Legal Question in Real Estate Law in California

It merely protects a defined amount of equity in the property from being taken by a judgment against you, or bankruptcy. It does not prevent foreclosure or seizure in collection.

There is both a "declared homestead" and an "automatic homestead" in California. The type and degree of protection is overlapping, and most people do not need to record a declaration to get some protection. However, anyone facing a possible judgment should record a hometead declaration.

The additional protections of a declared, vs. the automatic, homestead are: If you have multiple residences, you can file a "declared homestead" to specifically designate one of the properties to be protected under the homestead laws. If a "declared homestead" is filed, the proceeds from a voluntary sale are protected (you must reinvest the exempted proceeds into another residence within a 6 month timeframe); and the protection may continue to apply even if the homeowner moves.

The negatives are hassle, a minor expense, and some potential creditors might regard the declaration as a kind of "red flag" that you are a poor credit risk.

Also, many people wrongly believe that homesteads protect against all kinds of creditors. In fact, they protect only against involuntary liens arising after the homestead becomes effective. Homestead does not "prevent" foreclosure; however, the existence of a homestead might be a factor in dissuading the holder of an involuntary lien from executing against the property, since his "net take" would be reduced by the amount of the homestead as well as the amount(s) of prior lien(s).

I agree with Mr. Whipple. Many people confuse the automatic homestead exemption, or declarations of homestead with the Homestead Act, which was a method the federal government used to settle land.

About all the homestead exemption provides, is protection for fixed amount of equity in a home. It does not have any affect on consensual liens, such as mortgages and deeds of trust, and won't even prevent a sale from a private creditor who has obtained a judgment lien.