This is the first episode of our new video series covering how to advise a homeowner on whether they qualify to voluntarily sell and protect the equity in their residence from creditor seizure.

Why this is important to sellers agents: In a recession, a growing number of homeowners will by sued by creditors for money owed on debt – these owners need your advice to protect their equity. 

Protected equity exempt from creditor seizure

A homestead is the dollar amount of equity in a homeowner’s dwelling the homeowner qualifies to exempt from creditor seizure.

The dollar amount of the homestead held by the homeowner in the equity in their home has priority on title over most judgment liens and most government liens.

Two types of homestead procedures are available to California homeowners:

  • the declaration of homestead, which is recorded [Code of Civil Procedure §704.920; see RPI Form 465]; and
  • the automatic homestead, also called a statutory homestead exemption, which is not recorded. [CCP §704.720]

Both homestead arrangements provide the same dollar amount of home-equity protection in California. However, a homeowner needs to record a declaration of homestead to receive all the benefits available under the homestead laws.

These benefits allow homeowners the right to sell, receive the net sales proceeds up to the dollar amount of the homestead and reinvest the funds in another home. [See RPI Form 465]

Neither the declared nor the automatic homestead interfere with:

  • voluntary liens previously or later placed on title to the property by the homeowner, such as trust deeds; and
  • involuntary liens given priority to the homestead exemption under public policy legislation; or
  • the homeowner’s credit ratings or title conditions.

Some involuntary liens and encumbrances are given priority by statute and are enforced as senior to the amount of the homestead exemption, including:

  • mechanic’s (contractor’s) and vendor’s (seller’s) liens;
  • homeowners’ association (HOA) assessments;
  • judgments for alimony or child support;
  • real estate property taxes; and
  • Internal Revenue Service (IRS) liens.

Involuntary liens that are subordinate and junior to the homestead amount include:

  • Franchise Tax Board personal income tax liens;
  • Medi-Cal liens; and
  • judgment creditor’s liens.

Declaring a homestead as asset preservation

The recorded homestead declaration includes:

  • the name of the homeowner declaring the homestead;
  • a description of the property homesteaded; and
  • a statement that the declared homestead is the principal dwelling in which the homeowner resides on the date the homestead is recorded. [Calif. Code of Civil Procedure §704.930(a); see RPI Form 465]

The declaration needs to be signed, notarized, and recorded to take effect. [CCP §704.930]

The homestead declaration may be signed and recorded by any one of several individuals, including:

  • the owner of the homestead;
  • the owner’s spouse; or
  • the guardian, conservator, or a person otherwise authorized to act for the owner or the owner’s spouse, such as an attorney-in-fact. [CCP §704.930(b)]

An individual’s personal residence that is vested in the name of a revocable inter vivos (living) trust, or other type of title holding arrangement established for the benefit of the homeowner, can also be declared a homestead by anyone who has an interest in the property and resides there. [Fisch, Spiegler, Ginsburg & Ladner v. Appel (1992) 10 CA4th 1810]

Editor’s note – Stay tuned! A new episode will release every other week.