The California Constitution provides for a Homeowners’ Property Tax Exemption which is a $7,000 reduction of the taxable value of your principal residence. Upon qualification, this can amount to a cost saving of approximately $70 each year on your property taxes. In addition to this cost savings, the primary benefit is the protection it provides from a judgment creditor.
To qualify, the property must have been the principal residence of the owner as of January 1 of that particular tax year. Although there is no cost to file for the exemption with the county, the exemption claim form must be filed no later than February 15. When a new home is purchased, the county generally mails out an exemption claim form to the new property owner within 90 days of recording a deed. Otherwise, one can be requested from the county tax assessor. A partial exemption is available if your exemption claim form is filed between February 16 and December 10. Once you have filed for a Homeowners’ Exemption and you continue to own and occupy the residence, you will automatically receive the exemption. However, if a document is filed with the Clerk-Recorder’s Office that changes the way the title is held, you may be required to reapply.
This exemption assists with protecting a homeowner’s equity by helping to ensure that one has a place to live even if funds are owed to creditors; up to a certain dollar amount. As of 2021, the California homestead exemption is automatic, thereby protecting at least $300,000, and as much as $600,000 of a home’s equity from judgment creditors without filing for a homestead exemption.
This automatic exemption only protects your home’s equity under a forced sale due to the request of a judgment creditor. However, if you elect to sell your home, the mortgage lender would be paid first, followed by the judgment creditor, and finally, the homeowner should any balance remain.
Although an automatic homestead exemption provides certain protections against the forced sale of your home, there is little protection against a judgment lien on your property. With a declared exemption filed with the county, the homeowner’s equity in the property will be protected whether the sale of the home is done voluntarily by the homeowner or involuntarily by a creditor through a forced sale. Once declared, the homeowner can voluntarily sell their home and keep the net proceeds up to the homestead amount after the mortgage lender is paid but before the judgment creditor is paid. The proceeds will be protected for six months.
- When the primary residence is used as collateral for a loan, such as a mortgage, the lender retains the right to foreclose on the property and the borrower will not qualify for the homestead exemption.
- With the automatic homestead, homeowners who choose to sell their homes are not protected from judgment creditors as the homestead exemption only applies when the sale is forced by a judgment creditor.
- The homestead exemption is a state law and does not protect the homeowner from federal actions which may be sought by the IRS or other federal agencies.
Only your principal residence can qualify for the homeowners’ exemption. If you are receiving the
exemption for a home that no longer qualifies, it is your responsibility to notify your county assessor promptly that your home is no longer eligible for the exemption. If there’s equity in the home it may be wise to file a homestead declaration; especially if you are having serious financial problems.
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Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax, or other professional services. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.