California’s “homestead “exemptions are super-heroes for Californians! While other exemptions protect items worth a thousand dollars here and there, the homestead protects $75,000 for a single person and $100,000 for a couple. **For the elderly or disabled, the homestead balloons to $175,000. The homestead is powerful, but unfortunately not well understood. Here are six things you probably didn’t know about the homestead:
I) Homestead is superior to a judgment creditor – Homestead protects homeowners from a particular kind of creditor- “the judgment creditor”. A judgment results from a lawsuit and determination you actually owe money to the plaintiff who brought the lawsuit. A judgment entitles the judgment creditor to use certain legal powers to collect that money. That right to collect money owed is limited by the judgment debtor’s homestead rights. The homestead exemption was designed to assure judgment debtors have a place to live; even if they owe the money.
II) Homestead protection is not absolute – The California homestead does not guarantee you that a creditor can’t force a sale of your home to pay a debt. But, it guarantees that you get the dollar value of your homestead from the forced sale of your home before the creditor forcing the sale gets any money at all. A creditor who seeks to levy on a homestead must convince a sheriff or judge that any sheriff’s sale will return enough money to pay the homeowner the homestead first. The cost of making sure the homeowner gets their homestead protection first restrains judgment creditors from looking to home equity as a source of repayment. Frankly, it’s just too expensive with uncertain results in most cases.
III) Homestead is no protection from foreclosure – California law allows you to pledge your homestead as collateral for a loan. So, when you encumber your home as part of the purchase transaction, or tap the equity through a HELOC or refinance, you give the lender the right to foreclose on your home without regard to your homestead. The law says a foreclosure that doesn’t pay you your homestead is OK, because the transaction that put your homestead at risk was voluntary.
IV) Homestead exemptions come in two styles: – Own your home and you automatically have a homestead exemption. You don’t have to do anything to get certain protection of your equity from judicial creditors. CCP 704:710
• The automatic homestead has the same monetary conditions the declared homestead. The automatic homestead only protects the home against a forced sale that wouldn’t yield enough proceeds to pay the homestead before paying the creditor. If you choose to sell your home and a creditor has recorded a judgment lien that attaches to your property, the judgment creditor gets paid from the sale before you get your homestead.
• The declared homestead operates differently; the homestead amounts are the same, but the declared homestead protects exempt equity if you voluntarily sell your home. CCP 704.910 The exempt proceeds remain protected for six months from the voluntary sale of the home. That 6 month period is intended to provide a window in which you can reinvest the homestead in a replacement home.
V) Either spouse can claim the entire exemption – When a married couple is entitled to a homestead, but the debt is an obligation of only one spouse, the debtor spouse can assert the entire homestead available to a married couple. When only one spouse files bankruptcy and only his half of a tenancy in common came into the bankruptcy estate, he could still claim the entire exemption available to a married man. IN RE:McFall: 112 B.R. 336 (1990) DECIDED APRIL 10, 1990, Ninth Circuit
VI) California homestead is powerless against the feds – Since the homestead is state law, it does not limit the collection powers of the IRS or other federal agencies; because the Supremacy Clause of the Constitution means federal law is superior to state law. The IRS has its own, much smaller set of exemptions for delinquent tax payers. Those exemptions aren’t much in protecting a California home. But in the real world, however the IRS seldom tries to force the sale of homes. Like most other creditors with a lien on real property, the IRS simply waits until the homeowner wants to sell or refinance. Either sale or refinance generally require that tax liens be paid before the transaction closes.
Please note: The information provided herein is general and not be relied upon for your circumstance.
