I chuckle at the bumper sticker that reads, “Montana is full. I hear North Dakota is nice.” But the sentiment is nothing new. In 1913 Charlie Russell wrote to a friend: “Bob you wouldent know the town or the country either, it's all grass side down now. Wher once you rode circle and I night wrangled, a gopher couldn't graze now. The boosters say it's a better country than it ever was but it looks like hell, to me I liked it better when it belonged to God, it sure was his country when we knew it.”
In the prior century, Chief Charlo stated, "We were happy when he first came. We first thought he came from the light; but he comes like the dusk of the evening now, not like the dawn of the morning…You know he comes as long as he lives, and takes more and more and more, and dirties what he leaves.”
The Homestead Act
Perhaps the over-crowding of the last best place began with the passage of the Homestead Act, when Abraham Lincoln announced, “The wild lands of the country should be distributed so that every man should have the means and opportunity of benefitting his condition."
By the mid-1800s, people in the eastern states were increasingly looking west to the sprawling lands, with dreams of opportunity and new beginnings. The U.S. government encouraged western expansion but the lack of infrastructure made it cost- and logistically prohibitive for most families. In response, Lincoln signed the Homestead Act in 1862, taking effect on Jan. 1, 1863.
The act availed 160-acre parcels to people willing to develop the land for agriculture, build a house and then live on the land for five years. After five years, the person could receive full title to the parcel. For the next 126 years, approximately 4 million homesteaders settled the West, until 1988, when the last homestead was granted in Alaska. Approximately 10 percent of U.S. land was granted to homesteaders and today, approximately 93 million Americans are homesteader descendants.
The Homestead Exemption
The Great Depression threatened the government’s desire of a developed West and the homestead exemption became the salvation for many homesteaders. Though the Homestead Act and homestead exemptions are mutually exclusive, they have often worked together and the two are often confused. Homestead exemptions date back to Spanish colonization and the policies include avoiding widow impoverishment and protecting the equity in one’s home from creditors.
What is protected?
The State of Montana provides creditor protection for the first $250,000 of equity individuals have in their homestead. MCA 70-32-101 defines a homestead as the dwelling house or mobile home, and all appurtenances, in which the claimant resides and the land, if any, on which the same is situated. Equity is the difference between the current market value of a property, minus any debt.
Protection doubles to $500,000 for couples. So, a couple jointly owning a $600,000 home with a $100,000 mortgage may protect all of the equity from a lawsuit or bankruptcy. Relatives, friends, and unmarried couples living together each get a $250,000 exemption so long as the individual is on title.
Clients often ask if the “Homestead Exemption” is automatic, meaning is it a statutory right. To clarify, the protection comes from a “Homestead Declaration”. MCA 70-32-105 and 107 requires a declaration must be filed in the county clerk and recorder’s office in the county(s) where the property is located. So no, it’s not a statutory right. Most title companies now include a homestead declaration within the closing documents, but you need to investigate this to determine whether your declaration has been filed. In Missoula County, you can research this online at the clerk and recorder’s website. Other counties might require a phone call, but a title company is perhaps your best source.
What is not protected?
Montana Code Annotated 70-32-202 states that homestead exemptions are subject to (do not protect against) construction liens and mortgages in which the property was pledged to secure a loan. Also, our homestead exemption does not apply to Medicaid recapture, because the recapture occurs after we are no longer “homesteading.” Medicaid recapture is the process where Medicaid collects from a decedent’s estate, money paid on behalf of a nursing home patient.
In closing, the Declaration of Homestead is your last line of defense in a lawsuit, an asset safe harbor for up to $250,000 per owner. However, to the disappointment of Russell and perhaps to the thanks of Lincoln, I read nothing in the law directing newcomers to North Dakota.