Cars, tents, vessels now considered homesteads; big impacts on real estate and property owners

Thanks to one of our readers, Randy, for bringing the recent homestead exemption legislation to my attention as the changes are profound and yet there has been zero media coverage.  The Colorado legislature has just passed a new bill radically changing the meaning of homestead.  Previously a house, condo, or apartment were considered “homesteads” now the definition has been turned upside down. Unfortunately this “small” change will have radical impacts.  Why is this change so important for property owners and any creditor?

What is a homestead exemption?

The homestead exemption is a legal provision that helps shield a home from some creditors following the death of a homeowner’s spouse or the declaration of bankruptcy. The homestead tax exemption can also provide surviving spouses with ongoing property tax relief, which is done on a graduated scale so that homes with lower assessed values benefit the most.

What is in the new Colorado homestead bill?

There are two radical changes from this bill:

• Homestead Exemption:
  1. expands the meaning of “homestead” to expressly include a “dwelling”, and section 4defines a dwelling as conventional housing and personal property that is actually used as a residence, including any vehicle, trailer, vessel, camper coach, mounted equipment, railway car, shipping or cargo container, or shed, yurt, or tiny home.
• Homestead exemption amounts:
  1. Colorado’s statutory homestead exemption exempts a portion of a homestead from seizure to satisfy a debt, contract, or civil obligation. Section 2 increases the amount of the homestead exemption:
     1. From $75,000 to $250,000 if the homestead is occupied as a home by an owner of the home or an owner’s family; and
     2. From $105,000 to $350,000 if the homestead is occupied as a home by an owner who is elderly or disabled, an owner’s spouse who is elderly or disabled, or an owner’s dependent who is elderly or disabled.

How will these changes work in the real world?

Although on paper the changes do not look monumental, the actual impact is radically different.

• Homestead Exemption: The new definition approved by the legislature radically alters the status quo and will cause considerable harm to property owners and creditors.
  1. Impact on property owners. Let’s look at a couple different scenarios that will play out:
     1. Vehicle now a “homestead”: if you have a vehicle parked on your property if this vehicle is now considered a house/primary residence notice will have to be given to quite/vacate and a court procedure will need to be followed. Let’s say you own a property where people camp in their vehicles at night illegally, as a property owner you could not just force them to vacate; you would need to spend considerable time and money to remove them from your property.  Multiply this issue exponentially as tents, yurts, campers, vessels, containers, etc… will now have to be “evicted” if they are illegally on your property.

• Homestead exemption amounts: With exempt amounts increasing over 300% to between 250 to 300k the impact on creditors will be enormous
  1. Vehicle: Using a similar example as above of a vehicle, let’s say someone had a 200k Porsche; they could claim they slept in it and that it was their homestead. Let’s say they went through a bankruptcy or didn’t pay their CC or other debts, the creditor would not be able to use this asset as it would be shielded because it is a homestead.
  2. Traditional homestead: With amounts increasing over 300 percent creditors are going to be on the hook for substantial losses. Currently there is a 75k exemption, this now increases to 250k minimum.  If a homeowner went through a Bankruptcy or didn’t pay a creditor, the creditor would not be able to recover the amount due to the huge exemptions

Summary:

Whenever I see bills like the new homestead exemption, I scratch my head wondering what problem they were trying to solve and even why making “attached equipment” and yurts homesteads while inflation roars, roads are underfunded, and various other more pressing needs are facing the state of Colorado.

Unfortunately, the new bill does not solve any problems and instead creates more issues by putting large burdens on property owners and creditors.  This law has huge impacts on property rights as now you must “evict” and go through an expensive court process to remove tents, vehicles, vessels, and basically anything else someone could possibly sleep in.

The homeless epidemic and associated issues we are seeing throughout the front range will be exponentially multiplied by this legislation.  It is unfortunate as this legislation is merely shifting the problem to private property owners and substantially increasing their costs.

Additional Reading/Resources

Homestead Exemption And Consumer Debt Protection | Colorado General Assembly

Roll Call: CO SB086 | 2022 | Regular Session | LegiScan

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Written by Glen Weinberg, Owner Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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