How to Protect Your Home from Debt Collectors: Minnesota’s Homestead Exemption

Short Sale Home

Can I Protect My Home From the Claims of Creditors?

Yes, Minnesota Statutes Section 510.01 provides an exemption that protects a judgment debtors’ homestead from seizure or sale under legal process. Minn. Stat. § 510.01. A homestead is defined as the “house owned and occupied by a debtor as the debtor’s dwelling place, together with the land upon which it is situated…” Id. An owner of a homestead exempt property may sell and convey the homestead without subjecting it, or the proceeds of its sale for the period of one year after sale, to any judgment or debt from which it was exempt. Minn. Stat. § 510.07; Sisco v. Paulson, 45 N.W.2d 385, 386 (Minn. 1950).

The homestead exemption is, however, limited as to both area and value. Section 510.02 provides that: “[t]he homestead may include any quantity of land not exceeding 160 acres [and]…may not exceed $390,000. Minn. Stat. § 510.02, subdiv. 1 (where the homestead is used primarily for agricultural purposes the value is limited to $975,000). Thus, when the value of the property exceeds these limits, the judgment creditor may execute on the excess in satisfaction of the homeowner’s debts.

Upon Sale of the Homestead, Does the Grantee Acquire the Property Free and Clear of Claims of the Original Debtor’s Creditors?

The grantee of the homestead property acquires the title to the property exempt or immune from the claims of the grantor’s creditors. Minn. Stat. § 510.07 (homestead exemption is not lost during a transfer by sale); see Hentges v. P.H. Feely & Son, Inc., 436 N.W.2d 488, 491 (Minn. Ct. App. 1989) (citing Sisco, 45 N.W.2d at 387) (holding that a lapse of time between the execution of a deed and the recording of it does not provide an opportunity for a judgment lien to attach); see also Neumaier v. Vincent, 43 N.W. 376 (Minn. 1889) (holding that lien does not attach in time between purchase and actual occupancy).

In Hentges, the respondent creditor P.H. Feely & Son, Inc. (“Creditor”) had docketed five judgments against a Mr. Peter Rutt (“Rutt”). 436 N.W.2d at 490. Rutt was the record owner of property located in Scott County, Minnesota, at the time the judgments were docketed. Id. Appellants Steven and Jeanette Hentges (“Hentges”) had purchased the property from Rutt under a contract for deed. Id. After the Hentges discovered the judgments they requested an order removing the Creditor’s judgments from the record. Id. Without explanation, the Hentges request was denied by the trial court by order dated April 4, 1988. Id. However, the Minnesota Court of Appeals reversed the trial court’s determination finding that because Rutt homesteaded the property prior to selling it to the Hentges, the Hentges acquired the property free and clear of Rutt’s creditors by virtue of section 510.07. Id. at 491.

Does a Judgment Lien Take Priority Over a Later-Recorded Mortgage Where the Property is an Exempt Homestead?

No. A judgment lien does not take priority over a later-recorded mortgage. The basic rule of lien priority law states that “in disputes between creditors concerning a lien on the debtor’s property, the first creditor to perfect the lien shall prevail.” (See footnote 1.) A judgment lien is perfected where the creditor has satisfied each of the prescribed steps a lien holder must take in order to establish a legally enforceable lien.

In order for a judgment lien to be perfected it must first attach itself to the title of the debtor’s property. (See footnote 2.) A judgment lien does not, however, attach to property that is exempt. (See footnote 3.) A lawfully obtained mortgage, on the other hand, is not precluded from being perfected against a homestead exempt property. (See footnote 4.) The result is that the mortgage takes priority over the judgment lien even though the lien preceded the mortgage.

For example, in NationsBanc Mortgage Corp. v. Sec. Bank & Trust, the Minnesota Court of Appeals addressed a priority dispute that involved a judgment lien and a later-recorded mortgage on homestead property. (See footnote 5.) The lien was based on a judgment that had been docketed two months before the homestead was mortgaged. (See footnote 6.) Although the judgment was docketed before the mortgage was recorded, the court concluded that because the homestead exemption applied to the property, the judgment lien did not attach to the property before the mortgage was recorded. (See footnote 7.) Because the mortgage was perfected when it was recorded, the mortgage had priority over the unattached and unperfected judgment lien. (See footnote 8.)

Priority law is complicated, time-consuming, and its determination often relies upon a number of factors that may lead to drastically varying results. That is why it is so important to speak with a knowledgeable attorney with experience in priority law.

[1] Oldewurtel v. Redding, 421 N.W.2d 722, 726 (Minn. 1988).

[2] Deutsche Bank Nat’l Trust Co. v. Petersen, 748 N.W.2d 306 (Minn. Ct. App. 2008) (citing NationsBanc Mortgage Corp. v. Sec. Bank & Trust, 600 N.W.2d 481, 483 (Minn. Ct. App. 1999), review denied (Minn. Dec. 14, 1999)).

[3] See, e.g., Eustice v. Jewison, 413 N.W.2d 114, 120 (Minn. 1987) (holding that a judgment could attach only to the judgment debtor’s non-exempt property); Oxborough v. St. Martin, 170 N.W. 707, 708 (1919) (holding that a judgment lien does not attach to homestead property until and unless the property ceases to be a homestead).

[4] Minn. Stat. § 548.09, subdiv. 1.

[5] NationsBanc, 600 N.W.2d at 482.

[6] Id.

[7] Id. at 483.

[8] Id.; see, e.g., Landers-Morrison-Christenson Co. v. Ambassador Holding Co., 214 N.W. 503, 505 (1927) (stating that advances secured by mortgage have priority over mechanics’ liens that attached after the mortgage was recorded but before the advances were made); Landmark v. Schaefbauer, 41 B.R. 766, 770 (Bankr. D. Minn. 1984) (determining that recording real estate mortgage perfects lien against property of bankruptcy estate).

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