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Significant Amendments to Washington Homestead Exemption Signed Into Law

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On May 12, 2021, Governor Jay Inslee signed SB 5408, enacting a significant increase in Washington’s homestead exemption. The legislation includes other important revisions addressing the treatment of homestead appreciation during a bankruptcy and the exempt status of proceeds from the sale of a homestead in bankruptcy. These notable changes became effective immediately upon enactment.

SB 5408 Significantly Increases the Amount of Washington’s Homestead Exemption

Prior to the enactment of SB 5408, Washington’s state homestead exemption was limited to the lesser of (1) the total net value of the property, or (2) $125,000 for real property, manufactured homes, mobile homes, and improvements, or $15,000 for other personal property used as a residence.

SB 5408 significantly increases the amount of this homestead exemption to the greater of $125,000 or “the county median sale price of a single-family home in the preceding calendar year.” Courts will use data from the Washington Center for Real Estate Research for the county median sale price. SB 5408 also removes the separate exemption limits for real and personal property; both are now subject to the same limit.

By tying the homestead exemption limit to the county median sale price of a single family home, SB 5408 dramatically increases the homestead exemption available to Washingtonians. Real property values have risen substantially over the past decade, and even the county with the lowest median sale price for 2020, Ferry County, exceeds the prior $125,000 ceiling by nearly $50,000 with a 2020 median sale price of $172,900.[1] The impact of this amendment is even more pronounced in Washington’s more expensive counties. For example, in King County, which had the highest 2020 median sale price at $729,600,[2] SB 5408 increases the available homestead exemption by nearly 500%.

SB 5408 Makes Other Notable Amendments As Well

However, SB 5408 does more than increase the amount of the available homestead exemption. It also makes additional important modifications to Washington homestead law, including

  • Expanding the property eligible for exemption as a homestead to include real or personal property the owner’s dependent uses a residence;
  • Extending the homestead exemption to include appreciation of the debtor’s exempt property interest that occurs during the debtor’s bankruptcy case, even if in excess of Washington’s statutory limit (addressing Wilson v. Rigby, 909 F.3d 306 (9th Cir. 2018)); and
  • Adding a definition of “forced sale” that includes the sale of homestead property in a bankruptcy case and clarifying that the proceeds from that sale are not required to be reinvested in a new homestead to retain their exempt status (adopting In re Good, 588 B.R. 573 (Bankr. W.D. Wash. 2018)).

These changes, coupled with the sizeable increase in the amount of the exemption, constitute an extensive expansion of the available homestead exemption in Washington, particularly for debtors claiming homestead exemptions in bankruptcy cases.

[1] Median Home Prices: State of Washington and Counties, Annual, 2013-2020, Wash. Ctr. for Real Estate Rsch.

[2] Id.