HOME EQUITY: It is the value of the house that exceeds all liens and encumbrances. It is determined by subtracting the total of liens and encumbrances from the market value of the house. For example, if a house has a market value of $400,000, but there is $300,000 owed on the house, the home equity equals $100,000. The equity in a house can change. As house values increase, equity increases. As house values decrease, equity decreases. If house values stay constant, equity still increases if you are paying down the mortgage.

JUDGMENT LIEN: Generally, a judgment lien on real property is created when an abstract of a money judgment is recorded with the county recorder in which the property is located. A judgment lien helps the judgment creditor collect on his judgment against the judgment debtor. This concept is discussed more below.

JUDGMENT CREDITOR and JUDGMENT DEBTOR: Someone who has sued you and obtained a judgment against you is called a judgment creditor. You would be a judgment debtor.

EXEMPTION: An exemption is a debtor's right to a minimum amount of property (usually in terms of dollars) that cannot be reached by creditors.

Yes. California law provides some protection against complete loss of home equity against judgment creditors under certain circumstances. In understanding these protections, it is important to know about and distinguish between two different yet closely related concepts:

1. The homestead exemption
2. The declared homestead

The declared homestead requires the recording of a homestead declaration. This is a document that must contain certain statements by law, including a statement that the declared homestead is the principal dwelling of the declared homestead owner. Other statements are required as well.

Please continue reading to learn more about the homestead exemption as well as the declared homestead.

An exemption is available for your "homestead". This exemption, called the homestead exemption, protects a certain dollar amount of the equity in your homestead from judgment creditors.

The definition of "homestead" is found in California Code of Civil Procedure section 704.710. This definition makes the homestead exemption available for your house under the following certain conditions:

What does all this mean? First, if you have a house but don't live in it (and your spouse doesn't live in it either), you are NOT entitled to the homestead exemption. That means your vacation house on the lake doesn't qualify! Second, even if you currently live in your house, you must have been living there when the judgment lien attached to your house. Third, assuming you have been living there the whole time, you cannot move out before the court determines that your house is in fact your "homestead." If you have always lived in your house and continue to do so, your house should be considered your homestead, and you should be entitled to the exemption.

California Code of Civil Procedure sections 704.720 - 704.730 provide the exemption along with certain dollar amounts depending on your situation. Make sure to read these code sections if you are interested in knowing what you qualify for. By way of example, an unmarried individual under age 65 with no dependents or disabilities is entitled to an exemption of $75,000.

To understand the usefulness of this exemption, lets take a look at a hypothetical example:

You can quickly and easily prepare a HOMESTEAD DECLARATION using the . In doing so, you will need to enter the address and legal description of the property which you wish to declare as your homestead. While you will certainly know your address, the legal description is a bit more complicated.

You can find the legal description of your property on the deed to your house. You should be able to find your deed in the stack of papers you were given when you first bought your house. If you can't find your deed, you can obtain a copy from the county recorder's office.

The legal description of a single family residence looks something like this:

"THE WEST 50 FEET OF THE NORTH 140 FEET OF THE EAST 60 FEET OF LOT 13 OF TRACT NO. 9999, AS PER MAP RECORDED IN BOOK 100, PAGE 00 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY"

The legal description of a condominium looks something like this:

"A CONDOMINIUM COMPOSED OF:

A) AN UNDIVIDED 1/23RD INTEREST IN AND TO LOT 1 OF TRACT NO. 41183, IN THE CITY OF UPNORTH, COUNTY OF ALAMEDA, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 999 PAGES 00 AND 01 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

EXCEPT THEREFROM UNITS 1 TO 50 INCLUSIVE AS DEFINED AND DELINEATED ON A CONDOMINIUM PLAN RECORDED JANUARY 1, 1978 AS INSTRUMENT NO. 78-999999 OF OFFICIAL RECORDS.

B) UNIT 20 AS DEFINED AND DELINEATED ON THE ABOVE REFERRED TO CONDOMINIUM PLAN.

When you find the legal description of your property, make sure to enter it into the exactly as it appears on your deed. IF YOUR DEED REFERS TO AN EXHIBIT "A", YOU WILL NEED TO COPY THE LEGAL DESCRIPTION FROM THAT EXHIBIT "A". DO NOT ENTER A REFERENCE TO AN EXHIBIT "A" INTO THE .

IF YOUR LEGAL DESCRIPTION IS LONG (OVER 1500 CHARACTERS), DO NOT ENTER IT INTO THE BOX. YOU CAN JUST MAKE A COPY OF YOUR LEGAL DESCRIPTION AND ATTACH IT AS EXHIBIT "A" TO YOUR HOMESTEAD FORM AFTER PRINTING.

The main benefit is that if you voluntarily decide to sell your house, the equity upon sale is protected up to the dollar amount equal to your applicable homestead exemption, for up to six months, for reinvestment in another homestead. For example, if your homestead exemption allows you an exemption up to $75,000, then when you sell your house, your equity from the sale will be protected from judgments in the amount of $75,000 for up to six months. To better understand this benefit, consider the following change to the above example:

During the six months, you can reinvest your protected proceeds from the sale in another house and file a new declared homestead for that new house. Your protection would run from the date of your original declared homestead. This process does not prevent the judgment lien from attaching to the new house if the judgment lien is also recorded in the county in which the new house is located.

If you owned another property and declared that other property as your homestead during the six month period, the proceeds are no longer protected. Also, if you do reinvest the proceeds in another homestead within the six months, the proceeds will no longer be protected.

A similar benefit of the declared homestead exists in the case your house is sold at foreclosure sale. If you can't make your monthly mortgage payments, the bank will forecloses on your house. Unless you have declared your homestead, the homestead exemption does not operate to protect some equity from judgment creditors in the event of a foreclosure sale. Thus if there is a judgment lien against your house, at a foreclosure sale, the judgment lien will get paid before you. However, if you record a homestead declaration before the judgment lien is created, then your equity will be protected through the foreclosure sale up to the applicable exemption amount for up to six months.

PLEASE REMEMBER, RECORDING A HOMESTEAD DECLARATION DOES NOT AFFECT A CREDITORS RIGHT TO TRY AND FORCE THE SALE OF YOUR HOUSE. IT IS NOT AN ABSOLUTE PROTECTION FOR YOUR HOMESTEAD, BUT IT WILL PROTECT SOME OF YOUR HOME EQUITY.

The two most common ways of abandoning a declared homestead are either 1) through the use of a declaration of abandonment, or 2) by operation of law.

A declaration of abandonment must be prepared in accordance with California Code of Civil Procedure section 704.980.

A declared homestead is abandoned by operation of law when the declared homestead owner records a new homestead declaration on a different property. This abandonment only affects the declared homestead owner that is named in the new homestead declaration. Thus, to the extent the prior homestead remains valid, it is not considered abandoned.

MARRIED COUPLES
If the judgment debtor and spouse reside on different homesteads, only ONE of those homesteads is exempt, and only proceeds from the exempt homestead is exempt.

The term "Spouse" does not include a married person following entry of a judgment decreeing legal separation of the parties, unless such married persons reside together in the same dwelling.

You or your spouse must reside on the real property dwelling that is claimed as the Declared Homestead.

Married couples that both have an ownership interest in the property may file a joint Homestead Declaration. In this case, this means that both names are on title, either as community property, joint tenants, or tenants in common.