What is a Homestead Exemption?

By Underwood Law Firm

Homesteads are a special kind of estate that California law protects from forced sale. Homestead protection is not, however, automatic. For a property to be a homestead it must be the dwelling place where the family permanently resides and the property must be formally designated as a homestead. When properly utilized, California’s homestead legislation provides a place for families and their surviving members to reside and enjoy the comforts of their home without anxiety that it may be taken from them against their will by creditors. 

What is a Homestead?

By definition, a “homestead” is the main home where the person who owes money (the “judgment debtor”) or their spouse was living when a creditor’s claim (a “lien”) was made on the home, and they continued living there without moving out until the court determined the home qualified as a homestead. (CCP § 704.710.) The definition of “dwelling” includes several different types of residences, such as houses, mobile homes, boats, condominiums, planned developments, stock cooperatives, and community apartment projects. (Id.) 

California law recognizes two types of homesteads: Declared Homesteads and Automatic Homesteads. 

Declared Homesteads

Declared Homesteads are established by recording a homestead declaration in the office of the county recorder where the dwelling is located. The home’s owner, or the owner’s spouse, must reside in the dwelling and must be the individual who files the declaration. The declaration must clearly state the claimant’s intention to select the property as a homestead and to impress upon it an exemption from forced sale. The claimant’s intention must be in good faith and evidenced on the face of the declaration itself, meaning supplemental extraneous evidence cannot establish the claimant’s intention when it is not clear on the document’s face. (Olds v. Thorington (1920) 47 Cal.App.355.)

Once recorded, the dwelling is a declared homestead for the purposes of all relevant statutes. (CPC § 709.920.) Amongst these purposes are several protections such as exemption from execution by certain creditors up to the amount of the homestead exemption, protection from voluntary sale, and the ability to reinvest proceeds from a voluntary sale within six months. (Title Trust Deed Service Co. v. Pearson (2005) 132 Cal.App.4th 168.) The ability to reinvest proceeds from a voluntary sale within six months applies to proceeds from sale, damage, or destruction of a homestead, if the debtor reinvests in another homestead within that period. (Code Civ. Proc., § 704.720.) Additionally, the protections of a declared homestead survive the death of the homestead owner. (Title Trust Deed Service Co. v. Pearson, 132 Cal.App.4th at 174.) 

Automatic Homesteads

The Automatic Homestead Exemption, also known as the Residential Exemption, does not require homeowners to record a homestead declaration to be effective. Instead, this exemption automatically applies when a party has continuously resided in a dwelling from the time a creditor’s lien attaches up until the court determines that the exemption does not apply. (Amin v. Khazindar (2003) 112 Cal.App.4th 582.) This exemption primarily protects the debtor from a forced execution sale and only allows judgment liens to attach to the property’s equity exceeding the recorded homestead exemption, and any preexisting liens. (Title Trust Deed Service Co. v. Pearson, 132 Cal.App.4th at 175.) This exemption ensures that the involuntary sale of property does not force insolvent debtors and their families into homelessness. (Wells Fargo Financial Leasing, Inc. v. D & M Cabinets (2009) 117 Cal.App.4th 59.)

How Do Homesteads Interact with Partition Law?

In California, a homestead declaration can protect a homeowner’s equity from creditors, but it does not block a co-owner’s right to partition the property. The homestead exception may still apply in the accounting phase of partition to protect some of the sale proceeds. 

California law generally exempts homesteaded property from forced sale to satisfy judgment debts, if the homestead declaration complies with statutory requirements. (Taylor v. Madigan (1975) 53 Cal.App.3d 943.) This exemption may also apply in partition actions where the homestead interest may prevent the severance or forced sale of the property. Despite this general rule, there are exceptions where homesteaded property can be partitioned. 

Cotenants in joint tenancy or tenancy in common can claim the homestead exception, meaning each cotenant can declare a homestead on their undivided interest in the property without depriving the other cotenants of their absolute right to partition. (Squibb v. Squibb (1961) 190 Cal.App.2d 766.) Specifically, the homestead interest does not bar a suit for partition, and the homestead claimant’s rights of occupancy remain unchanged. (Id.) The homestead exception does not apply to the cotenant’s individual interest, instead the exemption applies to the property itself meaning the exemption is not specifically tied to the cotenant’s share. (Application of Rauer’s Collection Co. (1948) 159 Cal.App.2d Supp. 854.) 

The distribution of sale proceeds follows a specific order under California Code of Civil Procedure section 704.850 that considers the homestead exemption’s value. Specifically, the sale proceeds must first discharge all liens and encumbrances on the property with the sale proceeds. Then, the judgment debtor receives the amount of the homestead exemption before the receiver is reimbursed, and the creditor receives the remaining proceeds to satisfy the debt. If any proceeds remain, they are distributed to the judgment debtor. (Code Civ. Proc., § 704.850.) 

What is an Example? 

“Shawn” and “Julie” are an unmarried couple who decide to purchase a home together in California. When Shawn and Julie find the perfect home, they take title as tenants in common, each owning a 50% interest in the home. Julie immediately moves into the home and designates it as her homestead by filing a Declared Homestead Declaration with the county recorder after making sure she met all applicable requirements. John, however, continues living elsewhere. After months of refusing to move into the home, Shawn ends his relationship with Julie, and decides he wants to sell the property and recover his share of the equity. Julie does not want to sell the home and tells Shawn her homestead rights protect her from being forced out of the property. Shawn refuses to negotiate with Julie, and knowing she is wrong about her homestead protections, files a lawsuit for partition by sale. 

Under California law, Julie’s homestead protection protects her from creditors, and in the partition setting, may provide her with some additional protections when distributing proceeds. Julie’s homestead protection cannot, however, prevent Shawn from exercising his right to partition as a co-owner. Accordingly, the court orders a partition by sale, finding physical division impossible based on the state of Shawn and Julie’s relationship. Then, the property is sold, and after all liens and costs are paid, Julie claims her homestead exemption from the sale proceeds before the remainder is split equally between Shawn and Julie.  

Homesteads protect property from forced sale by creditors, but do not eliminate a cotenants absolute right to partition. For more information on this or other Real Estate Law topics, visit the website for the Underwood Law Firm.

Elijah Underwood operates California’s Number 1 Partition Law Firm, with experience handling partition trials and complex partition actions including multiple properties, multi-family, industrial, commercial, and million-dollar properties. His firm is currently handling around 200 partition actions throughout California, and he is considered by many to be the foremost expert on partition law in California. Mr. Underwood is a graduate of UC Law SF, and UC Santa Barbara.