Homestead

September 13, 2013|  Article By :   | 

I. Introduction

The primary purpose of the California’s homestead law is to protect a person or family’s residence from certain types of creditors.  It allows debtors and their families to remain in the home in some situations even when a sale of the home could pay off the creditors. Generally, a homestead is protected from forced sale by certain creditors, to the extent of the homestead exemption, which is the amount of equity that is protected by law.  A judgment creditor cannot force the sale of a home unless they first show the court that before they are paid, (1) the homeowner will receive their homestead exemption and (2) that any and all prior liens will be paid. This legal article will discuss the two types of homesteads, the Residential (or automatic) homestead and the declared homestead and other issues related to homesteads.

II. California Homestead Law

Q 1. What is the California homestead law? 

A California homestead law provides some protections for homeowners against certain judgment creditors trying to force the sale of the home or attach sale proceeds. The statute provide for two types of protections in the form of exemptions: the residential  homestead exemption and the declared homestead. The residential homestead exemption does not require the recording of any document and the homeowner qualifies for the exemption based on residency. The declared homestead requires the recording of a homestead declaration and provides additional protections as compared to the residential exemption.

Q 2. Who is a judgment creditor and who is a judgment debtor?

A A party that wins a money award in a lawsuit is known as a judgment creditor. The original claim does not have to arise out of a debt.  For example, an injured pedestrian would be a judgment creditor after winning a money judgment against the driver. A judgment debtor is the party whom the court orders to pay the money award to the judgment creditor.

Q 3.  What is a judgment lien? 

A If a judgment creditor wins the lawsuit against the judgment debtor, the judge will issue a decision called a judgment. The judgment creditor can get an abstract (or a summary) of the judgment and record it with the county recorder in which the judgment debtor’s property is located. This creates a judgment lien on the debtor’s property.

Q 4. Does the California homestead law provide protection against all types of liens?

A No. The homestead law does not protect the homestead from (1) voluntary liens such as a mortgage or deed of trust, (2) mechanics’ liens, (3) judgment liens for child or spousal support, and (4) federal tax liens 5) if a judgment was obtained prior to the recording of declared homestead, the special features of the declared homestead will not apply.  Cal. Code. of Civ. Proc. §§ 703.010(b), 704.940

Q 5. What types of dwellings qualify to be a homestead?

A A dwelling is broadly defined to include any place where a person resides. A dwelling includes, but is not limited to:

  • A house together with the outbuildings and land upon which they are situated;
  • A condominium (defined in Cal. Civ. Code § 783);
  • A planned development (defined in Cal. Bus. & Prof. Code § 11003);
  • A mobilehome with the outbuildings and land upon which they are situated;
  • A boat or other waterborne vessel;
  • A stock cooperative (defined in Cal. Bus. & Prof. Code § 11003.2); or
  • A community apartment project (defined in Business & Professions Code § 11004)

(Cal. Code of Civ. Proc. § 704.710(a).)

Q 6. How is a family unit for the purpose of the homestead law defined?

A A family unit is defined as either of the following:

  • The judgment debtor and the judgment debtor’s spouse if the spouses live together in the homestead; or
  • The judgment debtor or the judgment debtor’s spouse and one of the following persons who the judgment debtor or spouse cares for or maintains in the homestead and who owns no interest in the property or who only owns a community property interest:
    • The minor child or minor grandchild of the judgment debtor or the judgment debtor’s spouse or the minor child or grandchild of a deceased spouse or former spouse;
    • The minor brother or sister of the judgment debtor or judgment debtor’s spouse or the minor child of a deceased brother or sister of either spouse,
    • The father, mother, grandfather, or grandmother of the judgment debtor or the judgment debtor’s spouse or the father, mother, grandfather or grandmother of a deceased spouse; or
    • An unmarried relative described in the paragraphs above which define a family unit (Code of Civil Procedure Section 704.710(b)) who has attained the age of a majority and is unable to take care of or support him or herself.

(Cal. Code Civ. Proc. § 704.710)

III. Residential (automatic) Homestead

Q 7. How does the homeowner qualify for the residential homestead exemption?

A The homeowner does not have to record any documents to receive this “automatic” protection.  To qualify for the residential homestead exemption, the homeowner must show:

  • The house is the judgment debtor or judgment debtor’s spouse’s principal dwelling,
  • The judgment debtor or the judgment debtor’s spouse resided at this dwelling on the date the judgment creditor’s lien attached to the dwelling, and
  • The judgment debtor or the judgment debtor’s spouse resided continuously thereafter until the date of the court determination that the dwelling is a homestead.” (Cal. Code of Civ. Proc. § 704.710(c).)

Q 8. How is residency determined?

A In determining residency for homestead purposes, courts consider (1) physical occupancy of the property and (2) the intention with which the property is occupied. In re Bruton, (BC SD CA 1994)167 BR 923, 926.  The judgment debtor, must live in the residence at the time the judgment is recorded and at the time of the execution of the judgment or else the exemption will not apply. (Cal. Code of Civ. Proc. § 704.720.)

Q 9. If the homeowner is temporarily absent from his residence, can the homeowner still claim an automatic homestead exemption?

A It depends. Courts have found that temporary absences for vacation, work or hospital stay still meet the “continuous residency” requirement for an automatic homestead exemption. In re Bruton, (BC SD CA 1994)167 BR 923, 926.

Q 10. What types of sales does the automatic homestead exemption apply to?

A The automatic homestead exemption only applies to forced sales of a property. (Code of Civ. Proc. § 704.720(b).)  A forced sale is where the judgment creditor tries to execute on its judgment by obtaining a court order for the sale of the property, it does not apply to voluntary sales by the judgment debtor.  For protection in voluntary sales, see the section on the declared homestead.

Q 11. How does the automatic homestead exemption work when a creditor tries to force a sale?

A In order to force a sale of a home to satisfy a judgment lien, the judgment creditor must obtain a court order for the sale of the real property homestead.  At a hearing, the court determines the amount of the judgment debtor’s automatic homestead exemption and the fair market value of the property.  A judgment creditor cannot force the sale of the judgment debtor’s home unless the home can be sold for an amount that would satisfy: (1) the amount of the homestead exemption and (2) all prior liens. For example, a homeowner owns a home worth $200,000 and he owes $100,000 to the bank on a deed of trust. He is over 65 years old and his homestead exemption is $175,000. The homeowner’s hospital bills are not paid and the hospital wins a lawsuit against him and records a judgment lien for $50,000. Since the sale of the home ($200,000), does not exceed his homestead exemption ($175,000) plus all prior liens ($100,000) which totals $275,000, the hospital cannot force a sale. Cal. Code of Civ. Proc. § 704.800(a).

Q 12. What happens if the sale price of the home exceeds the judgment debtor’s homestead exemption and all prior liens?

A If the sale of the home exceeds the judgment debtor’s homestead exemption plus all prior liens, then the judgment creditor can force the sale of the home.  The judgment debtor will receive the amount of their homestead exemption.

Q 13. If a homestead is sold at an execution sale, and the judgment debtor receives his/her exempt proceeds, for how long are the exempt proceeds exempt?

A The exempt proceeds of the execution sale remain exempt for six months after the judgment debtor receives the proceeds.  (Cal. Code of Civ. Proc. § 704.720(b).)

Q 14. Can the judgment debtor use the exempt proceeds and purchase another principal dwelling? 

A Yes, if the judgment debtor uses the exempt proceeds and purchases another principal dwelling within the six month period, then the new principal dwelling is protected by the automatic exemption regardless of the fact that there is a recorded judgment lien recorded prior to the acquisition of the new dwelling. (Cal. Code of Civ. Proc.  §§ 704.710(c), 704. 720.)

Q 15. What are the residential homestead exemption amounts?

A The amount of the residential homestead exemption is based on the status of the judgment debtor at the time of the execution sale.

 $75,000  $100,000  $175,000
 Single Persons  “Family Unit” Married Couple, Single Parent, Caregiver for Dependent Relative
  1. Persons over 65
  2. Disabled Persons
  3. Persons 55 & low-income
  • $75,000 : The judgment debtor is single and does not fall into either of the two categories below.
  • $100,000:  The judgment debtor is a member of a family unit and there is at least one member of the family unit who owns no interest in the homestead or whose only interest is a community property interest in the homestead.
  • $175,000:  The judgment debtor is: (1) 65 years of age or older, (2) A person physically or mentally disabled, and as a result of that disability, is unable to engage in substantial gainful employment. There is a rebuttable presumption affecting the burden of proof that a person receiving disability insurance benefit payments under Title II or supplemental security income payments under Title XVI of the federal Social Security Act satisfies the requirements of this paragraph as to his or her inability to engage in substantial gainful employment, or (3) A person 55 years of age or older with a gross annual income of not more than fifteen thousand dollars ($15,000) or, if the judgment debtor is married, a gross annual income, including the gross annual income of the judgment debtor’s spouse, of not more than twenty thousand dollars ($20,000) and the sale is an involuntary sale. California Code of Civil Procedure § 704.730(a)(3)(C).

Q 16. If a judgment debtor and spouse live in separate homes, can each claim a homestead?

A If the judgment debtor and spouse live in separate homes, only one homestead is exempt and only the proceeds of that one exempt homestead are exempt. The spouses may select which homestead is exempt, but if they cannot agree, a court determines which homestead is exempt. California Code of Civil Procedure § 703.110, 704.720(c).  An exception to this “one homestead only” rule exists when there is a judgment decreeing legal separation or an interlocutory judgment of dissolution of marriage and the spouses live in separate homes. In that case, each spouse may claim a separate homestead. California Code of Civil Procedure § 704.720(d).

Q 17. How often are the homestead exemption amounts adjusted?

A Beginning on April 1, 2013, and every three years thereafter, the Judicial Council will submit to the legislature and the legislature will approve the amounts by which the homestead exemptions may be increased based on the change in the Consumer Price Index for the three-year period.

IV. Declared Homesteads

Q 18. What is a declared homestead?

A declared homestead is defined as the dwelling described in a homestead declaration. A valid homestead declaration is created where the homeowner (the declared homestead owner) is named in the homestead declaration, owns an interest in the home and lives in the home. (Cal. Code Civ. Proc. § 704.910.)

Q 19. Does recording a homestead declaration affect the owner’s ability to convey or encumber the property?

A No, the homestead declaration should not affect the owner’s ability to convey or encumber the property.

Q 20. What are the exemption amounts for a declared homestead?

A The declared homestead exemption amounts is based on the judgment debtor’s status at the time the lien is recorded. The amount of homestead protection depends on the judgment debtor’s status.  The current homestead exemptions amounts are listed below.  However, since the amount of the exemption is based on the judgment debtor’s status at the time the lien is recorded, the exemption amounts for a judgment debtor could be lower if the judgment lien was recorded when the law set lower homestead exemption limits. Therefore, the chart below may not apply to a judgment debtor where a lien was recorded earlier than 2010.

 $75,000  $100,000   $175,000
 Single Persons  “Family Unit” Married Couple, Single Parent, Caregiver for Dependent Relative
  1. Persons over 65
  2. Disabled Persons
  3. Persons 55 & low-income

Beginning on April 1, 2013, and every three years thereafter, the Judicial Council will submit to the legislature and the legislature will approve the amounts by which the homestead exemptions may be increased based on the change in the Consumer Price Index for the three-year period.

Q 21. For married couples, does the declared homeowner need to live in the declared homestead to create a declared homestead?

A No. If the spouse lives in the declared homestead, the declared homeowner does not need to live in the declared homestead. For example, Justin is the sole owner of his California home. His wife Tiffany who owns no interest in the home, lives there alone. Justin lives in another city. Justin can record a homestead declaration because he owns an interest in the home and his spouse lives there. (Cal. Code of Civ. Proc. § 704.920.)

Q 22. For married couples, does each spouse need to do his/her own declaration?

A If a husband and wife co-own the homestead as community property, joint tenancy, or tenants in common, both may be named as declared homestead owners in one homestead declaration. (Cal. Code of Civ. Proc. §§ 704.930, 704.910(c).)

Q 23. Can a married person who owns no interest in the home create a homestead declaration?

A Yes, a married person who owns no interest in the home may create a homestead declaration naming the other interest-owning spouse as the declared homestead owner, but at least one spouse must live in the home which must be his/her principal dwelling.  (Cal. Code of Civ. Proc. § 704.930.)

Q 24. Can unmarried co-owners who both live in the same house record one homestead declaration? 

A No, if unmarried couples hold title as joint tenants or tenants in common, they should each fill out an individual declaration.

Q 25. What are the main benefits of a declared homestead?

A Recording a homestead declaration does provide the judgment debtor with specific benefits in addition to those provided by the residential exemption.  Here are the main benefits of a declared homestead:

  1. Declared homestead provides protection for voluntary sales.  One important benefit is that the equity protected by declared homestead exemption is safe from creditors for six months after a voluntary sale.  In contrast, there is no homestead exemption for voluntary sales under the automatic homestead. For example, suppose a judgment creditor does not try to force a sale. Instead, the judgment creditor places a lien on the surplus equity in a home (i.e., on the equity that is over and above (1) the homestead exemption and (2) all prior liens) and then waits for the homeowner to voluntarily sell the home. Ordinarily, if the homeowner sells their home voluntarily, they would have to pay off all judgment liens in order to transfer title to the buyer that is free and clear of all liens. However, if the homeowner recorded a homestead declaration before the judgment creditor placed a lien on the surplus equity, the homeowner’s equity, up to the exemption amount, is off-limits to creditors when they sell the house and for six months following the sale. (Cal. Code of Civ. Proc. § 704.960(a).)
  2. Declared homestead provides rebuttable presumption that the homestead is valid.  For a declared homestead, the creditor has the burden of proof that the judgment debtor’s homestead is invalid.  In contrast, the homeowner with only the automatic homestead has the burden of proof that the dwelling is a homestead.
  3. Judgment creditor’s lien attaches to surplus equity in a declared homestead.  On a declared homestead, a judgment creditor’s lien has value only if there is surplus equity (e.g. if the equity exceeds the sum of all prior liens and the applicable exemption amount).  The lien attaches to the homestead when it is recorded, but the lien amount may fluctuate depending on fair market value and the surplus equity available at any time. In contrast, if no homestead declaration is recorded before the judgment lien was recorded, the creditor would be able to reach any equity in the dwelling in excess of the prior liens.  For example, the Debtor’s declared homestead has a fair market value of $200,000 with a $150,000 mortgage and $100,000 declared homestead exemption. Creditor obtains a $75,000 judgment against Debtor and records an abstract of judgment.  The judgment lien remains of record but it is worthless because the mortgage ($150,000) + exemption ($100,000) exceeds the fair market value ($200,000) of the homestead. If there were no declaration of homestead, the Creditor would have a lien for
    $50,000.

Q 26. If there is a sale of the property are the proceeds to the judgment debtor protected?

A Yes. The sales proceeds are protected for six months after the date of the sale.  If the proceeds are reinvested in a new dwelling that qualifies as a homestead and a new homestead declaration is recorded that describes the new property, within the six month period.  The homestead exemption then continues in the new property as if it has been recorded at the same time as the prior declared homestead exemption.

a. Procedure to Record a Declared Homestead

Q 27. How do you execute and record a declaration of homestead?

A First, the declarant homeowner should obtain the homestead declaration from the County Recorder’s office in the county where the property is located. Some counties may offer the forms on line.  For example, for Los Angeles County, the Los Angeles Registrar-Recorder/County Clerk’s website has the Declaration of Homestead form on line.http://www.lavote.net/general/PDFS/HOMESTEAD_DECLARATION.pdf. Then, the declarant homeowner must provide certain statutorily prescribed information in a declaration, sign the declaration in the presence of a notary public, and record the declaration by mailing it or taking it to the County Recorder’s office in the county where the property is located.

Q 28. Who may claim a declared homestead? 

A A declared homestead may be claimed by any person who:

  • Owns an interest in a real property dwelling; and
  • Resides in the dwelling or whose spouse resides in the dwelling.  (Cal.Code of Civ. Proc. § 704.920, 704.910(c).)

Q 29. What is the definition of an ‘interest in real property’? 

A The interest in real property can be present or future, vested or contingent, legal or equitable.  However, a trust beneficiary of real property or an owner of a leasehold estate of less than two years cannot file a declared homestead. Also, an owner of personal property (e.g. boats or mobilehomes that have not been legally converted to real property) cannot record a declared homestead.

Q 30. What are the contents of a homestead declaration?

A The contents of a homestead declaration must contain the following information:

  • The name of the declared homestead owner;
  • A description of the declared homestead; and
  • A statement that the declared homestead is the principal dwelling of the declared homestead owner or spouse, and that the declared homestead owner or spouse resides in the declared homestead on the date the homestead declaration is recorded.

(Cal. Civ. Code of Proc. § 704.930.)

Q 31. If husband and wife co-own the dwelling, how do they fill out the homestead declaration? 

A Husband and wife who are co-owners (as joint tenants, tenants in common or community property) may record a joint declaration of homestead or each may record a declared homestead separately.  (Cal. Code of Civ. Proc. § 704.930(a)(1).)

Q 32. Who needs to sign the declaration of homestead?

A The declaration must be signed in front of a notary public by at least one of the following persons:

  • The declared homestead owner;
  • The spouse of the declared homestead owner;
  • The guardian or conservator of the person or estate of either of the persons listed above (the guardian or conservator may execute, acknowledge, and record a homestead declaration without the need to obtain court authorization); or
  • A person acting under a power of attorney or otherwise authorized to act on behalf of the declared homestead owner and/or spouse. (Cal. Civ. Code of Proc. § 704.930.)

Q 33. If a guardian or a person acting under a power of attorney signs the declaration, are there any additional requirements? 

A Yes. If a guardian or a person acting under a power of attorney signs for the homeowner, the declaration must also contain a statement that the person has the authority to so act on behalf of the declared homestead owner or the spouse of the declared homestead owner and the source of the person’s authority. (Cal. Civ. Code of Proc. § 704.930.)

bProcedure to Terminate or Abandon a Declared Homestead

Q 34. How long does a declared homestead continue?

A A declared homestead continues until it is abandoned or the declarant conveys title (without reinvesting the sale proceeds within six months).  A declared homestead may continue after the declarant’s death. (Cal. Code of Civ. Proc. § 704.980, 704.990.)

Q 35. How do you terminate or abandon a declared homestead?

A A declared homestead is abandoned if any of the following occurs:

  • The declarant signs a declaration of abandonment in front of a notary public and records it in the County Recorder’s office in the county where the property is located;
  • If the declarant records a new declaration on a different property;
  • If the declarant sells the property, retaining no interest in it; or
  • A third person adversely possesses the property. (Cal. Code of Civ. Proc. § 704.980, 704.990.)

Q 36. What happens if there are two homeowners and one moves away and records a new declared homestead? 

A If one homeowner moves away and records a new declared homestead, he abandons his original declared homestead. However, the homeowner who remains in the original homestead is unaffected by the departing homeowner. The abandonment only affects the person named in the new homestead declaration. (Cal. Code of Civ. Proc. § 704.990.)

c. Effect of Death on a Declared Homestead

Q 37. How does the death of the declared homeowner affect surviving family members?

A The protection of the declared homestead continues after the death of the declared homestead owner if:

  • At the time of the declared homestead owner’s death, the dwelling was the principal residence of the surviving spouse and/or a family member(s) and
  • All or part of the deceased’s interest in the home passes to the surviving spouse and/or a family member(s). (Cal. Code of Civ. Proc. § 704.995.)

Q 38. Does the surviving spouse or surviving family member need to have an ownership interest or be a declared homestead owner at the time of the decedent’s death? 

A No. As long as the two elements specified above are satisfied, the surviving spouse or surviving family member does not need to have any ownership interest or be a declared homestead owner at the time of the decedent’s death. For example, Derek is the sole owner of his home and records a declared homestead in his name only. Samantha marries Derek and lives in Derek’s home as her principal residence.  When Derek dies, he wills her his house.  Samantha is protected under Derek’s declaration because she was a spouse who lived in the homestead when the declared homestead owner died and who inherited Derek’s interest in the home. (Cal. Code of Civ. Proc. § 704.995.)

Q 39. What is a probate homestead?

A Upon the death of a homeowner, a court may create a probate homestead. A probate homestead is based on a public policy similar to that for a declared or automatic homestead: to protect the home against creditors in order to preserve the home for the family. The probate homestead is property that will be set apart from the rest of the decedent’s estate for the use of the surviving spouse or the minor children or both. In determining if a probate homestead will be created, a court considers the needs of the minor children and surviving spouse, the liens on the property, the claims of creditors, the needs of the heir, and the intent of the decedent.  The protection it provides from creditors is the same as that for the residential homestead. If a declared homestead is in effect at the time the probate homestead is created, the declared homestead remains unaffected. The rules for probate homesteads do not terminate or otherwise affect a homestead declaration by or for the surviving spouse or minor children.

Q 40. How long is a probate homestead?

A A probate homestead is created for a limited period only and cannot extend beyond the lifetime of the surviving spouse or beyond the children’s minority. (Cal. Prob. Code § 6524)

V. Homesteads and Bankruptcy

Q 41. If the judgment debtor files bankruptcy, what happens to the homestead protection?

A When a judgment debtor declares bankruptcy, the judgment debtor may claim an exemption under either the residential or the declared homestead as long as they qualify for the applicable exemption. (In re Anderson (9th Cir. 1987) 824 F. 2d 754. Thus, the judgment debtor may still be protected under the automatic homestead law. Bankruptcy law as it applies to homestead law is highly complex and is beyond the scope of this article. It is recommended that a homeowner consult a bankruptcy attorney.

Q 42. Where can I find additional information?

This legal article is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.’s legal products and services, please ask Raquel Comstock. Readers who require specific advice should consult an attorney.

Raquel Comstock
Realtor, lic# 01091437
Realty Executives
3610 Central Ave., Ste. 400
Riverside,CA 92506
Phone:(951) 335-0088
Cell: (951) 289-5869

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