Fortunately for Utah homeowners, there are homestead protection laws in place to protect them from losing their homes if a bankruptcy occurs.
Under Utah homestead exemption laws, property owners can set aside a "homestead” (specific piece of real property) that would be off limits to some creditors. In the Beehive State, the exemption applies to a primary personal residence and mobile homes on up to one acre of land.
A Utah homestead is an individual or family’s primary residence – a house or a mobile home and the land surrounding it on up to an acre.
A Utah homestead exemption protects a property against liens filed against it during bankruptcy and helps reduce property taxes. Equity that a property owner has in homestead property is exempt from creditors, which means a homeowner gets to keep their property through a bankruptcy if they continue to make the mortgage payments.
In Chapter 7 bankruptcy cases, other types of real estate, like rental properties or a homestead farm, may be nonexempt if they have value over and above the mortgage. This means they can be used to pay creditors in a bankruptcy case.
A Utah homeowner will file a homestead exemption application with the county recorder in the location of their property. Homeowners should first consult with a bankruptcy attorney to make sure their properties are exempt.
Under Utah law, property owners can exempt up to $42,000 of their primary personal residence covered by the Utah homestead exemption. They can use the exemption to protect one or more parcels of land, but can protect only up to one acre in total.
Homeowners can exempt a maximum of $5,000 in real estate that is not their primary personal residence. Those filing joint bankruptcy with a spouse can protect up to $84,000 in their home for a primary personal residence and $10,000 for a secondary residence.
A Utah homestead exemption applies to residences and mobile homes. Homeowners may also protect their water rights if used for irrigation or domestic purposes. A Utah homestead exemption also applies to proceeds from a property’s sale for up to a year after it is sold.
While some states allow property owners filing bankruptcy to use federal bankruptcy exemptions instead of state exemptions, Utah does not. Residents of the Beehive State must use state exemptions.
According to Utah Code Ann. Section 78B-5-504, residents must first file a homestead declaration before receiving a homestead exemption. Property owners can claim homestead exemption by filing a signed and acknowledged declaration with their county recorder. It must contain:
If the property owner does not file or serve this declaration, the home’s title will pass to the buyer upon execution, free of all homestead rights.
If the property owner is married, no conveyance of the property, security interest in it, or contract to create or convey a security interest in it, is valid, unless both spouses agree upon execution of the security interest, conveyance or contract.
A property with a homestead exemption may not be sold at auction if there are no bids exceeding the homestead exemption’s declared amount. If the property is sold, the sale is subject to redemption by the judgment debtor.
In Utah, a property must serve as the homeowner’s primary residence for a minimum of 183 days per calendar year. A county assessor will look at certain factors to determine whether or not a property is a primary personal residence:
Homeowners will need to show the recorder copies of their:
There are no exemptions for:
Utah’s homestead exemption laws may not protect homeowners from all creditors. For example, they may still be forced to sell real estate if:
Additionally, federal income tax liens may override Utah’s homestead exemptions, according to the state’s Constitution’s Supremacy Clause, when there is an overlap or a conflict of law.
The Internal Revenue Service does not typically foreclose on a home to collect a tax debt. It usually gets involved only if a homestead property is mortgaged or sold before the expiration of a federal tax lien.