'Walking Away' Loses Couple $116,000 in Cash

Walking away from your underwater home, even temporarily, can have serious consequences. Just ask Willard and Holly Brown, who lost $116,000 by walking away from their house in Clarkston, Wash.

The Browns, who owned a home with a filed homestead exemption -- which protects a home from creditors in certain circumstances -- fell into some financial troubles with their company WW Cedar, based in Idaho.

Unable to pay back a $200,000 small business loan from Wells Fargo secured by their home, they figured they were underwater between that debt and their mortgage with Alaska USA Mortgage Company, so they walked away. Although they claimed they left temporarily, the court ruled otherwise based on a contested series of events.

A homestead exemption is great for getting a deduction on your property taxes, but it also can protect you from creditors to some extent, and help determine the location of your primary residency (e.g. Rahm Emanuel) or win you a home outright through a glitch.

But the key is, you have to apply for the exemption stating the home is your primary home and you can't waive your rights to the exemption if you expect the law to work for you.

In May or June 2008, the Browns terminated their utility services, including requesting a
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"permanent shut off" of the water at the Clarkston house, according to the court records. They then began renting a place in Florida. With a one-year lease signed, they obtained Florida driver's licenses and changed their vehicle registrations with the department of motor vehicles. By September 2008, they had also stopped paying their mortgage with Alaska USA.

A trustee for the mortgage company performed a nonjudicial foreclosure on the property in January 2009. At auction, the home sold for $116,377.85 more than was owed on the mortgage, which means the excess goes to the Browns. At least it would under a homestead exemption.

But the Browns have the exemption, right? Well, that's where it gets sticky. They say they were on an extended holiday in Florida and Wells Fargo, said no, they abandoned the home and seized $116,377 to help repay the business loan.

The court of appeals upheld the lower courts opinion, when, according to state law, an owner is presumed to have abandoned a homestead when the owner vacates the property for six months or longer. However, if owners know they will be away for a while, they may execute and file a declaration of nonabandonment with the county recording officer in the county where the property is situated. The Browns failed to do this.

Check the homestead exemption laws in your state before you walk away or forget to file an exemption. In Washington state, the Browns would've have been protected up to $125,000 if they had simply filed a declaration of nonabandonment.

Sheree R. Curry
, a three-time award-winning journalist who has covered real estate for six years, is seeking other writing opportunities as her
AOL Real Estate contract is coming to a close under the Huffington Post Media Group merger with AOL. Sheree's been writing for AOL Real Estate since 2009 from a Minneapolis suburb. During her 20-year career, her personal finance and business articles have appeared regularly in the Wall Street Journal, TV Week, and Fortune. Find her at CurryMedia.com.

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