Learn about how California’s Homestead laws can help protect the equity in your home.
California and many other states have homestead laws to protect families against creditors. A homestead property is a primary residence that is exempt from claims or eviction by unsecured creditors.
A homestead exemption is in effect a lien that protects a certain amount of equity in a person’s home by limiting the amount of liability for certain debts against which a home can be used to satisfy a judgment. For instance, if a creditor tries to foreclose on your home to satisfy your debt, a certain amount of your home’s equity would be protected from the judgment and would not be paid to the creditor.
The amount protected varies depending on the age, marital status, and income of the property owner. A homestead does not stop the sale of a property, but ensures that the homeowner will receive the amount of the exemption before the creditors are paid from the proceeds of the sale.
California law provides two types of homesteads: automatic and declared.
An automatic homestead applies to anyone living in his/her own home; a declaration of homestead does not need to be filed. The automatic or statutory homestead exemption only applies on the forced sale of the property. A homestead cannot be sold to satisfy a money judgment that is less than the exempt amount plus amounts necessary to satisfy all liens and encumbrances on the property. To qualify for the automatic exemption, the homeowner must have continuously resided in the house from the time that the creditor’s judgment lien attaches to the property until the time that a court determines that the exemption applies.
A declaration of homestead is a recorded notice a property owner can file to protect the equity in his/her real property. The declaration must state that the homestead is the principle dwelling of the declared homestead owner. The declaration of homestead only protects real estate dwellings, not dwellings that are personal property such as mobile homes on leased land, or houseboats, etc. A declared homestead applies to both the voluntary or involuntary sale of a property, but does not prevent the forced sale of a house; it only ensures that if the homeowner has equity, s/he will retain a certain amount of equity in the event of a sale.
The equity saved by the declared homestead must be reinvested within 6 months of a sale or else the protections afforded by the homestead laws will be lost. During the 6 months, a homeowner can reinvest the protected proceeds from the sale in another property and file a new declaration of homestead. The homestead protection on the new house would run from the date of the original declared homestead.
Homestead vs. Mortgage
Neither the automatic exemption nor the declared homestead apply to a mortgage or any other voluntary lien secured by real property. The homestead protection only applies against unsecured liens such as when a homeowner files for bankruptcy or a judgment creditor is seeking to foreclose.
Amount of the Homestead Exemption
The amount of the homestead exemption in California varies depending on the age, marital status, and income of the property owner:
- $75,000 for an individual
- $100,000 for married couples or if the homeowner lives with at least one family member who has no interest in the property
- $175,000 if the homeowner is 65 years or older, or physically or mentally disabled
- $175,000 if the homeowner is 55 years or older and single with an annual income of $15,000 or less
- $175,000 for a married couple with a combined annual income of $20,000 or less