Jim Porter: Homesteading your house
TRUCKEE, Calif. andamp;#8212; Every once in a while some of us questionable types receive solicitations from companies offering to andamp;#8220;Record a Homestead and Protect your Home!andamp;#8221; Should we all run down to the County Recorderandamp;#8217;s office and record homestead declarations? Or drive there?Homestead DeclarationUnder California law, homeowners can homestead their residences by recording a simple two-page document called Declaration of Homestead. A tenant with an unexpired lease term of no less than two years can do the same. A homestead is a dollar amount of equity in a homeownerandamp;#8217;s dwelling with priority over most judgment liens and some government liens. Whatever that means.Homesteads are often recorded when a person is in financial trouble. For that reason, there is a bit of a stigma associated with recording a Declaration of Homestead. (But can there be a stigma when essentially no one sees the declaration other than the Recorder?)The homestead declaration protects the ownerandamp;#8217;s equity in the property andamp;#8212; the difference between the value of the property and what is owed andamp;#8212; from most creditors.The ExemptionThe homestead exemption is $75,000 for a single person, $100,000 for a married couple or head of household, and $175,000 for anyone disabled and for property owners age 65 and older.The concept of a homestead is that a manandamp;#8217;s home is his castle, or as the case may be, a womanandamp;#8217;s home is her castle. With certain exceptions, no one should be able to take away your castle andamp;#8212; as long as it is not too valuable.If you have severe financial problems or anticipate that a large judgment may be obtained against you, record a homestead declaration. There is no downside. You can record a declaration right up to when a creditor is about to take your house through a sheriffandamp;#8217;s sale, but there are advantages to recording earlier.ExceptionsThe homestead exemption protects the home from most creditors. But there are exceptions: mechanicandamp;#8217;s liens, deeds of trust when you borrow money against your house, HOA assessments, child and spousal support payments, and tax liens.For ExampleHereandamp;#8217;s how the exemption works. If your property is worth $200,000 and the loans against the property amount to $120,000, you have equity of $80,000. The homestead exemption of $100,000 will protect a married couple from a creditorandamp;#8217;s forced sheriffandamp;#8217;s sale because there is less than $100,000 of equity; i.e., you keep your home and your creditors cannot force a sale. That explains why some debtors record a bogus deed of trust against their home.However with the same facts, a single owner with a $75,000 homestead exemption may be forced into a sheriffandamp;#8217;s sale because there is more than $75,000 of equity. In that case the home may be sold at the sheriffandamp;#8217;s sale by the creditor and the owner keeps the first $75,000 generated from the sale. The creditor gets the balance.When you sell your homesteaded home, you may transfer the homestead exemption to the proceeds of the sale and protect your money for six months. If the proceeds are used to purchase another home, the exemption may be transferred within the six-month period. Thereandamp;#8217;s a way to homestead your residence without filing a declaration, but it is advisable to file a declaration if you anticipate problems with creditors.Jim Porter is an attorney with Porter Simon, with offices in Truckee and Reno. He is a mediator and was the Governorandamp;#8217;s appointee to the Fair Political Practices Commission and McPherson Commission, both involving election law and the Political Reform Act. He may be reached at firstname.lastname@example.org or at the firmandamp;#8217;s website http://www.portersimon.com.