Your house in a municipality is homestead provided the lot is no larger than ½ acre. If the city homestead lot is greater than ½ acre the protection is applied pro rata. For example, for a lot 1 acre in size within a city only 50% of the equity is protected as homestead. This week I spoke with a man who lived on a lake front lot in the city. The lot was barely over ½ acre. The lot survey showed that the side lot lines extended several feet into the lake so that a significant part of the lot was under the lake. The dry land was less than ½ acre in size. The man asked me if the part of the lot under the lake counted toward the calculation of his homestead exemption.
I have never seen this issue, and I’m not aware of any judicial decision dealing with the issue. My sense is that the land under the lake which is part of the lot’s legal description counts in the homestead calculation so that a portion of his equity is not homestead protected. I am not aware of any legal authority that a debtor can deduct from the acreage calculation parts of his residential lot that is not usable for some reason. If a portion of a city lot could not be used for building because it was wetlands, for example, I do not think the debtor could deduct the wetlands from the lot size to fall within the ½ acre limit.
This man could ask a surveyor to segregate the dry land and the wet part of the lot on a new survey. He could then create an entity (LLC, partnership etc) and deed the land under the lake to the separate entity. This conveyance may increase real estate taxation, and it could bring objections from a homeowners association. Local laws which prohibited subdivision of the lot may not become a practical problem since he would not build on the conveyed lake property. Even though there could be legal issues, the conveyance would be of record, and it would prevent, or at least make more difficult, the forced sale of the homestead by a judgment creditor.