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In California, there are two types of homestead exemptions: (1) one is automatic and (2) the other is declared and requires filing a document with the County Recorder’s office. The automatic homestead exemption protects a debtor’s interest in his or her primary residence up to a specified dollar amount. The effect is to prohibit an unsecured creditor from forcing the sale of a debtor’s primary residence that has been continuously lived in if the debtor’s equity in the property falls within the dollar limit of the homestead exemption. If the debtor’s equity interest in the home exceeds the specified dollar amount, then the homeowner will be entitled to keep the specified dollar exemption amount before an unsecured creditors (those without a mortgage or judgment lien) is paid. In effect, the automatic homestead exemption is useful only if the debtor’s home is sold at auction by a creditor to pay a judgment. If this happens, the debtor/homeowner the mortgage lender(s) will be paid first, but if there is any equity remaining the debtor/homeowner will be entitled to the amount of the particular exemption next, and only if there is still additional equity will the judgment creditor receives the remainder of the equity. To benefit from the automatic exemption, the debtor must make a timely claim for the exemption by filing a claim for the exemption within 10 days after the notice of levy on the property was served; otherwise, the exemption will have been waived. California Code of Civil Procedure §§ 703.030(a) and 703.520(a). If the claim for the exemption is contested, the debtor bears the burden of proving that the property is exempt. California Code of Civil Procedure § 703.580(b).
Although no action is required to create a homestead exemption, recording a declared homestead exemption does offers certain benefits. First, unlike the automatic exemption, the declared homestead protects the homeowner’s equity if the homeowner voluntarily decides to sell his or her primary residence. With the automatic homestead exemption, upon a voluntary sale, the mortgage lenders will be paid first, then the judgment creditor, and this can leave the debtor/homeowner without any remaining equity. Essentially rendering the automatic homestead useless. However, if a property owner files a declared homestead exemption, the debtor/homeowner can voluntarily sell the home and get paid before a judgment creditor. California Code of Civil Procedure § 704.950. Second, the proceeds (up to exemption limit) from the sale of a primary residence with a declared homestead are protected and exempt from collection for six months after the date of sale. California Code of Civil Procedure § 704.960. The third benefit is the shifting of the burden of proof. If a declared homestead exemption has been filed with the County, then it will be presumed that the residence is a homestead and the creditor will bear the burden of proving otherwise To declare a homestead is a simple process that merely requires the recording of a notarized "Homestead Declaration" in the County Recorder’s Office.
Please note that neither exemption applies to foreclosure of a mortgage, deed of trust, lien, or other encumbrance. California Code of Civil Procedure § 703.010(b).
Tags: california homestead
Posted In: Real Estate Reporter
Blog Categories:Business Law Bulletin
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Disclaimer: The information presented on this web site was prepared by Melissa C. Marsh for general informational purposes only and does not constitute legal advice. The information provided in my articles and alerts should not be relied upon, or used as a substitute for professional legal advice from an attorney you retain to advise or represent you. Your use of this Internet site does not create an attorney- client relationship. Transmission of this article is not intended to create, and receipt of it does not constitute, an attorney-client relationship. All uses of the contents of this site, other than personal uses, are prohibited. You may print or email a copy of any information posted on this web site for your own personal, non-commercial, use, but you may not publish any of the articles or posts on this web site without the Express Written Permission of Melissa C. Marsh.
Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.