by John Sperino, ATG Senior Law Clerk

Introduction

Homestead rights frequently present a threat to the marketability of residential property. A failure to recognize and properly address the pitfalls created by homestead rights may result in a cloud on a property's title. One particularly confusing area of homestead law involves the rights of married couples where only one spouse is a titleholder. Practitioners are often confronted with issues of who is entitled to claim a homestead interest and who must sign a waiver of homestead interest when homestead property is being conveyed. This article will provide a basic explanation of the nature of homestead rights in Illinois and a brief explanation of homestead issues involving married couples.

Social Policy Considerations

Homestead rights were established to protect society's interest in providing a stable family residence. These rights are created by statute and their application is largely a matter of statutory interpretation. Unfortunately, the task of interpreting a homestead statute is not easy because many of these statutes were written in the 19th century to protect a family unit that has drastically changed. As the family unit evolves from a single to a dual wage-earner structure, one may argue that the social policy rationale behind homestead rights is becoming an anachronism. Alternatively, a persuasive argument may be made that homestead rights still effectuate society's interest in promoting stability within the family structure.

Ultimately a practitioner must consider the policy behind the homestead laws as they are applied to the family unit as it exists today. Because the concept of a homestead is rooted in social considerations, courts will frequently seek to find equitable resolutions for specific cases instead of announcing broad rules. Thus, when anticipating a court's application of the homestead right in a particular case, consideration must be given to the social policy behind homestead rights. The inherent conflict in applying statutes grounded in 19th century social policy to cases arising today must be kept in mind because it is this inherent conflict that courts struggle with in their opinions.

Although courts, when dealing with homestead issues, are likely to seek equitable resolutions to particular cases, general principles have developed in homestead law. The remainder of this article will address these general principles. Keep in mind, however, that social policy has created these principles. Consequently, the courts' differing views on the social policy rationale behind homestead laws occasionally result in an inconsistent application of these principles.

The Dual Nature of Homestead Interests

In 1851, the first homestead law in Illinois provided a $1,000 exemption for a lot of ground and the buildings thereon occupied as a residence. This exemption did not qualify as an estate; instead, the exemption was a mere right of occupancy that could not be transferred to another as a separate independent right. In 1872, the Illinois legislature changed this exemption to an actual estate in land where the value of the property at issue was equal to or less than the value of the statutory exemption. Characterizing the homestead as an estate provided the owner of the homestead with the right to transfer the estate to another.

Today, a homestead interest is best characterized as both an estate and an exemption. The dual nature of a homestead interest creates much of the misunderstanding, misinterpretation, and general confusion about homestead law. A brief examination of the dual nature of homestead interests may eliminate some of this confusion. A homestead estate and a homestead exemption may be thought of as two sides of the same coin. The label assigned to a homestead interest is dependent upon the value of the homestead property relative to the statutory exemption.

In Illinois, a homestead is a freehold estate to which a judgment lien cannot attach.[1] This definition is in contrast with other jurisdictions that hold that the lien of a judgment does attach to the homestead interest but will lie dormant so long as the land continues to be occupied as a residence. In these jurisdictions, the lien is revived upon transfer of the property. The result of Illinois treating "homestead interests" as an estate is that, if the total value of the debtor's residence does not exceed $7,500 (or possibly $15,000 in the case of a husband and wife), then any sale of the property to satisfy a judgment is null and void.[2] This means that, where the property does not exceed the statutory allotment, the owner can convey or mortgage the property and the grantee or mortgagee will take their interest free of any judgment against the grantor or mortgagor.[3]

A homestead exemption may be thought of as the homestead interest that arises when a homestead property is valued at more than the statutory allotment and the creditor is entitled to sell all or part of the property. If the property is not subject to partition, the creditor is entitled to sell the entire homestead, and the homestead claimant receives the amount of the statutory homestead exemption before the creditor is paid.[4] Thus, although statutes generally refer to a homestead interest as an estate, this interest may be treated as the functional equivalent of an exemption where a creditor is entitled to force the sale of the homestead, and the homestead property is valued at more than $7,500 (or possibly $15,000 in the case of a husband and wife).

For title insurance purposes, outstanding homestead interests may constitute an encumbrance preventing transfer or conveyance of marketable title.[5] Whether an individual's homestead interest will serve as an estate or an exemption will determine the type of encumbrance that will burden the property. The effect of the encumbrance on the title will also depend upon the value of the property relative to the amount of the homestead exemption. If the property value is less than the amount of the exemption, a defective conveyance is wholly ineffectual to convey any interest whatsoever in the premises.[6] If, on the other hand, the property is worth more than the exemption, the purchaser receives equitable title to the excess in value, which title may be enforced by the payment or setting-off of the amount of the homestead exemption to the debtor.[7]

It is important to keep in mind this dual nature of homestead interests when reading statutes. Statutes and courts typically use either or both the terms "estate" and "exemption" interchangeably to describe a homestead interest. However, as previously discussed, whether an interest is functionally an estate or an exemption will not be determined until the property is valued for the purpose of applying the homestead statute.

How Many Homestead Interests May be Claimed?

Another issue raised when homestead rights are asserted is the number of individuals who qualify for a homestead interest in a single piece of property. Prior to its amendment in 1982, 735 ILCS 5/12-901, provided a single exemption for "every householder having a family." A 1982 amendment to the statute changed this provision to allow every individual an entitlement to a $7,500 estate of homestead in property owned or rightly possessed by lease or otherwise. Prior to the amendment it was established that two separate homesteads could not exist in the same premises at the same time.[8]

In First National Bank of Moline v. Mohr, 515 NE2d 1356 (3d D 1987), an early case interpreting the 1982 amendment, the court held that the purpose of the 1982 amendment was to allow both a husband and a wife to claim a homestead exemption. In a concurring opinion Justice Heiple noted that the language of the statute suggests that an unlimited number of homestead estates in a single premises may exist. The statute allows anyone who "owns" or "rightly possesses" a property interest in the premises to claim an exemption. The Illinois Supreme Court previously interpreted this language to include one that sustains or has sustained some special relation to such an owner.[9] It could be argued that this language would grant a family of ten a $75,000 homestead estate. However, after Heiple's opinion, the Code of Civil Procedure was amended and now states that where two or more individuals own property that is exempt as a homestead, the exemption of each individual may not exceed his or her proportionate share of $15,000 based on a percentage of ownership. Thus, the $75,000 hypothetical created by Judge Heiple is no longer applicable, and the homestead exemption is capped at $15,000 per homestead, no matter how many owners claim title to the property.[10]

Who May Claim a Homestead Interest?

In its current form, the Illinois statute governing homestead estates provides, in relevant part:

Every individual is entitled to an estate of homestead to the extent in value of $7,500 of his or her interest in a farm or lot of land and buildings thereon, a condominium, or personal property, owned or rightly possessed by lease or otherwise and occupied by him or her as a residence ....[11]

The statute may be broken down into two requirements: (1) the property must be occupied by the party claiming the exemption; (2) the party claiming the exemption must either "own" or "rightly possess by lease or otherwise" the property. The phrase "owned or rightly possessed by lease or otherwise" has been interpreted to mean that the debtor must have possessed a title or some ownership interest in the property.[12] Older versions of the statute and incorrect interpretations of the existing statute perpetuate several misconceptions regarding who may qualify for a homestead interest. Examples of common misconceptions include the belief that an individual must have a family to obtain a homestead interest or that a married couple cannot claim homestead rights unless they have children. No current authority supports either of these assertions and both are in direct conflict with the plain language of the statute. The statute clearly indicates that an "individual" may obtain a homestead interest in his or her property.

The Illinois Supreme Court has addressed the acquisition of a homestead interest in property within the marital relationship. In Rendleman v. Rendleman, 118 Ill 257, 8 NE 773 (1886), the court held that title must either be in the owner of the homestead right or in one who sustains a special relation to the owner. The court went on to state that husband and wife and parent and child qualify as such a special relation. However, this case was decided over 100 years ago and is interpreting a homestead statute, which has subsequently been amended numerous times. Although some courts still quote the language in Rendleman, other courts have dismissed its holding as irrelevant in light of subsequent amendments to the statute.

Several federal bankruptcy courts recently addressed the validity of a non-titleholding spouse's claim to a homestead interest under Illinois law. Although the general trend is to interpret the homestead statute liberally, recent bankruptcy court decisions have held that a non-titleholding spouse would not be entitled to an Illinois homestead exemption in a marital residence solely owned by his or her spouse. In In re Hartman, 211 BR 899 (Bankr CD Ill 1997), a woman purchased a home and granted a mortgage on the property prior to her marriage. After becoming married, her husband signed the mortgage note. From that point forward, payments on the mortgage note were made from the couple's joint checking account. Subsequently, the couple filed a Chapter 7 petition in bankruptcy. Title to the couple's home remained solely in the wife's name. Both the husband and the wife claimed a $7,500 homestead exemption. The trustee of the bankruptcy objected to the exemption claimed by the husband. Upon review, the bankruptcy court affirmed the trustee's objection.

Instead of simply qualifying the husband and wife as both being eligible for the $7,500 exemption, the court seized on the "ownership and interest" language in the statute. The court indicated that if two or more individuals have an ownership interest, a homestead interest would be created for each individual.[13] If only one has an ownership interest, only one $7,500 homestead interest would be available. This serves as an important limitation on the number of homestead interests that may be claimed under the homestead statute and may serve as an effective method of defeating claims for multiple interests. It should be noted that this case is a bankruptcy case from the Central District of Illinois, and thus other federal and state courts within Illinois may not reach the same conclusion.

For example, the Hartman court discussed another case with similar facts that was relied upon by the debtors, In re Reuter, 56 BR 39 (Bankr ND Ill 1985). In that case, the court granted the exemption to both the husband and the wife, claiming that the marriage created certain rights in the property. The court relied on the Rights of Married Persons Act, and the Conveyances Act, which prevent the title-holding spouse from releasing the homestead right without the other spouse's permission and without providing a substitute homestead. The Reuter court held that these interests were enough to entitle the non-titleholding spouse to a homestead exemption.[14] The Hartman court disagreed with the Reuter court's conclusion that these statutes created an interest significant enough to qualify the spouse for an exemption, and thus a conflict existed between claims within bankruptcy courts in the Central District of Illinois and those in the Northern District.

This conflict was acknowledged and addressed in a recent decision by the bankruptcy court of the Northern District of Illinois. In In re Popa, 218 BR 420 (Bank ND Ill 1998), the court rejected the reasoning of Reuter and concluded that the Rights of Married Persons Act and the Conveyance Act do not create a homestead interest in property where the spouse does not have title in the real estate. The court concluded that the Exemption of Homestead Act itself requires the spouse to have an ownership or leasehold interest in the property before an exemption is allowed. The court noted that the Rights of Married Persons Act only requires the spouse who owns the homestead to provide comparable shelter, and the Conveyance Act does not create any interest that did not otherwise exist; instead, the Act merely provides that if an interest does exist, one spouse cannot release it for the other. The court expressly agreed with the analysis and result in Hartman.[15]

This conflict of opinions is typical of Homestead Act interpretations, and it serves to highlight the degree of uncertainty involved in applying homestead statutes to individual cases. Although Hartman, Reuter, and Popa were each decided by federal bankruptcy courts, and therefore are not controlling precedent in Illinois state courts, these cases do provide the arguments that one could expect to be raised where a non-titleholding spouse claims a homestead interest. At a minimum, these cases serve as notice to practitioners that a non-titleholding spouse may, according to the holding of Reuter, be able to claim a homestead interest. In other words, although a $7,500 exemption will generally be available for a troubled debtor, attorneys should be aware of the possibility that a non-titled spouse may also be eligible for a $7,500 homestead interest.

Hartman and Popa may also serve as examples of the courts' shifting attitude toward the homestead right. As discussed earlier, the changing family structure has undercut some of the social policy rationale behind the homestead laws. It should not be surprising to see these courts departing from the liberal construction that the courts usually afforded homestead laws, as there are fewer situations where the societal interest in protecting an unskilled spouse is present.

Waiver of a Homestead Interest

Illinois statutes make it clear that the signature of a spouse is required in order to effectively release, waive or convey a homestead interest. The Illinois Rights of Married Persons Act[16] provides in relevant part:

Neither the husband nor wife can remove the other or their children from the homestead without the consent of the other, unless the owner of the property shall, in good faith, provide another homestead suitable to the condition of life in the family....[17]

This statute prevents a spouse from unilaterally alienating another spouse's right to occupy the homestead. Further protection is provided for spouses by the Conveyances Act.[18] This Act provides as follows:

No deed or other instrument shall be construed as releasing or waiving the right of homestead, unless the same shall contain a clause expressly releasing or waiving such rights. And no release or waiver of the right of homestead by the husband or wife shall bind the other spouse unless such other spouse joins in such release or waiver.[19]

Thus, when an individual releases or waives his or her homestead right, the release or waiver is not effective if the individual is married. Under this statutory provision, an effective release or waiver of homestead rights requires the consent of both spouses.

Finally, the Exemption of Homestead Act[20] contains language requiring the signature of a non-titleholding spouse on any waiver of homestead for such a waiver to be valid. The Act states in relevant part:

No release, waiver or conveyance of the estate so exempted shall be valid, unless the same is in writing, signed by the individual and his or her spouse, if he or she have one, or possession is abandoned or given pursuant to the conveyance....[21]

Although these statutes do not differentiate between a titleholding and a non-titleholding spouse, a misconception has developed that non-titleholding spouses need not sign a homestead waiver. This misconception appears to be rooted in the rationale of Hartman and Popa. Recall that these two cases held that a non-titleholding spouse does not possess a homestead interest and thus may not claim a $7,500 estate interest. One might ask, if the non-titleholding spouse does not have a homestead interest, why is this spouse required to sign the homestead waiver? The most obvious reason is that an Illinois court interpreting Illinois homestead statutes is not bound by the interpretation of a federal bankruptcy court. Thus, there is a possibility that an Illinois court will conclude that a non-titleholding spouse does acquire a $7,500 homestead interest. However, there is a less obvious reason why a non-titleholding spouse must sign a waiver. To understand this reason, the different homestead interests created by the various statutes must be identified.

The homestead interest identified in Hartman and Popa is an interest in a $7,500 homestead exemption or estate. Even if the non-titleholding spouse does not acquire the $7,500 estate/exemption interest, the non-titleholding spouse does acquire, by virtue of his or her marriage and residence on the property, a right of occupancy.[22] This right of occupancy affords the non-titleholding spouse a veto-like power where the alienation or encumbrance of the homestead is concerned.[23] Thus, even if a non-titleholding spouse did not have a homestead interest in the form of an exemption or estate interest, the non-titleholding spouse must still waive his or her occupancy interest in the homestead property.

Exceptions to Signature Requirement for the Waiver of a Homestead Interest

Limited exceptions to the requirement that the non-titleholding spouse must sign to waive the homestead interest exist where possession is surrendered to a third party pursuant to a conveyance, where possession of the property is abandoned, as a result of a dissolution of marriage, or where the conveyance is a purchase money or home improvement mortgage. In addition, a homestead waiver is not required for property in which no homestead interest can be created. Commercial or investment property would be examples of the types of property that would not qualify as homestead property.

An effective conveyance of the homestead interest may be made where possession of the property is surrendered pursuant to an instrument of conveyance.[24] This exception requires an affirmative, voluntary act of the grantor for the purpose of admitting the grantee to possession of the premises that would not have been done except for the conveyance being made.[25]

The homestead interest may also be effectively waived by voluntary abandonment of the premises without any intention of returning.[26] Abandonment is largely a matter of intent, as determined from the facts in each case. The general rule is that removal from the homestead premises is not deemed abandonment where it clearly appears that the homestead claimant intended to return and occupy the premises.[27] Note that the statute says that waiver of homestead requires abandonment of "possession," not "occupancy." It is not necessary to "occupy" the premises in order to "possess" it.[28] The courts have long noted a distinction between the terms. While occupation is generally necessary to acquire a homestead interest, it is not necessary in order to maintain it.

A dissolution of marriage may dispose of the homestead estate according to the equities of the case.[29] If the grantor/mortgagor is shown as married in the chain of title or has married since acquiring the property, and has since divorced, then the signature of the ex-spouse is unnecessary so long as title was never conveyed to the ex-spouse and there is no recorded injunction prohibiting transfer of the property. 753 ILCS 5/12-904 requires only the signature of the non-titleholding spouse in order to make an effective waiver of the homestead interest, not the signature of the ex-spouse. If the property was conveyed to the ex-spouse during the marriage, a quit-claim deed from the ex-spouse is required unless the judgment of dissolution of marriage affirmatively vests title in the grantor/grantee free of any and all right, title and interest of the ex-spouse, including homestead. Remember, however, that mere separation of the parties does not abrogate the necessity of both spouses' signatures.

Another exception to the signature requirement exists with respect to purchase money mortgages. 735 ILCS 5/12-903 sets forth the extent of the homestead exemption as follows:

No property shall ... be exempt from sale for nonpayment of taxes or assessments, or for a debt or liability incurred for the purchase or improvement thereof....

Pursuant to this statutory provision, the homestead exemption may not be raised against a purchase money mortgagee or a home improvement mortgagee. Therefore, neither the signature of the titleholding spouse nor the signature of the non-titleholding spouse is necessary in order to waive the homestead interest with respect to a purchase money or home improvement mortgage.

ATG Underwriting Guidelines

In general, the signature of the non-titleholding spouse must be obtained for the purpose of waiving the homestead interest any time the titleholding spouse executes an instrument of conveyance - deed, mortgage, easement, etc. As mentioned above, there are exceptions to this rule that may be utilized to avoid the necessity of the signature requirement. The following discussion provides underwriting guidelines and examples applying these exceptions.

Surrender of Possession Pursuant to a Conveyance

Problem: Wife is the sole titleholder to the marital residence. Husband moved out of the marital residence five years ago and Wife does not know how to contact him. Wife wishes to sell and convey the marital residence. Husband can not be located to sign the deed.

Possible Solution: 735 ILCS 5/12-904 states that a valid waiver, release or conveyance of the homestead interest may occur by giving possession pursuant to the conveyance. Therefore, if Wife surrenders possession to the third party purchaser immediately upon delivering the deed to the third-party purchaser, the signature of Wife will not be necessary. Obtain an affidavit from Wife and third party purchaser stating the following: (1) Wife is surrendering possession immediately upon delivery of the deed; (2) third-party purchaser is accepting and taking possession immediately upon delivery of the deed; and (3) the facts and circumstances of Husband's departure, proving abandonment. All such affidavits must be reviewed and approved by an ATG underwriter before being relied upon to close.

NOTE: The guidelines set forth above may also be utilized where the non-titleholding spouse no longer resides in the residence and can be located, but he or she refuses to sign the deed.

Abandonment of Possession

Although, pursuant to 735 ILCS 5/12-903, the homestead interest may be effectively waived by voluntary abandonment of the premises without any intention of returning, abandonment is largely a matter of intent as determined from the facts in each case. Therefore, ATG is reluctant to insure a transaction that relies upon abandonment in order to waive the homestead interest. If this fact situation arises, contact the ATG Underwriting Department.

Dissolution of Marriage

Problem: X holds title to homestead property in his name only. X marries Y, but does not convey any interest in the property to Y. X and Y are granted a dissolution of marriage. The court entered no injunction prohibiting X from granting a mortgage on the property. X wishes to obtain a second mortgage on the property.

Possible Solution: The signature of Y, the ex-spouse, is not necessary on the mortgage for the purpose of waiving the homestead interest because Y is no longer the spouse of X, X did not convey an interest in the property to Y, and the court entered no injunction prohibiting a conveyance of the property. 735 ILCS 5/12-904 only requires the signature of the non-titleholding spouse in order to effectively waive the homestead interest, not the signature of the ex-spouse.

Purchase Money Mortgage Exception

Problem: Husband is purchasing real property to be used as his and Wife's primary residence. Husband will take title in his name only. Husband is purchasing the property with funds from Bank and will grant Bank a mortgage upon the property. At the time of the closing Wife is on vacation and is not available to sign the mortgage for the purpose of waiving the homestead interest.

Possible Solution: Signature of Wife is not necessary in order to waive the homestead interest pursuant to 735 ILCS 5/12-903. The Homestead Subordination Endorsement, ATG Form 256, may be issued with the mortgagee policy in order to insure Bank that it has priority over any homestead interest despite the fact that Wife did not sign the mortgage for the purpose of waiving the homestead interest.

NOTE: Although 735 ILCS 5/12-903 also applies to a home improvement mortgage, ATG is more reluctant to issue the Homestead Subordination Endorsement under this circumstance due to the factual determination involved. Contact the ATG Underwriting Department if this situation arises.

This exception does not apply to a refinance mortgage. The non-titleholding spouse must sign the refinance mortgage in order to create a valid waiver of the homestead interest.

1. Dixon v. Moller, 356 NE2d 599, 602 (5th D 1979).
2. 735 ILCS 5/12-909.
3. Dixon, 356 NE2d at 602.
4. 735 ILCS 5/12-909.
5. 735 ILCS 5/12-904.
6. Bailey v. Hamilton, 337 Ill 617, 621 (Ill 1929).
7. Diets v. Hagler, 309 Ill 381 (Ill 1923).
8. Morris Inv. Co. v. Skeldon, 78 NE2d 504, 506 (Ill 1948).
9. Rendleman v. Rendleman, 8 NE 773 (Ill 1886).
10. 735 ILCS 5/12-901.
11. 735 ILCS 5/12-901.
12. Sterling Sav. and Loan Ass'n v. Schultz, 218 NE2d 53, 62-63 (1st D 1966); DeMartini v. DeMartini, 52 NE2d 138, 142 (Ill 1944).
13. In re Hartman, 211 B.R. 899, 903 (Bankr CD Ill 1997).
14. In re Reuter, 56 BR 39, 41 (Bankr ND Ill 1985).
15. In re Popa, 218 BR 420, 423 (Bank ND Ill 1998).
16. 750 ILCS 65/0.01 et seq.
17. 750 ILCS 65/16.
18. 765 ILCS 5/0.01 et seq.
19. 765 ILCS 5/27.
20. 735 ILCS 5/12-901 et seq.
21. 735 ILCS 5/12-904.
22. Willard v. Northwest Nat'l Bank of Chicago, 484 NE2d 823, 829 (1st D 1985).
23. Id. at 828.
24. Strayer v. Dickerson, 68 NE 767, 772 (Ill 1903); 735 ILCS 5/12-904.
25. Venters v. Wickens, 79 NE 946, 948-49 (Ill 1906).
26. 735 ILCS 5/12-904.
27. Rasmussen v. Rasmussen, 13 NE2d 166, 168 (Ill 1938).
28. Rice v. United Mercantile Agencies, 70 NE2d 618, 621-22 (Ill 1946).
29. 735 ILCS 5/12-905.

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