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Wesley H. Avery: Homestead amounts increased by legislature

It’s The Law

Posted: January 14, 2010 9:36 p.m.
Updated: January 15, 2010 4:55 a.m.
 
Effective Jan. 1, Assembly Bill 1046 increased California homestead exemptions by $25,000. Although this change in the law will not benefit homeowners in the case of foreclosure under a deed of trust, it will make it more difficult for credit card companies to collect the balances owed by their cardholders.

A deed of trust is a consensual lien to which a homestead exemption does not apply. This is because the consumer voluntarily offered his residence as collateral on the mortgage in order to get a lower interest rate.

Homestead exemptions also do not apply when a residence is to be sold to pay delinquent property taxes.

On the other hand, in the case of unsecured debt such as a credit card balance, the consumer has offered the card issuer no collateral, and in return pays a higher interest rate.

To satisfy a judgment rendered on a credit card balance, the credit card company needs to levy through the sheriff on non-exempt property of the account debtor.  

If a credit card company obtains a money judgment against a cardholder for failure to pay a statement and records an abstract of judgment, this is known as an involuntary lien. In order to protect homeowners against execution on money judgments, a consumer’s equity in a single-family residence, mobile home, boat or condo in which he or she is domiciled is not subject to sale to benefit a judgment creditor up to new statutory amounts.  

If the judgment debtor is single, the amount that must be given back to the homeowner if his or her house is sold to pay a debt is $75,000. If the judgment debtor is married or a head of a household, the amount is $100,000. If the judgment debtor is age 65 or older, disabled or has limited income the amount is $175,000.

In California, a homestead exemption is automatic. However, additional rights (but not higher amounts) may be gained by a consumer filing a declared homestead before an abstract of judgment is recorded by her judgment creditor.

For example, if a single-judgment debtor has a declared homestead, he or she can sell his or her home and legally protect up to $75,000 in a bank account from execution by a judgment creditor for up to six months while he or she searches for a new place to live.

Some states have homestead laws much more generous than that of California. Texas, for instance, has no dollar cap on its homestead exemptions. The Texas law instead has a 10-acre exemption limit for homesteads inside a municipality, and 100 acres for those outside a municipality.

The rural acre allotment is doubled for a family: 200 acres can be shielded from judgment creditors in Texas regardless of value.

In the past, adjustments in the statutory homestead amounts were made by the Legislature to protect consumers from inflation.

This increase, in contrast, comes immediately after a prolonged period of falling prices of residential real estate in California.

As such, the Legislature must have had a different rationale in mind when they enacted it.

Because the homestead amounts have been increased by $25,000 and property values have fallen on average at least 30 percent, the new law’s immediate effect will be to greatly increase the number of residences that cannot be subject to execution to pay delinquent credit card debt. Millions of California residents will now have been made “judgment proof” and as a practical matter immune from suit, as judgment creditors will realize any prospective judgment will not be satisfied.

This, in turn, should stabilize property values as there will be fewer forced sales of residences.

Wesley H. Avery practices law in Valencia and is a certified specialist in bankruptcy. He can be reached at wavery@rpmlaw.com. His column reflects his own views and not necessarily those of The Signal. “It’s The Law” appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. Nothing contained herein shall be or is intended to be construed as providing legal advice.

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