How to Homestead in Oregon Today

The state of Oregon permits residents to claim homesteads if they qualify, but that has nothing to do with working a large track of undeveloped land in order to become the owner.

In Oregon today, the sole way a resident can homestead is to take advantage of the Oregon homestead exemption law. This protects some of the equity in their primary residence from creditors if they are sued for failure to pay their bills.

People talk about homesteading with nostalgia, and for good reason. The Homestead Act of 1862 changed the nation and entered into the lore of nation building. President Abraham Lincoln signed the Act into law in 1862, giving citizens and future citizens up to 160 acres of public land that would become their own if they lived on it, improved it, and paid a small registration fee.

This was the law until 1976 (1986 in Alaska) and, during the period the Homestead Act was effective, the government granted more than 270 million acres of land into private hands. That is some 10 percent of the total land in the country.

During that period, 62,926 homesteads were granted in Oregon, on over 10 million acres or some 17 percent of the state. But since 1976, this type of homesteading has not been seen in Oregon or any other state.

Today, instead of giving a hardworking resident 160 acres to farm, the state of Oregon's homestead program involves the disposition of equity in a primary residence being sold to pay debts.

"Homestead" is the term used to describe the primary house of an Oregon resident. If the homeowner declares bankruptcy or has a judgment or debt lien foreclosed on the property, they won't lose 100 percent of the equity they have in the house.

The homestead exemption is intended to give a homeowner a boost in starting over once they have become overwhelmed by debt. The law provides:

"A homestead shall be exempt from sale on execution, from the lien of every judgment and from liability in any form for the debts of the owner to the amount in value of $40,000, except as otherwise provided by law."

In this age of soaring home values, the amount of equity protected is quite low, and only a bit higher for a couple. But everyone will agree that it is better than nothing.

This exemption was initially a creature of federal law, but many states enacted their own homeowner protection statutes. In Oregon, those filing for bankruptcy can compare their benefits under the federal exemption system and Oregon's state exemption system. Obviously, the best idea is to choose the system that will offer greater protection to the home.

It is important to keep in mind that neither the Oregon homestead exemption nor the federal exemption will prevent the home from being sold for debts in or out of bankruptcy court. It simply makes sure that the owner can keep an amount that might allow them to keep a roof over their heads.

The exception to this is that the Oregon law does not permit a home to be sold to satisfy a judgment of $3,000 or less. The judgment remains a lien on the property however, and foreclosing is possible at any time after the debtor sells the real estate or stops using it as the primary residence of the debtor, their spouse, a dependent parent or a dependent child.

Under Oregon law, the homestead that is the subject of a claimed exemption "must be the actual abode of and occupied by the owner, or the owner’s spouse, dependent parent or child." On the other hand, a temporary absence with the intention to come back doesn't impair the homestead designation, nor does the sale of the property.

The property claimed as a homestead in Oregon is limited in size. It must be no larger than one city block in an urban environment and no larger than 160 acres of rural property.

In Oregon, a homeowner does not need to specifically "claim" a homestead with the recorder's office or file for an exemption. In bankruptcy, the exemption occurs automatically when you list it on bankruptcy form Schedule C: The Property You Claim as Exempt.

Currently, the federal system allows a homeowner to keep $27,900 in equity after a bankruptcy, while the state system authorizes them to retain $40,000. This would seem to favor use of the Oregon exemption, but it pays to dig deeper.

If a home is owned by two debtor spouses, the exemption amount is doubled under federal law to $55,800, while under Oregon law is only increases to $50,000.

Under the Oregon exemption system, a property owner can use the exemption on real property, but that is not the only option. The homeowner can also use it on most types of vehicles used for dwellings, like a boat or floating home, a trailer or manufactured home, or any type of mobile home.

Creditors deprived of the amount of the homestead exemption in Oregon would be upset to see debtors taking the funds and heading off for a luxury vacation. This is not permitted, but debtors do have a reasonable period of time to make up their minds as to what action to take with the money.

In fact, they can protect the homestead amount from a debtor's sale for up to one year. But this is only possible if they intend to take one of these steps:

• Purchase another homestead with the homestead exemption funds.
  
• Pay rent for up to one year with the homestead exemptions funds.
• Use it for prepaid rent or security deposits for military personnel during wartime.

The homestead property protection in Oregon does not protect against all types of debts. Certain debts, like mortgages, construction liens and tax liens are not subject to the exemption.

In addition, a court in Oregon has the discretion to deny all or part of a homestead exemption if the debt in question for which the property is being sold is a judgment for delinquent child support.