COLUMN: Homesteading helps protect home equity

Q. I recently moved to the valley from Los Angeles and have read about home-

steading.

What is it? Do you think that it is a good idea?

A. Homesteading is a legal procedure which allows a homeowner to protect his or her home from creditors.

First, you can only homestead a home in which you reside. Second, you can only protect the amount of equity that you have in the house, up to a maximum of $125,000. For example, a credit card company could not take your home away for unpaid charges of $10,000 if your equity in the home is only $11,000.

There are exceptions as to what the Homestead Act covers.

Homesteading does not protect a homeowner in an association from losing the home due to nonpayment of association fees. The reason for this exception is that when a person buys into an association, the person agrees in advance to accept the governing documents of the association, which allow the foreclosure through deed restrictions.

Other debts that supercede the homestead law include mechanics liens that were lawfully obtained (for example, you did not pay a contractor to install your air conditioner) or the mortgage on your home.

I think homesteading is a good idea because it can afford you much protection. It is a good practice to file a homestead upon purchase, even if you do not have much equity. If you file right away, you won't forget to file sometime in the future. You can easily obtain the form from the county recorder's office or a title or escrow company.

Q. I buy foreclosures at trustee auctions. My problem is with property management companies, associations and trustees regarding the payment of association liens when a foreclosure sale occurs.

My question refers to the order of the overage funds dispersed due to a trustee sale of the first mortgage. It is my understanding that an association lien is in position directly behind the first mortgage, that the date the association filed the lien does not matter because it was prioritized when the bylaws were originally recorded. Am I right?

A. According to state law, the association lien is before all other liens and encumbrances on a unit except those recorded before the declaration of covenants, conditions and restrictions; a first security interest (mortgage) recorded before the date on which the assessment to be enforced became delinquent; or liens for real estate taxes and governmental assessments or charges.

The date of the lien could make a difference. If the homeowner was in default with the association but was current with his first mortgage, the association could foreclose on the property, subject to the underlying trust deed. If the association did not make the mortgage payment on the first or if the association did not sell the unit, the mortgage company would begin foreclosure against the association.

Even if the homeowner became delinquent with the mortgage company first and then with the association, the association could foreclose on the home before the mortgage company.

Questions for Barbara Holland may be sent to Association Q. & A., P.O. Box 7440, Las Vegas, NV 89125. Her fax number is 385-3759.

Barbara Holland, Certified Property Manager, is president and co-owner of H&L Realty and Management Co. She is a member of the Institute of Real Estate Management and is the author of two books on the subject. Holland is a past president of the Greater Las Vegas Association of Realtors.

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