When financial obligations go unpaid, a person's creditor can go to court to seek payment of the debt. If a judgment is obtained against the debtor, the creditor can then file a judgment lien against the person's real estate, including the debtor's personal residence. Many times unsecured creditors simply wait for the house to be voluntarily transferred (or re-financed) and collect on the debt from the escrow proceeds; however, sometimes the house is sold involuntarily in foreclosure by the holder of a trust deed on the property or a sale is forced in execution of a money judgment. Homestead laws are designed to protect the sanctity of the family home against a loss caused by a forced sale of the home by creditors. It can ensure that insolvent debtors and their families are not rendered homeless by virtue of an involuntary sale of the residential property they occupy.
The homestead exemption can be obtained in two ways: (1) the automatic homestead exemption granted as a matter of law to every homeowner, and (2) an express declaration of homestead by the homeowner which is notarized and recorded with the county recorder.
The amount of the exemption may be $50,000, $75,000 or $150,000 according to which statutorily-defined class of persons the homeowner falls into. The amount of equity protected is the same for each type of homestead exemption; however, they operate quite differently in terms of the protection afforded.
The declared homestead provides much greater protection for the property owner than the automatic homestead. With the automatic homestead, the homeowner is protected in the event of a forced foreclosure sale but not a voluntary sale. With the declared homestead, however, the exempt proceeds from a voluntary sale may be reinvested within six months, thus allowing the debtor to invest in another residence. With the automatic homestead, judgment liens attach to all interests in the property that are subject to the enforcement of money judgments. For the declared homestead, however, a judgment lien filed after the declaration of homestead can only attach to equity in an amount greater than the homestead exemption and any preexisting liens on the property. Another important distinction is that the declared homestead survives the death of the homestead owner whereas the automatic homestead does not.
A Declaration of Homestead form can be purchased at office supply or legal stationery stores. For those who are internet savvy, the form can also be downloaded from the Registrar-Recorder's website in the real estate section (www.lavote.net). The fee to have the Declaration notarized and recorded is approximately $25.00. There is certainly nothing to lose but much to gain by taking the simple step of filling out and recording the declaration.
© 2012 by Marlene S. Cooper. All rights reserved.