Business Law

Bill to Increase Homestead Exemption Heads to Governor’s Desk

The following is a legislative update analyzing a recent bill of interest:

The California Legislature recently passed a budget trailer bill which, if signed by the Governor, would significantly alter the amount a homeowner can exempt from a forced sale of a home.  Currently, section 704.730 of the California Code of Civil Procedure (“CCP”) permits a homeowner to exempt a maximum of either $75,000, $100,000 or $175,000, depending on certain characteristics of the residents, such as whether a dependent lives in the home, the age of the homeowner, whether the homeowner is disabled, and the gross annual income of the homeowner.

Assembly Bill No. 1885 (“AB 1885”)[1] eliminates the current tiered system based on the residents’ characteristics and increases the amount of the homestead exemption for every California homeowner to at least $300,000.  The amount that can be claimed as exempt increases up to a maximum of $600,000 based on the countywide median sale price for a single-family home as of the year before the exemption is claimed.  The bill provides that the amounts are to be adjusted annually for inflation. 

Once the bill is presented to the Governor (which is imminent), he has until September 30, 2020 to take action.  If you have strong feelings about this bill, either in favor or against it, you are encouraged to contact Governor Newsom and share your views. 

History

The California Constitution directs the Legislature to enact legislation that protects a portion of homesteads from forced sales by creditors.  “The Legislature shall protect, by law, from forced sale a certain portion of the homestead and other property of all heads of families.”  Cal. Const. Art. XX, § 1.5.

“’The object of all homestead legislation is to provide a place for the family and its surviving members, where they may reside and enjoy the comforts of a home, freed from any anxiety that it may be taken from them against their will, either by reason of their own necessity or improvidence, or from the importunity of their creditors.”  Thorsby v. Babcock, 36 Cal.2d 202, 204 (1950), quoting In re Estate of Fath, 132 Cal. 609, 613 (1901).  “[T]he homestead law is not designed to protect creditors, but protects the home against creditors . . . thereby preserving the home for the family.”  Amin v. Khazindar, 112 Cal.App.4th 582, 588 (2003).

The first homestead exemption in California was signed into law in 1851.  The amount that may be exempted has been adjusted multiple times in the last 170 years, including adjustments in 2009 and 2012.  

AB 1885

The text of AB 1885 is relatively concise.  CCP § 704.730 is amended to read:

704.730.  (a) The amount of the homestead exemption is the greater of the following:

(1) The countywide median sale price for a single-family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption, not to exceed six hundred thousand dollars ($600,000).

(2) Three hundred thousand dollars ($300,000).

(b) The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.

Historical housing data for each county may be found at the California Association of Realtor’s website or through the this link.

Instructions for how to contact Governor Newsom’s office may be found here.

These materials were written by Christopher Hughes of Nossaman LLP in Sacramento (chughes@nossaman.com).  Editorial contributions were provided by Kyra Andrassy of Smiley Wang-Ekvall, LLP, in Costa Mesa (kandrassy@swelawfirm.com).


[1] AB 1885 is identical to proposed Senate Bill No. 832, however, the Senate Bill was not passed by the California Senate.

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