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.