Regular readers of the Judgment Collectors blog understand the value of real estate as a collection tool. Real estate opens the door to judgment liens and writs of execution in most states. But there is a caveat to the homestead exemption. And among all the states, California’s homestead exemption is considered one of the most generous.
The Basics of the Homestead Exemption
Some states prevent judgment creditors from going after a debtor’s primary residence entirely. Other states protect a certain value of a debtor’s primary residence through what is known as a homestead exemption. Let us just use some arbitrary numbers to explain it.
Let’s say you have a state with a $100k homestead exemption. If a judgment debtor’s primary residence is worth twice that amount, a creditor could potentially seek a writ of execution to have the property seized and sold. Upon sale, the first $100k would be kept by the debtor. That is his money regardless of any outstanding judgments or liens. The remaining amount would be forwarded to the judgment creditor for payment.
California: Generous and Variable
Now let us talk about California’s homestead exemption. First and foremost, it is quite generous. It starts at $300k but could go as high as $600k. As you might have guessed, the exemption is also variable. It varies depending on the median sale price of a single-family home in the same area, in that same year.
The Golden State’s homestead exemption is adjusted annually for inflation. Adjustments are made based on the California Consumer Price Index. The result is that a judgment debtor’s home is protected up to the value of the homestead amount for the purposes of collecting money judgments. But there are two exceptions: child support and spousal maintenance payments.
Two Scenarios Creditors Must Consider
A homestead exemption, whether in California or elsewhere, is considered an automatic protection against money judgment collection. Homestead exemptions are a matter of law. But they do not prevent judgment creditors from placing judgment liens or seeking writs of execution. This reality plays out in two different scenarios:
- Court Approval – In order to force the sale of a debtor’s property for payment of a judgment, the creditor must get court approval. This is accomplished through a writ of execution. Seeking such a writ from a California court can prove difficult.
- Voluntary Sale – Should a debtor voluntarily sell a property instead, proceeds over and above the homestead exemption remain off limits for six months. This is to give the debtor an opportunity to purchase a new residence.
Creditors must wait the full six months after a voluntary sale to proceed. If a debtor fails to purchase a new residence within that period, a creditor can go after any proceeds above and beyond the homestead exemption.
It has been suggested that the six-month rule protecting proceeds from voluntary sales was put in place to prevent forced displacement of a judgment debtor. Regardless, a voluntary sale could be used by a judgment debtor to forestall a writ of execution.
Why Any of It Matters
So, why does any of this matter? It matters to you as someone attempting to collect a California money judgment because the state’s generous and variable homestead exemption could make your collection efforts harder.
Judgment Collectors is always here to help if collection is overwhelming you. We work on consignment and cover all our own expenses from start to finish. For more information about how we do what we do, contact us at your earliest convenience. We are here to help you collect – homestead exemptions notwithstanding.