Homestead protection may save your home and your home equity from unsecured creditors.

Homesteading in California can provide up to $150,000 in protection against creditors who may sue to force you to sell your home to pay the amounts that you owe them. The amounts owed can be as the result of lawsuits, or just from having overextended credit.

There are two types of homesteads available: an automatic homestead and a declared homestead. An automatic homestead protects some of your home equity until you sell your home, as long as you live in the home (you cannot homestead an investment property). A declared homestead can protect your home equity for up to 6 months after you sell your home, as long as you use the proceeds to buy a new home within 6 months and declare a homestead on that home.

Automatic Homestead

An automatic homestead is in place if you live in the home that you own. You do not have to complete any forms, and it protects your home equity until you sell your home. However, an automatic homestead does not provide the same level of protection as a declared homestead. 

A homeowner who is overextended financially and is being dunned by creditors or debt collection agencies should consult an attorney for advice on the need for filing a homestead declaration. If you are in financial trouble, or expect to be in financial trouble, you may want to consider filing a declared homestead.

Declared Homestead

A declared homestead is filed at the County Recorder’s Office on a properly signed and notarized form that you can either buy in an office supply store or download for free. According to the California Department of Consumer Affairs, “A properly prepared and recorded homestead declaration immunizes the home (and the land on which it is situated) from many (but not all) legal enforcement measures. For example, if a homeowner files a petition in bankruptcy, it may be possible, because of a homestead declaration, to retain the home, or at least a portion of the equity in the property, instead of losing it to creditors.”

In other words, if you sell your home voluntarily without a declared homestead in place, the protection of your home equity may be lost. This means that the proceeds of the sale of your home will go to the judgment creditor or creditors rather than to you, the owner, to use in purchasing another home. Remember that you must purchase a replacement home within 6 months and file a declared homestead on that new home in order for your homestead protection to remain in place.

A declared homestead will NOT protect you from foreclosure by your mortgage lender if you are behind in your payments. Nor will it protect you from a mechanic’s lien or if you are behind in child or spousal support. If you are unsure as to how to complete the Homestead Declaration form, you may wish to hire a homestead filing service. By law, these services cannot charge more than $25, including notary and filing services. You can also find various do-it-yourself guides that will provide examples as to how to complete the form.

At the County Recorder’s Office, the documents presented will be reviewed and recorded, with the original document being mailed back to you within 4-6 weeks. The base fee for recording documents is $7 for the first page, and $3 for each additional page. Certified copies can be requested for $6 for the first page and $3 for each subsequent page.

NOTE: The Van Nuys County Recorder’s Office will be closed until November 30, 2008. If you need to file a declared homestead before then, you’ll need to travel to the Lancaster office instead. Documents may also be mailed to: Document Analysis and Recording, P.O. Box 53115, Los Angeles, CA 90053-0115. Be sure to include the proper filing fees with each document to be recorded. For more information, call (562) 462-2125 in Los Angeles County.

How Much Equity Does a Homestead Protect?

A homestead can protect your home from unsecured creditors in the following amounts (there is no difference in amounts for automatic or declared homesteads):

$50,000 for an individual;

$75,000 if the homeowner lives with at least one family member who has no interest in the house;

$150,000 if the homeowner is 65 years of age or older, or is physically or mentally disabled;

$150,000 if the homeowner is 55 years of age or older and single with an annual income of $15,000 or less;

$150,000 for a married couple with a combined annual income of $20,000 or less.

Disclaimer: This information is not intended as a substitute for legal advice. Be sure to consult an attorney if you are having financial difficulties or if you are unsure of the homestead process. If you are considering filing bankruptcy or need assistance with foreclosure prevention, contact attorney Ray Bulaon at 818.243.7745.

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