Q: A friend said it was really important for me to put a homestead on my house, but couldn’t really explain what it is. Could you direct me to more information about a homestead?
A: California law (Code of Civil Procedure (CCP) 704.710 et seq) protects a certain amount of a homeowner’s equity when an unsecured creditor forces the sale of the “dwelling,” which can be a house, condominium, boat, mobile home, etc., that is the owner’s principal residence. This protection is called a “homestead exemption.” The homestead exemption only applies to sales forced by unsecured creditors; there is no exemption when the sale is forced by a secured creditor, such as your mortgage lender or contractor with a valid mechanic’s lien.
The homestead exemption does not prohibit the sale of the property. It just ensures that the homeowner receives the amount of the exemption before the creditors are paid from the sale proceeds. The property can be sold if the sale would produce enough money to:
- Pay all existing liens on the property (e.g., judgment liens, tax liens, utility liens, etc.);
- Pay off all mortgages and loans secured by the home;
- Pay the costs of selling the home; and
- Allow the homeowner to keep equity in the amount protected by the homestead exemption
If there is not enough equity to cover all these amounts and still provide some proceeds to the creditor, the sale cannot be forced.
The protected amount varies depending on the age, marital status, and income of the property owner. The current exempt amounts are:
- $75,000 unless the judgment debtor or their spouse who resides in the homestead is a person described below in (2) or (3).
- $100,000 if the judgment debtor or spouse is a member of a family unit, if at least one member of the family unit owns no interest in the homestead, or has only community property interest in the homestead with the judgment debtor.
- $175,000 if the judgment debtor who resides in the homestead is at the time of the sale either (a) a person 65 years old, (b) a person physically or mentally disabled and as a result of that disability unable to engage in substantial gainful employment, or (c) a person 55 years old with a gross annual income less than $15,000, or, if the judgment debtor is married, a gross annual income, including that of the spouse, of not more than $20,000, and the sale is involuntary.
There are two types of homestead exemptions: automatic and declared. The protected amounts are the same for both types, but they have some practical differences.
The automatic homestead exemption applies only upon the forced sale of the property. The automatic exemption requires continuous residence from the date the judgment creditor’s lien attaches until the date the court determines that the dwelling is a homestead. If a creditor attempts to sell the home, the burden of proof is on the homeowner to prove to the court that an automatic homestead exemption exists.
With a declared homestead, the protection applies to both to forced and voluntary sales of the property. Exempt proceeds from a voluntary sale are protected if those funds are used to purchase another home within 6 months. Homeowners must reside in the dwelling on the date the homestead declaration is recorded. If a creditor attempts to sell your home, the burden of proof is on the creditor to prove to the court that your homestead declaration is invalid.
Although a portion of your equity it automatically protected under California law, many homeowners prefer to declare their homestead. If you’d like to declare a homestead on your property, or learn more about homestead laws, you can find forms, instructions, and additional information from the Law Library’s Step-by-Step guide on Homesteads, available online at http://www.saclaw.org/pages/homesteads.aspx.
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