Under California law, once a creditor obtains a judgment from the Court they are able to obtain Writs of Attachment which instruct the local Sheriff to seize property of a judgment debtor who has not voluntarily paid the judgment. Thus, a judgment creditor can attach bank accounts, brokerage accounts, wages, and, in general, most any asset owned by the debtor. It is not unusual for a judgment debtor to find to his or her shock, that their bank account has been depleted entirely by a successful surprise execution of a judgment or to find his or her employer served with a garnishment which requires the employer to deduct a certain portion of each paycheck and forward same to the judgment creditor.
But by far the most common execution of a judgment is against real property owned in whole or part by a judgment debtor. A judgment creditor is allowed by law to record the judgment in the county in which a debtor owns property (the document recorded is known as an Abstract of Judgment) and to then file a Writ of Sale in which the Sheriff of the County literally sells the property in a public auction, giving the proceeds to the creditor. While the procedure is a prolonged one, often taking three to six months, ultimately, the debtor is forced to surrender title to the property to the highest bidder with the debtor losing whatever equity she or he may have obtained. (The reader may wish to read the Web Article on Bankruptcy regarding that form of protection for debtors.)
A debtor's home, however, has been given special protection by California law and, depending on the status of the debtor as either single, or the head of a household, the debtor is allowed to have the home remain free of attachment up to a certain level of equity. Currently, the level of Homestead available is fifty thousand dollars for a single person, seventy five thousand dollars if part of a family unit, and one hundred twenty five thousand dollars if the person or spouse residing there is sixty five years of age or older, disabled, or with a gross annual income of fifteen thousand dollars or less and fifty five years of age or older. (These levels are occasionally altered, so always check the latest law at Code of Civil Procedure, 704.730.) Thus, a head of household can retain up to seventy five thousand dollars in home equity without a judgment creditor being able to serve a successful writ of attachment on the home. ("Equity" means the value of the property above any mortgage or deeds of trust already recorded on the property; thus, if your home is worth three hundred thousand dollars and you have a First Deed of Trust in the amount of two hundred thousand dollars outstanding and a Second Deed of Trust in the amount of sixty thousand dollars remaining unpaid, then your "equity" is forty thousand dollars.)
The rationale of the law in California is that the family home is vital for the continued healthy function of the family and unless it is a very expensive home with great equity, the Courts are instructed to protect this asset so that the debtor will at least have a home for the family or him or herself.
Assuming a creditor wishes to foreclose on the home, the creditor has the burden of proof of establishing that the equity in the home is above the limit allowed for the home exemption from execution, and hearings are heard in Superior Court with creditors bringing experts in to testify to attempt to establish the high level of equity and with debtors challenging the claim that their equity is that large with their own experts. Practically speaking, the Court will normally favor the debtor in protecting the family home and unless the creditor demonstrates by powerful evidence that there is a great deal of equity in the home above the statutory allowed limit, the Court will not allow the forced sale of the home.
This type of protection from execution on the home is called the Statutory Homestead Exemption from execution and automatically applies to any home-owning debtor in California. One need not file any document with the county recorder to have the right to claim a statutory homestead in California should a creditor seek to sell your home. However, by recording a form with the County Recorder, one can, instead have what is termed a Declared Homestead Exemption pertaining to the home described in the recorded Homestead Declaration. There are certain advantages of recording a Declared Homestead and this article shall describe them.
It is critical to emphasize that neither the Declared Homestead nor the Statutory Homestead can stop enforcement rights of secured creditors such as holders of a Mortgage or Deed of Trust. Homestead rights only limit the ability of creditors who are not secured creditors but, instead, have judgments and seek to enforce their judgments against the real property.
ADVANTAGES OF A DECLARED HOMESTEAD EXEMPTION
Both a Statutory Homestead and a Declared Homestead prohibit the judgment creditor from effectuating a forced sale of a family home and both have the same thresholds for allowed equity. Both have the same requirement of a court hearing if the judgment creditor seeks to overcome the defense of a claimed homestead exemption and both place the burden of overcoming the claimed homestead exemption on the creditor.
But the advantages of a Declared Homestead are not minor:
- The owner of a declared homestead can chose which of several residences will be protected. Only one can be protected under either a Statutory or Declared Homestead but under a Statutory Homestead, automatically it is where you are residing when the Writ is served that has the homestead apply.
- The protection that is provided by a Declared Homestead will continue to apply to that residence even if the owner moves. (In a statutory homestead, if the owner does not make it a residence when the writ is served, the homestead may be lost.)
- The proceeds of a voluntary sale of a homesteaded home are subject to the same protection as the equity in the home itself. If, instead, a Declared Homestead has not been recorded, the automatic homestead protection could be lost in a voluntary sale of the home and the proceeds of the voluntary sale would go to the creditors.
- If a Declared Homestead has been recorded, the law is clear that the proceeds of the sale up to the dollar limits of allowed equity can be used to purchase another house. The law is unclear if that same benefit applies to Statutory Homestead.
- And once the new home is purchased, a Declared Homestead automatically protects the second home, e.g. The homestead is automatically carried over to the new home.
See California Code of Civil Procedure Sections 704.730 and related statutes.
RECORDING THE HOMESTEAD
It is easy and inexpensive to record the homestead. One simply files the standard form, executed and notarized, with the County Recorder in the County in which the property is located. (Such filing with the recorder is called, "Recording.") The form can be obtained from most attorney's offices, any title company, and many stationary stores. The cost for notarization and recording is usually less than twenty dollars. The Recorder's office is in the telephone book and, in San Francisco, is in City Hall.
Alternatively, one can use the services of a Homestead Filing Service who will perform the simple task for you and the fee they can charge in California has been limited to twenty five dollars plus notary and recording fees. The telephone book and the web have numerous such services listed under "homestead."
A Declared Homestead will often not apply to a writ already enforced against the home so the key is to file one's homestead before the judgment is recorded against your home. Given the small cost of the recordation and the advantages that pertain, there seems little reason not to fully utilize the benefits available from converting your Statutory Homestead to a Declared one. Yet it should be recalled that whether recorded or not, the basic protections of the homestead do apply, thus if your home is being subject to an attempt to execute a writ of attachment, contact legal counsel immediately. The odds are good that your home can be saved.