the homestead funds to your attorney who will place the funds in to trust. You must reinvest the funds into another homestead within 12 months of the sale. If you do not reinvest the homestead your attorney must send the homestead funds to the Trustee for distribution through your Plan.
          Your escrow agent will pay all funds in excess of your mortgages, property taxes, certain liens, and your homestead to the Trustee for distribution through your Plan."

          this site was in Oregon - I am in the Northeast and it may vary.... (?)

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            #6
            my situation is this - my parents purchased a house over a year ago with the intention that my husband and I and kids would move in (in-law set-up)... we were doing some work to the home, had a baby, filed bk... still have the house..... parents need us in the new house to pay bills (larger house/larger mortgage), heating etc... old house is nearly ready to sell.... I can certainly put any proceeds that I make from old house into mortgage on new house.... any suggestions??? this is all very confusing - thank you again!

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              #7
              That is why you should wait until your BK is discharged before selling your home, that way you don't have to deal with that whole escrow trust thing. Also, that provision would apply if you had unsecured creditors who got a judgment against you and placed a lien on your home. Conceivably, you can use that homestead provision to shut-out judgment creditors from receiving proceeds of the home sale.

              With regards to the HELOC, that would fall under "certain other liens".

              I think you are WAY over-thinking this issue. You sell your house for $X amount, all mortgages, prop. taxes, etc must be paid, what ever is left over is yours. The only time the homestead really comes into play is if you have judgement creditors that were originally unsecured creditors.

              Let me use this example.

              Your home sells for $230,000; but your Mortgage and HELOC combined are $270,000 (and the HELOC agreed to a short sale). You don't magically get $70K because of your homestead exemption. You would walk away from that deal with nothing.

              I hope this clarifies the situation for you

              Comment


                #8
                thanks so much for your clarifications - I do understand I don't just walk away with the 70k (homestead). We are very new into our bk so have a bit over 4 years to go and cannot wait that long to sell (in ch 13 - 60 mo plan). How do I know if I have "judgment creditors"...?
                I am sure I am overthinking this but its still a bit gray for me.... sorry

                Comment


                  #9
                  Oh, so you are in a Chapter 13.

                  Nothing really changes, you need to get permission from the BK trustee to sell your home. And yes, you should be able to keep any exempt equity.

                  Comment


                    #10
                    ok so one more question - do I still have to do the escrow trust thing if I am in a 13?

                    Comment


                      #11
                      Originally posted by sahaley View Post
                      ok so one more question - do I still have to do the escrow trust thing if I am in a 13?
                      Probably not, but don't quote me. In a chapter 13, the trustee doesn't take assets, so the trustee does not have a direct claim on the equity. However, the trustee may specify that you do the escrow trust.

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