Increase in California’s Homestead Exemption
On January 1, 2021, California’s homestead exemption increased by way of AB 1885, which amended Code of Civil Procedure § 704.730.
What is a homestead exemption?
The homestead exemption protects a certain amount of a home’s equity from being seized by the homeowner’s creditors to satisfy the homeowner’s debts.
The exemption primarily applies when a homeowner files for bankruptcy or experiences financial difficulty. If a creditor attempts to force a sale of the home, of if the homeowner files for bankruptcy, the homestead exemption protects a certain amount of the homeowner’s home equity from collection.
Note: the homestead exemption does not prohibit a forced sale of a home by creditors. Instead, the exemption ensures that the homeowner receives the exemption amount out of their equity before creditors are paid from the sale proceeds.
How much did the exemption increase?
In 2020, California’s homestead exemption was $75,000 for a single homeowner, with a maximum of $175,000 for homeowners who met specific family, income, and age requirements.
As of January 1, 2021, the exemption amount increased. The amount of the increase depends on the median sales price of home sales in the county in the prior year. The increased amount will be at least $300,000, but can be no more than $600,000. If the median sales price in the county for the prior year was $300,000 or less, the exemption will be $300,000 (even if the median sales price for the county was $220,000.) For counties where the median sales price in the prior year was between $300,000 and $600,000, the median sales price will be the exemption amount. If the median sales price is more than $600,000, the exemption amount will be $600,000.
For example, if the median sales price was $1,400,000 (as it was in San Francisco County in 2020), the exemption amount would be $600,000 in 2021. If the median sales price was $435,000 (as it was in San Joaquin County in 2020), the exemption amount would be $435,000 in 2021.
What is the difference between an automatic exemption and a declared exemption?
The homestead exemption automatically applies when there is a forced sale of the home – this is called the “automatic exemption.” It requires that the debtor have continuously lived at the home from the date that a judgment creditor’s lien attached until the date a court determines that the home is a homestead. If a creditor attempts to sell the home, the homeowner has the burden of proving to the court that the automatic homestead exemption applies.
Homeowners can alternatively declare an exemption for their home – the “declared exemption.” The declared exemption applies to both forced and voluntary sales of a home. In order to declare an exemption, a homeowner must record a declaration of exemption with the county recorder and reside at the home on the date the declaration is recorded. If a creditor attempts to force a sale of the home, the creditor has the burden of proving to the court that the homestead declaration is invalid. In the case of a voluntary sale, the exempt proceeds of the sale are protected from creditors if the homeowner purchases another home within six months of the sale.
Homeowners should make sure to record their declaration of exemption with the county recorder while they live in their home, and keep the recorded declaration in a safe place in case they ever need it to prove their exemption.
If you have questions about the homestead exemption or how to declare it, please contact our office, and one of our experienced attorneys will be glad to assist you.