In 2021, California significantly increased the protection under the “homestead exemption” and the “homestead declaration”.  Until 2021, the amount of the homestead exemption (protection) varied from $75,000 to $175,000 depending on circumstances.  Now, the exemption amount varies between $300,000 and $600,000, adjusted annually for inflation, based on the countywide median sale price for a single-family home. 

These two important exemptions can protect either all or a portion of a homeowner’s equity in one principal dwelling (home), owned either in their name or in the name of their spouse (or both), even if the spouses reside separately, against any unsecured creditors who obtain judgment liens against the home.     

These exemptions apply regardless of whether the principal dwelling is owned outright or in a living trust.  A dwelling includes a residence but can also include a mobile home, a trailer or a boat.

A judicial sale can only occur when the amount of a bid at a judicial auction exceeds the amount of the homestead exemption plus any additional amount necessary to satisfy all liens and encumbrances on the property.  If a sale occurs then a portion of the proceeds are exempt for six months after receipt, during which time they can be used to buy a new dwelling.

The homestead exemption, which applies automatically, protects a certain amount of equity against judicial foreclosures by judgment creditors of a person’s or a family’s principal dwelling in California.  It also applies when a homestead is damaged, destroyed, or acquired for public use to the proceeds.  Equity is the amount by which the value of your principal residence exceeds the combined value of all secured loans (typically mortgages and equity lines of credit).  The automatic homestead exemption does not protect proceeds from a voluntary sale.  That additional protection requires a declaration of homestead.

Next, the declaration of homestead requires the homeowner to file a sworn and notarized declaration of homestead form with the county where the principal dwelling is situated.  Once filed, the declared homestead protects the same amount of equity as the homestead exemption, but this time also with respect to sale proceeds from voluntary sales of the principal dwelling.  If a home is sold voluntarily, then the homeowner has six months protection to use the proceeds to purchase a new dwelling and record a new homestead declaration within that same period.

The date when the declaration of homestead is filed is very important.  The declaration does not pertain to judgment liens filed with the county prior to the declaration.  So filing one’s declaration early when no judgment liens are imminent is prudent. Moreover, if the homeowner buys a new home within six months, the homeowner can record a new declaration of homestead. Any equity from the sale of the first home that is used to buy the second home is also protected.

The declaration of homestead, however, does not protect against the recordation of child, family, or spousal support judgments.  Like elsewhere, California law treats support obligations as exceptional and sacrosanct.

Consider an example:  John and Mary Smith, a hypothetical married couple who own a house worth $400,000, with an unpaid balance of $200,000 owed on the mortgage; the Smith’s have $200,000 of equity. The Smith’s owe $80,000 to a judgment creditor who has filed a judgment lien against their home.   The Smiths qualify for a homestead exemption amount of at least $300,000.  Thus, all $200,000 equity is protected from judgment creditors. 

However, if the Smiths had paid off their mortgage then their equity would be the full $400,000 house value and the exemption amount would depend on in which county they reside in California.  Thus, having some unpaid mortgage can help keep the equity within the exemption amount and avoid a forced sale of the residence.

The foregoing is not legal advice.  If needing guidance regarding the homestead exemption or homestead declaration consult an attorney. 

Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.