The California Homestead laws protect a person’s home from non-mortgage creditor claims in and out of bankruptcy. The homestead laws are part of a broader set of laws called exemptions. In addition to the homestead, the exemption laws protect household goods, furniture, vehicles, retirement and much more. The homestead is the largest exemption and protects the most important asset, your home. As good as that sounds, the homestead has conditions and limitations.
Your Home – The homestead only applies to real estate you own and live in. You do not need to be the only owner to claim the homestead, meaning it is not a problem if there is someone else on title with you. Similarly, it is not a problem if you rent part of the house to someone else. The idea is to protect the roof over your head.
Value Limitation – The homestead protects realizable equity of up to $75,000 if you are single and under age 65; up to $100,000 if you are married or have a dependent; and up to $175,000 for people age 65 or over, disabled people, or certain low-income individuals over the age of 55. Realizable equity is the amount of money you would receive if the house was sold, meaning after payment of real estate commissions and all mortgages. For example, assume your home is worth $300,000 and you have a mortgage with a principal balance of $200,000. The calculation is $300,000 minus estimated commissions of $18,000 would leave $282,000 and after payment of the mortgage of $200,000 the realizable equity is $82,000.
No Foreclosure Protection – The homestead does not protect your home from foreclosure by a mortgage lender. This means if your mortgage payments are delinquent and the lender is threatening to foreclose, the homestead laws will not help you.
No Protection from IRS liens – The homestead does not protect against federal tax liens. This means tax liens can be recorded and enforced despite the homestead. Note: many liens that impair the homestead can be removed in bankruptcy but not a tax lien. Fortunately, the IRS almost never attempts to sell a person’s home to satisfy an unpaid tax debt, even huge tax debts.
The homestead in bankruptcy – The homestead is most powerful in the context of chapter 7 bankruptcy. The homestead laws protect your home from being sold to satisfy debts like credit cards, payday loans and medical bills. The homestead, in conjunction with the bankruptcy laws, can even remove judgment liens from the title to your home. The homestead also offers protection in chapter 13 bankruptcy.
The homestead outside of bankruptcy – If a non-mortgage creditor (credit card, payday loan, medical bill) obtains a judgment against you, and attempts to sell your home to satisfy the judgment you are entitled assert the homestead as a defense. Most creditors are well-versed in the homestead laws and do not bother trying to sell a person’s home to satisfy a judgment.
In summary, the homestead laws shield your home from most creditor claims and are most powerful when used in combination with bankruptcy.
At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. If you live in Contra Costa, Alameda or Solano counties and have debt problems, contact us for a free in-office consultation. We have offices in Walnut Creek, Antioch, and Hercules.