IL Underwriting References

Homestead

Last effective date: November 15, 2019

Homestead is a real estate concept that is misunderstood by many people in the title insurance industry. It is hoped that this article will serve as a practical guide for the understanding and comprehension of those issues relating to homestead that the title insurance examiner and closer encounters on a day-to-day basis.

Statutory law relative to homestead is set forth in 735 ILCS 5/12-901, hereafter termed "the Homestead Act."

Creation of Homestead

735 ILCS 5/12-901 provides as follows:

Every individual is entitled to an estate of homestead to the extent in value of $15,000 of his or her interest in a farm or lot of land and buildings thereon, a condominium, or personal property, owned or rightly possessed by lease or otherwise and occupied by him or her as a residence, or in a cooperative that owns property that the individual uses as a residence. That homestead and all right in and title to that homestead is exempt from attachment, judgment, levy or judgment sale for the payment of his or her debts or other purposes and from the laws of conveyance, descent and legacy, except as provided in this Code . . . .

The individual must, one, own or "rightly possess by lease or otherwise" the land, and two, must occupy it as his residence in order to be entitled to a homestead estate. Consider the following examples and note how these two factors determine the existence and ownership of the homestead estate:

Examples of Homestead

• John and Jane both own and occupy a home. Because they both own the home and both live in it, both have a homestead estate.

• John is married to Jane. John alone owns the home in which they both live. Although both live there, only John owns it, and so, only John has the homestead estate.

• John is a bachelor who lives alone in the home he owns. John has a homestead estate.

• John and Jane are not married, but instead, they live together. John alone owns the home in which they live. Despite Justice Heiple’s concurring opinion in First National Bank v. Mohr, 162 Ill.App.3d 584 (1987), which is set forth in part in the footnote below, it is reasonable to state that only John has a homestead estate. Although both John and Jane live in the home, only John owns it.

• John and Jane are married. They both own a home in which they live. They also own a commercial building. John and Jane both have a homestead interest in their home; neither has a homestead interest in the commercial building, as they do not occupy the commercial building as their residence.

• John and Jane are married. John owns the building that they live in. John is an artist. His studio is on the first floor, and they both live upstairs on the second floor. Since in this case John and Jane do occupy this commercial building as their residence, John (because he owns the building) has a homestead interest in it.

• John rents a home from his landlord. John later gets married and Jane, now his spouse, moves in. John has a homestead interest in his rented home because he both occupies it as his residence and possesses it by lease. Jane has no homestead interest; although she lives there, she does not "rightly possess by lease or otherwise" the home.

This construction of the statute is consistent with Illinois case law. See, for example, In re Frank Carver, 2003 WL 23211627 (Bankr. S.D. Ill.), where the bankruptcy court found:

The estate in land to which the homestead right attaches must be supported by title or some ownership interest, and possession alone is insufficient to entitle an individual to claim a homestead.

See also Sterling Savings and Loan Ass’n v. Schultz, 71 Ill. App. 2d 94 (1st Dist. 1966), where the Illinois appellate court held that the non-title holding spouse was “not entitled to a homestead estate based upon naked possession, without any title or right in the real estate.”

Characteristics of Homestead

One does not need to have fee title in order to obtain homestead rights. One may have homestead in a life estate, an equitable estate created by an installment contract, or, as noted earlier, a leasehold estate.

So what exactly is homestead? How can it be defined? If one thinks of real estate as being a bundle of sticks, comprising many interests in land, such as covenants and easements, “homestead” is one of these sticks. Homestead in Illinois is both an estate and an exemption. That is, homestead is an estate (an interest in land) that is exempt from the lien of creditors. It is not just the right of occupancy.

Homestead as an Exemption

735 ILCS 5/12-901 provides that homestead is an exemption that creditors cannot seize in order to satisfy the debts of the party who possesses the homestead interest.

Example: John owns and lives in a home. He meets and eventually marries Jane. Jane moves into John's home. A year later John decides to refinance his current loan by taking out a new mortgage with the local bank. If the homestead rights of John are not properly waived by Jane in the mortgage, then, in the event the mortgage is later foreclosed, the lender might be unable to obtain the full amount of the unpaid debt. That is, $15,000, representing the homestead exemption of John, might have to be set aside.

Homestead as an Estate

735 ILCS 5/12-901 provides that homestead is an estate that is shielded “from the laws of conveyance, descent, and legacy.”

Example: John owns and lives in a home. He meets and eventually marries Jane. Jane moves into John's home. A year later John decides to sell his home. If the homestead rights of John are not properly waived by Jane in the deed or otherwise, the title to this homestead estate would not pass to the grantee of John's deed. Jane might later be able to assert her rights in this estate.

Release, Waiver, or Conveyance of a Homestead Interest

It is obvious from the above two examples that it is important for the title examiner or closer to know how the homestead exemption, or homestead estate, is properly waived. Note that this issue arises in invariably the same situation:

Example: Man and woman are married, but only one spouse owns the residence in which they live. At the closing, the "title holding spouse" wants to convey or mortgage the residence.

The issue is: Does the non-title holding spouse have to sign the deed or mortgage to waive an outstanding homestead estate or exemption? If the answer is yes, then how can this homestead estate or exemption be waived?

735 ILCS 5/12-904 provides three methods of releasing, waiving, or conveying a homestead interest:

No release, waiver or conveyance of the estate so exempted shall be valid, unless the same is in writing, signed by the individual and his or her spouse, if he or she have one, or possession is abandoned or given pursuant to the conveyance. . . .

Again, these three methods are as follows:

No release, waiver or conveyance of the estate so exempted shall be valid, unless

• One, the release, waiver, or conveyance of the estate is in writing and signed by both the individual and spouse, if applicable, or;

• Two, possession is abandoned, or;

• Three, possession is given pursuant to the conveyance. . . .

Release of Homestead: Method Number One

Except when the conveyance is from one spouse to another, any deed (or mortgage) executed by the owner spouse must also be signed by the non-owner spouse. See 765 ILCS 5/27.

Although it is not necessary, the instrument should contain a clause, releasing or waiving the right of homestead.

Note that the non-owner spouse does not have to execute this instrument. For example, if John owns the house in which both he and his wife (Mary) live, a deed or mortgage need not be executed by John and Mary, husband and wife. (Mary may not, for instance, want to warrant the condition of title to property that she does not own. Or, Mary may not want to be personally liable for any mortgage indebtedness). Rather, John alone can execute the deed or mortgage as "John, married to Mary." Then, Mary need only sign the instrument, which should contain a "release of homestead" clause in order to release the applicable homestead interest.

If for some reason the deed or mortgage does not contain such a clause, the title examiner or closer might want to consider adding such a clause, so that the instrument clearly evidences the intent to release or convey homestead and so that it conforms to statutory and case law. For example, a phrase similar to the following may be added above Mary's signature:

I, ____________________, sign this deed (or mortgage) for the sole purpose of waiving or releasing any applicable homestead interest.

Because the non-owner spouse is, in fact, waiving or releasing an interest in land, any signature of the non-owner spouse should be acknowledged.

Note that the statute states that the waiver or release must be signed by both spouses. Therefore, it is possible that a “release of homestead” executed solely by the non-title holding spouse but not part of another document executed by the title holding spouse may be invalid.

Discussion of Method Number One

Example: Bob and Carol are married and live in a home that Bob alone owns. Bob and Carol want to sell the home to Ted and Alice. As Bob owns the home, he will hereafter be called "owner spouse." As Carol does not own the home, she will hereafter be called "non-owner spouse."

As it is Bob, and Bob alone, who both lives in and owns the home, Bob owns the homestead estate. However, for Bob to effectively convey this estate, Carol must execute or otherwise sign the deed. Or, to put it another way, Carol, the non-owner spouse, must sign the deed (or, e.g., a mortgage), but not to release her homestead interest, as she has no homestead interest to release. Rather, the non-owner spouse must sign the instrument in order to waive, release, or convey the homestead interest of the owner spouse. Thus, she must sign the document in order to waive, release, or convey his homestead interest!

Thus, a properly-drafted conveyance of the property will be signed by both Bob and Carol. Bob must execute the deed, as he is owner of the property. Carol must sign the deed in order to release the homestead of Bob.

See also 765 ILCS 5/27:

No deed or other instrument shall be construed as releasing or waiving the right of homestead, unless the same shall contain a clause expressly releasing or waiving such right. And no release or waiver of the right of homestead by the husband or wife shall bind the other spouse unless such other spouse joins in such release or waiver.

An Exception to Method Number One

See 735 ILCS 5/12-904:

If a conveyance is made by an individual as grantor to his or her spouse, such conveyance shall be effectual to pass the title expressed therein to be conveyed thereby, whether or not the grantor in such conveyance is joined therein by his or her spouse.

There is one exception to the necessity of the non-owner spouse's signature. When a conveyance is made by an individual as grantor to his or her spouse, the spouse need not join in the conveyance.

The Rationale of Homestead

To appreciate the reasoning as to the requirement of the non-owner spouse's signature, one must first understand the purpose of the homestead laws. Robert Kratovil and Raymond J. Werner, in their book, Real Estate Law (8th Edition, 1983) lists three principal reasons for these laws.

• The first is the protection of the family against being evicted from its home by the enforcement of creditors' claims. (Homestead is an exemption as well as an estate).

• The second is the traditional concept of providing some protection to the widow after the death of her husband. This concept is beyond the scope of this article.

• The third and final object of the homestead laws is the historical notion of protecting one spouse against the acts of the other spouse. In the past, lawmakers have provided that one spouse cannot convey good title to one’s own home unless the other spouse signs the deed. Thus, the one spouse cannot sell the home against the wishes of the other spouse. (Or in other words, the title holding spouse cannot sell the family home without the consent of the non-title holding spouse.) It is for these reasons that a husband and wife must join in any deed or mortgage of homestead property—with a few exceptions, to be discussed later.

Release of Homestead: Method Number Two:

Homestead can also be released or waived (but not conveyed) pursuant to an abandonment of the property. (That is, the spouse of the titleholder releases the homestead interest of the titleholding spouse by abandoning the property).

Example: Adam and Betty are married but separated. Adam owns the home that he lives in. He wishes to refinance his existing mortgage. Does Betty have to sign the mortgage? Adam assures the title company that there is no hope of reconciliation and that "they will be getting a divorce soon.” Adam may claim that Betty has never lived in the property, and that therefore there is no homestead problem.

Or, to set forth the facts even more simply:

Facts: A and B are married. A buys the home in which A and B live. B moves out. Later, A wants to execute a mortgage of the home.

Issue: Does B have to sign the mortgage in order to waive homestead?

Discussion: All the facts of the situation must be considered before waiving the requirement as to the spouse's signature on the mortgage. If the couple has been separated for ten years, there is probably little risk in not requiring the spouse to execute the mortgage. But what if the couple has been separated for only ten days? What factors should the examiner consider? These include:

• Has the non-title holding spouse ever lived on the property?

• How much time has elapsed since the non-title holding spouse moved out?

• When the non-title holding spouse moved out, what were the surrounding circumstances?

• If one spouse never lived in the property (for example, perhaps one spouse moved out of the family home and bought another house, which is now being mortgaged), how long has the other spouse lived in the home?

• Is the couple’s separation permanent or temporary? What possibility is there of a reconciliation?

• Has the non-title holding spouse established a new homestead? How permanent is the homestead? For example, has the spouse changed his or her driver’s license or voter registration?)

• Is the non-title holding spouse’s present whereabouts known?

• How accurate is the information furnished the examiner? How credible is the party furnishing this information to the examiner? Is the information being furnished by a spouse or by a third party who may not have a complete knowledge of all of the facts?

• Has one of the parties filed for divorce, or are the parties “going to get a divorce?” If the parties have formally filed for divorce, and one of the parties has moved out of the home, the examiner is probably in a good position to waive the requirement as to obtaining that spouse’s signature on the mortgage.

The Ambiguity of Abandonment

There is, unfortunately, an inherent ambiguity in the concept of abandonment of a homestead. There are many old cases that seem to indicate that the intent to abandon the home is the key, that a mere moving out of the home, without the intent to truly abandon it, does not constitute an abandonment of possession. See, e.g., McBride v. Hawthorne, 268 Ill. 456 (1915) and Ketcham v. Ketcham, 269 Ill. 584 (1915).

Illinois case law is replete with unusual decisions, holding that what seems to be abandonment is not necessarily so. For example, in McBride v. Hawthorne, 268 Ill. 456 (1915), the court stated that residing on the homestead premises is not essential in order to prevent abandonment if, when the homesteader leaves, he intends to return and occupy the property. In Brokaw v. Ogle, 170 Ill. 115 (1897) the court noted that a widow does not abandon her homestead because she goes to her daughter's house to be taken care of during an illness and rents the homestead during her absence in order to obtain money to pay the expenses of said illness. In Ketcham v. Ketcham, 269 Ill. 584 (1915) the court stated that the fact that a person leases the land of his homestead after his home thereon burns down, and no longer lives on the homestead, does not constitute an abandonment when there is no evidence of an intent to abandon.

Rule of Title Practice:

Seldom should abandonment be relied upon in order to waive a homestead exception from a title commitment or policy without careful consideration.  The reason for this is the great difficulty in determining abandonment, which is a question of intent.  How does one, e.g., determine if the "separated" wife has truly left her husband and abandoned the property or just temporarily left her spouse for a few days? Title company underwriters must thoughtfully weigh all factors before deciding not to require a spouse’s signature.

An Abandonment Variation

Example: But now change the facts slightly. Unfortunately, Adam and Betty both took title to their home. Adam now wants to refinance (or sell) the home. He tells the examiner that Betty has been gone for at least ten years, and he has no idea where she lives or even if she is still alive.

This is not a homestead issue; this is a title issue. Adam may have to file some kind of quiet title action. Although a title holder can abandon possession of land, one cannot abandon title. Although it is technically possible to adversely possess land as against a true owner, this can only be accomplished by a complete repudiation of the title of this owner. See Carpenter v. Fletcher, 239 Ill. 440 (1909). Furthermore, it is doubtful that a title company would insure title pursuant to such a repudiation.

Release of Homestead: Method Number Three

The homestead can be released if possession is of the land is delivered to a purchaser of the land "pursuant to the conveyance” by the non-title holding spouse.

Example: In 2012 John buys a home in Chicago. In 2014 he marries Jane, who moves into the home. In 2019 John and Jane decide to move to Denver, Colorado. Accordingly, John and Jane put "their" home up for sale. At closing, John, the title holding spouse, delivers a warranty deed signed by John alone. Jane, the non-title holding spouse, is unable to sign the deed, as she is already in route to Denver.

In the above example, it is clear that Jane has given up possession of the property in question. By doing so, she has released her spouse’s homestead interest. On a case-by-case basis, each situation judged on its own merits, one may choose to rely on this method as a means of waiving a homestead exception from a title policy. Although it is not necessary, the parties may want to consider adding a "release of homestead" statement to the deed. For example:

Possession by the non-title holding spouse is surrendered pursuant to and concurrently with this conveyance, sufficient to convey and release homestead, as provided in 735 ILCS 5/12-904.

Before waiving an exception relating to homestead, the title examiner or closer should verify that the non-title holding spouse is giving up possession of the land.

Rule of Title Practice

For the title examiner, the issue of homestead usually arises as follows: The application for a title commitment comes in, showing that John and Jane Doe, husband and wife, are the owners. However, the title search shows that only one spouse owns the property. When the title examiner is faced with these or similar facts, the examiner should show the following exception on the title commitment:

If applicable, the spouse of the party in title should join in the conveyance or mortgage for the purpose of releasing, waiving, or conveying the title holder's homestead interest.

Note the words, "if applicable,” in the title exception. Remember that the spouse needs to join in the conveyance or mortgage only if the property is the owner's homestead. If the title search reveals that John and Jane Doe are married, and John alone owns the property, but it is established that the property is not the residence of the owner, then the spouse of the title holder does not have to join in the conveyance or mortgage. To prevent future questions as to the transaction, however, it is acceptable (but not necessary) to write on the document, "this is not homestead property" or words to that effect. By doing this, future title examiners will realize that the property is not homestead property and, therefore, not question the absence of a spouse's signature.

Example: John owns his home. He wants to convey it to his wife. Does his wife have to sign the deed in order to release any homestead interest?

No, as noted above, John’s wife does not have to sign the deed to her husband in order to waive homestead. See 735 ILCS 5/12-904, which states: “But if a conveyance is made by an individual as grantor to his or her spouse, such conveyance shall be effectual to pass the title expressed therein to be conveyed thereby, whether or not the grantor in such conveyance is joined therein by his or her spouse.”

Homestead and a Spouse Not in Possession of the Home

Sometimes a potential homestead problem may not be easy to recognize. Consider the following example:

Example: Oscar and Della Renta are husband and wife. They are separated. Oscar, while he is separated from his wife, purchases a home, paying cash for it. Oscar lives there by himself for six months. He then finds out that his employer is transferring him across the country. He puts his home up for sale. It is obvious that at the time of closing, Oscar, and only Oscar, one, bought the house, and two, lived in the house.

Question: Does Della need to sign the deed?

Answer: At first one might think that Della has to sign the deed. After all, Oscar is still married, owns the home, and lives in it, thus meeting all the statutory requirements, previously discussed, of the Homestead Act.

However, Illinois case law indicates that the spouse of the title holder must reside with the titleholder in the titleholder's home in order for the Homestead Act to be operative. For example, in Dixon v. Moller, 42 Ill. App. 3d 688 (1976), the court noted that the chief object of the homestead laws is to shelter the family. In Rendleman v. Rendleman, 118 Ill. 257 at 264 (1886), the Supreme Court stated that “the holder of the title cannot wrongfully deprive the other of the enjoyment of the homestead premises." The Supreme Court in Brod v. Brod, 390 Ill. 312 at 323 (1945) noted the following:

The law and public policy of this state, as exemplified by [the Homestead Act] and the many decisions in this state thereunder, have been and are to insure to the family the possession and enjoyment of a home.

These and other similar cases indicate that Della would not have to sign the deed. Della had never lived in Oscar's home; consequently, Oscar, by selling the property, would not be depriving her of "the possession and enjoyment of a home." And of course, Oscar, the only occupant of the home, is delivering possession of the home pursuant to the conveyance.

But again, now change the facts slightly. What if Oscar, the title holder, had abandoned the property? This would obviously be a problem. The Company needs a deed from the title holder before it can insure a sale of the property. One cannot easily abandon title to the land.

And now change the facts again:

Adam and Betty are married. Adam owns a home in DuPage County, Illinois. Betty does not own the home. Because of her job, Betty lives out of state, and she has never lived in Adam’s home. Adam now wants to refinance his purchase money mortgage. Does Betty have to sign the mortgage in order to waive homestead?

Answer: What if Betty eventually moves to Illinois and into Adam’s house a year after he signs the mortgage? And what if, a year later, the mortgage goes into foreclosure? The better practice is that Betty sign the mortgage. In the event of a mortgage foreclosure, Adam’s attorney will probably argue that $15,000, representing Betty’s homestead, should be set aside from the mortgage foreclosure.

The Homestead Checklist

It might be helpful for the closer or examiner to adopt a "checklist" in deciding whether or not a homestead problem exists. Title personnel might want to consider the following "two pronged" test and ask themselves the following:

1. Who owns the property? (Remember, all owners of the property must execute any deed or mortgage. There are no exceptions to this rule).

2. If the fact situation involves a title holding spouse and a non-title holding spouse, does the title holding spouse reside at the property?

a) If the answer to question "2" is "no," then a non-title holding spouse's signature on a deed or mortgage is not necessary.

(b) If the answer to question "2" is "yes," then, generally speaking, the non-title holding spouse should sign the deed or mortgage, conveying or releasing the homestead interest of his or her spouse.

(c) If the title holding spouse resides on the property, but the non-title holding spouse does not, then the individual facts of the situation should be considered before waiving the requirement as to the non-title holding spouse's signature on a deed or mortgage on the basis that the spouse would not be deprived of "the possession and enjoyment of a home." (Factors to consider include whether or not the non-title holding spouse had ever lived in the home, the length of time the couple had been separated, and the nature—permanent or temporary—of the separation.)

Note that part two of the above checklist refers to the requirement of the title holding spouse residing at the property. The question may arise, then: How can homestead be an issue at closing, when, invariably, the purchaser is not yet residing at the property, and hence, not satisfying this requirement of the above two-pronged test? The answer is found in Illinois case law; the purchaser of property, with the intention of occupying it as a homestead, followed within a reasonable time by the actual occupancy thereof as a residence, creates an estate of homestead, even before there is an actual occupancy of the home.

Homestead and the Illinois Land Trust

The Homestead Act is applicable to personal property. 735 ILCS 5/12-901 states:

Every individual is entitled to an estate of homestead to the extent in value of $15,000 of his or her interest in a farm or lot of land and buildings thereon, a condominium, or personal property. . . .

The statute refers to personal property. The beneficial interest in a land trust is personal property. See Chicago Federal Savings and Loan Association v. Cacciatore, 25 Ill. 2d 535 (1962). Therefore, any assignment of said beneficial interest should contain, if applicable, a waiver of homestead rights.

But assume that title to the land is in an Illinois land trust:

Example: John buys a home. He takes title pursuant to an Illinois trust—the Chicago Title Land Trust Company, as trustee under trust number 12345. A year later John marries Jane. A year after they get married, John and Jane decided to have a mortgage executed of the family home. Does Jane have to sign the mortgage in order to waive homestead?

No, Jane does not have to sign the mortgage. There is, generally speaking, no homestead issue concerning land trust property. The title examiner need not worry about a mortgage or trustee's deed containing a waiver of homestead. The reasons for this are as follows:

• The beneficial interest in a land trust is personal property, and the trustee’s deed conveys real estate.

• Even assuming for the moment that the two-pronged test set forth in 735 ILCS 5/12-901 is applicable, the trustee, not the trust beneficiary, is the owner of the real estate, and he does not qualify for the homestead estate, as he does not occupy the property as his residence.

• The beneficiary, who does, most likely, occupy the property, does not own the property. The beneficiary owns only the beneficial interest in the land trust, which is a personal property interest, not a real property interest.

735 ILCS 5/12-901 sets forth the two requirements necessary in order to possess a homestead estate in real property:

• The individual must "own or rightly possess by lease or otherwise" the property;

• The individual must occupy it as his residence.

Because neither the trustee nor the beneficiary can satisfy both requirements, there is, generally speaking, no homestead issue relating to real estate conveyed via a trustee's deed out of a land trust.

Homestead and the Personal (Living) Trust

For the above reasons, it appears that this "no homestead with a trustee's deed" rule is equally applicable to both commercial land trusts and personal trusts, or living trusts.

Example: Samantha and Darrin own a home. For purposes of estate planning, Darrin owns the home as trustee of the Samantha and Darrin living trust. If Darrin, as trustee, were to convey or mortgage the property, does Samantha have to join in the deed or mortgage?

Because of 735 ILCS 5/12-901, homestead should not be an issue in this type of situation. This section deals with an individual owning land and occupying it as his or her residence. One might reasonably argue that a legal fiction is created here in that Darrin the individual is an entity separate and apart from Darrin the trustee. Darrin the individual occupies the land, while Darrin the trustee owns it. Therefore, both parts of the Section 901 two-pronged test are not met. That is, although Darrin the trustee owns the home, Darrin the individual occupies it. These are legally two separate people.

Remember that any conveyance into either an Illinois land trust or a personal trust must waive or convey any applicable homestead interest. If it does not, any subsequent trustee's deed does not "cure" the problem of the outstanding homestead interest.

Note, though, that many lenders will not allow their mortgages to be executed by land trustees. Their rationale, however, does not involve homestead. Rather, it appears to stem from the legal characteristics of the Illinois land trust. Many lenders are apparently concerned that property can be purchased and mortgaged through a land trust, and later, the beneficial interest can be assigned to a third party, with nothing ever subsequently placed of record in the property's chain of title that will alert the mortgagee that the original "owner/mortgagor" no longer has an interest in the property.

Homestead: Lender Considerations

The issue of homestead involves special considerations for the lender. This is because the problem of an outstanding homestead estate is usually not a major issue for the title insurer. Possession is virtually always surrendered concurrently with delivery of the deed; as stated earlier, this is an effective means of extinguishing any homestead interest.

The problem of an outstanding homestead exemption is, though, a different matter. Assume that John and Jane buy a home. At the closing the seller signs a deed whereby John and Jane take title to the home as tenants by the entirety. John executes the purchase money mortgage, but Jane signs the mortgage only to waive homestead. A few years later, the mortgage is foreclosed. Only then does their attorney realize that the mortgage was improperly executed. Their attorney immediately files a motion in the foreclosure proceeding, asking that the court declare the mortgage to be invalid. The title company that insured the mortgage is immediately tendered a claim.

The Common Homestead Situation Involving a Lender

Adam and Betty are husband and wife. Their friends are Charles and Dianne, who are also husband and wife. The two couples decide to get together and buy investment property. Even though it is not "homestead" property, the "spouses," since they own the property, have to execute any mortgage of the property. Otherwise, in the event of foreclosure, the lender would succeed to only a 50% interest in the property.

Clearly this is not a homestead issue. Since four people own the property, the same four people must mortgage the property. The examiner must remember the first portion of the two-pronged "homestead checklist" mentioned earlier. In any mortgage situation, all owners of the property must execute the mortgage.

The closer must be aware of this situation, as this issue often arises. Usually, the fact situation is something like this:

The Common Example: A Trap for the Unwary Closer

Example Number One:

John and Jane will take title to property as joint tenants. The property may or may not be homestead property. The title company will close the transaction. The lender’s closing instructions state that John is to execute the mortgage but that Jane may sign the mortgage, but just to waive homestead.

Example Number Two:

John and Jane will take title to property as tenants by the entirety. The property may or may not be homestead property. The title company will close the transaction. The lender’s closing instructions state that John is to execute the mortgage but that Jane may sign the mortgage, but just to waive homestead.

Example Number One: 

This is unacceptable because, under Harmes v. Sprague, 105 Ill.2d 215, 473 N.E.2d 930, 85 Ill. Dec. 331 (1984), a mortgage given by one joint tenant of his interest in the property does not sever a joint tenancy. As such, a surviving joint tenant's right of survivorship becomes operative upon the death of the joint tenant who executed the mortgage. Thus, upon the death of the joint tenant who executed the mortgage, the surviving joint tenant becomes the sole owner of the property, and the mortgage executed by the deceased joint tenant does not remain as a lien on the surviving joint tenant's property.

In other words: John and Jane buy a home, taking title in joint tenancy. John executes the purchase money mortgage, but Jane signs the mortgage only to waive homestead. A year later John dies. Jane owns the home as a surviving joint tenant, free and clear of the mortgage.

Insuring a mortgage that is executed in this manner could result in a claim for a title company.

Example Number Two:

This example is equally unacceptable. If John and Jane own their home as tenants by the entirety, then pursuant to 765 ILCS 1005/1c, the mortgage may be completely invalid! This Illinois statute states that “no deed, contract for deed, mortgage, or lease of homestead property held in tenancy by the entirety shall be effective unless signed by both tenants.”

Remember that all owners of the land must always execute the mortgage! This is the case, regardless of the tenancy by which people own property. Thus, if Adam and Betty own the land as tenants in common, joint tenancy, or tenancy by the entirety, both Adam and Betty must execute the mortgage. There are no exceptions to this rule.

Lender Issues: Exceptions to Homestead

There may be instances in which an apparent homestead problem is not really an issue at all. This stems from 735 ILCS 5/12-903:

No property shall [by virtue of the Homestead Act] be exempt. . . for a debt or liability incurred for the purchase or improvement thereof. . . .

In other words: When a transaction involves either a purchase money mortgage or the construction of improvements to vacant land, said transaction falls outside the provisions of the previously-discussed statutes relating to homestead. Consequently, the issue of homestead becomes irrelevant.

One: The Purchase Money Mortgage Exception

A purchase money mortgage is a mortgage executed for the purpose of purchasing property. 735 ILCS 5/12-903 indicates that the non-title holding spouse of a mortgagor who is executing a mortgage used to buy real estate does not have to sign the mortgage to waive homestead.

What is the Rationale for this Statute?

In a purchase money mortgage transaction, the mortgage is executed and disbursed at the same time title is transferred. The facts create a “but for” test. “But for” the mortgage, the buyer would be unable to purchase the property. Thus, the land, when conveyed to the buyer, is transferred, already burdened by the mortgage. Hence, the lien of any homestead interest that would have been created would be subordinate to the lien of the pre-existing mortgage. Because any homestead interest that would have been created would be subordinate to the mortgage, there is no reason for the mortgagor to waive this homestead exemption in said mortgage.

Note that Illinois case law indicates that if one assumes an existing mortgage to purchase property, and the assumption and the purchase are both part of the same transaction, this mortgage assumption is considered a purchase money mortgage.

Rule of Title Practice for the Purchase Money Mortgage Exception

The examiner may want to consider the following guidelines when asked to waive a possible homestead issue on the basis that the mortgage in question is a purchase money mortgage:

The purpose of the loan should be to purchase the residence. All of the mortgage proceeds must be used to buy the property and to pay for charges relative thereto, such as title fees, recording charges, and document transfer stamps. In other words, the buyer cannot directly receive any proceeds from the closing.

Why can’t the buyer receive any proceeds from the closing? The statute provides that the homestead issue is not applicable as to a mortgage for the purchase or improvement of a residence. If a mortgagor takes out a mortgage, one-half of which is used to buy a home and one-half of which is used to buy a car, the mortgage is no longer a "debt or liability incurred for the purchase or improvement [of property]."

Sometimes this doctrine is not easy to understand. Consider this following example:

Example: Adam and Betty are married. Betty is buying the family home, as Adam is out of the country. Betty takes title in her own name. She is getting a mortgage in order to buy the home. Betty made a large earnest money deposit, and as a result, she is getting cash back at closing. The cash she is getting back is less than the amount of the earnest money deposit. Is there a problem?

No, there is not a problem, as long as the amount of cash back is less than the amount of the earnest money deposit. As long as Betty is getting back less than the amount of her earnest money deposit, it is as if the mortgage is still a purchase money mortgage.

The Purchase Money Mortgage/Home Equity Mortgage Combination

Prior to 2008, lenders were funding the purchase of homes with 100% mortgage financing. Consider this example:

Adam and Betty are married. They decide to buy a home with 100% financing. Only Adam takes title to the land. At closing Adam signs two mortgages, a purchase money mortgage and a home equity mortgage. Betty does not attend the closing. Is there a problem?

Yes, there is a problem. Betty does not have to sign the purchase money mortgage because of the statutory exception. But a home equity loan has no such statutory protection. Disbursements from a home equity loan (also called a revolving line of credit) can be made months after closing. Thus, a home equity loan is not a purchase money mortgage. Betty must sign the home equity mortgage.

Two: The Construction of a Residence Exception

As there is no "residence" for the "owner" to "occupy," there is no homestead estate that arises with this type of loan. Thus, a non-title holding spouse does not have to join in the execution of this type of construction mortgage. Any final "end" loan, however, taken out to pay off the new construction mortgage, may require the signature of the non-title holding spouse.

An Issue: The Construction of Improvements to an Existing Residence Exception

Again, 735 ILCS 5/12-903 reads as follows:

No property shall [by virtue of the Homestead Act] be exempt. . . for a debt or liability incurred for the purchase or improvement thereof. . . .

The statute suggests that a mortgage funded for the construction of additional improvements to an existing residence is exempt from the statutes relating to homestead.

Such a conclusion may be erroneous. The purchase money mortgage exception and the construction of a residence exception “make sense.” It does not make sense, however, that a mortgage merely used to pay for additional improvements to an existing residence should be exempt from the homestead statutes. The statute refers to a mortgage for the improvement of property. It is very possible that this statutory language refers to the construction of improvements to vacant land and not to the construction of improvements to an existing home. Therefore, if the purpose of the loan is for the construction of improvements to an existing residence, the non-title holding spouse should join in the mortgage in order to waive a possible homestead interest.

Three: The Vacant Land Exception

There is no statutory exception for the mortgage of vacant land. Clearly, though, homestead is not an issue with vacant land. Therefore, the non-title holding spouse does not have to join in the mortgage of vacant land to waive a possible homestead interest.

The Homestead Trap: When the Non-Title Holding Spouse Must Sign the Mortgage: Example: A Refinance of an Existing Mortgage of a Residence

Assuming that the circumstances give rise to a homestead issue, the non-title holding spouse must join in the signing of the refinancing mortgage of a residence in order to waive the homestead interest. Although purchase money mortgages are exempted from the application of the Homestead Act, the Act makes no such provisions for refinancing mortgages.

Example:

John and Jane are married. In 2015 John and Jane decide to buy a home. Because Jane has credit problems, only John takes title to the home. John buys the home with a purchase money mortgage. At closing, only John executes the mortgage. Jane does not sign the mortgage. This is acceptable, because the mortgage is a purchase money mortgage. In 2019 John and Jane decide to refinance this mortgage. Because there are no homestead exceptions to a refinance mortgage, John must execute the mortgage and Jane must waive homestead.

The Homestead Trap: When the Non-Title Holding Spouse Must Sign the Mortgage: Example: A Second, Third, Etc., Mortgage of a Residence

Assuming that the circumstances give rise to a homestead issue, the non-title holding spouse must join in the signing of a second, third, etc., mortgage of a residence in order to waive the homestead interest. Although purchase money mortgages are exempted from the application of the Homestead Act, the Act makes no such provisions for a second, third, etc. mortgage.

Loan Policy Homestead Endorsements

There are two endorsements available to lenders that relate to homestead. This first endorsement insures the lender against loss in the event that its mortgage is not prior to any outstanding homestead rights of the spouse of the mortgagor. It is sometimes used in a non-purchase money mortgage situation when, for whatever reason, the title company is not requiring the spouse to sign the mortgage:

The Company hereby insures the insured against loss or damage that the insured shall sustain by reason of the entry of a final order of a court of competent jurisdiction, denying the priority of the lien of the mortgage described in Schedule A over any homestead rights of the mortgagor or the spouse of the mortgagor.

This second endorsement is often used when the title company relies on the “purchase money mortgage exception” and does not require the spouse of the mortgagor to sign the mortgage:

The Company hereby insures the insured against loss or damage that the insured shall sustain by reason of the possible outstanding homestead estate in the mortgagor or the spouse of the mortgagor by reason of the failure of the spouse of the mortgagor to sign the mortgage described in Schedule A.

Other Issues

Conveyance to Self and Third Party

Question: Husband owns the home. Husband wants to convey the home to himself and his son. Should Wife join in the conveyance?

Answer: The statute (735 ILCS 5/12-904) states that “if a conveyance is made by an individual as grantor to his or her spouse, such conveyance shall be effectual to pass the title expressed therein to be conveyed thereby, whether or not the grantor in such conveyance is joined therein by his or her spouse.”

But here the conveyance is not being made to the spouse; rather, the proposed conveyance is to the husband and the couple’s son. It would appear, then, that Wife should join in the conveyance.

Dissolution of Marriage

See 735 ILCS 5/12-905: In case of a dissolution of marriage, the court granting the dissolution of marriage may dispose of the homestead estate according to the equities of the case.”

The Homestead Checklist (set forth again for future reference)

1. Who owns the property? (Remember, all owners of the property must execute any deed or mortgage. There are no exceptions to this rule).

2. If the fact situation involves a title holding spouse and a non-title holding spouse, does the title holding spouse reside at the property?

a) If the answer to question "2" is "no," then a non-title holding spouse's signature on a deed or mortgage is not necessary.

(b) If the answer to question "2" is "yes," then, generally speaking, the non-title holding spouse should sign the deed or mortgage, conveying or releasing the homestead interest of his or her spouse.

(c) If the title holding spouse resides on the property, but the non-title holding spouse does not, then the individual facts of the situation should be considered before waiving the requirement as to the non-title holding spouse's signature on a deed or mortgage on the basis that the spouse would not be deprived of "the possession and enjoyment of a home." (Factors to consider include whether or not the non-title holding spouse had ever lived in the home, the length of time the couple had been separated, and the nature—permanent or temporary—of the separation.

Mortgage Execution and Homestead Issues

Part I: The Rule

The number one rule is: If you own it, you have to mortgage it. That is, all owners of the land must execute any mortgage of the land. An owner of the land cannot just sign the mortgage in order to waive homestead.

Example: John and Jane are married. They are buying their first home. The seller is Fred Jones. The closer looks at the deed. The deed indicates that Fred Jones, a bachelor, is conveying the land to John and Jane, husband and wife.

The closer now looks at the mortgage. The first page of the mortgage indicates that the mortgagor is John, a married person. The closer looks at the signature page of the mortgage. The closer sees that Jane is signing the mortgage, but Jane is signing only to waive homestead. Is there a problem?

Yes, there is a problem. This is not a homestead issue; this is a title issue. John and Jane are taking title to their home. All owners of the land must execute the mortgage as borrowers and mortgagors.

Why? The 2006 ALTA loan policy insures the validity of the mortgage. If John and Jane own the land, but if only John executes the mortgage, the lender has a lien on only a 50% interest in the land. If this mortgage were foreclosed, and if a sheriff’s deed were eventually issued, the deed would convey only John’s 50% interest in the land. The lender and Jane would own the home as tenants in common. This is obviously not what the lender intended when it prepared the loan documents for closing.

Court Cases

Phillips v. Phillips, 74 Ill. 2d 27, 383 N.E. 2d 973 (1978); the homestead exemption is not available as between co-tenants, even if one of the owners is otherwise entitled to the homestead exemption.

Miscellaneous

See 735 ILCS 5/12-1003; it appears that a spouse of a deceased homeowner has homestead rights:

When the head of a family dies, deserts or does not reside with the same, the family shall be entitled to and receive all the benefit and privileges which are by Part 10 of Article XII of this Act conferred upon the head of a family residing with the same.

Part II: Homestead: The Short Course

What is homestead? And when is homestead an issue?

Most people think homestead is an inchoate “right of possession” that a non-title holding spouse has in land that is owned by the title holding spouse. That is, they believe that the following example is a valid example of homestead in Illinois:

Example: John and Jane are married. Both of them live in the home that only John owns. In order for John to effectively convey or mortgage his home, Jane must sign the deed or mortgage in order to waive Jane’s homestead rights.

But this is not really the case. 735 ILCS 5/12-901 provides as follows:

Every individual is entitled to an estate of homestead to the extent in value of $15,000 of his or her interest in a farm or lot of land and buildings thereon, a condominium, or personal property, owned or rightly possessed by lease or otherwise and occupied by him or her as a residence. . . . That homestead and all right in and title to that homestead is exempt from attachment, judgment, levy, or judgment sale for the payment of his or her debts. . . .

In other words (and broadly speaking), in order to have a homestead interest, one must both own the home and live in the home. A non-title holding spouse who only lives in the home but who has no ownership interest in the home does not have a homestead interest in the home.

The following, then, is an example of homestead:

Example: John and Jane are married. Both of them live in the home that only John owns. In order for John to effectively convey or mortgage his home, Jane must sign the deed or mortgage in order to waive John’s homestead rights.

Note, though, that the net effect is the same in both examples.

Homestead will be an issue when two people are married (or have entered into a civil union), but only one spouse or partner owns the family home in which the two people live. The following question will always be the issue:

Question: In a residential real estate transaction involving a married couple (or two people who have entered into a civil union), and only one spouse or partner owns the family home in which the two people live, does the non-title holding spouse have to sign the deed or mortgage in order to waive any applicable outstanding homestead interest?

Answer: It Depends.

Ideally, and in a perfect world, it is appropriate for the non-title holding spouse to always sign the deed or mortgage.

But we don’t live in a perfect world. And so if that spouse is not at the closing table, here are the general rules:

General Rule for the Sale of Property:

The Rule

Generally speaking, homestead should not be an issue for the sale of a home. The reason for this is not invariably both spouses are giving up possession of the home, and giving up possession is a valid way of releasing one’s homestead interest.

Facts: John and Jane are married. Only John owns the family home. The couple is selling the family home and buying a new home. Only John is at the closing; Jane is at the new home, directing the movers. John and Jane have already moved out of their old home. The old home is completely vacant.

Question: Does Jane have to sign the deed that is conveying the old home to the new purchaser?

Answer: Jane (the non-title holding spouse) does not have to sign the deed. Why? Because she has clearly given up possession of the home. The non-title holding spouse can waive homestead in a deed situation by either signing the deed or by giving up possession of the property when the title holding spouse executes the deed. The Illinois statutes provide for this. See 735 ILCS 5/12-904.

(But if the non-title holding spouse is at the closing, then there is nothing wrong in the closer asking that the non-title holding spouse sign the deed.)

And of course, all owners of property must execute the deed (or a mortgage) of the property. This is a title issue; it is not a homestead issue.

General Rule for the Execution of a Purchase Money Mortgage

The Rule

Homestead should not be an issue when the married title holding spouse is executing a purchase money mortgage and all the mortgage proceeds are being used to purchase the home and pay closing costs, attorney’s fees, etc.

Facts: John and Jane are married. They want to buy their first home. Jane has a $50,000 judgment against her, and so she does not want to take title to the home. Only John will take title to the home. The couple needs to get a “purchase money mortgage” in order to buy the property. (A purchase money mortgage is a mortgage wherein all of the mortgage proceeds are used to purchase property.) Because John will be the owner, John must execute the mortgage.

Question: But does Jane have to sign the mortgage in order to waive homestead?

Answer: Jane does not have to sign the mortgage as long as all the mortgage proceeds are being used to pay for the purchase of the home and to pay for costs relative to the home purchase, such as attorney’s fees and closing costs.

But note: If the mortgage proceeds are being used for other purposes, such as the paying off of a judgment against John, then the mortgage is not a true purchase money mortgage

Under the latter set of facts, why isn’t this mortgage a purchase money mortgage? The mortgage is not a purchase money mortgage because the mortgage money is not being used to purchase property; the money is being used to purchase property and to pay off a judgment. Therefore, Jane (the non-title holding spouse) has to sign the mortgage to waive homestead. (But again, even if the mortgage is a true purchase money mortgage, if the non-title holding spouse is at the closing, it is perfect acceptable to have that spouse sign the mortgage.)

General Rules for a Refinance Mortgage or Second, Third, etc. Mortgage:

The Rule

Homestead will always be an issue when the married title holding spouse is executing a refinance mortgage or a second or subsequent mortgage of the family home.

Facts: John and Jane are married. Their home was purchased in 2014. They have both been living in the home since 2014. At the time the home was purchased, Jane had a $50,000 judgment against her. For that reason, only John took title to their home. Because they bought their home with a purchase money mortgage, only John had to execute the mortgage. Jane did not have to sign the mortgage to waive homestead.

It is now 2019. John and Jane want to take advantage of low interest rates and refinance their existing mortgage.

Question: Does Jane (the non-title holding spouse) have to sign the new mortgage in order to waive homestead?

Answer: Yes. There are no exceptions to this rule, assuming that both John and Jane are living in the home.

Why Must the Non-Title Holding Spouse Sign a Refinance or Second Mortgage?

Review the homestead statute, which is at 735 ILCS 5/12-901:

Every individual is entitled to an estate of homestead to the extent in value of $15,000 of his or her interest in a farm or lot of land and buildings thereon, a condominium, or personal property, owned or rightly possessed by lease or otherwise and occupied by him or her as a residence. . . . That homestead and all right in and title to that homestead is exempt from attachment, judgment, levy, or judgment sale for the payment of his or her debts. . . .

Assume that John and Jane and married, but only John owns the family home. John and Jane refinance their existing home. Assume that only John executes the mortgage, and Jane does not sign the mortgage to waive homestead. If that mortgage is later foreclosed, the lender would not obtain all of the foreclosure sale proceeds. $15,000 (representing John’s homestead interest) would have to be set aside from the proceeds of the foreclosure sale.

Furthermore, there is no exception in the statutes for a refinance or second mortgage of homestead property.

General Rule When Both the Husband and Wife Own the Home

When both the husband and wife own the home, both the husband and wife must execute any mortgage of the property and any deed of the property. Homestead is not an issue when both the husband and wife own the home—or any other property. That is, this is a title issue; this is not a homestead issue.

PART III: Mortgage Execution Problems

Part I set forth the basic problem that arises when an owner of the property does not execute a mortgage. But there are other issues, too.

Facts:

John and Jane are married. Both John and Jane own the home in which they live. The closing package is delivered to the title company office, and the lender has prepared the mortgage so that only John will execute the mortgage but Jane will waive homestead.

Question:

What are the problems?

Answer:

The one basic problem is this: Under this set of facts, both spouses own the home. Remember the one important rule, as set forth above: All owners of real estate (not just the family home, but any real estate) must execute the mortgage! It is not enough that one spouse executes the mortgage and the other spouse just signs the mortgage to waive homestead.

The other issues depend in part on how John and Jane own their home:

• If John and Jane own their home as tenants in common, then the mortgage is a lien on only 50% of the land.

• If John and Jane own their home as joint tenants, then the mortgage would also be a lien on only a 50% interest in the land. But if John (the only person who executed the mortgage) dies before Jane, then pursuant to the Illinois Supreme Court decision, Harmes v. Sprague, 105 Ill.2d 215, 473 N.E.2d 930, 85 Ill. Dec. 331 (1984), Jane would not only own the home as a surviving joint tenant, she would own the home free and clear of the mortgage.

• If John and Jane own their home as tenants by the entirety, then pursuant to 765 ILCS 1005/1c, the mortgage may be completely invalid! This Illinois statute states that “no deed, contract for deed, mortgage, or lease of homestead property held in tenancy by the entirety shall be effective unless signed by both tenants.”

Note that the problem of improper mortgage execution is not just a national title claims issue. Consider this court case; this is a DuPage County appellate court case; see Deutsche Bank National Trust Company v. Dolci, 2012 IL App (2d) 111275-U. See also GMAC Mortgage v. Arrigo, 8 N.E.3d 621 (2014).

PART IV: Some Sample Homestead Fact Patterns

Homestead issues can arise in so many different ways. Consider the following examples:

Facts: John and Jane are married. Only John owns the home in which they live. John bought the home before the couple got married, and so the one existing mortgage on the property is a purchase money mortgage that John took out as an unmarried person when he bought the property. What if . . . .

• John and Jane decide to refinance “their” mortgage. Even though only John owns the home, Jane must also sign the new mortgage to waive any outstanding homestead interest. She does not have to execute the mortgage as mortgagor; she only has to sign the new refinance mortgage.

• John and Jane decide to take out a second mortgage. Even though only John owns the home, Jane again must also sign this new second mortgage to waive any outstanding homestead interest.

• John and Jane decide to sell the home. Only John attends the closing. Jane has not pre-signed the deed. In this case, the closer should verify that Jane is delivering possession of the land pursuant to the conveyance— the closer should make sure that Jane (the non-title holding spouse) has willingly moving out of the home. (The closer should always ask to make sure that the non-title holding spouse is giving up possession of the property.) If this is the case, the closer can accept the deed, even though only John has signed it. Jane does not have to execute the deed, and Jane does not have to sign the deed to waive any outstanding homestead interest. However, if Jane, the non-title holding spouse, is at the closing, there is nothing wrong with asking Jane to sign the deed to waive homestead. (But if both John and Jane had owned the home, then both John and Jane would have to execute the deed.)

• John and Jane then decide to buy a new home. Again, only John takes title to the property. At the closing, only John is shown as the mortgagor on the mortgage. In this case, the closer should verify that all loan proceeds are being used to purchase the home and to pay for ancillary closing costs. If this mortgage is a true purchase money mortgage, it is all right if only John executes it. Jane does not have to execute the mortgage and Jane does not have to sign the mortgage to waive any outstanding homestead interest. (But the closer must remember that if John and Jane later decide to refinance or obtain a second mortgage, Jane will have to sign the mortgage in order to waive any outstanding homestead interest. Also, the closer should make sure that the new lender does not have any special requirements concerning Jane signing this purchase money mortgage.)

• Same facts as immediately above. That is, John and Jane decide to buy a new home. Only John takes title to the property. John needs to take out a mortgage in order to buy the property. During the closing, the closer realizes that the mortgage is a revolving credit mortgage. A revolving credit mortgage is not a true purchase money mortgage. Months after the closing, John could draw on this mortgage and obtain additional mortgage funds. Because it is possible that the mortgage money may not be used solely to buy the home, Jane must sign the mortgage in order to waive homestead.

• Same facts as immediately above. That is, John and Jane decide to buy a new home. Only John takes title to the property. John needs to take out a mortgage in order to buy the property. During the closing the closer realizes that there is a first mortgage and a second mortgage in the closing package. Both mortgages are being used to purchase the property. However, the second mortgage is a revolving credit mortgage. The second mortgage may not be a true purchase money mortgage. Even if the second mortgage is totally disbursed at closing, John and Jane could later repay back some of the money that was disbursed at closing. Then, months after the closing, John could draw on this second mortgage and withdraw additional mortgage funds. Because this second mortgage may not be used solely to buy the home, it may not be a purchase money mortgage. Thus, in this situation Jane does not have to sign the first mortgage. However, Jane does have to sign the second mortgage in order to waive any outstanding homestead interest. Why is this the case? The second mortgage is not a true purchase money mortgage.

• Again, same facts as above. That is, John and Jane decide to buy a new home. Only John takes title to the property. John needs to take out a mortgage in order to buy the property. As the closer examines the closing statement, the closer realizes that the closer is being asked to pay off John’s $10,000 IRS lien. As mortgage money will be used in part to pay off the IRS lien (and not just purchase the home), the mortgage is not a purchase money mortgage. Jane must sign the mortgage in order to waive homestead.

• Again, same facts as above. That is, John and Jane decide to buy a new home. Only John takes title to the property. John needs to take out a mortgage in order to buy the property. At the closing the closer realizes that John is getting cash back from the mortgage. Thus, all the mortgage money is not being used to buy the home; some of the money is being given back to John. This is not a purchase money mortgage. Jane must sign the mortgage in order to waive homestead. John’s attorney argues with the closer; the attorney offers to have John pay the excess money back to the lender as a mortgage payment. This won’t solve the problem. A purchase money mortgage is a mortgage used to purchase property; a purchase money mortgage is not a mortgage where part of the mortgage money is used to purchase the property and part of the money is used to make a mortgage payment.

• In the above situation, assume that John was getting back $1,000. Some title people feel that John’s mortgage would still be a purchase money mortgage, except for that $1,000. Thus, they argue, the title risk is a risk of no more than $1,000. Other title people are of the opinion that a mortgage either is or is not a purchase money mortgage; there is no middle ground. To them, the risk is much greater—in this example, the risk would be $15,000, or the amount of the homestead exemption.

• Now change the facts completely. John and Jane were buying a new home, but that transaction fell apart, and they are moving forward, buying a new and different home. John and Jane are taking title in joint tenancy. The lender tells the closer that only John needs to execute the mortgage as a mortgagor, but that Jane simply needs to sign the mortgage “to waive homestead.” This is incorrect. Because both John and Jane are taking title, both John and Jane must execute the mortgage as well. That is, Jane must execute the mortgage and not just sign the mortgage to waive homestead.

Rule of Title Practice: All people who own the property (any property, not just the family home) have to mortgage the property. This really isn’t a homestead issue; it is a title issue. Otherwise, in the example immediately above, the lender has a mortgage on only a 50% interest in the land.

• But again, at the last minute, this transaction also falls through, and now John and Jane decide to buy a new and different home. John and Jane decide to take title to this new home as trustees of a living trust. The mortgage presented at closing shows John and Jane, individually, as mortgagors. This is not correct. The owners’ names must be the same as the mortgagors’ names. Since John and Jane, as trustees, own the home, John and Jane, as trustees, must execute the mortgage.

Rule of Title Practice: When the closer gets the deed and mortgage, the closer must compare the grantee(s) on the deed to the mortgagor(s) on the mortgage. The names must be identical! (But see also the paragraph immediately below.)

• John and Jane’s lender will not allow John and Jane to take title as trustees of a living trust. Therefore, John and Jane decide to take title as John and Jane, individually. The lender is asking that John’s parents, Fred and Ethel, also execute the mortgage. This is acceptable. One can have more borrowers execute the mortgage than there are people who own the land, as long as all the people who own the land mortgage the land. Here, John and Jane own the land, but John, Jane, Fred, and Ethel, are the mortgagors. (But always remember: all the owners of the land must execute the mortgage!)

• But for some reason this entire transaction falls apart, and so a month later John and Jane again decide to buy a new home. But now John and Jane will be the only people who will take title to this home, and only John and Jane will mortgage the home. (In other words: John and Jane take title to the home, and John and Jane execute the purchase money mortgage.) The lender tells the closer that because John makes so much money, he is the only one who has to sign the mortgage note. That is, Jane does not have to sign the note. This is acceptable; you can have fewer people signing the note than own and mortgage the property, as long as you have the approval of the lender. And of course the lender approved this arrangement; the lender is the one who drafted the note. (But it seems that it is possible that the lender is giving up its right to seek a deficiency judgment against the person who did not sign the note in the event of a mortgage foreclosure. But that is not the Company’s concern.) So in this example, because John and Jane will take title, John and Jane must both execute the mortgage. But only John will sign the note. And that is acceptable.

• A few years later, John and Jane move into still another home. John alone takes title to this home. John executes a purchase money mortgage at the closing. Jane gets angry at her in-laws, Fred and Ethel, and Jane moves out of the home. John never hears from her again. Five years later John decides to refinance his mortgage. On a case-by-case basis, with underwriter approval, the examiner may insure this new mortgage without Jane signing the mortgage to waive any outstanding homestead interest. Why is this the case? It appears that Jane has abandoned her home, and thus she has abandoned any outstanding homestead interest in the home. (But remember that if Jane had taken title to the home, then Jane must execute the mortgage. And if John decides to sell the home, and if Jane had taken title to it, then Jane must execute the deed. If both John and Jane take title to their home, and Jane moves out of the home and disappears, a quiet title suit may be John’s only recourse if Jane is nowhere to be found and he wants to sell the home. And even then the court may require that half the sale proceeds be held in an escrow until Jane is declared legally dead.)

This “abandonment of homestead” issue arises many times in many different contexts. And sometimes the issue isn’t one of abandonment. The title person may be told that, “My spouse lives permanently in a different town; she has never lived in this house.” Or, the examiner may be told that, “John and Jane are getting divorced; Jane has moved out of the home.” These and similar fact patterns have to be treated with much deliberation. The examiner has to ask many questions, such as, “How long has Jane been gone? When was the last time you saw Jane? You said that you and Jane are getting divorced; have you filed for divorce yet? Where is Jane living now? If you and Jane have not yet filed for divorce, do you anticipate doing so, and if so, when?”

• John owns the home that he and his wife, Jane, live in. John wants to deed the land to Jane and himself. Jane does not have to sign the deed to waive homestead; see 735 ILCS 5/12-904:

If a conveyance is made by an individual as grantor to his or her spouse, such conveyance shall be effectual to pass the title expressed therein to be conveyed thereby, whether or not the grantor in such conveyance is joined therein by his or her spouse.

This statute suggests that if John wants to deed the home to his wife, or if John wants to deed the home to both himself and his wife, his spouse need not join in the deed to waive homestead. Why? Probably because it is presumed that both John and his wife are already occupying the home as their homestead.

But if John wants to convey the land into the “John and Jane Living Trust,” then Jane would have to sign the deed in order to convey any homestead interest.

• John is married to Jane. John decides to buy the family home with a home equity/revolving line of credit mortgage. (See 205 ILCS 5/5d; see also 815 ILCS 205/4.1 et seq.) Even though the mortgage is being used to buy the home, the revolving line of credit envisions possible post-closing disbursements made months after the closing. Therefore, Jane must sign the mortgage to waive homestead.

Part V: A Final Reminder

Homestead is an issue in both a conveyance situation and also a mortgage situation.

However, because of the “possession given pursuant to the conveyance” provision of 735 ILCS 5/2-904, insuring the sale of land pursuant to a deed executed solely by the title holding spouse should not normally give rise to a title claim.

A misconception as to homestead concerning proper mortgage execution, may, though, result in a title claim.

And so in this regard, the examiner and closer should remember:

• All parties who own the property have to execute any mortgage of the property. The waiving of homestead is not sufficient. Indeed, homestead is not even an issue. The fact that all owners of the land have to execute a mortgage of the land is a title issue; it is not a homestead issue.

• In a situation involving the family home and a title holding spouse and a non-title holding spouse, and the Company is closing a refinance, a second mortgage, or a home equity mortgage, the title holding spouse will have to execute the mortgage. (See the rule immediately above.) The non-title holding spouse will probably have to sign the mortgage to waive homestead.

Judgments and Liens

A judgment is a lien on the debtor's property for seven years from the date the judgment is rendered (not from the date the judgment or memorandum of judgment is recorded). See Schindler v. Watson, 2017 IL App (2d) 160126.