HOMESTEAD EXEMPTION

HOMESTEAD EXEMPTION

The principal purpose of the homestead exemption is to shield the home against creditors of certain types whose
claims might be exercised through judgment lien enforcement. Few areas of California real property law are
more misunderstood.

Obligations unaffected by the declaration. Over the years, the homestead exemption amount has been
increased from time to time, with the type of homestead determining the actual amount of the exemption.
However, the validity of a homestead depends not only upon the recordation of the homestead declaration but
on certain off-record matters including, actual residency in the declared homestead dwelling at the time the
declaration is recorded and an actual interest in the “dwelling”.

The homestead declaration does not protect the homestead from all forced sales. For example, it is subject to a
forced sale if a judgment is obtained: (l) prior to the recording of the homestead declaration; (2) on debts
secured by encumbrances on the premises executed by the owner before the declaration was filed for record;
and (3) obligations secured by mechanics’, contractors’, subcontractors’, laborers’, materialmen’s, suppliers’ or
vendors’ liens on the premises. Voluntary encumbrances by the owner of the homestead are not affected by a
declaration of homestead. A mortgage or deed of trust is an example of a voluntary encumbrance.

Two Homestead Statutes

Articles 4 and 5 of Chapter 4, Division 2, Title 9, Part 2 of the California Code of Civil Procedure
(commencing with Section 704.710) contain respectively the applicable law regarding the “Homestead
Exemption” and ”Declared Homesteads”.

While both Articles deal with granting homeowners homestead protection from the claims of certain creditors,
the Articles are in part mutually exclusive. Article 4 provides protection to homeowner debtors who meet the
requirements but have not filed a declaration of homestead. Article 5 concerns homeowners who undertake the
actual filing of a homestead declaration. In either case, there is protection against certain judgment liens to the
amount of the exemption afforded by law.

The following discussion concerns primarily the “Declared Homestead” under Article 5.

(N OTE: A “Probate Homestead” also exists in California. See Probate Code Sections 60 and 6520 through
6528.)

Declared Homestead

A dwelling in which an owner or his or her spouse resides may be selected as a “Declared Homestead” by
recording a homestead declaration in the office of the county recorder of the county where the dwelling is
located. From and after the time of recording, the dwelling is a “Declared Homestead”. See the Code of Civil
Procedure Sections 704.710 and 704.910.

Definitions for Declared Homestead

A “Declared Homestead” is the dwelling described in a homestead declaration and a “Declared Homestead
Owner” includes both (1) the owner of an interest in the “Declared Homestead” who is named as a “Declared
Homestead Owner” in a homestead declaration recorded pursuant to Code of Civil Procedure Section 704.920
and, (2) the declarant named in a declaration of homestead, including the spouse of the declarant, recorded prior
to July 1, 1983, pursuant to the former Title 5 (commencing with Section 1237) of Part 4 of Division 2 of the
Civil Code. See the Code of Civil Procedure Section 704.910.

“Dwelling” means any interest in real property (whether present or future, vested or contingent, legal or
equitable) that is a “dwelling” as defined in Section 704.710 of Article 4 and Section 704.910 of Article 5 of
the Code of Civil Procedure, but does not include a leasehold estate with an unexpired term of less than two
years or the interest of the beneficiary of a trust. See the Code of Civil Procedure Section 704.910.

For the purpose of Article 4 and Article 5 of the Code of Civil Procedure, “Spouse” means a “spouse” as
defined in Sections 704.710 and 704.910.

Definitions and Terminology

Some of the terminology for “Declared Homesteads” depends for their meaning on definitions from Article 4,
which describes a residential exemption, even if there is no filing of a “Declared Homestead”. These definitions
are:

1. “Dwelling” means a place where a person actually resides and may include, but is not limited to, the
following:

a. A house together with the outbuildings and the land upon which they are situated;

b. A mobilehome together with the outbuildings and the land upon which they are situated;

c. A boat or other waterborne vessel;

d. A condominium, as defined in Section 783 of the Civil Code;

e. A Planned Development, as defined in Section 11003 of the Business and Professions Code;

f. A stock cooperative, as defined in Section 11003.2 of the Business and Professions Code; and

g. A community apartment project, as defined in Section 11004 of the Business and Professions Code.

2. “Family unit” means any of the following:

a. The judgment debtor and the judgment debtor’s spouse if the spouses reside together in the homestead.

b. The judgment debtor and at least one of the following persons who the judgment debtor cares for or
maintains in the homestead:

(1) The minor child or minor grandchild of the judgment debtor or the judgment debtor’s spouse or
the minor child or grandchild of a deceased spouse or former spouse.

(2) The minor brother or sister of the judgment debtor or judgment debtor’s spouse or the minor child
of a deceased brother or sister of either spouse.

(3) The father, mother, grandfather, or grandmother of the judgment debtor or the judgment debtor’s
spouse or the father, mother, grandfather, or grandmother of a deceased spouse.

(4) An unmarried relative described in this paragraph who has attained the age of majority and is
unable to take care of or support himself or herself.

c. The judgment debtor’s spouse and at least one of the persons listed in paragraph (2) who the judgment
debtor’s spouse cares for or maintains in the homestead.

See the Code of Civil Procedure Section 704.710.

3. “Homestead” means the principal dwelling (l) in which the judgment debtor or the judgment debtor’s
spouse resided on the date the judgment creditor’s lien attached to the dwelling, and (2) in which the
judgment debtor or the judgment debtor’s spouse resided continuously thereafter until the date of the court
determination that the dwelling is a homestead. Where exempt proceeds from the sale or damage or
destruction of a homestead are used toward the acquisition of a dwelling within the six-month period
provided by Section 704.720, “homestead” also means the dwelling so acquired if it is the principal
dwelling in which the judgment debtor or the judgment debtor’s spouse resided continuously from the date
of acquisition until the date of the court determination that the dwelling is a homestead, whether or not an
abstract or certified copy of a judgment was recorded to create a judgment lien before the dwelling was
acquired. See the Code of Civil Procedure Section 704.710.

4. “Spouse” does not include a married person following entry of a judgment decreeing legal separation of
the parties, or an interlocutory judgment of dissolution of the marriage, unless such married persons reside
together in the same dwelling. See the Code of Civil Procedure Section 704.710.

Amount of Homestead Exemption

The amount of the homestead exemption is the same under Articles 4 and 5 and is based upon the debtor’s
status at the time the creditor’s lien is recorded. The current protected homestead exemption values and the
required status of the debtor or spouse are as follows:

1. $50,000, unless the judgment debtor or spouse of the judgment debtor who resides in the homestead is
the person described in paragraph (2) or (3);

2. $75,000, if the judgment debtor or the spouse of the judgment debtor who resides in the homestead at
the time of the attempted sale of the homestead is a member of the family unit, and there is 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;

3. $150,000, if the judgment debtor or spouse of the judgment debtor who resides in the homestead is at
that time of the attempted sale of the homestead any one of the following:

A. A person 65 years of age or older

B. A person physically or mentally disabled and because of that disability is unable to engage in
substantial gainful employment. There is a rebuttable presumption affecting the burden of
proof that the person receiving disability insurance payments under Title II or supplemental
security income payments under Title XVI of the Federal Social Security Act satisfies the
requirement of this paragraph as to his or her inability to engage insubstantial gainful
employment.

C. A person 55 years of age or older with a gross annual income of not more than $15,000 or, if
the judgment debtor is married, a gross annual income, including the gross annual income of
the judgment debtor’s spouse, of not more than $20,000 and the sale is an involuntary sale.

Regardless of any other provision of this law, the combined homestead exemptions of spouse on the same
judgment shall not exceed the amount specified in paragraph (2) or (3) above, which ever is applicable,
regardless of whether the spouses are jointly obligated on the judgment or whether the homestead consists of
community or separate property or both. If both spouses are entitled to a homestead exemption, the exemption
of proceeds of the homestead shall be apportioned between the spouses on the basis of their proportionate
interests in the homestead. See the Code of Civil Procedure Section 704.730.

Contents of the Declaration of Homestead

1. A recorded homestead declaration will contain all of the following:

a. The name of the “Declared Homestead” owner. A husband and wife both may be named as “Declared
Homestead” owners in the same homestead declaration if each owns an interest in the dwelling
selected as the “Declared Homestead”.

b. A description of the “Declared Homestead”.

c. A statement that the “Declared Homestead” is the principal dwelling of the “Declared Homestead”
owner or such person’s spouse, and that the “Declared Homestead” owner or such person’s spouse
resides in the “Declared Homestead” on the date the homestead declaration is recorded.

2. The homestead declaration shall be executed and acknowledged in the manner of an acknowledgment of a
conveyance of real property by at least one of the following persons.

a. The “Declared Homestead” owner.

b. The spouse of the “Declared Homestead” owner.

c. The guardian or conservator of the person or estate of either of the persons listed in (a) or (b) above.
The guardian or conservator may execute, acknowledge, and record a homestead declaration without
the need to obtain court authorization.

d. A person acting under a power of attorney or otherwise authorized to act on behalf of a person listed in
(a) or (b) above.

3. The homestead declaration shall include a statement that the facts stated in the homestead declaration are
known to be true as of the personal knowledge of the person executing and acknowledging the homestead
declaration. If the homestead declaration is executed and acknowledged by a person listed in (c) or (d)
above, it shall also contain a statement that the person has authority to so act on behalf of the “Declared

Homestead” owner or the spouse of the “Declared Homestead” owner and the source of the person’s
authority.

See the Code of Civil Procedure Section 704.930.

The definition of “dwelling” for purposes of Article 5 means an interest in real property that is a dwelling as
defined in Section 704.710 (Article 4), but excludes a leasehold estate with an unexpired term of less than two
years at the time of the filing of the homestead declaration. A “dwelling” that is personal property (boat,
waterborne vessel or mobilehome not affixed to land/property) appears to be excluded under Article 5. Prior to
applying the definition of “dwelling”, the advise of knowledgeable legal counsel should be obtained. See the
Code of Civil Procedure Section 704.910.

The law does not set a limit on the amount of land/property that may be contained in the homestead “dwelling”
property Ownership interests and occupancy by the owner or owner’s spouse at the time of filing the
declaration are the principal governing factors.

Where unmarried persons hold interests in the same “dwelling” in which they both reside, they must record
separate homestead declarations, if each desires to have a valid homestead.

Under previous law, a person who was a “head of household” was entitled to qualify for the amount of the
greater exemption. Under current law, the amount of the exemption will depend upon whether or not the
judgment debtor qualifies as a “family unit.”

See Article 4 and 5 of the Code of Civil Procedure commencing with Section 704.710.

Declarations recorded prior to July 1, 1983. Any declaration of homestead filed prior to July 1, 1983,
remains valid, but the effect is limited to the effect given a homestead declaration under current statutes, i.e.,
the previously filed declaration must be qualified under present law. See Article 5 of the Code of Civil
Procedure commencing with Section 704.910.

Effect of recording - how terminated. When a valid declaration of homestead has been filed in the office of
the county recorder where the property is located, containing all of the statements and information required by
law, the property becomes a homestead protected from execution and forced sale, except as otherwise provided
by statute. The homestead remains operative until terminated by conveyance, abandoned by a recorded
instrument of abandonment, or sold at execution sale.

A homestead declaration does not restrict or limit any right to convey or encumber the declared homestead.

To be effective, the declaration must be recorded; when properly recorded, the declaration is prima facie
evidence of the facts contained therein; but off-record matters could prove otherwise.

See the Code of Civil Procedure Sections 704.920, 704.940, 704.965, 704.970, 704.980, and 704.990.

Rights of spouses. A married person who is not the owner of an interest in the dwelling may execute,
acknowledge, and record a homestead declaration naming the other spouse who is an owner of an interest in the
dwelling as the “Declared Homestead” owner but at least one of the spouses must reside in the dwelling as his
or her principal dwelling at the time of recording. See the Code of Civil Procedure Sections 704.920 and
704.930.

Either spouse can declare a homestead on the community or quasi-community property, on property held as
tenants in common, or held as joint tenants, but cannot declare a homestead on the separate property of the
other spouse in which the declarant has no ownership interest. A homestead cannot be declared after the
homeowner files a petition in bankruptcy. The phrase, “Quasi-community property”, refers to real property
situated in this state acquired in any of the following ways:(1) By either spouse while domiciled elsewhere
which would have been community property if the spouse who acquired the property had been domiciled in this
state at the time of its acquisition. (2) In exchange for real or personal property, wherever situated, which would
have been community property if the spouse who acquired the property so exchanged had been domiciled in
this state at the time of its acquisition.

If a husband and wife own separate interests as separate property, each spouse qualifies for his or her own
exemption but the combined exemptions cannot exceed the amount that is due to a “family unit.” A declaration
intended to be for the “joint benefit” of both spouses, one or both spouses must qualify as a “family unit.”

After a decree of legal separation or interlocutory judgment of dissolution of marriage, if a spouse no longer
resides on the property, the spouse cannot declare a homestead on the property.

See the Code of Civil Procedure Sections 704.710 and 704.910 and Family Code Section 910 et seq.

Levy and execution sale. When an execution for the enforcement of a judgment is levied on a homestead
dwelling, the judgment creditor must follow specific procedures.

Within 20 days after a writ of execution is levied and the creditor is notified of this fact, the creditor must apply
to the court where the judgment was rendered for an order to execute the sale of the property. See the Code of
Civil Procedure Sections 704.740, 704.750 and 704.760.

The value of the property is determined by the court. The court may appoint an appraiser and will consider
other evidences of value to set a minimum bid for the property. Creditors must prove sufficient value to receive
the minimum bid or the court may not make a finding for the sale.

If the court makes an order for sale of the dwelling upon a hearing at which neither the judgment debtor’s
spouse nor attorney debtor or spouse appeared, then within 10 days after the order for sale, the creditor must
serve a copy of the order and statutory notice of sale on the debtor. The property is not sold if no bid is received
at least equal to the court’s prescribed minimum bid (which is a sum at least equal to the amount needed to pay
all liens and encumbrances on the property, the amount of the homestead exemption, and the lien of the
judgment creditor enforcing the lien), and the creditor cannot subject the property to an additional order for sale
for at least one year. See the Code of Civil Procedure Sections 704.770, 704.780, 704.790, and 704.800.

After the sale, the proceeds of sale are distributed as follows: (a) to discharge all liens and encumbrances on the
property recorded prior to the judgment lien; (b) to the owner/debtor for the amount of the homestead
exemption; (c) to costs of execution; (d) to the amount due the judgment creditor; and finally (e) balance to
owner/debtor.

The proceeds from the execution sale are exempt for 6 months after the debtor receives the proceeds. If
reinvested in a new “dwelling” and a new declaration of homestead is recorded within this 6-month period, the
new filing has the same effect as though recorded on the date the prior declaration was recorded. See the Code
of Civil Procedure Section 704.960(b).

Federal Homestead Act of 1862

The declared homestead discussed above has nothing to do with the term “homesteading” as applied to filings
on federal lands whereby a person acquired title to acreage by establishing residence or making improvements
upon the land.

The purpose of the Federal Homestead Act of 1862 was to encourage settlement of the nation. Except for
Alaska, homesteading was discontinued on public lands in 1976. Because all the good agricultural land had
already been homesteaded and deeded, Congress recognized that the Homestead Act had outlived its usefulness
and passed the Federal Land Policy and Management Act of 1976that immediately repealed the old law (as to
all states except Alaska).