Michigan Homestead Laws: A Beginner’s Guide

What Are Homestead Laws?

Homestead laws refer to a collection of statutes throughout the United States that are meant to provide owners of real property with certain protections. In general, all homestead statutes serve to exempt, up to a certain amount of value, a homeowner’s principal residence from forced sale (unless it is done for tax collector purposes). In doing so, it lessens the protection that a creditor may have in recovering against a home by preventing the creditor from taking, selling or otherwise transferring a home owned by the debtor so that the home cannot be foreclosed upon for the repayment of creditors . Essentially, many homestead laws (like Michigan law) are designed to protect the homeowner’s principle residence from being taken from a homeowner when the owner’s assets are subject to a form of forced sale. In Michigan, homeowners have an automatic $30,000 exemption (or $60,000 where two or more owners reside on the same property) with an additional $170,825 exemption for those who are at least 65 years old or disabled.

A Quick Look at Michigan Homestead Laws

The Michigan homestead laws afford an excellent level of asset protection in the face of creditors. It is much more protective than the homestead protections available in most other jurisdictions, but is far inferior to the homestead protections available in a small number of states.
While the Michigan laws furnish this large degree of protection from creditors, they are quite restrictive on whom you may sell the property to. In addition, the homestead laws require you reside in the property and use it as your primary residence.
The general features of the Michigan homestead laws are:

Your homestead must be occupied by you and be your primary residence;
The subject real estate must be located in the State of Michigan;
Your homestead cannot exceed 40 acres if it’s unplatted land;
Your homestead cannot exceed 160 acres if it’s platted land;
The homestead must be owned individually by you or jointly with other non-spousal persons;
The equity in the homestead you can protect is dependent on how long you’ve owned the property and how much a judgment creditor obtains via a court judgment;
The equity you can protect is calculated by adding up what you’ve paid into the mortgage (if any – including principal payments, interest, property taxes, condo dues) or other money invested into the property (repairs, association dues on properties held in trust, etc.) then multiplying this figure by a factor of 1.5 (if the increase in value of the property is less than the product of $40,000 and an inflation factor, in which case you would use the product).

Homestead Exemption in Michigan

The homestead exemption protects the equity that a debtor has in his residence. The roots of the homestead exemption come from Europe, and were imported to America before this country became independent. Originally, the purpose of the homestead exemption was to protect a head of household from losing his/her home if there was a bankruptcy or other financial calamity. In Michigan, the homestead exemption was embodied in the state constitution since 1850, and the protection in Michigan today is relatively strong.
For the period between December 6, 2018 and April 18, 2020, the homestead exemption in Michigan protects $38,600.00 of equity in a home—$61,200.00 if the spouse or dependent child of the owner also lives there. Beginning on April 19, 2020, the homestead exemption in Michigan protects $38,750.00 of equity in a home, again $61,250.00 if the spouse or dependent child of the owner also lives there. That gives a person living alone on their homestead a safety net of $38,750.00. If the residence is more valuable than that, then the homeowner may have to sell his or her home during the life of the Chapter 7 case.
If a person has less than $38,750.00 in equity, then he is generally protected and can remain in the home, even if it is worth many times that amount. If the equity is greater than $38,750.00, however, the court may order the sale of the house and the payment of the homeowner an amount equal to his or her homestead interest, which is $38,750.00 in a Chapter 7 case. This $38,750.00 is an exemption and may not be subject to the claims of a bankruptcy trustee or anyone else.
This protection is particularly important because there is no right of redemption in Michigan. If the house must be liquidated in the bankruptcy, the mortgage lender is free to evict the homeowner after he has been given several months to vacate the house.

Applying for a Homestead Exemption

Applying for a homestead exemption is a straightforward process in Michigan, but it does require attention to detail and adherence to deadlines. There are two main exemptions available: the Homestead Property Tax Credit (Form 476) and the Disabled Veterans Exemption (Form 4029), with most homesteads likely eligible for the former.
To qualify for the Homestead Property Tax Credit, the property must be owned, occupied, and used as the principal residence of the owner. Here are the steps you need to follow:
Candidates should submit Form 476 for the current tax year by July 1, even if the previous year’s application is pending. To complete the form, applicants will need information about their household utilities, certain living expenses, and information about their income and property taxes. The credit is calculated based on the tax paid and the audited income from the previous year as well as any additional property tax charges.
For those seeking a Disabled Veterans Exemption, qualifying veterans must also fill out Form 4029. If a veteran qualifies in the current year, the exemption is extended for 100% of the following year. Application for the exemption can be filed with a local treasurer or county clerk. In either case, a copy of the DD214 must be attached, as well as proof of 100% disability through the VA. If the VA has not yet stated the applicant’s disability status, Form 8029 should be submitted until the official notification arrives.
Applications are typically submitted to the local tax collecting unit. However, Disabled Veterans Exemption applications are submitted to the county clerk or a local city tax collector. Under normal circumstances, completed applications are accepted throughout the year and are entered into the system once time allows. But residents are encouraged to file early to avoid delays.
The process for processing an application will vary from city to city and township to township. Some local governments handle them overtime while others process them on a more routine basis. Regardless, through the auditing process, the unit will determine whether an exemption applies. Once the auditing process is complete, the local unit sends out a notice to the applicant regarding the approval or denial of the exemption. If the application is accepted, the percentage of the exemption is also provided. The exemptions are subject to change each subsequent year with new audits being conducted, so always check your statement to verify the amount of exemption.

The Benefits of Michigan Homestead Laws

The primary benefit of Michigan homestead laws is that they provide protection for a debtor’s principal residence. The law even applies where the home is partially or fully encumbered with a mortgage. Even though you may have a $150,000 mortgage on your home, the homestead exemption protects $38,600 in equity in that home. In other words, it can’t be taken from you directly by creditors if you are sued. The homestead exemption can also be applied to money obtained from settlement or contested litigation over a home, those funds are exempt as a homestead, up to the homestead exemption limit.
Both The Michigan Homestead Protection Act and the Michigan Homestead Exemption Act protect against the forced sale of your home for payment of a creditor’s claim in certain circumstances where the creditor attempts to enforce a judgment against the debtor .
The Michigan Homestead Protection Act provides that homesteads are protected from forced sale for the following purposes: However, there are exceptions, including, but not limited to, certain mortgages and land contracts which are simultaneously given, and certain homeowner association dues and/or special assessments for a period of time (if the condominium is more than 50% complete) or the statutory amount (which is currently $12,400). In addition, certain fees related to the property itself are authorized to be levied against the property for sewer service, public utilities service, and taxes thereon.
The Michigan Homestead Exemption Act protects homestead property so that it is exempt from the payment of debts of the owner, except for: In addition to the above stated exceptions, the homestead does not protect a homestead from forced sale or payment of a debt owed to the state of Michigan or payment of certain court orders.
Michigan homestead laws also safeguard homestead property from the debt of your spouse, so long as the debt was not incurred jointly by both spouses.

Exemptions and Limitations

The protection and benefits offered by the homestead laws in Michigan are not absolute. There are a number of situations and creditor claims in which the homestead protection is limited or does not apply at all.
No Protection for Secured Creditors
In general, a residential mortgage lien encumbering your home has priority over the claimed homestead. The homestead exemption does not apply to real estate encumbered with a mortgage, which means the mortgage holder will be entitled to full satisfaction of its claim from the sale proceeds after the home is sold in foreclosure.
Domestic Support Obligations
Federal law limits the scope of homestead protection for debts arising from domestic support obligations, such as alimony, child support and property settlement. In cases involving divorce and marital property, the homestead exemption is not available to protect the debtor, and to the extent a lien or judgment arising out of divorce or child support proceedings is recorded against the homestead property, the value of the homestead exemption is reduced to zero.
State or Federal Income Tax Liens
Liens on your home created by recording a federal or state tax are also impervious to the homestead exemption. A federal tax lien arising from a federal income tax obligation attaches to a homeowner’s interest in the home without the need for a court judgment. The lien is perfected automatically under the federal tax code, and not by recording a reference of lien in the county clerk’s office. The rights of a person who acquires an ownership interest in a home depend on the timing of the last filing of a federal tax lien and the acquisition of the ownership interest in the property. Bankruptcy does not discharge a tax for which a lien exists against the homestead.
Bankruptcy and the Homestead
The protections afforded by the homestead exemption may be challenged in the bankruptcy courts. A trustee in bankruptcy has the power to avoid certain conveyances and liens that are determined to be preferences or constructively fraudulent. For this reason, it is conceivable a bankruptcy court could take the position the homestead exemption is reduced if a debtor transferred assets to a family member for less than fair market value within the relevant time periods prior to the bankruptcy filing. In general, a period of six months applies to transfers to relatives.

Current Developments and Changes

One of the most significant updates to Michigan homestead law is the enactment of the Homeowner Construction Lien Act—Public Act 2008, No. 524. This new law provides greater protection for homeowners when it comes to lien activity on their residence. Specifically, the HCLA requires contractors who perform work on a home to send a "Notice of Furnishing" to the owner of a residence within 20 days of initiating work. The notice must contain the name and address of the contractor or subcontractor and the name and address of the property owner. If a contractor fails to provide this notice, they are not allowed to file a lien against the property or obtain a judgment against the property owner.
Another recent change relates to the constitutional amendment regarding the "uncapping" of property taxes for homestead expemption purposes. This amendment changes the way property taxes are assessed every year following a sale of property or transfer of ownership. While the law does not directly affect the Michigan homestead laws applicable to state and federal exemptions from creditors’ claims, it can have an indirect effect on those exemptions by lowering the value of non-exempt assets. This may make it easier for an individual who may not qualify for a full homestead exemption under the recent changes to still qualify for other types of homestead exemptions.
Overall, the recent changes and updates to Michigan homesteads highlight the importance of keeping up to date with the law when it comes to homesteads in the state.

Other Resources and Legal Advice

Seeking legal advice is always an option if you are unsure of your rights as a homesteader. Whether you are wondering whether a property you are renting is protected by Michigan homestead laws or you have been sued and want to know whether the home where you live is exempt from foreclosure, a qualified Michigan property attorney will be able to give you specific advice about your situation.
Legal Aid and Defender Association of metropolitan Detroit provides qualified representation in legal matters for low-income individuals living in Detroit , Hamtramck, and Highland Park. They also advise community groups and do educational seminars on a variety of issues. The United States Department of Housing and Urban Development website http://www.hud.gov contains lots of information about homesteader’s rights. If you suspect that your landlord has violated the Truth in Renting law in the state of Michigan, call the housing enforcement official in your area. You can also call the U.S. Department of Housing and Urban Development at 1-800-685-8470.