A homestead exemption protects your residence’s equity from creditors, with a cap at a certain amount.  The new law increases the exemption amount of $300,000 to $600,000 depending on the county you live in. For Los Angeles, the exemption for couples is $600,000.

California homestead exemption has been increased, effective January 1, 2021.

Automatic Homestead Exemption

The California homestead exemption is automatic. This means that a homestead declaration does not need to be filed with the county clerk to go into effect. This automatic exemption protects against forced sales.

Filed Homestead Exemption

But, if you file a declared homestead (file a form with county), the equity in the property will be protected whether the sale of the home is voluntary by the homeowner or involuntary by a creditor.

This means, the homeowner can voluntarily sell their home and keep the net proceeds of the equity up to the homestead amount after the mortgage is paid off and before the judgment is paid.

There are other benefits to a declared homestead exemption. The declared homestead prevents judgment liens from attaching to the portion of the equity covered by the exemption.

An Example of Automatic Homestead and Creditors

For example, John does not have a homestead exemption declared/filed on his property in Los Angeles. The law will automatically protect $600,000 of his equity. He goes to sell the property. His mortgage is paid off using the sales proceeds and there is $200,000 left in equity. His creditor is owed $130,000. The Creditor gets paid her $130,000 from the proceeds and John is left with $70,000.

An Example of Filed Homestead and Creditors 

For example, John files a homestead exemption on his property in Los Angeles, and therefore will be able to protect $600,000 of his equity. He goes to sell the property. His mortgage is paid off using the sales proceeds and there is $200,000 left in equity which is given to John. His creditor who is owed $130,000 does not touch the equity because John had a declared Homestead.

Limitations to Homestead Exemptions

The following are some additional limitations of the homestead exemption:

  1. If you have a mortgage on your property, the lender retains the right to foreclose on the property and the borrower will not qualify for the homestead exemption.
  2. With the automatic homestead, homeowners who choose to sell their homes are not protected from judgment creditors; the homestead exemption only applies when the sale is forced by the creditor.

Proper estate planning is a must and sometimes that includes a homestead exemption for some clients. Contact our office for a consultation.