On October 11, 2009, the Governor signed Assembly Bill 1046, which increases California’s statutory homestead exemptions by $25,000. Effective January 1, 2010, the base homestead exemption is $75,000 for a single person, $100,000 for a member of a family unit, and $175,000 for a person who is (1) 65 years of age or older, (2) physically or mentally disabled and unable to work, or (3) 55 years of age or older with a gross annual income of $15,000 or less (or $20,000 or less if married). See, California Code of Civil Procedure §§ 703.150 and 704.730. The bill further provides that beginning on April 1, 2010, and every three-years thereafter, the Judicial Council shall determine, subject to approval by the Legislature, an appropriate dollar amount increase for the homestead exemption as provided under Code of Civil Procedure § 704.730.

In California, there are two types of homestead exemptions: (1) one is automatic and (2) the other is declared and requires filing a document with the County Recorder’s office. The automatic homestead exemption protects a debtor’s interest in his or her primary residence up to a specified dollar amount. The effect is to prohibit an unsecured creditor from forcing the sale of a debtor’s primary residence that has been continuously lived in if the debtor’s equity in the property falls within the dollar limit of the homestead exemption. If the debtor’s equity interest in the home exceeds the specified dollar amount, then the homeowner will be entitled to keep the specified dollar exemption amount before an unsecured creditors (those without a mortgage or judgment lien) is paid. In effect, the automatic homestead exemption is useful only if the debtor’s home is sold at auction by a creditor to pay a judgment. If this happens, the debtor/homeowner the mortgage lender(s) will be paid first, but if there is any equity remaining the debtor/homeowner will be entitled to the amount of the particular exemption next, and only if there is still additional equity will the judgment creditor receives the remainder of the equity. To benefit from the automatic exemption, the debtor must make a timely claim for the exemption by filing a claim for the exemption within 10 days after the notice of levy on the property was served; otherwise, the exemption will have been waived. California Code of Civil Procedure §§ 703.030(a) and 703.520(a). If the claim for the exemption is contested, the debtor bears the burden of proving that the property is exempt. California Code of Civil Procedure § 703.580(b).

Although no action is required to create a homestead exemption, recording a declared homestead exemption does offers certain benefits. First, unlike the automatic exemption, the declared homestead protects the homeowner’s equity if the homeowner voluntarily decides to sell his or her primary residence. With the automatic homestead exemption, upon a voluntary sale, the mortgage lenders will be paid first, then the judgment creditor, and this can leave the debtor/homeowner without any remaining equity. Essentially rendering the automatic homestead useless. However, if a property owner files a declared homestead exemption, the debtor/homeowner can voluntarily sell the home and get paid before a judgment creditor. California Code of Civil Procedure § 704.950. Second, the proceeds (up to exemption limit) from the sale of a primary residence with a declared homestead are protected and exempt from collection for six months after the date of sale. California Code of Civil Procedure § 704.960. The third benefit is the shifting of the burden of proof. If a declared homestead exemption has been filed with the County, then it will be presumed that the residence is a homestead and the creditor will bear the burden of proving otherwise To declare a homestead is a simple process that merely requires the recording of a notarized "Homestead Declaration" in the County Recorder’s Office.

Please note that neither exemption applies to foreclosure of a mortgage, deed of trust, lien, or other encumbrance. California Code of Civil Procedure § 703.010(b).