by Ward Hanigan
The homestead exemption is a statutory protection whereby all or a part of a homeowner's equity in his or her residence may be protected from execution by creditors for their general claims, as long as the homeowner occupies the property as their home.
It works by allowing homeowners to exempt a certain amount of their home's equity from being seized by creditors in satisfaction of an adjudicated debt. As of 2005, the amount of equity protected is $50,000 for single homeowners, $75,000 for family heads and $150,000 for seniors, the disabled, and low-income homeowners. You can have only one exemption at a time and it applies only to your principal place of residence within the state.
The homestead equity protection is not all inclusive. It does not have any priority over, or any effect on, nor offer any protection from the foreclosure of a trust deed or homeowner's association assessment, the levy of a mechanic's lien, a delinquent property tax or federal income tax sale, or seizures for child support or alimony.
To establish a homestead all a homeowner has to do is simply record, in the county in which their residence is located, a completed Declaration of Homestead form. The form is freely available at the information desk in the county recorder's office. The declaration names the declared homestead owner, briefly describes the homesteaded property and states that the property is the principal residence of the declarant. To record the homestead it will require the owner's notarized signature.
The negative aspect of recording a homestead is that it raises a red flag to most prospective lenders that the applicants must fear some sort of actual or threatened legal action that might result in a money judgment or lien being attached to their property. In such instances some prospective lenders will proceed cautiously and double-check everything in their loan package, credit report, etc. and will almost always ask for a written explanation and probe as to why the homeowners recorded the homestead, especially if it's fairly recent. A very cautious lender may even require the homeowners to record an Abandonment of Homestead as a prerequisite to making a new loan and recording a new trust deed.
A homestead exemption doesn't expunge any debts at all. It only acts to temporarily bar a judgment creditor from forcing the sale of the homeowners' residence while the homeowners live in the property. So whenever the homeowners move out, the homestead exemption on that particular property won't apply any more. And if they initiate the sale of their property, or attempt to refinance it, or buy another property in that county, they won't be able to proceed until they pay off the judgment creditor's lien.
Though judgments are good for just ten years they are easily renewed for additional ten year periods, over and over again. So, unless the secured judgment is specifically wiped out in a bankruptcy, a tenacious creditor will most likely collect it some day (with interest thereon, at the legal rate of ten percent per annum).
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