Homesteads - What they are, and how they work

California is one of the many states that have Homestead laws to protect the equity in an owner's primary residence.

There are two homestead statutes in California:

1. Articles 4 and 5 of Chapter 4, Division 2, Title 9
2. Part 2 of the California Code of Civil Procedure

A Homestead property is the primary residence occupied by a family that is exempt from the claims of, or eviction by, unsecured creditors.

A homestead exemption is a lien that protects a certain amount of equity in someone's home by limiting the amount of liability for certain debts that can be used against the home to satisfy a judgement.  The amount of equity protected varies depending on age, marital status, and income level of the property owner.

A homestead exemption does not stop the sale of the property.  A homestead exemption was designed to ensure that the homeowner receives the amount of the exemption before the creditors are paid from the sale proceeeds.

A homestead property can be sold if the sale proceeds are sufficient to:

  • Pay all outstanding liens on the property
  • Pay off all mortgages and loans secured by the equity in the home
  • Pay the selling costs of the home
  • Allow the homeowner to keep the amount of equity protected by the homestead exemption

Because homestead exemptions are subject to the general rule regarding liens that "first in time is first in right", they are not effective against prior liens, such as a purchase money deed, trust, or mortgage.  They are also not effective against tax liens, mechanic's liens, or judgement liens for child, family, or spousal support.

I'm a little curious.  I'm going to run it by one of my mortgage brokers to see what the scenario is when someone wants to refinance their property that has an existing homestead exemption.

 
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14 Comments on Homesteads - What they are, and how they work

JUN
04
526,238 Points 54 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Ralph - this is excellent information about the California Homestead laws.  Texas is a homestead state also.  
10:02am • #1

Ralph, thanks so much for refreshing my memory.  Great job laying it all out. Did you get your answer regarding a refi?
11:42am • #2
395,891 Points 5 Featured Posts Outside Blog Attended Rain Camp

Ralph, good post on a rarely discussed topic.  I know (have heard) in FL that the homestead law protects the owner for an unlimited amount.  This is what attracts seniors to FL.  Maybe CA should have a special homestead law for people over 60 or something, and attract seniors to our warm climate.
11:51am • #3
306,123 Points 6 Featured Posts

At least it protects the homeowner form credit card debt since those are unsecured loans.  I remember I had this when I lived in NV as well.  It was cheap "insurance" to protect one's equity.
12:39pm • #4
980,853 Points 114 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

We have homestead in Oregon too, up to $40,000 though and only on primary residence and unsecured creditors.  Good post and infomration for anyone who leaves in a homestead state. 
1:31pm • #5
2 Featured Posts Outside Blog Attended Rain Camp

Hi Ralph,

Thanks for this very helpful post re: homesteads!

Best,

Kevin
3:12pm • #6
292,425 Points 20 Featured Posts Outside Blog Called Shot Master

Ralph, good information about Homesteads.  Long ago I was told to not record one because as long as it's recorded prior to the recording of a judgment, the home owner is protected.  Having a homestead recorded can raise the alarm signals for creditors who wonder why it's there.  I don't know if that's true, or not.
4:21pm • #7
444,254 Points 70 Featured Posts Outside Blog Called Shot Master
Ralph, great blog and very clear explanation. Good job and congrats on the feature.
6:40pm • #9
865,595 Points 18 Featured Posts Localism Sponsor Attended Rain Camp Called Shot Master

This is a very good post and it clears up a lot of questions about what a homestead can do and what it cant' do.
7:25pm • #10
1,351,912 Points 42 Featured Posts Outside Blog Attended Rain Camp Called Shot Master
Ralph - That's an interesting question regarding a refi. I wonder if it's covered in the loan docs.
10:32pm • #11
JUN
05
556,002 Points 31 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Hi Ralph,

Interesting post.

And interesting question.

Am sure the answer will be the subject of another blog

PHil
3:41am • #12
300,008 Points 7 Featured Posts Outside Blog Attended Rain Camp

Hi Ralph, good explanation about  a topic I know exists in California, but one I don't encounter very much. 
9:05am • #13
175,753 Points 5 Featured Posts Outside Blog

I have never had a homestead exemption trip up a refinance here in California, however, I do recall that cash-out refinances are generally not permitted in Texas, another homestead state. 
9:20am • #14
6 Featured Posts Outside Blog

Good read.  Thanks for sharing.
10:13am • #15

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