Question #1
Question:
I have Abstract of Judgement and my creditor is obtaining Writ of Execution to sell the
property we live in. There is $75,000.00 homestead. I would like to know how to protect
this homestead proceeds? Judgment will not be satisfied even after the sale of property
due to the senior liens and encumbrances.
1. How to protect $75,000.00 homestead money?
2. How long I have to buy next house?
3. What happens if I don't buy the house and live in rental?
Answer:
First of all, the creditor cannot sell the property unless there is excess
equity over and above the amount of the homestead plus all senior liens and encumbrances.
If there is excess equity, however, and the creditor sells the property, the homestead
proceeds would be exempt from execution for a period of six (6) months following the date
of the sale. If you reinvest the proceeds in a new dwelling that qualifies as a homestead,
and record a homestead declaration against the new property within that six (6) month
period, the exemption will continue into the new property. However, if you fail to
reinvest the proceeds within the six (6) month period, the homestead proceeds would then
be available for execution by your creditors.
Question #2
Question:
Do I have to file a homestead form when I purchase a home in California or can I wait
until I have a potential problem and then file?
Answer:
The short answer to your question is fairly simple. You can record a homestead
declaration at any time, so long as you actually reside in the property as your principal
residence at time you record it. A declared homestead will be recognized as an
exemption in a bankruptcy proceeding and can be recorded even if a creditor has already
filed suit to collect a debt.
Be aware, however, that a declared homestead will only protect you from subsequently
recorded judgment liens. This means that if a judgment lien was recorded before you
filed a homestead declaration, the judgment lien will have priority and the creditor can
enforce it despite your homestead declaration.
Homestead provisions are designed to protect a family from being forced out of their home
by creditors, within specific limits. You should understand that two types of
homestead exist under California law. One is the declared homestead discussed above,
while the other is the homestead exemption, or residential exemption as it is sometimes
called.
The residential exemption is an automatic exemption for the dwelling in which the debtor
or his family resides. It offers protections similar to a declared homestead, with
matching exemption amounts and recognition in bankruptcy proceedings. The major
requirement is that the debtor and his family must reside in the property at the time of
the bankruptcy filing and do not vacate it afterward. The residential exemption's
objective is to provide debtors with an exemption roughly equivalent to the one afforded
by a declared homestead.
Although their protections are similar, there are some important differences. The major
difference is that the residential exemption does not prevent a judgment lien from
attaching to the property. A creditor can force a sale if a minimum bid is received
which exceeds the exemption amount plus other liens and encumbrances.
In contrast, if a homestead declaration has been recorded, a judgment lien will attach
only if there is any surplus equity over and above the amount of the homestead exemption,
plus other liens and encumbrances. If there is no surplus equity, the judgment lien
does not attach. In some circumstances, this could be an important distinction.
Another consideration is that the debtor must reside in the property continuously to
qualify for the residential exemption. That requirement is not lifted until the
property is ruled exempt in a court proceeding brought by a judgment creditor to force the
sale of the property. In the case of a declared homestead, the debtor needs to
reside in the property only at the time it is recorded. Its protections continue
even if the debtor moves out.
Finally, keep in mind that both homestead types guard only against judgment liens.
If you voluntarily create a lien secured by a deed of trust, a homestead exemption offers
no protection at all against that debt.
Question #3
Question:
I want to buy a home from a friend who's had legal trouble. I understand there may be a
judgment lien against this house. My friend says not to worry, the property is homesteaded
and the lien won't attach if I buy the house. Is he right?
Answer:
It depends. Generally, under the Code of Civil Procedure, a judgment lien attaches to all
property the debtor owns in the county or any property he acquires after the lien is
filed. Assuming the lien attaches, it will follow the property after any sale.
However, in the case of a homesteaded property - a protection your friend says he has
obtained - a judgment lien will attach only if there is some excess equity over the
homestead amount plus existing liens and encumbrances, such as a mortgage.
For instance, if your friend is selling the home for the amount of the mortgage plus a
small amount that falls under homestead protection, the lien may not follow the property
because there probably is no value for it to attach. But if he sells the house and retains
a large amount of equity that is not homestead-protected, the lien will follow the
property and you run the risk of the house being foreclosed to pay his debts.
This is a complex situation. You should consult an attorney to verify that homesteading
protection applies here and that you will not be affected by his legal problems if you buy
the house.
Question #4
We heard that if you have an Abstract of Judgment on a home and you
file a Homestead for $125,000, when you close escrow, the following things happen:
1. You
pay the mortgage off
2. The
RE and Escrow get paid.
3. You
get the $125,000 because the home had been homesteaded.
4. The
“Abstract of Judgment” gets whatever is “left out of the
equity”.
Have you ever heard of this before?
Answer:
Unfortunately, the information you heard about a Homestead in an
escrow situation is not correct. The Homestead only comes into play when a judgment
creditor levies on the homesteaded property, and seeks to sell it to satisfy the judgment.
In that case, the property can only be sold if there is any equity over and above the
amount of the homestead, plus the senior liens and encumberances. If there is sufficient
equity, then thejudgment debtor gets to keep the homestead amount out of the sale
proceeds, and only the difference goes to satisfy the debt.
However, this is not the case in an escrow for a VOLUNTARY sale of
the property. Typically, the escrow agent is instructed to pay all liens and encumberances
out of the escrow proceeds. In doing so, the escrow agent does NOT take the homestead into
account. If there is an Abstract of Judgment, it will be paid in full whether or not there
is a homestead against the property. More importantly, a title company cannot issue a
policy to the new buyer and/or lender without showing the Abstract as an exception from
coverage. In most cases, that would be enough to kill the deal.
