Bulletin: MT000013

Dear Associates:

THIS BULLETIN CLARIFIES, AMENDS AND REPLACES BULLETIN NO. MT000012. PLEASE RELY ON THIS BULLETIN INSTEAD OF THE BULLETIN PREVIOUSLY ISSUED ON THIS SUBJECT.

Recent changes in the Montana Homestead Statute have given rise to questions and confusion regarding insuring title where homestead rights exist and when title agents need to require a release of a recorded Declaration of Homestead. In response to these recent inquiries, we have put together a statement of Stewart's interpretation of the Montana Homestead Statute and some underwriting guidelines concerning homestead rights. This Bulletin will only address title requirements where a Declaration of Homestead has been properly recorded as required by the Montana Homestead Statute and not generic unrecorded homestead rights which may exist in property. If a party fails to record a Declaration of Homestead, no rights of homestead attached to a particular property.

BACKGROUND

M.C. A. §70-32-201 provides for an exemption for execution or forced sale by creditors of any person's homestead. In order to create a homestead, the person selecting a homestead must record a Declaration of Homestead in the office of the county clerk of the county in which the land is located. MC.A. §70-32-105 and MC.A. §70-32-107. The Declaration must contain:

• Description of the Property
  
  
• Signed and Acknowledged
  
  
• Statement that person making a claim is residing on the premises and claims it as a homestead.

Effective in 2001, the Montana Code was amended to increase the homestead exemption to $100,000. M.C.A. §70-32-104. If the claimant is the owner of an undivided interest in real property, the homestead claim is limited to an exemption amount proportional to the claimant's undivided interest.

Under M.C.A. §70-32-202, homestead property can be encumbered for the following purposes:

• Debt secured on construction or vendor's liens (i.e purchase money mortgage) upon the premises;
  
  
• On debts secured by mortgage on the premises which is executed and acknowledged by the husband and wife or by an unmarried claimant; or
  
  
• Debt secured by Mortgage on the premises, which is executed and recorded before the declaration of homestead is recorded.
  
  
• Waiver of Right to Homestead Exemption

Only these liens are valid against a recorded Declaration of Homestead and allow the lien claimant to execute or forced sale in satisfaction of a judgment. Also, a valid purchase money lien that is renewed, extended or replaced with a new obligation has the same effect as the lien it replaces (refinance transaction).

COMPANY POLICY: Title agents should always disclose any recorded Declaration of Homestead in Schedule B of their title commitment. If a party requests removal of this item from the Policy or if the lender's closing instructions contain a requirement for release of any homestead rights, title agents should obtain an executed and acknowledged Declaration of Abandonment from the borrower and their spouse, if any, and record the Declaration of Abandonment prior to the recording of any Trust Indenture or Deed of Trust.

WHO IS ENTITLED TO A HOMESTEAD

Basically, anyone can record a Declaration of Homestead regardless of martial status or vesting issues. If the claimant is married, the homestead may be selected from the property of either spouse. M.C.A. §70-32-103. If the claimant is not married, the homestead may be selected from any of his or her property. Id. Additionally, a partner is entitled, as against the creditors of the firm, to claim and hold a homestead in the partnership estate. Ferguson v. Speith, 34 P. 1020 (1893).

COMPANY POLICY: Even though a claimant if not vested in title or is not married to the true owner of the property, they may still select and hold a homestead estate by recording a Declaration of Homestead. Do not assume that a recorded Declaration of Homestead is invalid because the claimant is not married to the true owner or vested in title to the property. If you have any questions regarding whether or not a person is entitled to a homestead, contact your local underwriter.

WHAT ESTATE CAN THE HOMESTEAD RIGHT ATTACH TO?

Upon recording a Declaration of Homestead, a homestead consists of a dwelling house or mobile home, and all appurtenances, in which the claimant resides and the land, if any, on which the same are situated. MC.A. §70-32-101. An owner of land has the right to select particular land as a homestead. Oregon Mtg. Co. Ltd. V. Dunbar, 289 P. 559 (1930). The Declaration of Homestead once recorded attaches the homestead right to any estate in land which the claimant possesses including, but not limited to:

• Equitable title
  
  
• Fee Title
  
  
• Undivided Interest
  
  
• Leaseholds
  
  
• Partnership estate
  
  
• Land used for agricultural purposes
  
  
• Co tenancy
  
  
• Other Sub Holdings

COMPANY POLICY: Be sure to carefully investigate and consult your local underwriting counsel for additional requirements that might be necessary before insuring any property when the property claimed as homestead, as evidenced by the recording of a Declaration of Homestead, is held as anything less than fee simple.

ACTUAL POSSESSION REQUIRED

In Montana, actual occupation, not just mere intention to occupy at some future time, is necessary to create a homestead right which is exempt from sale on execution upon recording of the Declaration of Homestead. Power v. Burd, 43 P. 1094 ( Mont. 1896). Any naked possession or occasional possession, even without any evidence of title whatsoever is sufficient to ground a right of homestead against the land, except as to one who has a better title or is the true owner. For example, a girlfriend, who records a Declaration of Homestead and lives on the property without any evidence of title, is sufficient to create homestead rights on the land owned by a boyfriend so long as the girlfriend actually occupies the land.

COMPANY POLICY: If a claimant records a Declaration of Homestead assume that they actually occupy the property, unless you discover evidence in your investigation to the contrary. If a title agent is dealing with vacant land, rental property or where the parties have relocated to another state or possession is unclear, the title agents should not insure the transaction before consulting your local underwriter for any further requirements that might be necessary to insure the transaction.

ABANDONMENT

After filing a Declaration of Homestead, a homestead property retains the homestead right until the time that one of the following occurs:

1. Title actually passes by grant executed and acknowledged; or
   
   
2. The property is abandoned only by a Declaration of Abandonment;

A grant or abandonment must be executed and acknowledged by: (1) the husband and wife if the claimant is married; (2) the claimant if unmarried. M.C.A. §70-32-303. A Declaration of Abandonment is only effective from the time it is filed in the office in which the Declaration of Homestead was recorded. M.C.A. §70-32-303. Montana does not recognize a waiver of homestead rights. Any homestead rights must be properly abandoned as set forth above.

COMPANY POLICY: Title agents should not assume that a homestead right is abandoned unless the above requirements have been meet. If you have any questions regarding whether or not a homestead property is abandoned, please contact your local underwriter.

MARRIED PERSONS

After recording a Declaration of Homestead, the homestead of a married person cannot be conveyed or encumbered unless the instrument by which it is conveyed or encumbered is executed and acknowledged by both husband and wife. MC.A. §70-32-301.

COMPANY POLICY: Generally, we require that both mortgagor and spouse properly execute a conveyance or mortgage, if the spouse of the current owner or mortgagor has any right or interest in the property that we are asked to insure. In order to remove this requirement, the mortgage must state on its face that the borrower is single, i.e. Jane Doe, a single woman. If the mortgagor is not single, then we require abandonment from the spouse. Although we will accept an Affidavit in some circumstances, it is a better practice if the documents (Deed, Deed of Trust, Mortgage, Trust Indenture, etc) state that the parties are husband and wife or unmarried to specifically satisfy the statute. It is also the best practice to place the homestead right in Part II of Schedule B when both parties execute the mortgage.

LENDER'S NOTICE REQUIREMENTS REPEALED

Effective in 2001, M.C.A. §70-32-221 was repealed. This change merely deleted the need to file an acknowledgement that the Borrower was waiving the protections of the Homestead Statute by encumbering the property. In Earls v. Chase Bank of Texas, N.A., the Montana Supreme Court recently held that a creditor was required to secure from the debtor an acknowledgement that her home was not except from execution or forced sale, even though the debtor had not filed and recorded a homestead declaration before execution of the trust indenture since the trust indenture was executed by the borrower prior to the repeal of M.C.A. 70-32-221. Earls v. Chase Bank of Texas, N.A, 59 P.3d 364 (Mont. 2002). The Court went on to hold that the trust indenture was void and unenforceable due to the creditor's noncompliance with M.C.A. §70-32-221.

COMPANY POLICY: Title agents should be aware that lenders are no longer required to file an acknowledgement that the borrower is waiving the homestead exemption by encumbering the property. This applies only to the notice requirement for lenders and does not apply to the requirements for insuring title where a homestead estate or right exists.