Homestead Exemptions: Is it possible to end up with equity from your short sale or foreclosure??

Real Estate Broker/Owner with Maui Life Homes / Metro Life Homes RS-78439 / BRE #01708344

Homestead Exemptions:  Is it possible to end up with $75,000+ from your short sale or foreclosure?

During the last 2 courses I'm completing towards my broker's license, some of the material I'm going through is quite interesting. 

I'm going through a section regarding Homesteads, how they work, and the legalities surrounding them.

Here is some initial info:

A homestead declaration does not restrict or limit any right to convey or encumber the declared homestead. [CCP §704.940]. If a property owner records a declaration of homestead against their primary residence, it in effect drains the property of its equity up to the statutory limit of the homestead. Subsequently, if the owner seeks to borrow against the property, a lender may want the property owner to subordinate the homestead to a new loan’s security instrument before the lender will give a new extension of credit.

A properly recorded declaration of homestead allows exempt funds received from the voluntary sale of the property to remain exempt from debt collection attempts for six months. In addition, they can be used to purchase another residence.

Homestead Exemptions

·       $75,000 for an individual

·       $100,000 if the homeowner lives with at least one family member who has no interest in the house

·       $175,000 if the homeowner is 65 years of age or older or is physically or mentally disabled

·       $175,000 if the homeowner is 55 years of age or older and single with an annual income of $15,000 or less

·       $175,000 for a married couple with a combined annual income of $20,000 or less

(data above is based on California Real Estate guidelines)

Now I realize that the words "equity" and "short sale" are like vinegar and oil - they just don't mix.

But what if you're on the border of the short sale?  In other words, there's just enough equity, but the selling expensions and commissions would make it a short sale?

What if, as the description about the homestead declaration above, the homestead was NOT subordinated during a refi?

I'm going to do some more investigating to find out more about how/if a declaration of homestead would come into play not only for a short sale, but a foreclosure with equity.

More to come........



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Liz Wallace
Century 21 Sherlock Homes - Rockville Centre, NY
Broker C21 Sherlock Homes, Rockville Centre, LI, N

I have to do some research and see if NY has a homestead condition.

Sep 09, 2012 01:55 AM #1
Doug Rogers
Bayou Properties - Alexandria, LA
Your Alexandria Louisiana Agent

Post your findings, I have never heard of anything like this.

Sep 09, 2012 01:58 AM #2
Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (310) 497-9407

I know that liens placed by mortgageholders are different because a homestead protects the equity.

If there is no equity, then there is no question.

But what if there are abstract judgements attached to the property that would make it a short sale?

If a homestead is filed, and there is equity on the property  BEFORE the dollar amounts of the judgements, I believe that the homeowner would be entitled to that equity if the homestead was filed prior to the judgements being attached to the property.

Sep 09, 2012 02:04 AM #3
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Since this is for California, it's out of my knowledge base, but a good topic and leave it to you Ralph to pose some interesting questions.  And BRAVO you're getting your broker's license!!

Sep 09, 2012 04:18 AM #4
Jeffrey DiMuria 321.223.6253 Waves Realty
Waves Realty - Melbourne, FL
Florida Space Coast Homes

Ralph...I suppose if it was a borderline case and maybe two buyers got interested and bid the home is possible you could end up on the positive side. What the results would be....hmmmm....good thought provoking post.

Sep 10, 2012 12:50 AM #5
Steven Pahl
Keller Williams Tampa Properties - Tampa, FL
Real Estate Consultant Tampa, FL 813-319-6423

Have never heard of this situation here in Florida, something to discuss with my Broker at our next meeting!

Sep 10, 2012 01:33 PM #6
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Ralph Gorgoglione

Hawaii and California Real Estate (310) 497-9407
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