Homestead Exemption

t is always an unexpected pleasure when amendments to government statutes provide benefits instead of increased costs. Fortunately, as of January 1, 2021, this has happened relative to homestead exemptions in California. The plan used previously has been replaced by a more sensible one with several advantages to homeowners. Nonetheless, as is typically the case, you will need an experienced, well-informed wills and trust attorney to help you fully understand the alterations and in order to reap the benefits. In the meantime, let’s examine the pertinent changes.

Before January 1, 2021

Before the latest changes, part of the equity in a California home was exempt from being used to pay a judgment lien. Depending on several factors — including marital status, age, and income of the property owner — that partial exemption was either $75,000, $100,000 or $175,000.

After January 1, 2021

As of this date, Governor Gavin Newsom amended the previous California Civil Code by approving Assembly Bill 1885. According to this new law, homestead exemption now works this way:

The homestead exemption directly reflects whichever of the following is greater:

[1] The median sale price for a single-family home in your county during the calendar

     year prior to the one in which you claim the exemption (not exceeding  $600,000) 

     or

[2] The sum of $300,000

Furthermore, the amounts specified here will be adjusted annually for inflation as of January 1, 2022. This adjustment, based on the change in the annual California Consumer Price Index for All Urban Consumers for the previous fiscal year, as published by the Department of Industrial Relations. As you might imagine, the fact that exemption amounts have now been raised significantly and will adjust for inflation going forward is advantageous to California homeowners trying to protect their assets.

How the New Laws Concerning Homestead Exemptions Benefit California Homeowners

The primary advantage for California homeowners is that the new law protects $300,000 to $600,000 of your home’s equity from creditors who have won judgments against you. As you may remember, the range of the sheltered funds depends on the median sale price of homes in the county in which you live.

Private property owners now have increased protection from the creditors who have sued them and obtained a lien (legal judgment) against their property. It should be noted, however, that their creditors still have the right to take other legal steps to collect the debt, in some cases, for example, forcing the sale of their vehicles or other real estate in order to receive payment.

Homestead Exemptions Will Not Always Protect You

If you have a mortgage, i.e. a loan that uses your home as collateral, you will not qualify for a homestead exemption. In other words, the bank or other lender retains the right to foreclose if you are markedly behind in payments. In the same vein, you will not be protected from judgment creditors if you choose to sell your home. In such a case, the person or entity who has taken out a lien on your home may legally demand payment from the proceeds. The new law will, however, protect you if your home is foreclosed and sold in a forced sale.

How Brian Chew of OC Wills & Trust Attorneys Can Help You Protect Your Assets

The lead attorney of our practice, Brian Chew has the skill set you need when you are dealing with the high stakes matter of preserving the assets in your home. This is particularly true because, if you are like most people, your home is your largest investment.  

Among other things, Brian will clarify for you why it is best to file a homestead declaration with your county clerk, even though, since the current homestead exemption is automatic, such a declaration is not theoretically required. 

Because Brian always remains current with all information pertaining to his legal discipline, he knows that failing to file a declaration can imperil your equity after your home is sold. This is true whether you sell your home voluntarily or sell it under duress. By filing the declaration, the profit from selling your homestead will remain protected for 6 months after its sale.