Legal Question in Real Estate Law in California

You may want to repost with better details.

First of all, the homestead exemption is not $50,000. That is the old amount. Currently, a judgment debtor may claim a homestead exemption in the amount of $75,000. (Code of Civ. Proc., � 704.730 subd. (a)(1).) If the judgment debtor or his or her spouse who resides in the homestead is, at the time of the attempted sale of the homestead, a member of a family unit, he or she is entitled to an exemption in the amount of $100,000.00. There must be at least one member of the family unit who owns no interest in the homestead or whose only interest in the homestead is a community property interest with the judgment debtor. (Code of Civ. Proc., � 704.730 subd. (a)(2).)

The amount of exemption is increased to $175,000 if the judgment debtor or his or her spouse who resides in the homestead is, at the time of the attempted sale of the homestead: 1) 65 years of age or older; 2) physically or mentally disabled and, as a result of that disability, unable to engage in substantial gainful employment; or 3) 55 years of age or older with a gross annual income of not more than $15,000, or if married, a gross annual income, including the gross annual income of his or her spouse, of not more than $20,000 and the sale is an involuntary sale. (Code of Civ. Proc., � 704.730 subd. (a)(3).)

Second, the homestead exemption does not offer any protection in foreclosure. The homestead declaration does not restrict or limit any right to encumber the declared homestead. �A homestead declaration does not restrict or limit any right to convey or encumber the declared homestead.� (Code of Civ. Proc., � 704.940.)

The homestead statutes are designed to protect the value of the homestead from judgment liens, but they do not impair the right of a declared homestead owner to encumber the homestead with consensual liens, such as a deed of trust securing a promissory note executed by the declarant of the homestead.

If a declared homestead owner defaults on a debt secured by a consensual lien, the homestead is not protected from a nonjudicial foreclosure, that is, the homestead laws cannot be used to prevent a private sale pursuant to a power of sale conferred by the trust deed or mortgage securing the debt, as distinguished from preventing an execution of judgment sale. (Code of Civ. Proc., � 703.010 subd. (b).)

You are going to have to provide more facts as to what you would be seeking in bankruptcy, for anyone to answer reasonably.

Your understanding that the proceeds of the homestead exemption must be put in a new residence is incorrect. The homestead exemption only comes into play in two situations - determining whether there is equity in a property in bankruptcy to establish whether it is an asset or no-asset case, and when the property is sold to satisfy judgment liens, or creditors claims in bankruptcy. If voluntary liens (mortgages, HELOC and the like) plus the applicable homestead exemption exceed the value of the property, the property cannot be ordered sold to satisfy judgment or bankruptcy creditors. If there is equity above the voluntary liens plus the exemption then the property can be sold. In that case the sale proceeds first go to pay the voluntary liens. Then the exemption amount is paid directly to the former homeowner. The rest is paid to the other creditors. The former homeowner is then free to do with the money as they please. They just have to make sure to keep the money segregated from any other money they have so it does not get levied on, or so they can prove it is the exemption proceeds if it is levied on.

I would also advise that you need to understand that California has both a so-called "automatic homestead" that benefits some debtors whether they record anything or not; and a "declared homestead" which provides partially-overlapping protection (or lack thereof) to debtors, in the same dollar amounts, but has an advantage that it protects the proceeds of a voluntary sale for up to six months, if the debtor(s) have to move. CCP 704.960(a).