It is very inexpensive (less than $20) to record a homestead declaration in California, but it can be very expensive if you fail to do so prior to filing a bankruptcy case.
What is a homestead declaration?
A homestead declaration is a document which is filed with the county recorder’s office.
It states (declares) that that the property listed is your primary residence and that you physically live in the dwelling.
The main purpose of the homestead declaration is to protect your homestead exemption in certain situations, primarily when you voluntarily sell your home.
It protects the exemption amount from any judgment liens that are recorded after you record the homestead declaration.
In California, the homestead exemption protects equity in one’s home in the following amounts (as of January 1, 2021):
- (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 ($626,400).
- (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.
[In bankruptcy, these amounts do not apply however if your homestead was purchased less than 1215 days prior to filing the bankruptcy case.]
Equity is the amount left over after your house is sold and all the liens (mortgages, etc.) are paid.
What Happens If You Don’t Have A Declared Homestead And Want To Sell Your Property?
When does this matter?
Outside of bankruptcy, it usually arises after someone sues you and gets a judgment.
Let’s say someone sued you and got a judgment, and then recorded that judgment (creating a lien) against your property for $25,000.
Then let’s say you want to either sell your property or refinance the loan against it.
If you do not have a homestead declaration recorded BEFORE the judgment was recorded, the judgment(s) will get paid before you get any of the equity in your home.
So, for example, you have a $600,000 homestead exemption. If your property is worth $700,000, and there is $600,000 owed to mortgage liens, you would only get $75,000 from a sale instead of $100,000, unless you recorded the homestead declaration prior to the judgment lien.
Homesteads in California Bankruptcy Cases
Most of the time in bankruptcy cases filed in California the Declaration of Homestead is not an issue.
Why?
Because bankruptcy takes the “automatic” homestead exemption amounts listed above and they apply regardless of whether a Declaration of Homestead has been recorded.
Also, since the Declaration of Homestead does not apply to a “forced sale” situation, like a foreclosure sale or what would happen if a Chapter 7 Trustee sold a home with excess equity, it is rarely an issue in bankruptcy.
But when it is a voluntary sale, it is definitely an issue.
And that’s when paying the $12-20 to record it becomes very important.
Failing To Record Homestead Declaration Before Chapter 13 Can Be Very Expensive
This issue arises primarily in Chapter 13 cases (and sometimes Chapter 11) where you want to sell your property and keep the proceeds (after the mortgages are paid).
But here’s what happens:
Let’s say you are in a Chapter 13 which is paying a small percentage to unsecured creditors–maybe 1% on a total debt of $200,000.
Your house has gone up in value and you decide you’d like to sell it and keep the amount of your homestead exemption from the proceeds.
Makes sense that you should be allowed to do that.
But can you?
The answer is yes, if you’ve recorded the Homestead Declaration prior to filing the bankruptcy case.
But if you haven’t, then you probably will not be able to keep the proceeds.
Without the homestead declaration being recorded prior to bankruptcy, the bankruptcy trustee and court may require you to pay all of the proceeds (until it pays 100% of the creditors’ claims) to the Trustee for distribution to creditors.
So even if you have a $175,000 homestead exemption, and you’re “only” getting $150,000 from the sale, instead of being able to keep that money, you have to turn it over.
That’s a pretty big loss considering it costs less than $20 to record a homestead declaration.
Sure, you could wait until the bankruptcy case is completed and then sell your property, but that might not be optimal for your circumstances.
It is very cheap insurance.
You may never need it, but believe me–when you do–you will be very sorry if you haven’t done it.
Hey, Where Can I Get One Of These Homestead Declarations I’ve Heard So Much About?
Here you go!
Click here for a usable version of California’s Homestead Declaration (pdf).
Just complete, get it notarized, and then record with the county recorder’s office in the county where your property is located.
To find your recorder’s office, just google the words “recorder’s office” with the name of your county (e.g. “Los Angeles”, “Ventura,” “Alameda”, “Mono”, “Riverside”, etc.)
