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As homeowners who lived through the 2008 recession know, tough times and unfortunate circumstances can bring the threat of foreclosure on a personal home. Foreclosure can be a terrifying prospect for any family, and is a process that is not easy to resolve.
Thankfully, California has a homestead real estate law which helps to protect homeowners in difficult times. Under this law, homeowners who face threats of outstanding debts or judgment liens can protect their home from being seized as an asset by their creditors, and prevent a situation where they may end up out on the street.
How Does the Homestead Real Estate Law Work in Rancho Cucamonga?
California’s homestead real estate law provides protection to an individual’s primary residence in the event that a creditor seeks to foreclose on the residence in order to recover on a debt. Under the law, a homeowner can declare a property as a homestead, in order to insulate it from the reach of creditors.
However, depending on the age of the homeowner, the homestead may be protected only up to a certain value. For example, for those over the age of 65, $175,000 of the home is protected under the homestead law. For those under 65, the maximum amount that can typically be protected is $75,000. So for those with large and extravagant homes, it may be difficult to actually entirely protect the home from a forced sale.
You may be wondering how only a certain value of the home can be protected from a creditor or foreclosure. In practice this means that if there is no value in the home, after any existing liens and the homestead exemption are applied, the creditor cannot force the sale of the home.
For example, say you have a home worth $250,000 but you have a creditor whom you owe $75,000. The creditor wants to force the sale of your home for his judgment. You have an outstanding mortgage on the home of $175,000. To determine whether the creditor can force a sale, the calculation looks like this:
$250,000 minus 170,000 minus 75,000 equals 0
Because the value of your home is tied up in existing liens and your homestead exemption, the creditor cannot force the sale of your home.
Voluntary and Involuntary Liens
One important caveat to the protections provided by the homestead real estate law is that these protections only apply to involuntary liens. These are liens that you did not take on yourself, but that were brought against you, often by virtue of a judgment that someone obtained against you.
For example, when you purchase a house and take on a mortgage, this is a voluntary lien. Car loans are also voluntary liens, as are liens you owe for federal taxes, or for child support. So you cannot fail to pay your mortgage for your house and then claim a homestead exemption to retain part of the value of your house when the bank forecloses on your mortgage. Homestead protections don’t apply in that circumstance.
California Attorneys Advising You on How to Maximize Protection of Your Home
No one wants to lose their home as a result of a bankruptcy or an outstanding judgment lien. In order to protect yourself, you should consider how the homestead exemption may apply to your circumstances. If you are facing debt or foreclosure issues, the real estate attorneys at CKB Vienna LLP can work with you to evaluate your assets and liabilities and determine how to best protect your home. For more information, contact us online or at 909-980-1040.