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How the Homestead Exemption Works in New York

The Homestead Exemption law in New York, as detailed in § 5206, safeguards a person's primary residence from being used to satisfy a monetary judgment. The government's policy in implementing the homestead exemption in CPLR § 5206 is to protect from seizure the reasonable living requirements of the debtor and his or her family. The same rationale applies to protecting exemption amounts in personal property, as addressed in our previous blog. Whether we're discussing real or personal property, all exemptions are considered "privileges" expressly provided by law.

What is a "Homestead?"

Basically, it's your home that you physically occupy as a principal residence. A vacation or weekend home will not qualify. A homestead can be one of the following:

  • House;
  • Shares in a coop;
  • Unit(s) of a condo; or
  • A mobile home.

What is a "Homestead Exemption"?

It's the amount of equity in your home above "liens and encumbrances." The below amounts invested into the home are protected from seizure.  

How much money equity in the home is protected by the homestead exemption?

  • $150,000 for the following counties: Kings (Brooklyn), Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, and Putnam.
  • $125,000 for the following counties: Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster.
  • $75,000 for any other counties.

If your equity amount exceeds the exemption, the judgment creditor can force a sale of your home and apply that surplus to the judgment. The sale is subject to court discretion.

The exemption allowed in Federal Bankruptcy Court is only $22,975—a fraction of what New York allows and thus provides a stark advantage in electing New York exemptions in a bankruptcy petition.

New York permits married couples to double the homestead exemption. For example, a married couple in New York County enjoys a $300,000 exemption.

After a forced sale of the homestead, the exempt money paid to the judgment debtor is exempt for one year after payment unless that money is used to acquire another exempt homestead.

The homestead exemption continues after the death of the judgment debtor for the benefit of the surviving spouse and surviving children until the youngest child reaches majority age and the surviving spouse is dead.

The Rationale and Limits of New York's Homestead Exemption

The maximum exempted value varies based on the county in which the property is located, with a top limit of $150,000 in high-cost counties, $125,000 in moderate-cost counties, and $75,000 in the rest of the state. The exemption, however, does not cover taxes or non-payment of taxes.

When a creditor obtains a court judgment on a debt, even for just a credit card or medical debt, the creditor can then put a lien on your home for the amount of the judgment. With a lien in place, the creditor can then force a sale of your home to recover its judgment amount. Alternatively, the creditor can simply hold on to its lien and wait for you to sell the home before seeking to collect on the lien.

Keep in mind that the homestead exemption does not apply to 1) mortgage foreclosure actions (first or second mortgages); 2) home equity lines of credit; 3) actions where your home as collateral for a different debt; or 4) forced sales for the non-payment of tax debt.

Three Core Takeaways from the Homestead Exemption in New York

  1. Principal Residence Required: The Homestead Exemption in New York only applies to the debtor's primary residence. Secondary properties or vacation homes are not protected under this law. The homeowner needs to live in the property on a regular basis for it to qualify.
  2. Co-ops and Condos Included, but Caution on Liens: The exemption extends to co-op and condo apartments. However, these property types may not be considered real estate when determining judgment liens and priorities. Particularly, shares in a cooperative apartment are considered personal property for this purpose.
  3. Limited Exemption for Mortgages and Foreclosures: The exemption does not prevent a mortgage lender from seizing the property in case of loan default. It also doesn't apply to proceeds from the foreclosure sale. The exemption is also lifted once the debtor ceases to inhabit the property, even if it was their primary residence before. This also includes cases where a surplus results after the sale in foreclosure, which is considered personal property and not covered by the exemption.

The Purpose of New York's Homestead Exemption: Insights from Case Law

  • The homestead exemption aims to shield a homeowner's dwelling from seizure to fulfill a money judgment. This protection serves in both non-bankruptcy and bankruptcy scenarios (CFCU Community Credit Union v. Hayward, C.A.2 (N.Y.) 2009, 552 F.3d 253, In re Flatt, 1993, 160 B.R. 497).
  • It safeguards the debtor-homeowner from losing their family residence due to economic hardship (In re Issa, 2013, 501 B.R. 223).
  • The exemption traditionally seeks to protect the family of a judgment debtor by exempting their home from execution on an outstanding money judgment (Michaels v. Chemical Bank, 1981, 110 Misc.2d 74, 441 N.Y.S.2d 638).
  • The homestead exemption is designed to offer homeowners certain protection against creditors, barring those with a purchase mortgage to which the exemption doesn't apply (Wyoming County Bank & Trust Co. v. Kiley (4 Dept. 1980) 75 A.D.2d 477, 430 N.Y.S.2d 900).
  • Amendments to the exemption, such as an increase from $10,000 to $50,000, reflect a legislative intent to adjust for inflation and align the exemption with current economic conditions, offering a realistic safeguard in today's economy (CFCU Community Credit Union v. Hayward, C.A.2 (N.Y.)2009, 552 F.3d 253).
  • These amendments are intended to apply to all debtors who file for bankruptcy after the amendment's effective date, irrespective of when the debt was incurred or reduced to a judgment (1256 Hertel Ave. Associates, LLC v. Calloway, C.A.2 (N.Y.)2014, 761 F.3d 252).

How the Homestead Works in NY by Jesse Langel

The Langel Firm seeks to keep you out of bankruptcy and out of hairy situations involving judgment liens over credit-card debt. We primarily handle cases brought by unsecured creditors such as LR Credit 17, LLC and Erin Capital Management, LLC (see full debt collector list). These creditors may obtain money judgments that eventually turn into liens against your home (see this blog post to see how it's done), but I have yet to see one of these unsecured creditors attempt a forced sale of your home to satisfy such a money judgment. That is partly because of the exemption provided by CPLR § 5206.

Federal bankruptcy law offers a homestead exemption, though it's less generous than New York's. As of 2013, the federal exemption is $22,975, applicable to homes and burial plots. This can be doubled for married couples to $45,950. A residency of at least 40 months before bankruptcy is mandatory.

In conclusion, the Homestead Exemption law under § 5206 in New York State provides considerable protection for a debtor's primary residence from becoming collateral against monetary judgments. However, it's crucial to understand its parameters - it's not a catch-all solution. The exemption does not apply to foreclosures nor cases where your home has been pledged as collateral for other debts. Furthermore, the law only protects primary residences, not vacation homes or secondary properties.