Homestead is a right to occupy one’s primary residence. Homestead also has a set value of $120,000, which comes into play when creditors circle the waters.
Each person has a homestead in the amount of $120,000; therefore, for married couples, each spouse has a $120,000 homestead.
The homestead right is exempt from attachment by creditors, except in the following cases:
- In the collection of taxes;
- In the enforcement of liens of mechanics and others for debts created in the construction, repair or improvement of the homestead;
- In the enforcement of mortgages which are made a charge thereon according to law; and
- In the enforcement of liens filed by homeowner associations or by condominium associations under RSA 356-B, for unpaid assessments against the homestead, including collection costs.
The homestead statute, RSA 480, contains a mechanism by which creditors may sell homestead real estate, subject to the homestead. In other words, excess proceeds would be set aside or otherwise made available to the holder of the homestead, up to the $120,000. Put another way, the right of occupancy may be extinguished upon payment of the $120,000.
If a married person owns a house in which both spouses reside, and the owner grants a mortgage to secure a promissory note, the lender needs to make sure the spouse waives his or her homestead right; otherwise, the lender’s mortgage lien is subordinate to the spouse’s $120,000 homestead.
A party may waive or assign their homestead right. For example, a second mortgage lender who obtains a homestead waiver from a non-owner spouse may collect ahead of a first mortgage lender who did not obtain a homestead waiver. The New Hampshire Supreme Court tackled this situation in the case of Sabato v. Federal National Mortgage Association, decided May 3, 2019.
The following simplified fact pattern illustrates Sabato:
A married woman, who is the sole owner of a home, grants a first mortgage to Mainstreet Lending securing a promissory note in the amount of $130,000, and her spouse does not waive his homestead.
A few years later, the same person grants a second mortgage to Secondstreet Lending securing a note in the amount of $70,000, and her spouse does waive his homestead.
The house is worth $200,000.
Secondstreet forecloses and buys the house at auction for $70,000. Secondstreet then sells the house to Mainstreet.
Mainstreet now owns the house subject to the spouse’s homestead. Because the spouse assigned his homestead to Secondstreet, and Secondstreet needed $70,000 to satisfy its loan, the spouse’s homestead is reduced to $50,000 ($120,000 – $70,000 = $50,000).
Therefore, should Mainstreet foreclose, it must pay the first $50,000 to the spouse before keeping any of the loan proceeds for itself.
The moral of the story for lenders? Get the homestead waived.