HOMESTEAD ACT
NEWS YOU CAN USE

Is there any protection for my home equity?
Yes. California law provides some protection against complete loss of home equity against judgment creditors under certain circumstances. In understanding these protections, it is important to know about and distinguish between two different yet closely related concepts:

The homestead exemption

The declared homestead

The homestead exemption does not require the recording of any document. While the homestead exemption may prevent the forced sale of your home if there is insufficient equity, it may not do so if there is sufficient equity. Therefore, the homestead exemption is not necessarily protection for your house itself, but only for the equity that may exist in your house.
The declared homestead requires the recording of a homestead declaration. This is a document that must contain certain statements by law, including a statement that the declared homestead is the principal dwelling of the declared homestead owner. Other statements are required as well.

Homestead Act

DID YOU KNOW!

California has an automatic homestead exemption for homeowners residing in their principal place of residence. (May require property tax bill showing home owner exemption.)

There are two types of Homestead “Declared” & “Undeclared,” both must have court approval.

HOMESTEAD EXEMPTIONS PROTECT HOMEOWNERS FROM
JUDGMENT CREDITORS ONLY!

The following are the maximum allowance for protection from judgment creditors under the California Code of Civil Procedures 704.710 Re: Homestead Exemptions:
Single adult less than sixty-five years old. . . . . . . . . . . . . . . . . $50,000
Married couple less than sixty-five years old. . . . . . . . . . . . . . .$75,000
Homeowners sixty-five and older or DISABLED AT ANY AGE. .$100,000
Always consult competent legal counsel before filing a homestead exemption.

Some helpful definitions:

The following definitions are useful in helping you better understand the Homestead Declaration form.

HOME EQUITY: It is the value of the house that exceeds all liens and encumbrances. It is determined by subtracting the total of liens and encumbrances from the market value of the house. For example, if a house has a market value of $400,000, but there is $300,000 owed on the house, the home equity equals $100,000. The equity in a house can change. As house values increase, equity increases. As house values decrease, equity decreases. If house values stay constant, equity still increases if you are paying down the mortgage.

JUDGMENT LIEN: Generally, a judgment lien on real property is created when an abstract of a money judgment is recorded with the county recorder in which the property is located. A judgment lien helps the judgment creditor collect on his judgment against the judgment debtor. This concept is discussed more below.

JUDGMENT CREDITOR and JUDGMENT DEBTOR: Someone who has sued you and obtained a judgment against you is called a judgment creditor. You would be a judgment debtor.

EXEMPTION: An exemption is a debtor's right to a minimum amount of property (usually in terms of dollars) that cannot be reached by creditors.
 
WHAT CAN A JUDGMENT CREDITOR DO TO MY HOUSE? 
A judgment creditor can obtain a judgment lien against your house. If you sell your house, that lien will get paid from any available equity, thus decreasing any amount you receive from your sale.

Additionally, if there is enough equity in your house, a judgment creditor may be able to force the sale of your house to collect on the judgment. 

Looking for help with your Mortgage? Call 800-910-9083


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The material contained in this newsletter has been prepared by an independent third-party provider. The material provided is for informational and educational purposes only and should not be construed as investment, financial, real estate, and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.