Legal Question in Real Estate Law in California

Re: Declaration of Homestead

The first question I would ask you if you were in my office, is why do you want to record a declaration of homestead? In California, a homestead is a form of exemption that protects a certain portion of real property from becoming property subject to a levy by a judgment creditor.

Most people that need a homestead are either judgment debtors who are claiming an exemption to prevent their home from being sold in an execution sale to pay off a judgment, or they are filing bankruptcy.

The amount of a homestead exemption is determined by Code of Civil Procedure section 704.730. To answer your first question, you could record a declaration of homestead on real property that you are renting, but you would only be exempt up to $50,000.00. (Code of Civ. Proc. sec. 704.730 subd. (a)(1).)

What this really boils down to can be illustrated by the following hypothetical. You own two parcels of real property, and have recorded a homestead on the property that you are renting to someone else. You are sued and a judgment creditor executes on your real property for a $100,000.00 judgment. Can the judgment creditor execute on the property that you have recorded a homestead exemption for? You bet! Your exemption is only for $50,000 under the express terms of Code of Civil Procedure section 704.730. Depending on the value of the real property, the homestead may or may not be sold. Code of Civil Procedure section 704.800 states that "[i]f no bid is received at a sale of a homestead pursuant to a court order for sale that exceeds the amount of the homestead exemption plus any additional amount necessary to satisfy all liens and encumbrances on the property, including but not limited to any attachment or judgment lien, the homestead shall not be sold...."

So in this hypothetical, if the bid was high enough to pay off any encumbrances (liens, mortgages, etc.) and the judgment lien, and your homestead exemption, then the property could be sold, and you are left with a check for the amount of a homestead exemption. But under this hypothetical, this is insane, because the judgment creditor would be better off going against the property where you are, because there is no homestead exemption, and therefore after the liens and encumbrances are paid, he or she is more likely to be able to satisfy the judgment.

In that scenario, you would be on the street, with a renter in a property you had recorded a homestead exemption on. You probably could not kick out the renter, because he or she was under a lease.

So unless someone is after you right now on a judgment, or you are filing for bankruptcy, recording a homestead exemption is simply insanity. (Not to mention that you would probably not be able to refinance while the homestead exemption was recorded on your real property.)

If you have any questions, do not hesitate to e-mail me. I will give you all the information you want for free.

Very truly yours,

Anthony Roach, Esq.

Re: Declaration of Homestead

It is my understanding that a homestead will not be recognized for a home in which neither a close family member or you live at the time the homestead exemption is to be used. That is a creditor attempts to collect a judgement or you file bankruptcy.

Re: Declaration of Homestead

You cannot homestead, nor do you have an "automatic" homestead exemption, in a house that isn't your primary residence, whether or not you own it.

Furthermore, a declared homestead is a red flag to your creditors and potential creditors that you may be in financial difficulties. Since the automatic homestead provides similar protection, a declared homestead is a bad idea for most.