An urban homestead is defined as follows:
“the homestead in a city, town or village, shall consist of lot or contiguous lots amounting to not more than 10 acres of land, together with any improvements on the land; provided, that the homestead in a city , town or village shall be used for the purposes of a home, or as both an urban home and a place to exercise a calling or business, of the homestead claimant, whether a single adult person, or the head of a family.”
The homestead is considered urban even if it is not in the city proper, but if it is in the extraterritorial jurisdiction of the city, or in a platted subdivision, and is served by police protection, fire protection (paid or volunteer), and if at least three (3) of the following services are provided by the municipality or under contract to the municipality:
•electric
•natural gas
•sewer
•storm sewer
•water
EXAMPLE: Edgar Ewell owns two lots in Texas Town. Lot A is 5 acres and consists of his house, fish pond, and a one par three golf hole. Lot B is 4 acres and on it is located a music recording studio, a record manufacturing facility, and a warehouse. Edgar wants to borrow money and secure the loan with Lot B which is the record manufacturing business. An urban homestead may consist of both a residential homestead (in this case Lot A), and a business homestead (“a place to exercise a calling or business” in this case Lot B). If the two lots are contiguous and owned by Edgar individually, the loan should be considered as and made as a home equity loan.
A home equity loan may not be secured by any other collateral, if the Bank takes a lien on Lot B, it cannot take a lien on the recording equipment, manufacturing equipment, or the inventory on Lot B. If the lots are not contiguous, Edgar can elect to claim the home on Lot A as his urban homestead, freeing Lot B for use as collateral for a business loan.