A friend told me I can keep my lender from foreclosing on my mortgage by filing a homestead declaration. How does that work? I live in California.
What is a homestead declaration?
A homestead simply protects you from the forced sale of your home to satisfy judgments or unsecured creditors such as credit card companies. If you were to be sued and lose, the plaintiff could try to force you to sell your home and pay the judgment. A homestead declaration can protect you in that case.
If you live in your home and own it, you don't need to do anything to be protected in California. This is called an automatic homestead. If, however, you have a judgment against you and want to sell your home, you need to file a declared homestead, which protects your home equity for six months while you buy a new home and record a homestead declaration for that home.
Your protection in California increases as you get older and / or earn less:
- $75,000 for an individual homeowner;
- $100,000 for a homeowner with at least one non-owning family member living in the home;
- $175,000 for homeowners 65 years of age or older or physically or mentally disabled;
- $175,000 for individual homeowners 55 years or older with an annual income of $15,000 or less;
- $175,000 for married homeowners with a combined annual income of $20,000 or less.
What about protection from a mortgage foreclosure?
Mortgage lenders in all states are permitted to foreclose if you don't make your payments, and a homestead declaration doesn't change that. Mortgage loan payments, like child support, spousal support or mechanics liens, are in a class of obligations that can legally be satisfied by the forced sale of your home. This is part of the special status that makes home loans less risky for mortgage lenders, which in turn keeps mortgage rates in California and other states lower. A homestead declaration can provide benefits in some states if you file bankruptcy; ask a bankruptcy lawyer if considering that route.