Practically every homeowner is familiar with the term “homestead” or “homestead exemption.” But the scope and impact of Minnesota’s homestead laws are broader than most people realize. This article highlights several important features of the Minnesota homestead laws which everyone who owns or plans to buy a home in Minnesota should be aware of.[1]

The “homestead exemption” area grew out of the Homestead Act of 1862, a law passed by the U.S. Congress to encourage settlement of the American frontier. The Homestead Act granted 160 acres of unappropriated public lands for a small fee to anyone who agreed to work on the land and improve it, including building a residence, over a five-year period. Amid the backdrop of this ambitious program, the “homestead exemption” was developed as a set of laws designed to protect the value of the primary residence (i.e., the “homestead”) from the financial hardships that may befall a family from the death or bankruptcy of a homeowner spouse.[2] The homestead exemption is a product of the “strong social policy of securing the home against the uncertainties and misfortunes of life.”[3] The homestead exemption is found in the constitutions or laws of every state except New Jersey and Pennsylvania.[4] 

The Minnesota homestead exemption is rooted in the Minnesota Constitution as well as codified in Chapter 510 of the Minnesota statutes (Minn. Stat. §§ 510.01 et seq.) In the ordinary and popular sense, a “homestead” is the house and land occupied by the owner as a home – a “dwelling place.”[5] In Minnesota, the homestead may include any quantity of land not exceeding 160 acres. The “homestead exemption,” whether the exemption is claimed by one or more of the homestead owners, is $450,000 or, if the homestead is used primarily for agricultural purposes, $1,125,000 (as of March 20, 2021).[6] While the homestead exemption law is ambiguous as to whether the “value” of the homestead refers to the fair market value of the property or the debtor’s equity, other relevant statutory authority makes it clear that the legislative intent was that the phrase, “value of the homestead exemption,” refers to the value of the debtor’s equity in the property.[7] A manufactured home which is the family residence, even though mobile, also may be homesteaded.[8] The homestead is not limited to the home and the immediately surrounding land, but extends to farmland and business-use property so long as the property is occupied as the owner’s primary place of dwelling.[9] If the property claimed as a homestead does not exceed in area 160 acres, and if a portion of it is actually occupied as a home by the owner, then all of the property and structures are exempt, regardless of the number or type of rental units or the value thereof.[10]

A person may claim only one homestead in the United States at a time.[11] Actual occupancy of the premises as a home is essential to constitute a homestead.[12] However, the requirement of “actual occupancy” is liberally construed and its exceptions are narrowly defined; constant personal presence is not required.[13] For instance, a claim of an owner to homestead status in a property which was being rented to others was approved by the court where the owner lived with the tenants intermittently.[14] The test to be used in determining whether property is “owned and occupied” by a debtor, so as to establish the property as the debtor’s homestead, is “whether the ownership and occupancy affords a community connection of such significance as to give reason to believe that the preservation of that connection will in the long run make the debtor and his family better able to fulfill their social obligation to be self-sustaining.”[15] 

Although the above factors are very broad, they are not without limitation. A mere intent to occupy the property as a homestead will not defeat a creditor’s lien attaching before actual occupancy.[16] Property is not “occupied” for the purpose of the homestead exemption when the owner’s son and daughter-in-law reside on the property but the owner does not.[17] The homestead exemption also does not extend to any lawfully obtained mortgage against the property, any valid tax lien or assessment, any caregiver’s claim against the estate of a deceased client/care recipient under Minn. Stat. § 246.53, other estate claims under Minn. Stat. § 256B.15, and any debt arising under the laws relating to laborers’ or material suppliers’ liens for work or materials furnished in the construction, repair, or improvement of the homestead (so-called “mechanic’s liens”).[18] Nonetheless, property is “occupied” as a homestead when the homestead owner’s spouse and children reside at the property even though the homestead owner does not; if the property has not lost its character as homestead property as to the wife, the property has not lost its homestead character as to the husband.[19]

Minnesota courts in making a determination as to whether a property is the owner’s homestead often consider whether there was abandonment of the homestead by the owner. Generally, abandonment of the homestead results when the owner removes themselves from the homestead and ceases to occupy it, with the intention of never returning, or at least with no intention of returning to it to reside.[20] Courts give the homestead owner broad deference when determining whether the owner had the intention to return and retain the premises as a homestead or whether they intended to abandon the property as a homestead.[21] The courts have determined that an intention to move from the homestead is not enough to constitute abandonment; there must also be “an actual removal from the premises.”[22] The courts have determined that absence from the homestead for a period of one year with little apparent intent to return was not adequate to meet the clear and convincing evidence requirement for an abandonment, where even though the couple moved to another state, the wife apparently had a stronger attachment than the husband to the Minnesota residence at issue and the husband had not established another domicile.[23] In another case, the court concluded that defendant’s filing of a notice of homestead claim preserved his homestead rights for five years even though he was absent from the property for a period in excess of six months.[24]

Special consideration is given to the spouse of the owner of a homestead. Minnesota law gives the homestead exemption benefit to a spouse of the homestead owner regardless of whether that spouse’s name is on the title to the homestead property, including manufactured homes. This is the case even if the homestead spouse deserts the other spouse.[25] If the homestead property owner absconds or otherwise deserts their family, the spouse and the minor children comprising the family may retain the homestead with all the rights of owners therein. However, since title to the homestead property is not in the spouse’s name he or she does not have the legal power to sell or mortgage the homestead property, except in cases otherwise provided by law.[26] Also, a judgment debtor’s homestead property, held in joint tenancy with his non-debtor spouse, cannot be unilaterally severed through an execution sale in order to satisfy the judgment creditor’s judgement against the judgment debtor.[27] If the owner of the homestead property dies, the property descends free from any testamentary proceedings or other disposition of it to which the owner’s spouse has not consented in writing. If the decedent has surviving children or other descendants, the homestead descends to the descendants with a surviving spouse receiving a life estate interest in it. If there are no surviving descendants of the homestead owner, it descends directly to the surviving spouse.[28] 

Strong public policy supports giving great deference to homestead laws for the benefit of the homestead owner and his or her family. The courts in Minnesota construe the homestead exemption very favorably on behalf of the homestead owner.[29] In the case, Jacoby v. Parkland Distilling Co, 43 N.W. 52 (Minn. 1889), a debtor secured credit by, among other things, furnishing to the creditor a financial statement which included as part of his non-exempt assets a building he owned that was in part suited to and used for business purposes. When the debtor became insolvent, he moved himself and his family into this building and appropriated it as a homestead for the express purpose of holding it exempt property and thereby out of reach from his creditors. The Minnesota Supreme Court, in deciding in favor of the debtor, held that the debtor in taking such actions prior to his creditors attaching a lien against the property, even for the express purpose of putting the property out of reach of his creditors, committed no legal fraud, as he merely took advantage of a beneficial provision of the law to favor himself and his family.  The Court went on to state that since the law permits a debtor at any time to convert non-exempt property into that which is exempt, his creditors must be presumed to deal with him with reference to and knowledge about the law permitting this to occur. (Id.)

The public policy related to preserving the homestead protects the conveyance of a homestead from being set aside by a creditor as “fraudulent”. The Minnesota Supreme Court held that exempt property, including the homestead, is not susceptible of fraudulent alienation, and creditors ordinarily have no right to complain of the disposition made of it, since they cannot be prejudiced thereby or claim that it is a fraud upon them. So far as exempt property is concerned, there are no creditors within the meaning of Minn. Stat. Ann. § 510.07. This includes homestead property.[30]

The owner of the homestead may also sell the homestead property without risk of those sale proceeds being seized by existing creditors. The sale of the homestead does not always subject the proceeds of the sale to attachment by creditors.[31] The homeowner may sell and convey the homestead without subjecting it or the proceeds of the sale to any judgment or debt from which it would have otherwise been exempt, for the period of one year after the sale. Insurance proceeds of an insurance claim for an exempt homestead are also exempt for one year. (Id.) Because the owner may sell and convey the homestead without subjecting it to any judgment or debt from which it was exempt in his hands, the grantee of the homestead property acquires title to the property exempt or immune from the claims of the grantor’s creditors.[32]

Premises owned and occupied by the debtor may be selected for homestead designation after a lien attachment or execution is levied upon the whole. If the size of the premises so owned and occupied by the debtor exceeds the area prescribed by law (currently 160 acres), and the homestead shall not yet have been set apart as such and its boundaries defined, then an attachment or execution may be levied upon the whole. Thereafter, the debtor or other person who may be entitled to the benefits of such exemption shall deliver to the officer making the levy a description of the part claimed as exempt homestead, and only the remainder of the premises shall be subject to the levy so made.[33] 

Minnesota courts, however, draw the line at exploiting the homestead as a vehicle for outright fraud.  In the matter of Esty v. Cummings, 83 N.W. 420 (Minn. 1900), the Minnesota Supreme Court declared, “While the homestead right is a valuable one … it was never intended, and it should never be permitted, to operate as a vehicle for fraud and rank injustice.” Minnesota law also allows creditors to pierce the “homestead” protection of a debtor’s property if the debtor claims a homestead exemption with the actual intent to hinder or defraud creditors. In the matter of Jensen v. Dietz (In re Sholdan), 217 F.3d 1006 (8th Cir. 2000), prior to filing for bankruptcy, the debtor liquidated most of his non-exempt property and converted it into exempt property in the form of a house that he listed in his bankruptcy petition as an exempt “homestead.” The bankruptcy court found the debtor had converted non-exempt property to exempt property with the intent to defraud his creditors and upheld the bankruptcy trustee’s objection to the debtor’s homestead exemption. In agreeing with the bankruptcy court, the appellate court decided that although Minnesota law provides an exemption for an individual’s homestead, under the Minnesota Uniform Fraudulent Transfer Act (now known as the Uniform Voidable Transactions Act, Minn. Stat. §§ 513.41 et seq.), a debtor may not claim a homestead exemption when he or she transfers the property with actual intent to hinder, delay or defraud creditors. (Id.) This legal principal not only applies to a fraudulent debtor’s purchase of a “homestead” using non-exempt property, but also under any circumstance where a debtor liquidates non-exempt assets and transfers the funds into a homestead in order to put those funds out of reach of creditors. (Id.) This is applicable to bankruptcy and non-bankruptcy situations.

Every determination of homestead or homestead exemption is necessarily based on the particular facts and circumstances at issue. The above guidance from Minnesota courts may not apply to your situation or be followed by a Minnesota court. Good legal counsel should be engaged before making decisions related to any “homestead” asset.

References:

(1) Special rules related to homestead property valuation, real estate taxes and assessments are governed by Minn. Stat. § 273.124. Homestead designation for such purposes is made by application to the County Assessor in the county where the property is located. (Id.)

(2) Congressional Research Service. “Homestead Exemptions in Bankruptcy After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),” Summary Page. Accessed January 5, 2021.

(3) Title Insurance Co. of Minnesota v. Agora Leases, Inc., 320 N.W.2d 884, 885 (Minn. 1982).

(4) BAPCPA, pp. 4-46.

(5) Minn. Stat. § 510.01.

(6) Minn. Stat. § 510.02. The dollar amounts of the exemptions change periodically. (Id.)

(7) Baumann v. Chaska Bldg. Center Inc, 621 N.W.2d 795 (Minn. Ct. App. 2001). See Minn. Stat. § 510.02.

(8) Minn. Stat. § 524.2-402(a).

(9) In re Estate of Riggle, 654 N.W.2d 710, 712 (Minn. Ct. App. 2002).

(10) Cysewski v. Steingraber, 24 N.W.2d 266 (Minn. 1946).

(11) Hommerding v. Travelers Ins. Co., 393 N.W.2d 389 (Minn. Ct. App. 1986).

(12) Minn. Stat. § 510.01; Cargill Inc v. Hedge, 375 N.W.2d 477 (Minn. 1985).

(13) Vickery v. First Bank of LaCrosse, 368 N.W.2d 758 (Minn. Ct. App. 1985).

(14) Jensen v. Christensen, 11 N.W.2d 798 (Minn. 1943).

(15) In re Guardianship of Huesman, 381 N.W.2d 73, 74, (Minn. Ct. App. 1986).

(16) Quehl v. Peterson, 49 N.W. 390 (Minn. 1891).

(17) Hommerding v. Travelers Ins. Co., 393 N.W.2d 389, 389 (Minn. Ct. App. 1986).

(18) Minn. Stat. § 510.05.

(19) Vickery v. First Bank of LaCrosse, 368 N.W.2d 758 (Minn. Ct. App. 1985).

(20) In re Kickman, 23 N.W.2d 593 (Minn. 1946); Bowers v. Norton, 218 N.W. 108 (Minn. 1928).

(21) In re Estate of Riggle, 654 N.W.2d 710, 715 (Minn. Ct. App. 2002).

(22) Millett v. Pearson, 173 N.W. 411, 412 (Minn. 1919).

(23) In re Estate of Riggle, 654 N.W.2d 710, 715 (Minn. Ct. App. 2002).

(24) Cysewski v. Steingraber, 222 Minn. 221, 223, 24 N.W.2d 266, 267 (1946)

(25) Tomlinson v. Kandiyohi County Bank, 202 N.W. 494 (Minn. 1925).

(26) Minn. Stat. § 510.06.

(27) Kipp v. Sweno, 683 N.W.2d 259 (Minn. 2004). See Minn. Stat. § 510.02.

(28) Minn. Stat. § 524.2-402(a).\

(29)Vickery v. First Bank of LaCrosse, 368 N.W.2d 758 (Minn. Ct. App. 1985).

(30) In Sisco v. Paulson, 45 N.W.2d 385 (Minn. 1950).

(31) Vickery v. First Bank of LaCrosse, 368 N.W.2d 758 (Minn. Ct. App. 1985). See Minn. Stat. § 510.07.

(32) Sisco v. Paulson, 45 N.W.2d 385 (Minn. 1950); Hentges v. P H Feely & Son, 436 N.W.2d 488 (Minn. Ct. App. 1989).

(33) Minnesota Statute § 510.08(a).