Homestead Exemption Won't Protect Owner from Nonjudicial Foreclosure

LATimes - By Donie Vanitzian

Homeowners receive an automatic homestead exemption to protect equity when a court forces the sale of a house

The homestead declaration will not protect a titleholder from homeowner association's nonjudicial foreclosure

Question: What is a homestead exemption, how much is it for and what does it do? My sister owns a detached single-family home in a common interest development and has a homestead exemption. She told me to do the same on my condominium. Can I put the exemption on my condo? If the association tries to nonjudicially foreclose on me, will the homestead exemption protect me?

Answer: Simply, a "homestead" is your home. Although the equity in your home may be available to your creditors, many states, including California, provide for a "homestead exemption" as a way of protecting some, or all, of your equity.

Property subject to a homestead exemption is not limited to condominiums like yours in a common interest development. Single-family homes, mobile homes and boats also are among the dwellings that can qualify.

For debtors with multiple homes, only the principal dwelling qualifies. That is defined as the home in which the owner lives on the date a judgment creditor's lien attaches to the dwelling and in which the judgment debtor resided continuously until the date of the court determination that the dwelling is a homestead.

California homeowners receive an automatic homestead exemption to protect equity when a court forces the sale of a house to pay for a judgment. The automatic exemption can be claimed only by a debtor who resides, or is related to one who resides, in that homestead property at the time of the forced judicial sale of the dwelling.

The automatic homestead exemption may be used to prevent a home's sale following such judicial foreclosures if the creditor can't prove that the sale may result in proceeds sufficient to repay outstanding liens and the titleholder's exemption amount.

If a debtor titleholder's equity is sufficient for such repayment, then the judicial foreclosure sale will proceed, but the homeowner should be paid the full exemption amount. That money is to be reinvested in a new personal residence.

For additional protection in other situations, a homeowner can declare a dwelling as a homestead by filling out a declaration form, which must be notarized and then filed at the county recorder's office to be valid.

Subject to common interest development act provisions, for delinquent assessments or dues in excess of $1,800, or more than 12 months' delinquency, an association may begin foreclosure proceedings against titleholder property.

Until California's Legislature changes laws to protect titleholders subject to common interest developments, it appears likely that homeowner association liens have priority over the exemption. That means the homestead declaration will not protect a titleholder from an association's nonjudicial foreclosure. Nonjudicial foreclosure means the announcement and sale do not have to be approved by a court.

Worse, under Dreyfuss vs. Union Bank of California, the property's market value has no applicability in the forced-sale context; even a great disparity between the sales price and the value of the foreclosed property will not be sufficient ground for setting aside the sale.

California's homestead exemption amount is:

•$75,000 for a debtor who is under 65 and not disabled.

•$100,000 if the debtor, under 65 and not disabled, lives with at least one family member.

•$175,000 if the debtor is 65 or older, or has a physical or mental disability that prevents the person from engaging in substantial gainful employment. This amount also applies in an involuntary sale if the debtor is single and 55 or older with a gross annual income of not more than $25,000. If the debtor is married and 55 or older, the couple's gross annual income can't exceed $35,000.

Regardless of the relatively small exemption available in California, and limitations with regard to nonjudicial foreclosure, claiming a homestead is a simple and inexpensive method of gaining additional protection for interest in your home. Find forms and instructions for filing at your county recorder's office or website.

Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.